ANALYZING MANAGEMENT DECISIONS

IBM Is Both an Outsourcer and a Major Outsource for Others

Few companies are better known for their manufacturing expertise than IBM. Nonetheless, even IBM has to adapt to today's dynamic marketplace. In the area of personal computers, for example, IBM was unable to match the prices or speed of delivery of mail-order firms such as Dell Computer. Dell built machines after receiving orders and then rushed the computers to customers. IBM, in contrast, made machines ahead of time and hoped that the orders would match its inventory.

To compete against firms like Dell, IBM had to custom-make computers for its business customers, but IBM was not particularly suited to do such work. To address this issue IBM entered into a relationship with Lenovo whereby Lenovo became the manufacturer of IBM personal computers and over time replaced IBM in the personal computer market.

IBM's long-range strategy was to move away from hardware toward software development. It acquired PricewaterhouseCoopers to put more emphasis on services rather than hardware. As a result, IBM dominated the IT industry. They offered outsourcing for IT infrastructure, application development, and IT support services. They spent over $6 billion annually on research and development and held the most patents of any U.S. technology company.

While growing this side of their business they outsourced several jobs to India in sales, semiconductor, and finance groups, resulting in the layoff of 4,600 U.S.-based employees in these positions in 2009.

Today IBM continues to face many challenges. While revenues from cloud computing have helped the company, major competitors such as Amazon, Google, and Microsoft have gained ground in this area. The drop in server hardware sales led IBM to sell this part of its business to Lenovo and focus on business acquisitions to capitalize on growth within cloud computing. While generating profit for the company, the switch to acquisitions led to a de-emphasis on innovation.

Despite explicitly stating three strategic areas-clients, innovation, and trust decision-making was driven by a desire to earn more for shareholders. This focus on investment returns, referred to as "Roadmap 2015," led to massive cost-cutting measures that created high costs for the company and led to further employee layoffs.

Nevertheless, the company still finds ways to innovate. IBM Research has defined the future of information technology with more than 3,000 researchers in 12 labs located across 6 continents. IBM inventors received over 5,000 patents in 2017, marking the company's 25th consecutive year of patent leadership.

Discussion Questions

1. What does it say about today's competitive environment when leading companies such as IBM give up competing in an area of their business that they dominated for many years and expand significantly into a related area of business they have only been involved in for a relatively short period?
2. 2. In what ways does this example demonstrate an organization's ability and/or inability to adapt to change?