Ibm Case Study

Topics: Mainframe computer, Computer, Revenue Pages: 3 (1089 words) Published: May 7, 2013
IBM Case Study
IBM began in 1911 as a computing, tabulating and recording company. Over the next 70 years, the company was run by one family, Tom Watson and his son Watson, Jr. These two men, not only modeled consistency with their longevity of leadership, but also with the corporate culture they built. IBM entered the 1980s as the model US company, a cultural icon often referred to as the best place to work. Over the subsequent 15 year, however, all of that changed. The Personal Computer, or PC, was introduced in 1981. As PCs evolved through networking, their popularity soared. This hurt IBM because it reduced the reliance on mainframes which were half of IBM’s revenues and 70-80% of its profit margin. Mainframe technology was proprietary where client/server technologies were more open and interoperable with other companies’ products. Decentralized computing coupled with decentralized customer purchasing allowed two major threats to sustainability to emerge: imitation and substitution. With the added emergence of the internet, the Worldwide Web, and e-commerce, IBM, in theory, was better positioned than anyone else to capitalize on these revolutions. IBM’s inability to internally cannibalize their mainframe sales and create replacement technologies resulted from managerial overconfidence, resistance to change, and allowed other major players to begin strategically positioning themselves ahead of IBM. IBM first saw signs of trouble in 1984, as sales peaked in 1984. In response, IBM began to shift its leasing oriented business into a sales oriented business. While this appeared to help the balance sheet at the time with $5 million influxes of revenue per sale, it cut long term operating revenue by 90%. Instead of $100,000 monthly lease charges, only $10,000 monthly support fees were generated. This created a profit umbrella which perpetuated much inefficiency in the years to come. The second sign of trouble came in 1988, when IBM realized that...
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