Monday, June 20, 2011
IBM POST-2 – LESSONS FROM IBM’S 100 YEARS = WHAT THE FUTURE PORTENDS
POST-2 – LESSONS FROM IBM’S 100 YEARS
This year, IBM celebrated its 100 years birth day – world-wide.
In India, the Tata Iron and Steel Company Limited was formed in 1907 at Mumbai and has completed 100 years in 2007.The two Centenarian companies are very illustrous in their own ways.
IBM FINANCIALS :
We have seen IBM’s Financials in the previous Post. IBM has an annual revenue of $99.9 billion and a diluted EPS of $11.52 ( on a par value of 20 cents per share), in the latest calendar year of 2010. It has recorded 8th consecutive year of double-digit EPS growth. Its Gross Profit margin is 46.1 %, with a 7th consecutive year of increase. For 2011, IBM expects an operating EPS of at least $ 13.00 which it has already scaled up to $13.05 after the first quarter results.
Its Net income for 2010 was $14,833 millions, with a net margin of 14.9% - which is an increase of 10.5% over 2009.
Its Total income was $ 99,870 mns ($95,758 mns last year)in 2010.
But, how did it fare in last 100 years?
“In the span of a century, IBM has evolved from a small business that made scales, time clocks and tabulating machines to a globally integrated enterprise with 400,000 employees and a strong vision for the future. The stories that have emerged throughout our(IBM) history are complex tales of big risks, lessons learned and discoveries that have transformed the way we work and live. These 100 iconic moments - these Icons of Progress - demonstrate our faith in science, our pursuit of knowledge and our belief that together we can make the world work better.” –says IBM in its web site and gives 100 icons – consisting of great discoveries, inventions and marvelous efforts by IBM in the last 100 years. A few of these are reproduced below briefly.
IBM had its troubles, very serious ones at that. In 1990s – it ran out of money, and possibly ran out of ideas! Its old businesses like Main Frames were unable to compete with the small, sleek, low cost Personal Computers.
IBM had to take hard decisions, which it did. IBM PC came up and dominated IBM’s minds and IBM’s Business for over a decade. It was good product – but it too was unlikely to remain as the winning product for a long time.
IBM had to look at its skill set, its product portfolio and its resources very seriously – and also look at, what the world needs Today? What were the New Opportunities – that IBM’s skill set can penetrate and leave a big mark?
I.B.M. had excellent customer relationship. Its R&D abilities were fantastic. It had excellent hardware and software capabilities both. It knew diverse technologies and could handle huge amounts of date easily. It could carry them across to distant locations very safely and put them to multiple[le uses. These were great assets – for a FAST FORWARD move.
Main Frames will continue to run large organizations. But, individual Main Frames do not serve organizational needs adequately. So, IBM turned to build and run large systems and projects spanning entire organizations - under varied methodologies like “smarter Planet projects”
The previous Chairman and CEO of IBM from April 1993 to March 2002, Louis V. Gerstner, Jr. took over the reins of IBM when it was struggling hard to stand, from the brink of a near bankruptcy. He wrote in his book titled “who says, Elephants can’t Dance?” all about how IBM struggled hard to transform itself and bounce back to become a Great company once again. This successful ‘fight back’ is unique in Corporate History in many ways.
Gerstner says, keeping IBM together and teaching this huge elephant to dance - was his first strategic decision, and, the most important decision he ever made in his career.
IBM had many technologies and many skills which Businesses needed. But, as organization, it was IBM-focused or, simply, inward focused. Therefore, a lot of effort was needed to persuade it to shift its focus to customers and concentrate on adding value to the customers. This was a huge and painful reengineering.
Gerstner’s efforts were - to turn IBM “into a market-driven rather than internally focused, process-driven enterprise.” But, there were bound to be problems in this organizational change.
