BUSI 2133 Organization Theory and Design 11/11 (20S-C-BC)

Assignment 2: Case Analysis

This case analysis is to be done individually. Carefully read and review the case study and write a 1,800-2,000-word case analysis report, In MS Word, double spaced, 12-point font, APA standards, excluding title page or references. Using all the organizational theory and design concepts you learned so far in this course you should analyze the case study by answering the two case questions below while focusing on how the organization changed its structure to achieve its new strategic goals.

Assignment Questions:

Carefully read and review the case study assigned for this term:

Bivins, S. S. (2014). A transformational change at IBM. Paper presented at PMI Global Congress 2014North America, Phoenix, AZ. Newtown Square, PA: Project Management Institute.

Analyzing the case study focusing on how the organization changed its structure to achieve its goals. Make sure that your analysis covers, but not limited to, the following questions:

1. What are the change challenges for IBM? Use concepts learned in Lesson 8.

2. What is your assessment of the change approach that IBM used? Use concepts learned

in Lesson 8.

3. Identify needed changes in organizational structure that were required to support

changes in IBM strategy. Use concepts learned in Lesson 8.

4. Based on what you learned in this course, what are your reflections on IBM's approach to change?

a. illustrate how IBM new organization structure contributes to strategy.

b. Apply the concept of organization life cycle to IBM. Use concepts learned in Lesson 7

c. Apply the concept of Change Management Model in slide 33 in lesson 8

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A transformational change at IBM

CONFERENCE PAPER Change Management

Bivins, Susan S.

How to cite this article:

Bivins, S. S. (2014). A transformational change at IBM. Paper presented at PMI Global Congress 2014North America, Phoenix, AZ. Newtown Square, PA: Project Management Institute.

Introduction

Back in the early 1990s, IBM was in trouble. Its sales force was selling hardware when customers wanted solutions; it was posting losses instead of profits; and, for the first time, lifetime employment was replaced by downsizing initiatives. Some executives realized IBM needed to transition from selling hardware to providing services, but that transition had not yet begun. This paper addresses an organizational change management project implemented in one geographic area in the early 1990s to transform part of IBM from selling hardware to delivering solutions.

Although it happened a while ago, the project still exemplifies the elements of successful transformational change. Despite the passage of time, the people aspects of change remain the same. The project redefined the strategy in one geographic area, turned the strategy into tactics, and incorporated a new opportunity management process that looked a lot like an early form of portfolio management. This paper discusses the organizational approach, processes, and management systems developed to transform the business from selling hardware to delivering customer solutions. It contains no confidential IBM information. The author is now retired from IBM; everything written represents her own views rather than IBM's. This is the true story of a major change initiative in a large company and identifies some common elements needed for successful organizational change.

Recognizing the Need to Change

Let's go back to a time when IBM was struggling. At the time, the IBM field force was organized into geographic trading areas with industry-oriented branch offices. Its customers were supported by local branch office teams that were focused on selling hardware infrastructure to customer IT directors. The customer senior executives, though, were looking for business solutions. IBM found itself in an increasingly commoditized business, with little investment in the high-growth sectors of the technology industry.

The mood in IBM was somber, both in headquarters and in the field. Thousands of employees were given packages to leave. The chairman was stepping down, and the new CEO had not yet arrived. As hard as change is, most people knew we needed to change. We didn't have the benefit of all the research about transformational change, but we knew that IBM needed to move in a new direction. Recognizing this, IBM's sales and marketing goals as stated at the time were:

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Become a technology-based services company;

Improve customer satisfaction;

Grow services revenue by 50% per year;

Realize a composite services ROA of 15%;

Establish IBM as a world-class provider of services by the mid-1990s.

The graphic in Exhibit 2 illustrates the four sources of revenue for IBM compared to the industry in 1990. The four major sources of revenue were, starting at the bottom, services (blue), software (turquoise), maintenance (fuchsia) and hardware (orange)'.

