Ibm Challenge to America Case Analysis

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IBM Case Analysis

“What happened to IBM, the symbol of American supremacy?” -Challenge to America video, 1993

Problem Statement

IBM needs to grow revenue and stay competitive in the dynamically changing computer marketplace of the 1990’s by maintaining technological leadership and accepting the organizational transformation which needs to be undertaken for them to excel. IBM needs to recapture their previously held powerful position in the personal computer and microprocessor markets and regain value in the company which will increase its stock value and competitive advantage in the marketplace.

Problem Analysis

In 1993 IBM reported a $5.6bn loss for the fourth quarter of 1992 ending a yearly deficit of $4.97bn; which at the time was the biggest annual loss in American corporate history. The fiscal loss could be explained in part to the ongoing aftermath of the severe 1990-91 recession that adversely affected the entire computer industry, but clearly IBM was no longer the colossal success it had been throughout most of its history. Primary to its listless growth was a fundamental change in the environment of the computer industry, which was the persistently accelerating rate of technological breakthrough in the world of data processing and IBM’s slow response to this change. IBM’s personal computing business technological environment was changing rapidly as the underlying shift in the computer field was from mainframe computing dominance toward personal computing. IBM’s mainstay business of mainframe computing became less important to customers who were selecting new compact personal computers with powerful microprocessors capable of million of operations per second which could be applied to a significantly broadened range of tasks.

The external environment for IBM was unstable due to rapid and frequent changes in technology. In the personal computer business IBM had become an outsider in a domain which they once controlled. New competitors emerged producing innovative, cheaper and better marketed personal computers. IBM’s lack of an acceptable solution to this garnered them over a fifty percent market share loss within a decade. Given these changes, IBM faced a vastly more complex marketplace both in terms of niches and in the number of its competitors globally.

Environmental complexity was high at IBM because the organization was one of the biggest in the industry and highly bureaucratic. Organizational initiatives failed to produce the desired outcomes while others were ‘crashed’ by corporate hierarchy prior to implementation. The personal computer division which was once its own autonomous business line separate from the hierarchal parent company was brought into the main organizational structure without accounting for differences in how business was conducted there. Top management was disconnected from customers and their value chain.

Having a complex and unstable environment resulted in a high level of uncertainty for the company which resulted in various negative consequences. Irritated shareholders refused to invest into company stock leading to depressed price levels. Massive layoffs ensued with 42,900 jobs lost in 1992 and another 25,000 slated for termination in 1993. All of the above lead to decreased morale only exacerbated with top talent leaving the firm. A wide consensus of observers agreed that IBM's enormous size was a drawback in the swift markets of the 1990’s.

Root Causes

* IBM’s prior dominance in the personal computer market stifled by inclusion into hierarchical organization structure of parent company

* High rate of environmental change from competitor’s offerings and pricing strategies lead to appalling market share loss in relative short time frame

* Unable to meet customer demand even with solid technology offerings

* Personnel turnover and loss of new innovation and technologies which competitors capitalized on

* Loss of...
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