IBMers were not looking at customers but at charts, indices etc to know all about customer satisfaction – and these can be hugely wrong. The charts and indices don’t reveal what they hide! But, as Gerstner states: “People do what you inspect, not what you expect.”
Beyond strategy, Gerstner’s other focus was on IBM Culture. Gerstner says - “Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s makeup and success— along with vision, strategy, marketing, financials, and the like… I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.” In short, culture is every thing.
Gerstner was always in favour of keeping IBM as a unified Enterprise and not as individual operating Units – which was the preference of many in IBM at that time. IBM was gigantic and spanned over 170 countries – with deep differences in the working of each unit in each different country. But, yet, Gerstner felt, a unified Enterprise will deliver better value to customer.
He felt that management "presided rather than acted," and the entire company was dangerously preoccupied with itself rather than customers.
The culture change process that Gerstner initiated – still continues and perhaps it can never end. It has to be absolutely Dynamic.
Gerstner took painful decisions like cutting out OS/2, which was a "resounding defeat" despite its technical superiority, and "was draining tens of millions of dollars, absorbing huge chunks of senior management's time, and making a mockery of our image."
Many applications that IBM did develop – did not succeed at Market Place beyond a few years / decades and therefore had to be replaced by newer inventions – as we can see from IBM’s 100 Icons of Progress (On IBM’s web site). Many of these icons are now out of market place. But, many of them were great inventions of their time.
100 years of evolution and learning - evolving from a small business that made scales, time clocks and tabulating machines to a globally integrated enterprise with more than 400,000 employees and a strong vision for the future is a tremendous achievement for IBM.
In 1911, Charles Flint engineered the merger of Hollerith’s Tabulating Machine Company with two other firms—the Computing Scale Company of America, an Ohio manufacturer of meat slicers and scales, and the International Time Recording Company, a maker of industrial clocks. This new conglomerate was named Computing-Tabulating-Recording Company, and it bore the seeds of what would become IBM. Recognizing the need for strong leadership to integrate such disparate organizations, Flint hired Thomas Watson Sr. as a general manager in 1914. Ten years later, with revenues of $11 million or roughly 13 times its original annual sales, 3384 employees and a strong vision for the future, C-T-R changed its name to International Business Machines.
It then never looked back. For all these hundred years – IBM was concentrating on innovating and inventing. It has a huge number of Patents all the time. Some of its icons of progress (out of the 100 on its web site) are mentioned hereunder :
(1)The UPC bar code system in 1973 (2)IBM 1401 Main Frame and the 1403 chain Printer (3)Air-defence system (semi automatic Ground Environment or SAGE) (4) Floppy Disk (5)magnetic stripe technology (6)Use of Excimer laser to remove specific human tissues (by three IBM scientists—Rangaswamy Srinivasan, James Wynne and Samuel Blum) (6)Hard Disk Drive called RAMAC (Random Access Method of Accounting and Control) (7)NSFNET (8)Watson computer with massively parallel analytical capabilities to emulate the human mind’s ability (9)System/360 for the first time allowing models across a product line, and even from other companies, to work with each other (10)scanning tunneling microscope (STM) : The scanning tunneling microscope (STM) which revolutionized our ability to manipulate solid surfaces the size of atoms. Gerd Binnig and Heinrich Rohrer of IBM’s Zurich Research Center were awarded the 1986 Nobel Prize in Physics for discovering the STM.
(11)Automated Test scoring (12)dynamic random access memory (13) Punched Card for Main Frames (14)SABRE- which paved the way for OLTP, or Online Transaction Processing systems.(15)FORTRAN (16)the Blue Gene – a series which revolutionized the economics of supercomputing (17)IBM PC (18)IBM Selectric typewriter (19)IBM 701, a commercial computer (20)IBM 603 first electronic calculator in production
(21)Websphere application server - its team focused on rapid development and deployment of Web applications supporting HTTP, Servlet and Java Server Pages apps and many others (22)high temperature super-conductors – by Georg Bednorz and Alex Müller. In 1987, Bednorz and Müller were awarded the Nobel prize for their discovery. (23)first magnetic tape storage unit, the IBM 726 (24)Silicon Germanium (SiGe) chip technology (25)Fractal Geometry (26)IBM’s DNA Transistor technology of 2009 (27) Smarter Planet – in 2008 – with wide ranging possibilities for improvement of public systems.