Exhibit 2 - 1990 Business mix and projections

As can be seen, IBM was more reliant on hardware and maintenance revenue compared to the information technology industry as a whole. The industry compound annual growth rates projected by IT analysts for the coming five years for each of the four sources of revenue were,

Services 12%

Software 13%

Hardware 4%

Maintenance 4%

Total industry compound annual revenue growth was projected to be 8%. Thus, for IBM to grow at least as fast as the industry, it would have to shift its business focus from hardware and the related maintenance services toward software and especially toward services.

Developing the Vision and Framework

The IBM Southern California Trading Area was responsible for about 5% of IBM's US business, which was then reported at approximately $25 billion. It comprised 1,000 employees and had yearly revenues of over $1 billion. Two managers in the trading area, spontaneously and without knowledge of one another, looked at the industry data and the new IBM goals and

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prepared separate presentations on how to address IBM's doldrums within the trading area. One was a business unit executive who reported directly to the general manager (GM). The other was the author, then manager of the consulting services and outsourcing unit, a new group formed to address more of what customers really wanted.

The GM was a young, charismatic leader who embraced ideas for positive change. The concepts that the author and the business unit executive presented were astoundingly similar. The GM asked the two of us to collaborate and return with a joint proposal. We went back to the GM in the first quarter of 1992 with a vision and framework representing the "to-be" (Kotter's change vision). Together, we developed a potential scenario for achieving it, and we recommended establishing a task force of top-ranked people with specific areas of knowledge (Kotter's guiding coalition).

The GM called his direct reports together to review the vision, framework, and task force proposal. His enthusiastic endorsement carried the day. Of course, it also helped that their sales-linked executive compensation was depressed, along with IBM's business.

Ranking employees by discipline was standard practice in IBM. The executives were asked to nominate employees ranked in the top 10% for each of the proposed teams. We reviewed the nominees and identified the desired team members. We also identified four outstanding, first- line managers, each of whom would manage multiple teams. The proposed teams were reviewed with line management, and the project was approved. The two of us who had developed the vision and framework were named executive sponsor and task force leader.

We briefed the task force members on the project during the second quarter of 1992. Just as the executives did, they needed to experience a learning and acceptance process. However, because these distinguished achievers recognized the problems we faced in the industry, buy-in was not as difficult to get from them as might be the case with other employees in subsequent stages. That's why one key to success in organizational change management is having the best people working on the issues. In addition to the collective wisdom of our task force members, they were respected by their peers, and having them personally invested and acting as spokespeople later was very helpful (Kotter's communicating the vision and empowering them for broad-based action).

Defining the Transformation

The starting point for the task force was the conceptual design (vision and framework) for the transformation prepared in late 1991 and early 1992 by the executive sponsor and the task force leader and endorsed by the general manager. The task force worked in the following groups:

Client team;

Platform team;

Solution team;

Maintenance Service team;

Opportunity Management team;

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Measurement and Compensation team;

Cross-Team issues.

The groups comprised 100 senior, but non-managerial, people who were ranked in the top 10% in each of their current roles. Four managers were charged with coordination of progress and issues for their respective teams. Each team had a designated lead and was asked to develop for their areas:

Mission, roles, and responsibilities;

Process steps;

Positions;

Functional organization description;

What the functional organization is not;

Primary skills required;

Methodology for determining the actual result;

Recommended specific results. (For example, the solution team needed to identify

which solutions should be fielded during implementation and why.)

During the second half of 1992, the task force, with the help of many others who worked on special teams to address specific issues, developed an organizational approach, processes, and management systems intended to transform the business into one that would:

Deliver customer mission-critical solutions through IBM consulting and systems integration services.

Apply new marketing approaches for our hardware and software platform business.

Make us more responsive and competitive by bringing the right expertise to the right

opportunities.

Position us for sustained profitability and growth.

In January and February of 1993, everyone was transitioned into the new roles and processes. Along the way, there were numerous communications, presentations, and sessions, from large town halls to one-on-one meetings to move everyone from:

I hear;

To, I understand;

To, I accept;

To, I am a part of thisI become.

These are similar to the "never let up" and "stages of acceptance" in all three change frameworks described at the beginning of the paper. At the time, of course, we had never seen those, since they had not yet been developed and published.

