Business   

The transformation of IBM

Change from a primarily hardware company to one led by software and services

SELLING SOLUTIONS: IBM centre in Bangalore — FILE PHOTO

IT IS difficult to analyse IBM and its corporate strategies without recourse to superlatives. Samuel Palmisano, Chief Executive of the company, stunned the world when he announced in Bangalore on June 5 that IBM proposed to invest $6 billion in India over the next three years. "I am not going to miss the (India) opportunity,'' he added for good measure.

The surprise to IBM watchers was not the new investment as such but its magnitude. It is three times the investment made by the company in the past and more than the combined investments announced by Microsoft, Intel and Cisco.

For years, IBM was a model that embodied U.S. technology and stock market capitalism. It was a tight fisted monolith which held closely on to its technology and believed more in selling products such as computer hardware than software or services. Globally, it believed in operating through branches or wholly owned subsidiaries primarily to safeguard its technology.

In 1977, when it came to the crunch, the company decided to close its operations in India as it was unwilling to associate resident equity. As it then explained, "It was contrary to its globally orchestrated corporate policy.'' This posture did create bad blood with the Indian authorities. However, over the years, with both sides deciding to forget the past a new synergy has emerged.

End of a saga

The structure of the computer industry was changing and IBM was losing its dominance. It might have pioneered the mainframe computers in the post-war years and the personal computers (PCs) in the 1980s and dominated the market. By early 1990s, it was humbled when companies like Intel and Microsoft came out with their chips and operating systems. IBM was making futile attempts to fine-tune its OS/2 to retain market share.

By 1998, losses forced the company to abandon its PC business. In 2002, it sold its PC factories and began to engage in contract manufacturing with companies outside the group. This was a sad departure for a company that had looked upon in-house manufacture of its requirements as an article of faith. IBM's saga of PC business ended when it sold in 2005 the business to Lenovo, a state-owned Chinese company. When Lou Gerstner took over the reins in 1992, many analysts viewed the company as a crumbling empire or a fossil. Departments were fighting with each other rather than with competitors outside. There was inertia and unwillingness to change. In fact, serious proposals were afoot to break up the company into several operating units.

The turnaround

He set the direction and new priorities by promoting IBM Global Services. By a clever twist, IBM's business units for PCs, servers, software and technical services became "back end'' suppliers to solution sellers, who helped customers assemble complete computer systems. Selling "solutions" rather than products was the new thrust and "on demand solutions'' the new slogan.

Re-entry into India

The success of IBM Global Services was hitched to this strategy. When Mr. Gerstner initiated it, there were doubts within the organisation about its success. Surprisingly, it proved to be far-sighted and became a part of the wave of outsourcing now enveloping the globe. Since its establishment, the Global Services division has grown to become the largest part of the group and accounted for $47 billion in revenues against $91 billion for the whole group. It was in 1992 that IBM made its re-entry into India to service the new wing.

Mr. Palmisano took over as Chief Executive in 2002. If Mr. Gerstner made IBM dance, Mr. Palmisano would make it prance. The on-demand concept initiated by his predecessor became a personal crusade for him. He would strive for the transformation of IBM from a primarily hardware company to one led by software and services. "The idea is that customers want bundled "solutions" of software, hardware and services tailored to specific industries rather than a catalog of products.'' (CNET News.com, June 14, 2004). To facilitate fusion of services, he augmented IBM's consulting capability by acquiring PricewaterhouseCoopers in 2002, which added 30,000 consultants to its strength. Early in 2002, within a year of taking over, he said, "We are on the cusp of a dramatic shift in this industry'' and what was required was "cultural transformation.''

High-margin consulting

By 2005, the company had announced a major shake-up in its Global Services division. It was a plan to move toward high-margin business consulting and away from traditional computing services. The strategy was to combine its technology products and research with its business-minded consultants. The claim was that IBM was more suited to do this than any other company.

IBM's entry and expansion in India have been in line with the growth of its Global Services. Though the company re-entered India in 1992, its expansion accelerated only after 2002. By 2004, its staff strength had grown from 9,000 to 23,000 and has since risen to 43,000. This makes IBM the largest multinational employer in India. Its purchase of Daksh (an Indian BPO company) in 2004 for $160 million is a milestone in its history and added 20,000 to its staff.

A unique feature of IBM operations in India is that unlike routine BPO centres, its units provide a mix of services ranging from repetitive BPO to high-end technology and match or mix them to suit business requirements or "solutions."

K. SUBRAMANIAN

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Monetary policy: quarterly reviews help
Budget deficits: cure or curse?
More amendments — more regulations and other provisions
The transformation of IBM

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu