Case Study Essay

1478 Words Apr 30th, 2014 6 Pages
MGMT 201
Case Study Assignment

Turnaround at IBM – page 124-125

Lou Gerstner was entrusted by IBM to take a faltering business and turn it into the multi-billion dollar corporation that it is today. In the early 1990’s, IBM sales were declining at a rate, which would undoubtedly force the company into bankruptcy. This trend was largely caused by IBM’s lack of diversification and primary focus on building and selling computer systems with an emphasis on mainframes. As new corporations began to flood the market with cheaper versions of IBM’s computers, the Board of Trustees recognized the need to alter their strategic plan to ensure IBM would remain in the forefront of the computer industry (Allen, Attner, & Plunkett, 2013, p.
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Consumers were no longer content with the technology that IBM offered in computer systems and growing complexities in the workplace brought the demand for real world solutions. IBM’s financial backing enabled Gerstner to market custom based programs and networks to individual businesses and offer a support team to accompany the hardware and software that his company sold. IBM’s deep pockets also provided the capability for research and design that few companies could match. “Under Gerstner, IBM's new strategy was to use processes and culture to regain advantage. Moving from proprietary standards to open standards, for example, was important to IBM's new strategy, and the ramifications for processes and culture were enormous. Using IBM's technological finesse to make solutions for customers in addition to just creating fancy technology was also a key to its new strategy. Customers wanted solutions, he said. They didn't want to know what their equipment ran on (Martha Lagace, 2002)”.
The second strategy that Gerstner employed was a retrenchment strategy. As more and more companies flooded the market with computer systems, IBM’s overall profit margin diminished. More commonly, consumers flocked to lower-priced systems over the technologically advanced, higher priced IMB versions that were once commonplace. Gerstner understood that the future of the company was dependent upon the success of sustainable services such as programming and

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