A COMPLEXITY CASE STUDY—IBM Consider IBM's experience with complexity when it hired Lou Gerstner as CEO in 1993. IBM's market share and profitability were eroding due to its difficulty in adjusting to the growth of new technology, such as PCs. IBM chose Gerstner, its first CEO from outside the company and outside the computer industry, to right the ship. Why did IBM select Gerstner? The company recognized that, above all, it needed a strategist to determine what customers really wanted and a change agent to transform a complex engineering-oriented culture to a customer-driven culture. In this light, Gerstner's track record as a McKinsey strategy consultant, a turnaround specialist at Nabisco, and a builder of financial-service product lines at American Express was a great fit. Gerstner was, by most accounts, highly successful. He changed IBM's culture to that of an eclectic technology services company. IBM's market value rose from about $29 billion, when he took over in 1993, to $181 billion when he resigned as CEO in March 2002. Gerstner said shortly after joining the company in 1993 that, first and foremost, IBM was losing its way with regard to the customer. And, secondly, the need to integrate of IBM as a company. This was the biggest value it could bring to its customers. If the first point above isn't the definition of complexity, the second point certainly is. IBM had too much and too many of just about everything—data centers, commerce engines, network providers, client desktop configurations, and so on. When Gerstner started at IBM, it had 24 different business units, and they did not share services across the company. Every unit had its full complement of everything—services, purchasing, and manufacturing, to name just a few. But after an internal effort to reduce the complexity, IBM went from 55 data centers down to 12. It had 31 different network providers; now it is has one. IBM had over 100 CIOs; today there is one. On the product lines, for example, IBM had over 100 different desktop configurations; today it has four. The effect on the company was dramatic and can be seen by its performance—for example, at the 2001 shareholders meeting IBM presented the following results: -
IBM had record earnings and revenue. -
IBM made significant investments to strengthen their portfolio: $5.6 billion invested in research and development; another $5.6 billion in capital expenditures, and half a billion dollars on strategic acquisitions. -
The IBM cash position was still strong enough to allow them to buy back $6.7 billion of common stock. -
On the technology front, IBM had the most U.S. patent awards for the eighth straight year. -
IBM had $85 billion in services backlog, which is basically future revenue already under contract. Complexity was an issue at IBM as far back as the 1960's. An IBM employee at the time, Frederick P. Brooks Jr., one of the architects of the IBM 360 mainframe, and author observed, "Complexity is the business we are in, and complexity is what limits us."[2] That is changing at IBM, and with its autonomic computing initiative, so it will for IBM customers who embrace it. |
