Monitoring Change Introduction - Business Environment

Few companies have been so universally admired as International Business Machines(IBM) nick named ‘Big Blue’ after the color of its packaging. For most of the second half of the twentieth century it completely dominated the world computer industry, becoming market leader in mainframe computers and the widely accepted industry standard in its field of technology. Investing huge sums in research and development,IBM had grown into the largest high-tech company in America and Europe and one of the biggest in Japan, and had served as a model for other global firms. Its reputation for protecting the interests of its stakeholders including its employees, who had been offered lifetime employment and opportunities for education and training was legendary and had helped to enhance its reputation not only in business circles, but also in the wider community, where it had been an important sponsor of sporting and cultural events.In its quest for excellence, IBM had traditionally been a customer-driven organization with a marketing and sales orientation in every part of the company and this had been a critical factor in its success. With a worldwide workforce of over 400 000 in the mid-1980s, IBM achieved operating profits of more than $10 billion. Buoyed by a booming world economy and a seemingly in exorable demand for its products, including its personal computers, IBM recorded the largest earnings in its history and this boosted its share price to record levels. At the time, senior executives confidently predicted that by 1990 sales would reach $100 billion and would stand at $185 billion by 1994 figures which few inside or outside the industry dared challenge given the company’s performance and apparently invincible position.In the event these predictions proved woefully inaccurate. Pre-tax losses in 1992 amounted to $9 billion (about £5.84 billion) the biggest loss in American corporate history and this followed a net loss the previous year of almost $3 billion, the first lossin the company’s history, on sales that had fallen for the first time since 1946. By mid-January 1993, IBM’s stock market value stood at only $27 billion and its shares were worth less than a third of their peak price in 1987. On the employment side, the company proposed a 25 000 cut in the workforce in 1993, and this came on top of the 40 000 jobs axed the previous year, which had reduced the number of employees to 300 000 and which had involved the company in huge restructuring costs that had helped to plunge it into the red. The announcement by John Akers, the company chairman, that IBM might have to a bandon two of its most cherished principles no compulsory redundancies and no dividend cuts only served to emphasize the depth to which the organisation had descended in such a relatively short time.
What went wrong? The answer in simple terms is that IBM failed to pay sufficient heed to the technological and commercial trends in the business environment in which it was operating. Improvements in ‘chip’ technology had given rise to the development of ever more powerful and flexible personal computers and IBM’s decision to enter this market helped to legitimize the product. Unfortunately for the company, it also opened the doors to a multitude of new competitors who made use of the same off-the-shelf technology to build machines to the same standards and capable of running the same software, but at a fraction of the prices charged by IBM. At first this did little to affectIBM’s mainframe business and the company continued to keep faith with its ‘cashcow’. But as technological improvements occurred, mainframes came increasingly to be challenged by a new variety of extra-powerful desktop machines called ‘workstations’ which could be linked together in ‘networks’ and could be designed to customer specifications at highly competitive prices.

The twin threats of technological change and vigorous competition seem to have been largely ignored at first by IBM’s senior executives, whose minds seemed set on the belief that success in the industry was related to selling large pieces of hardware to corporate customers. Rapidly changing market conditions, however, brought about by technological advances and the aggressive behaviour of the cheap clone-makers, and further exacerbated by a world recession, caused the company to reconsider its position and to institute a series of organisational and other changes designed to overcome its difficulties. While these changes which at the time included the replacement of senior executives, a restructuring of the organisation, a reduction in the workforce and a shift of resources from mainframes to the growth segments of the computer market were largely welcomed by investors, they clearly illustrate the problems which can be faced by businesses which take a reactive rather than a proactive approach to changes in the business environment and which fail to ask critical questions about markets and competitors until a crisis occurs.


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