IBM is focused on R&D in a Big way all the time. It is therefore bound to be in the forefront of technology always.
As the Elephant continues to Dance – it will be dazzling. There won’t be another sight – to match it. IBM is also under great leaders. Therefore – we will be watching IBM/s progress for the next 100 years – more intensely.
Samuel J. Palmisano, Chairman and CEO of IBM currently says - “In my view, the defining value that IBM has provided over the years has been the way we think. …. how IBMers approach problems, as well as for the types of problems we choose to approach….. a kind of relationship, in addition to the outcomes of that relationship… And… a set of values ….
Most companies aim to satisfy their customers. Some go farther, dedicating themselves to their clients' success. A few define success as bringing to the world innovations that make a lasting difference.”…..
IBM's experience has a lot to teach about what it means to be a truly global company... But underneath all of that, perhaps the most relevant lesson is the need to continually move to the future.
This requires investment... and it requires patience. It takes a kind of institutional patience to invest in R&D, through good times and bad. The payoff, if it ever comes, can take years. And when the markets are focused on quarterly returns, it's easy to mistake patience for inertia.
But when your model is based on innovation, on continual forward movement... you make these investments. This is why we have invested more than $150 billion in R&D over the past 30 years, which has enabled us to receive more than 75,000 U.S. patents.
It also requires risk-taking. Running an innovation model over the long term is not for the faint-hearted. It often compels the enterprise to act when it is not obvious to do so... to place bets that seem risky to those who are focused on short-term gain... and to combat corporate inertia when times are good.
And it means you have to know when to leave behind the sources of your previous success. Because inventing the future is only part of what you need to do. That's the part that attracts the inventor and the entrepreneur. But sustaining an innovation model over the long term — for a decade, much less a century — also means leaving the past... your own past... behind. And that's a lot harder….
If we had not done so, IBM would still be making clocks, typewriters, hard-disk drives — and... believe it or not... cheese slicers!
And... to cite the most notable recent example... we would still be making PCs.
We introduced the IBM PC in 1981 and the very popular Thinkpad in 1992. By any measure, this was the most recognizable brand for us through the 1980s and 1990s. Indeed, it was arguably the only brand that touched individuals... tens of millions of people. For all these reasons, the idea that we would divest the PC business was, for many — pardon the pun — unthinkable.
Yet, we knew that the emerging computing model of a smarter planet would only accelerate the commoditization of the PC industry. And that's not where we wanted to be. Given the continual flow of technological progress, forward motion is the only way for a technology company to stay out of "commodity hell." So we decided our PC business would have a better future in the hands of another company, which turned out to be Lenovo…..
….. A reality as dynamic and complex as this must be approached with humility, and with an intent to serve, rather than to dominate. And we will need management systems that are architected for inclusion, collaboration and transparency.
I, for one, am optimistic that we will succeed. Most importantly, the key precondition for real progress now exists... not just in our labs, but in the world: People want it…..
A period of discontinuity is, for those with courage and vision, a period of opportunity. There will be winners, and there will be losers. Some companies, some industries... and some countries and cities... will shine more brightly than others. And the new leaders who emerge on this global stage will win not by surviving the storm, but by changing the game.
Summing Up :
IBM has been a 100 year winner. Will it be a winner for next 100 years? It promises to be. It is continuously innovating; continuously reaching out to customers; continuously redefining its goals; Continuously outperforming itself.
In the next Post – we will look at another centenarian – from a different Industry..from a different country…India..and compare it with IBM in some ways..
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