Strategy and Execution
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Doing business is not a piece of cake. For the sustainability and growth of any business it is pertinent for the business to be ever on the lookout for changes in the market. The buzz word in the today’s highly competitive market is dynamism. Being swift and able to adapt are the best ways to retain and expand the business.
Spanning the environment, internally and externally, if done with an intelligent eye would bring to the forefront the loopholes in the current predicament of business. Maybe, the history would be replete with the examples of success due to the pattern followed for conducting business that has become popular all over the world and customers have taken an inclination to it. However, the world is ever evolving. What seemed to be perfect yesterday isn’t anymore. With the focus now turning to the customers’ centricity, even the customers realize that they can make or break an age of old relationships whenever better opportunities surround them.
Keeping all this in mind, businesses today must be able to decide in what needs to be done and how. Having a blueprint of the dos and don’ts in order to meet the new goals and showcasing the direction forward on the face of challenges to achieve the implicit and explicit objectives is termed as a strategy. However, without connecting the implementation with plans leads to no outcomes.
Also, it is important to know when to strategize. It is a perplexing question in the overall. Things might be smooth for any business but maybe the future might turn dismal if the proper steps are not taken to bring a change. Is it rational for the business to adapt to the change only when financial dangers loom large? Ideally, companies need to be always on the lookout for the change.
The change, however, is not as easy to bring about as it seems. People in a strategic position must communicate the rationality of change to all employees.
In this study, we bring about the case of the IBM, and how it has adapted to changes applying newer strategies when the need for them arose. We analyze the effectiveness of the IBM in implementing its strategies in the event of crisis it has faced, and how it effectively has allocated the resources to obtain results once the strategy had been put in place.
IBM: A Tale of the Strategic Change
The International Business Machine (IBM) was at its zenith in the middle of the 1980s boasting 40% sales and 70% profits in its network of the hardware business. The year 1990 saw the IBM’s profit touched the splendid five times that of its nearest rival. However, the complacency had set in and the arrogance had been felt in the culture due to the years of success in the hardware business. John Akers, the then CEO commented on the atmosphere in the company saying that, “Everyone is too comfortable at a time when the business is in crisis”.
However, the markets were moving, and the need of the market was inclining towards software applications and services, while the IBM was still dominating in the network hardware arena. This inaction in adapting to the changing trends outside resulted into a steep decline of the IBM’s stock price in the year 1991. The impact was severe and resulted into a loss of about 1.25 lakh employees from a 4 lakh strong workforce. This job cut resulted after 70 years of avoiding the same. The decline continued further in the year 1993, and in the heat of the moment its CEO John Akers resigned with Lou Gerstner joining six months later. Lou’s appointment was remarked as being marked with a hurricane like dangers looming over the company. The Business Week reported his appointment as being, “the toughest job in Corporate America today.”
It was in this turmoil that Lou Gerstner created a blueprint of the revised strategy that the IBM would have to follow in order to fight back. He took the bird’s eye view of the IBM and came to the conclusion than the costs had been erratic and completely out of line, the customers had not been given much emphasis, and everything had been unstructured to the decentralized approach being pursued relentlessly. Lou also stated that the need was to become leaner and swifter. He felt that the intellectual capital was not what had been lacking in the IBM. According to him it was only the air of complacency and a laziness to implement the new world order that the IBM had been losing out. He very rightly put forth an idea that the IBM was simply losing work to its competitors since it had been inebriated in the past, and, thereby, not giving the customers what they wanted to have. His message to his associates was clear. Either this would be there in the fight back or leave outright.
The first move that Gerstner put forth was that of understanding the needs of the market. He understood the segmentation of the market, being the company’s core customers, and what was their need. It was observed that the network hardware business was not what it had used to be. The markets were more oriented towards the application of technology, the technology based solutions and services. Lou Gerstner was well aware of the mammoth difference between planning and execution. There was no doubt in his mind that in order to build the IBM the focus had to be more enterprise based and there needed to be a disciplined approach for the implementation. It was indeed a tough nut to crack.
