Screwing Up IBM

A Story of Transformation & Innovation

When Lou Gerstner left RJR Nabisco to run IBM in the ‘90s, he recognized that simply innovating more PC products was no longer sustainable in a market that was rapidly commoditizing computers. Moving into the solutions space, Lou identified a white space in the market and turned the company’s business model on its head. By shifting the company’s focus to delivering high-margin IT solutions and services, strategically embracing the Internet and restoring the company’s culture, IBM transformed its business. By the early 2000s, IBM began to withdraw from the retail desktop PC market (which was no longer profitable) and sold off its entire PC division to China’s Lenovo in 2005.

IBM made a courageous and risky move to give up its PC division—which accounted for $10 billion in revenue and was the last direct touch-point with its consumers and businesses. AND IT WORKED! IBM’s IT services business alone grew to nearly 50% of the company’s revenues. According to Interbrand rankings, the IBM brand is now valued at $70 billion and its stock price has increased by 78% since 2004, despite the 2007 - 2008 global financial crisis and recession.

Focused on delivering solutions to the end user, IBM adopted a new market message “Solutions for a Small Planet” which later evolved to a “Smarter Planet”. IBM’s commitment to smarter solutions enabled the company to expand into new sectors like water usage and transportation, which will benefit future generations around the world (a good example of expanded value creation).

IBM’s success is not only a result of screwing up the old product business model but also a commitment to continual, company-wide transformation and innovation over time. And it continues today.

In the 21st century, it is no longer sufficient for a company to make a leap by simply swapping out on old business model for a new one. A business and its surrounding environment (economic, social, cultural, political, etc.) must be considered for what it really is—an ever evolving, transforming and innovating living system.

By the way, IBM’s transformational story is not only relevant for leaders of large, iconic corporations. Companies and organizations of all sizes and in all industries have to become expert agents of continual transformation and innovation if they expect to thrive in today’s world. These living, self-transforming and innovating systems that we call enterprises need to be fed by a continuous flow of insights and ideas, from internal and external sources, in order to grow and prosper, and they have to do so in an increasingly complex world.