Defining How the Transformed Organization Looked and Worked

The transformed business resembled the matrixed organizations of today and included the functional organization and the matrixed (project delivery) organization.

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Functional Organization

The functional organizations in the planned scenario were responsible for skill development, career planning, and career management, providing a critical mass of expertise and delivering resources for projects or opportunity teams. The functions were

Clientown the executive relationships and know the business of key clients;

Solutionsindustry-oriented or cross-industry systems integration, development, and

project management;

Platformse.g., network, mainframe, storage, workstation, operating system (implementation of infrastructure;

Service operationsmaintenance and availability services;

Business supportadministration and accounting.

The Client teams were comparable to today's IBM Global Sales & Distribution, which is organized into specific industry sectors. The Solutions teams were analogous to today's IBM Global Business Services, while the Platform teams were analogous to today's IBM Global Technology Services.

Matrixed (Project) Organization

Projects were resourced by drawing people from the functional teams to create virtual project teams. This resource was allocated and balanced by the group of opportunity (portfolio) managers, based on the initial prioritization of an opportunity. The objective was to move the right people, each of whom was highly skilled in his or her own discipline, to a project that made it through the selection processor to a potential project that required such resources to properly qualify it. The virtual team was expected to produce better results and higher customer satisfaction, because it was made up of specialists who could be brought to bear on a complex customer need. Exhibit 3 shows a schematic of the matrixed organization.

Exhibit 3 - Matrixed organization

Because we knew that people tend to perform to the way they are measured and rewarded, we designed a measurement system and an opportunity management system aligned with the new goals and objectives of the trading area.

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The opportunity (portfolio) management process worked in conjunction with what we called the market/ delivery/support process to ensure that the right opportunities were pursued with the right resources. It was a set of ground rules that allowed deeply skilled teams to function in a matrixed organization. Although the opportunity management process was not yet a full project portfolio management process, it had many of the same elements as today's better PPM practices.

Opportunity (Portfolio) Management Process

The stated purpose of the opportunity management process was to ensure that appropriate resources were allocated to the right opportunities in an efficient and effective manner, resulting in maximized customer satisfaction and profit for the business. To support this purpose, the task force opportunity management team developed a process guide explaining the nine-step process, along with a quick reference card. Examples of the process in action were developed and taught. In addition, information systems were installed by the IT staff to support the process, including a database to manage opportunities and an organizational knowledge repository, similar to today's CRM systems.

Each opportunity was assigned to one of the opportunity managers (one per discipline), to qualify the lead and acquire resources to support it. In effect, the team of opportunity managers determined the portfolio. Opportunities were prioritized by expected financials, customer relationship (including history and growth), perceived competitiveness of the IBM solution (Can we win it?), and impact on market share. The task force team established a process for evaluating progress, terminating underperforming projects, and reassigning ownership and resources. Statistics were tracked and used to improve the process. We emphasized establishing ownership of opportunities early, selecting the right ones to deliver, moving resources to them, and "over-managing" the process in the early months until it could become spontaneous.

Making the Transition

By now, lots of communication had taken place. But making the transition involved detailed planning, down to the individual customer and the individual employee. We knew that the "devil is in the details," meaning that the tactics in any transformational change must be defined at an executable level for the major stakeholdersin this case, employees and customers.

Transition Plan for Each Customer

The current (existing) sales team for each customer was asked to develop a transition plan using a template that: 1) included customer contact information and key relationships, along with current projects or opportunities; 2) provided appropriate details for each one, including the platform or solution team to own it after transition; and 3) gave forecasts and any other specific, relevant information. This information was entered by the current team into the opportunity management system.

The task force client and opportunity management teams defined a customer transition certification process to ensure that the new owner had accepted the opportunity and turnover was completed.

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A scripted presentation was prepared, to be delivered to each customer by the current sales team. It explained what IBM was doing, why we were doing it, and why it would be good for the customer. Written FAQs were also provided, and current sales teams were trained on how to deliver the message. Target schedules were provided and managed to ensure rapid delivery.