Lou Gerstner’s turnaround policy meant an increased focus, a leaner and swifter company, a centralized and structured approach, a proper monitoring over costs, shunning the prevalent red tape in the organization and adopting a team based approach to work and last but not the least customers’ centric approach. With these objectives in mind, Lou Gerstner began with developing the centralizing of the company, developing global processes, covering loopholes in the core businesses, building the new metrics for an employee reward system and driving the culture to focus maximum on the customers. Every meeting began with the expectations of the customers concerning the deliverables. The senior management was given the task of understanding the customers’ needs and thereby increasing the degree of the communication with them. By doing so, it was ensured that everything hovered around the marketplace and the current trends that had enticed the customers.
Lou Gerstner’s determined approach helped the IBM to identify better avenues of growth and drew maximum out of the human resources. The human capital of the IBM was intellectually strong but it failed to be productive enough in the absence of a proper strategy adoption. However, the workforce responded wonderfully well when the message of change had been well communicated by the top management to all spheres of organization. This increased the utilization of the workforce and the better attention to customers helped to put the IBM into a better shape and an increase in the market share in the services’ arena. It became the next big thing in the technology market.
Lou Gerstner was followed by Sam Palmisano as the CEO of the IBM in 2002. He was quick to grasp the wave of transformation that the IBM had taken to. He continued to pursue the on-demand business strategy using the most advanced technology for quickening the pace with which business had been conducted in the IBM. A better flow of information and knowledge meant a better integration of all functions. This, in turn, led to the faster turnaround times and a quick response to the change in the customers’ needs in the market. The newer IBM under Sam Palmisano was selling the computer services rather than computers. The business offered the open architecture, integrated processes, and self-managing systems. This in effect meant a complete focus on customers. From the IBM’s turnaround story it was very evident that the right strategy with a disciplined and inclusive approach during the implementation are the requisite ingredients for a success in adapting to changes.
Reasons for Change at IBM
From the brief background about the IBM given above it is lucid that the IBM first saw the zenith of its existence as the network hardware provided in the mid-1980s. However, it failed to respond to a change in the market which then made it see its downfall in the 1990s. Without analyzing its predicament and failing to work on the loopholes it would have been the history at worst and a sluggish and worn out player at best.
Its intellectual workforce would have faded into the oblivion if the right strategy would not have been adopted. It is understandable that the implementation was far from easy but without the efforts being back on track would not have been possible at all.
Lou Gerstner’s bird eye view during the waning years of the early 1990s when the stock price of the IBM touched a rock bottom helped him to see what had been holding back the IBM. The reasons were clear. There was the complacency and arrogance because of the past glory. The view of all employees was draped with accolades which made them unable see the change that had been taking place on the outside.
The work was unstructured and the files in the drawers were replete with the past formulae of success which did not hold any meaning in the prevalent environment. People did not perceive any threats or changes in policies that were impacting the business. No one could see that business was being eaten by the companies being swifter, more organized and brilliantly focused on their customers.
The network hardware business was no more what it used to be. This was where the IBM was losing out. The newer demand circled around the application of software and service based technology solutions. People were not interested in newer inventions but with the applications that the software could provide them with in order to uplift their own business in the dynamic market environment.
All these reasons called for a newer strategy. A new blueprint of teams, structure, focus, and the customers’ centricity meant putting the hard work to push back. All this could have been possible only if the employees were ready to consider themselves as an intrinsic part of the IBM and its story. Thus, making everyone the intrinsic part of a turnaround story was a vital step.
With a company of the size, complexity and geographic reach as the IBM a top down strategy was simply impractical. Thus, making everyone, from the bottom employees, middle level managers and to the top managers was what could have helped in the successful implementation of this new strategy.
The massive size and scale of the IBM meant making it leaner and a layer of understanding had to be established for delivering the strategy. Otherwise, it would have been a lost story of success to be told during meal times.
The Effectiveness of Strategic Leadership
The times of turmoil call for a stern leader being a visionary, quick to grasp and an excellent communicator. The leader who identifies the right people for the right job can be the agent of change for a failing giant.
Such leadership was seen in Lou Gerstner in 1993 and then in Sam Palmisano. However, the first determined move was made by Lou Gerstner who with the right strategy and a strong enforcement of rule across all verticals slowly and steadily turned around the IBM from the crisis that was ringing its death bell. Lou Gerstner not only understood what was lacking in the IBM’s competence but also was able to grasp the changing market environment and, thus, encouraged a customers’ centric change and a change in products and services offered from the conventional delivery of network hardware products.
