What was the turnaround that saved a tech company from bankruptcy?

What was the turnaround that saved a tech company from bankruptcy?

Everything was going great in the 80s. IBM dominated the market for large computers, known as mainframes or servers. and long led to the design of personal computers, popular PCs.

But the company over the years Faced with increasing competition In that last section. Hand in hand with the rapid development of technology, small companies emerged that started innovating and offering cheaper and more efficient products.

They soon noticed IBM in the market I couldn’t go on This vigorous competition depends on its heavy corporate structure and the heavy hardware that has brought it to the top.

IBM’s problems began in the early 1990s, and the company collapsed in 1993 Operating losses of about US$8 billion. It was a situation unimaginable to the company’s directors, who decided to resort to a traditional but effective recipe for cutting costs: extensive internal restructuring and layoffs of tens of thousands of employees.

Thus, IBM sought to maintain its leadership in a rapidly changing market, with increasingly aggressive competition and increasingly narrow profit margins in hardware manufacturing.

The CEO who changed IBM’s business model


Just when everything seemed headed for certain bankruptcy, The turning point has arrived For IBM: In April 1993 its board unexpectedly voted to hire Lewis V. Gerstner Jr. As the CEO of the company.

Data about you The disruptive nature of this decision Emergence of a new CEO. Gerstner has no experience in the tech industry, but instead comes from large industries Nabisco Y American Express.

This characteristic of the candidate created objections from some directors, but the majority prevailed in favor of his nomination, and it was even seen as an advantage. Your attitude Freed from the internal prejudices of the tech business It allowed IBM to look at its problems from a freer and bolder perspective.

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Gerstner’s first move was to reject suggestions to break up the company, but decided instead Completely change your business model. He bet on a different future for IBM, one where hardware manufacturing was no longer necessary, but instead focused its efforts. In developing and delivering comprehensive technology solutions Integrated hardware, software and services.

So, instead of selling products, IBM began offering complete solutions, including consulting, systems integration, and outsourcing. This strategy not only created new sources of income It has established long-term relationships with its customers One who is connected to the company beyond the purchase of a particular product.

A pillar of this transformation is the creation of a new division IBM Global Services, which would soon become the company’s largest and most profitable division. Through a very aggressive expansion program funded with strong investments and strategic acquisitions, IBM He established himself as a leader In the field of technical services.

The division leverages IBM’s experience and expertise in hardware to provide complete equipment and service solutions unmatched by competitors.

Another important aspect of the transformation strategy was acquisitions in 1995 Lotus Development Corporation for 3.5 billion US dollars. Lotus is best known for its collaboration software, Lotus Notes, which became an important part of IBM’s software offering. The acquisition allowed IBM to fully enter the enterprise software market, with its focus on services.

The expansion of the software continued with the development middlewareA type of software that connects various applications and systems within an organization. IBM WebSphereLaunched in 1998, it became the leading platform for Internet application integration, further strengthening IBM’s position in the software industry.

Gerstner also emphasized the importance of continuous innovation and investment in research and development (R&D). Under his leadership, IBM continued its dedication to A significant portion of your investment Its research labs have led to significant advances in fields such as artificial intelligence, quantum computing and nanotechnology.

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This commitment to knowledge and innovation is embodied in initiatives such as IBM WatsonAn artificial intelligence system has won fame by defeating human champions on a game show Jeopardy! In 2011. Watson symbolized the future of IBM: a company focused on high-value-added solutions that combined its rich technological heritage with the needs of the future.

IBM’s transformation under Gerstner’s leadership was a resounding success. By the end of his tenure in 2002, IBM had reversed its financial decline, with revenues and profits steadily increasing. The company has completed its transformation from a hardware manufacturer to a comprehensive solutions provider, focusing on services and software.

Another important milestone in the company’s strategy was to divest from less profitable businesses and divest from the production of commodities, particularly in 2005 with Louis V. When Gerstner Jr. retired from the company, it sold its personal computer division to the Lenovo Group in 2005. An unofficial record that was formerly IBM’s savior.

Later still, in July 2019, IBM Completed one of the largest operations in the IT industry: $34 billion paid for open source company Red Hat, positioning the company as a leading hybrid cloud provider and accelerating its high-value business model.

Successes of the past and dangers of the present

This is how IBM survived the most difficult period in its more than 100-year history. But experts say so He did not win the battle In a field that demands constant adaptability like no other.

Until now, the company has managed to reinvent itself and survive Their results are not progressing at the same pace as other large companies of the technological universe. With nearly 390,000 employees, it is one of the largest IT companies in the world. It now faces another challenge similar to the one Gerstner solved at the time: adapting to cloud business and finding its point of difference in artificial intelligence.

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In a recently published study, Michael Cusumano, an expert Massachusetts Institute of Technology (MIT), suggests that if large technology companies like IBM have difficulty adapting to change, it is adaptation. More than adopting new technology.

Companies need it, he says Rethink the nuances of your brand and how you do business. IBM nearly collapsed in the 1990s when mainframe sales plummeted, but it found a way to stay ahead of technology, clinging to momentum in the Internet and open-source software. It evaluated its businesses and had the foresight to leave low-end PCs and servers behind.

Cusumano also analyzes that IBM was early on in the trend toward the cloud. But he started the business late. This is the specific case of public cloud. Amazon Y Microsoft Leading in this spaceIBM is a distant third.

According to UBS investment bank analyst Steve Milunovich, more than 40% of IBM’s revenue comes from products and services. Competing directly with public cloud offerings, At a time when more companies are moving applications into that space.

For the expert, IBM has made mistakes in the field of AI. In 2013 he started a big data analytics business, but His progress was “disappointing”. He pointed out.

In recent years, IBM has fully entered the development of services based on cyber security, mobile services and blockchain, as well as cloud computing and artificial intelligence. But unlike younger rivals, it does so while managing the dissolution of legacy businesses. That’s what researchers are still looking at A hidden danger.


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