Transition Plan for Each Employee

The transition was also defined down to the individual employee level. Complete position descriptions were developed, including:

Mission;

Primary objectives;

Roles and responsibilities;

Whom they serve;

Primary skills;

Who might be candidates;

Relationship to the organization;

What the position is not.

Performance plan outlines and sample performance plans for each position were developed. The performance plan was the annual agreement between an employee and management on what was to be achieved and against which the employee was evaluated and compensated. The task force measurement and compensation team developed new guidelines for performance measurement and compensation that were aligned with the objectives of the trading area.

We also developed a guide for one-on-one conversations between an existing manager and each employee about his/her new role and preferences. Each employee then completed his or her own skills and preferences questionnaire, and the manager did the same for each employee. This information was fed into a trial organizational spreadsheet based on the responses; final decisions on the new position for each employee were then made by the GM's direct reports, as the senior managers of the trading area, assisted by task force leadership.

Updates were provided to employees throughout the six-month task force process. Although the prevailing literature calls for small wins, in our case the calendar year mandated the deadlines for measurement, so it was necessary to be ready for an all-at-once implementation. The "big bang" transition was accomplished in January 1993.

Conclusion

The IBM Southern California Trading Area successfully transformed its business in 1993, based upon the work of the task force. Although there were some pockets of resistance (in one instance a 13-hour meeting with a recalcitrant executive), the planning was thorough (with attention to detail), and the communication was frequent.

Top management had vision and supported us, and reinforced this support throughout the process. A conceptual design for implementation had been developed ahead of time. We had

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the top-ranked people on the task force. We knew the "as-is" and could envision the "to be." We defined the "to be" at a level of detail that could be executed.

Critical Success Factors (Why We Succeeded)

These were critical success factors for us. Each was part of the reason we succeeded in making the change:

A clear and compelling vision made actionable;

Proactive executive support;

Commitment of people;

Clear missions, roles and responsibilities, and skills;

Metrics and rewards modified to support organization goals;

Opportunity (portfolio) management process and system.

How IBM's Business Mix Grew and Changed

During 1994 and 1995, the remainder of the IBM field organization transitioned to a structure and processes that strongly resembled what we did in the trading area, and the IBM business results speak for themselves.

IBM revenue grew from about $64.5 billion in 1992 to $107 billion in 2011. This increase in revenue was accompanied by an increase in the percent of revenue attributed to services (solutions) from 9.38% in 1992 to 41% in 2011, based on IBM annual reports from those years (IBM, 2011). According to the same annual report , pre-tax income grew from $9.6 billion in 2000 to $22.9 billion in 2011 (IBM, 2011). During that time, the percent of total pre-tax income from services and software has grown dramatically, while the percent of pre-tax income from hardware and financing shrank over the same period.

But even the successful transformation described in this paper was reactive, done in response to a shift in market needs that temporarily caught the business flat-footed. As IBM and other entities have since learned, simply responding to shifts in the environment is not enough; we must become adept at anticipating and leading them, whether the opportunity arises at a project, program, or portfolio level, or at the enterprise level.

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References

IBM. (2008). 2008 IBM annual report . Armonk, NY: Author. Retrieved from http://www.ibm.com/annualreport/2008/

IBM. (2011). 2010 annual report. Armonk, NY: Author. Retrieved from http://www.ibm.com/annualreport/2011/IBM . (2008). Making change work. Armonk, NY: Author. Retrieved from http://www-935.ibm.com/services/us/gbs/bus/pdf/gbe03100-usen-03- making-change-work.pdf

Keller, S. & Aiken, C. (2008). The inconvenient truth about change. New York, NY: McKinsey & Company. Retrieved from http://www.mckinsey.com/App_Media/Reports/Financial_Services/The_Inconvenient_Truth_A bout_Change_Management.pdf

Kotter, J. (1995). Leading change: why transformation efforts fail. In Harvard Business Review, March-April 1995, 1-10. Retrieved from http://hbr.org/product/leading-change-why- transformation-efforts-fail-hbr-classic/an/R0701J-PDF-ENG

Kotter J. (n.d.). The 8-step process for leading change. Cambridge, MA: Kotter International. Retrieved from http://www.kotterinternational.com/our-principles/changesteps

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