Ibm: an Industry Example of a Transition from Product to Service Base

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2 IBM: An industry example of a transition from product to service base 2.1 Brief history of IBM and story of its downward spiral IBM stands for “International Business Machine” and was incorporated in 1924 focusing on delivering ‘products’ in the form of punch tabulated machine until it became the biggest and most successful business PC and mainframe manufacturer in world circa 1980’s. At this time IBM stock price once shot up until USD43 per unit [1]. However by the end of 80’s, the software environment began to change and IBM was left in a lurch as it was unable to react on changes on customer needs and behavior while new and nimble competitors like Apple and Dell began to gain market share. Events took on to a near disastrous…show more content…
However the focus had changed. It is worth to note that in 1992, of the USD64.2billion revenue, hardware consist the bulk of IBM revenue amounting to 52% compared to just 23% for services. Nearly two decades after, in 2009, IBM revenue had rose up to USD95.7billion with hardware consisting only 7%, while services and software had rose up to around 40% each. What is more important that with the rise of revenue, overall profitability also has improved resulting in a very strong year-on-year increase of positive cash flow. In turn company shareholders has benefited from the increased rate of EPS as shown in Figure 1 below [3]. In the letter to shareholders in the company 2009 annual report, current CEO Sam J. Palmisano remains steadfast in committing to service by “amassing truly differentiating technology and skills, and focusing on the needs of enterprise clients” and remaining positive on future business growth that will be spurred by the ‘smart planet’ concept [3]. Figure 1 – IBM EPS and Financials from 2000 to 2009 Source: IBM Annual Report 2009 2.4 Summary: The need for drive towards effective implementation of service IBM had barely escaped the misfortune of being broken up and sold in pieces thanks largely to the leadership, drive and determination of Lou Gerstner. In keeping the company intact, he had preserved the inherent differentiating capability that IBM had at that time, which was as an end-to-end complex technical
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