It is hard to watch what many companies are going through today. Automakers, the news media, entertainment industry businesses, banks and other financial institutions–they and others are being seriously challenged by market forces, technology shifts and the changing dynamics of a global economy. Some of them are fighting for their very survival.
At my company we know what that is like. We have been there.
If you go back about a quarter of a century,
IBM
was at the pinnacle of success. Over the previous two decades we had practically invented general-purpose computing for business. We had helped put a man on the moon. Our researchers won Nobel Prizes. Our revenue and market share skyrocketed as customers clamored for our latest products. By 1984 we were the toast of Wall Street.
Less than a decade later, we were toast. In 1993 we posted what at the time was the biggest loss in the history of corporate America, $8 billion. We had missed a number of key technology shifts. Customers who had previously said “no one ever got fired for buying IBM” were abandoning us for faster, more nimble competitors. One major business publication labeled us a dinosaur. Another said our era had passed.
Finding our way back to growth and success was a difficult and painful process. But it illustrates that companies on the brink can turn things around if they do what is necessary. So I would like to share a few lessons we learned from our near-death experience and rebirth.
1. Businesses must be genuinely global. Technological advances and globalization have completely changed the rules about how and where things can and should get done, yet many companies still cling to their old models for operating, duplicating the same functions and organizations in various locations. This leads to layers of complexity, discrepancy and redundancy that produce a significant drag on efficiency and performance.
We were operating on a multinational model, with mini-IBMs in most of the countries we operated in–IBM Japan, IBM Canada, IBM France, IBM Argentina, etc. Many had their own local manufacturing and delivery operations. Each country had its own unique profit-and-loss statements, its own legal and human resources departments, its own information technology and financial systems, and so forth.
Because of our global reach and advances in technology, we were able to move past that and adopt a shared-services model that allowed us to strip away a lot of that cost and complexity while also better using our resources and talent. We adopted standard processes and reporting procedures for all our internal functions and consolidated those activities in key centers.
We also adopted this approach to how we develop, deliver and support our products and services. This allowed us to tap the best talent and resources wherever they resided, be it in Bangalore, Brazil, Bratislava or Boulder, to run our business and serve clients around the world. This model has allowed us to lower our shared-services costs by about 25% over the last five years.
It also ensures that nine out of 10 IBM employees now focus on developing, producing and delivering high-value solutions for our clients rather than servicing the internal workings of IBM. And operating as a global business means that even our teams in small growth markets can tap IBM’s talent pool to deliver value for their clients.
2. Sometimes companies must fully transform their portfolios. Companies in a crisis need to look at their entire portfolios, rationally and candidly, and figure out what they have that customers want today and what customers will want tomorrow. Then get rid of anything that does not fit the resulting model, and invest in the growth opportunities.
In our case, the information technology industry was rapidly becoming commoditized, and we determined that we needed to shift our portfolio to a more balanced mix of high-value offerings. That meant growing our services and software businesses, both through internal investments and through acquisitions. We have acquired more than 200 companies at a cost of $30 billion to help fill out our portfolio of products and services in these strategic growth areas, such as our growing analytics business.
It also meant divesting low-growth, low-margin product lines and technologies like memory chips, technology components, printers, displays and personal computers. This was easier said than done, as those were technologies, products and even whole markets that we had invented and developed.
In a case like this where a company is struggling to survive, it is easy to understand and accept such change intellectually. It is much harder to grasp it culturally, because of the institutional significance these offerings can have.
3. Success comes from leadership, not mere survival. The people running some companies may be inclined, at least initially, to resist the tremendous economic, social and technological forces of change they face. We have seen evidence of this approach–and its devastating results–across the range of industries I mentioned at the outset. But the only thing anyone ever accomplished by standing in the way of progress was to get run over. The path to success lies in understanding the relevant trends, figuring out how your strengths and resources can capitalize on them and staking out a leadership position.
Depending on your industry, the result could be high-efficiency, low-emissions vehicles, developing new models for profitably delivering digital content to your audience or creating new investment instruments that provide both transparency and competitive returns.
For us it meant understanding the growth of the Internet in the mid-1990s and then helping our clients harness it for their businesses, with our eBusiness and On Demand initiatives. We have evolved along with a world where computing technology is now embedded in almost everything–automobiles, cellphones, shipping containers, manufacturing plants, public works, utility systems and more–allowing users to gather and share a tremendous amount of data.
So we are helping our clients capture and analyze all that data and extract meaning from it to make better decisions, reduce costs, improve efficiency and lower environmental impact, an initiative we call “smarter planet.” Overall, the goal is to get to the front first, set the tone and content for the conversation and lead the way for your clients and your industry.
Conclusion
I share these experiences and examples as a reminder that changing times can imperil even the most successful companies. And I also share them to show that troubled companies can find their way back if they are willing to reinvent themselves in ways that will make them viable and relevant in today’s global economy.
But to achieve this, you must accept that complacency is a business killer and banish it from your thinking. You must understand that transformation is a constant and continuous process that can never end. And you must embrace the notion that when faced with tough times your goal must be not merely to survive but to succeed, and success comes through leadership.
Bridget van Kralingen is general manager for IBM North America, where she is responsible for strategy, execution, business results and client satisfaction for the full range of IBM’s business in the United States and Canada.