When Gerstner took control of a beleaguered IBM, he began what would
become a fruitful decade of transformation. IBM, or Big Blue, had until
recently been an industry giant, and in 1990 was the second most
profitable company in the world. Known world-wide for its multiple
products and services, most notably its mainframe servers powering the
data centers of most of the world's largest corporations, organizations
and governments, IBM was such a standard that people often joked that
"no one ever got fired for buying IBM" products. Little did they know
that IBM was in big trouble and the solid ground of dominating market
share and profitability was about to disappear beneath their feet.
Beginning
in 1991 IBM started posting quarterly losses, and by 1993 losses
mounted to over $16 billion. It seemed that IBM's customer base and
market share had disappeared and its product offering were suddenly no
longer relevant in an industry known for rapid change. Gerstner was
brought in to break the company up and sell off its assets and business
units. But rather than put an end to the vast organization, its
resources and its venerable brand, Gerstner saw a unique opportunity
embedded in the challenges confronting IBM.
In brief,
IBM had lost sight of its mission. Although it had core values that
stressed customer service, IBM had grown too large and bureaucratic. Its
central executive committee had lost its sense of leadership and
existed to maintain a status quo. Its main revenue generating product
line, mainframe servers had been dominant and successful for so long,
that IBM had been blinded to the rise of PCs and the emerging dominance
of software, particularly operating systems. By the time IBM recognized
this shift, Intel and Microsoft were already dominant players in the
new segments. Although IBM had profitable elements, they were swamped
by the high overhead and unproductive assets dedicated to the failing
product line.
An interesting diagnosis of this problem
is found in a seminal work by Marco Iansiti and Roy Levien, "Strategy as
Ecology" in the Harvard Business Review (2004). Iansiti and Levien
present the idea of a business ecosystem which looks at the
interdependence of multiple firms within an industry. Ecosystems work
best when there are collaborative value creation networks of productive
niches. A big threat to ecosystem health is the presence of a
dominator, a firm that integrates vertically and horizontally and
becomes solely responsible for most of the value creation and capture
leaving few productive niches for others. While this might seem like a
successful strategy initially, it drives out innovation, collaboration
and the creation of new opportunities.
"During the
heyday of mainframes, IBM dominated the computing ecosystem, providing
most of the products and services its customers needed. The strategy was
effective, allowing IBM to create and extract enormous value for long
periods of time. But it failed when IBM encountered the PC ecosystem,
which was much more open and distributed, supported by effective
keystone strategies put forth by the likes of Microsoft and Apple (and,
yes, even IBM itself), and which reached much higher levels of
innovation and flexibility." (Iansiti & Levien, 2004).
So
how to avoid the dominator trap? An ecosystem is healthy if all of the
many species are healthy, not just if one is. How to replicate this in
a business environment? The answer is found in platforms. Platform
innovation allows for niche creation and productive exchanges of value
within a business ecosystem. Gerstner saw such an opportunity in the
newly emerging Internet, what could become a perfect "e-business"
platform creating and sustaining numerous profitable niches. To seize
this opportunity, Gerstner pivoted IBM's strategy to become "One IBM"
and stress a new "e-business” strategy that was an IT-enabled business
advantage known as "Innovation On Demand."
The implications of this
shift were two fold; first IBM discarded many of its existing
proprietary product offerings and focused on integrating across vendors
using middleware, a software or utility program that serves as an
interconnection between different types of hardware and software from
different vendors. This harnessed IBM's vast technical know-how to help
customers manage their own IT operations and to build and integrate
their own business platforms. The second implication was that IBM began
to widen its customer base by providing its own products to new
customers that before had always viewed IBM as an "all or nothing"
dominator. Now IBM consultants were recommending and demonstrating how
IBM servers could fill a role within the customers stack while still
allowing PCs and operating systems from other providers.
Both of these
opportunities derived from a willingness to adopt a business ecosystem
mindset rather than a dominator mindset and to view the creation of
platforms as a tool to create multiple thriving niches. By the end of
the decade of transfromation, IBM had completely changed its outlook,
strucure, strategy and product offerings. It focused on customers and
provided consulting and system integration expertise to manage the
increased complexity of the customer's stack. It was devoted to
platforms and integrated niches, rather than products and dominator
strategies. IBM seemed poised for another long period of profitability
and growth.
Works Cited
Iansiti and Levien, "Startegy as Ecosystem" Harvard Business Review (2004).
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