IBM is one of the most successful technology and consulting companies in the world. In 2012, its brand name is in second place in international brand equity rankings, just behind Coca Cola. With its 433,362 employees it is operating in 170 countries and able to generate profit of $15.85 billion per year. The company itself has been founded in 1911 trough a merger of three technology companies. In 1924, the company’s name was changed to International Business Machines, abbreviated to IBM. Initially, the company was engaged in tabulating equipment and data management and later on was able built a strong market position in the computer and semiconductor production. The IBM PC, introduced in 1981, was one of the company’s major successes. In the 1990s, however, the enterprise experienced stagnating earnings from its operations and therefore developed a transformation strategy. From 2000 onwards, IBM changed its business model towards technology services and consulting. This shift has enabled IBM to achieve a rise of EPS from $3.32 to $13.44 in 2011. Simultaneously to this strategic shift, IBM has also changed its international structure and moved from a multinational to an integrated enterprise, thereby saving $6 billion.
This paper will analyze the HRM implications of this strategic shift. For this purpose, it will first elaborate on the business model and the strategic focus of the company. Second, it will consider the strategic HRM focus and the general blueprint that IBM has developed for its workforce. Third, it will outline a variety of HRM practices in the fields of knowledge management, compensation and HRM effectiveness.
2. IBM Business Model
2.1 Customer Value Proposition
At the core of its business stands IBM’s desire to help clients to become more innovative, efficient and competitive through the application of business insights and IT solutions (10 K-filing 2011). The company’s regular clientele mainly consists of institutions, both in the commercial as well as in the governmental and educational sector. IBM offers hardware, software and service integrated solutions (KM Worlds, 2011) that support the client to deepen the knowledge about his business through the smart use of information technology. This knowledge enhancement creates value by reducing the operational costs and presenting further revenue opportunities for the client on the one hand, and ensuring superior financial results to IBM’s shareholders on the other hand.
2.2 Key Resources
In general, IBM's key resources consist of intangible assets rather than tangible products, processes or manufacturing capabilities. Its human capital pool and research and development capabilities can be considered as the by far most important of these intangible assets.
Concerning the human capital pool, IBM employs 433,362 high-skilled people, thereby being the world's second largest employer, behind Wal-Mart Stores (2,200,000) and even before McDonald’s (420,000) and Hewlett-Packard (349,000) (Fortune, 2011). IBM's workforce has steadily increased in recent years with growth rates of 6,8% in 2010 and 1,5% in 2011 and the firm invests heavily in the development and compensation of its workforce. Since 2002, it has paid over $100 billion in non-salary benefits to its employees. However, in the following years, crowd sourcing could lead to IBM drastically downsizing its workforce and utilizing subcontractors for the work currently performed within IBM. Its permanent workforce could shrink by more than 75% of its current state as a result of the HR transformation process.
IBM’s second major assets are its R&D capabilities. Alone since the year 2000, IBM has invested $70 billion into research and development and has created 10 global research labs. These major investments paid off in 47,000 patents that IBM could generate within the last 10 years. Roughly 70% of these patents were issued for IBM's software and service. For the major...