Ibm: an Industry Example of a Transition from Product to Service Base

Topics: IBM, Samuel J. Palmisano, Computer Pages: 4 (1156 words) Published: March 10, 2012
2IBM: An industry example of a transition from product to service base

2.1Brief history of IBM and story of its downward spiral
IBM stands for “International Business Machine” and was incorporated in 1924 focusing on delivering ‘products’ in the form of punch tabulated machine until it became the biggest and most successful business PC and mainframe manufacturer in world circa 1980’s. At this time IBM stock price once shot up until USD43 per unit [1]. However by the end of 80’s, the software environment began to change and IBM was left in a lurch as it was unable to react on changes on customer needs and behavior while new and nimble competitors like Apple and Dell began to gain market share. Events took on to a near disastrous turn when options of the company being broken up arose by the summer of 1993 when newly appointed CEO Louis V.Gerstner Jr. took the helm of IBM. The share price of IBM at this point has spiraled down to nearly USD11 per share as a result of 3 years consecutive higher net loss in a row since 1990. In short, IBM was in a very bad shape and was on the brink on bankruptcy when the new CEO took over.

2.2The turning point in business model
Louis V. Gestner did not break up IBM; instead he changed the very nature of IBM core business by focusing on 3 key strategies [1]: 1.Keep IBM together
2.Creation of divisions that focus on solutions and open networking 3.Re-engineer the business by changing from proprietary to open standards

2.2.1Keep IBM together
Contradictory to what people at that time thought he would do, Gerstner choose to keep the company intact instead of breaking it up. He did not merely ensured IBM intact but went ahead to ensure that the company really worked together and in tandem. Pre-1992 IBM was a global company that was called a ‘multinational’ or a company that creates smaller versions of itself across countries in order to do business globally. Hence it has many multiple duplications and this was the...
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