Lou Gerstner helped the IBM straighten out its strategic intent which helped setting the overall goal for the organization. This not only helped setting the priorities right but also helped in eliminating objectives which were in reality a negative from growth perspectives. Lou Gerstner was instrumental in obtaining the correct market insight which helped the IBM to become customers’ centric and base services and the software application around customers and their products.
The move from centralization to decentralization ensured that everything was well monitored and accountability too would increase. A proper customer selection helped to focus on the right people for whom the services would be developed. The segmentation of market helped to determine what would click and what would not in the highly dynamic market. It helped to fine tune the value proposition and to create a differentiated service level for customers.
Lou Gerstner’s leadership saw a sea change in the IBM and helped it to sail through the rough weather faced in the early 1990s. It clearly showed that his leadership was effective. He is an epitome of potential and mental strength of a true leader who through his grit and sharpness helped the failing company to come back with the renewed strength.
Following Lou Gerstner to the throne of the CEO in the IBM Sam Palmisano appeared. He was given a legacy of the successful change and a completely transformed organization. However, the sustainability too is not an easy task to achieve. He kept the company alive and relentlessly pursued the era of transformation by focusing on the on demand business of services for customers.
It is very clear that the strategic change needs to have a guidance of an effective leadership. The IBM was lucky to have the leaders who had the courage to plan and implement.
Adapting to Change
It goes without saying that the poor communication leads to misconceptions and a low motivation. The communication has an important role to play during the times of crisis. It is only through the good and effective communication that a strong and motivated workforce may be created. Just simply saying that the change is needed will not suffice. The workforce has to be made to realize the importance of strategy. What will be the impacts, what would be the desired outcomes, how would they be benefitting the individuals, and the overall welfare of the organization? All such factors unless they are explained in the concise manner will only call for a superficial nod from employees when such communication has been made to them.
During the turmoil faced by the IBM in the middle of 1990s when the stock price plunged to the extremely low levels, the top management had to revive the company at all costs. A new CEO designated with his team brought about a blueprint of strategy. The focus had to be made on customers. It was made sure that all across the company everyone had been on the same platform of understanding. Every meeting began with a talk about customers and ended with its needs. The employees from the bottom, middle and top spheres all were communicated time and time again about what the new objectives to be and how and what was needed to achieve them. It was made clear that each of them had the role to play since everything from the product portfolio, to the shape and size, and the focus was now changing. It could not be possible unless everyone contributed equally and with the same passion. It was made sure that teams were given a greater importance.
The resource utilization was high. The human capital was structured into teams that coordinated amongst each other to clarify doubts. There was a complete integration of resources across the board.
The senior management was made as a key to understand the customers’ needs and then based on their own understanding and allowed the information to flow downwards. The integration across all verticals and the use of the technologically advanced software made the flow of information and knowledge smooth and helped in shortening communication gaps.
The core competency developed during such a stage and this was the ability to integrate. Middleware and services were the key to this integration. At the time when people doubted on the IBM’s capability to change gears from a network hardware seller to a services’ and solutions’ provider company, Gerstner commented that, “Services are entirely different. In services, you don’t make a product and sell it. You sell a capability…this is the kind of capability you cannot acquire.”
The IBM is an example which clearly demonstrates the fact business cannot just sit with its legs crossed even when everything seems to flow in favor. Tranquility is not the chair on which the business can sit. It has to be continuously adapting to change in the trends of the market. Waiting for the crisis to arrive and then looking for a Godsend is not how the business should be run.
A strategy may not be always right. If things do seem to fall out of order the culture where one can question the feasibility of an ordinance must be sought after. A place where red tape prevails and people fear questioning to the fear of losing favor in the eyes of a superior one must not be allowed to prevail. For this to happen, it is essential that the leadership is strong and determined on finding the right strategy and the right will power to get it implemented.
The business may be large in scale. It becomes the responsibility of each employee to reduce the adverse impact on the operational business during the early stages of implementation. As it is not an easy task to change to newer rules and surroundings people must be encouraged and, therefore, the leadership should make everything as a collective responsibility. The IBM’s new focus, for example, was to build the strong team spirit. Thus, the rewards and incentives were more modified to make them more team oriented.
In effect, the company needs to continuously review its strategy and renew it according to the markets’ and customers’ needs. It should be good while communicating the intent of change and not only to be busy reviewing strategy but once a new strategy has been devised it must go for a distance to see if it is being implemented.