11: Case Study: IBM

IBM had been synonymous with computing for decades, but in the early 1990s the firm had fallen from grace: the company took staggering losses in spite of multiple reengineering efforts, and the firm was on the brink of being broken up and sold off. The author paints Lou Gerstner as a white knight who was hired into the company, who recognized the value of a single firm, but also recognized that the firm could no longer continue operating according to the old ways, and who ultimately transformed the firm into a "leader in the e-business revolution."

(EN: this chapter, like the last, is something of a meandering narrative from which I'll preserve some notes of interest.)

• IBM was completely envisioned, from a hardware supplier to a firm that provided complete solutions to customers, organized to specific customer segments rather than geographic territories, and focusing on "the complete brand" rather than specific pieces of equipment. This change required multiple concurrent reengineering efforts.
• Being structured based on geographic regions meant having redundant organs in each of the divisions, and being focused on hardware rather than total solutions meant having significant gaps in expertise that needed to be filled.
• A significant issue is that the firm, as an equipment provider, was focused on products rather than on the needs of the customer. Helping customers to solve problems and achieve goals requires a significantly different culture than merely maintaining equipment.
• Focusing on the needs of the customer led the firm to recognize that hardware and software were not two separate things, but components in delivering the total value to the customer. Getting one right and neglecting the other achieved no benefit.
• The firm had gone through numerous reorganizations in the distant and recent past as the firm was floundering, damaging morale and making employees skeptical of the value of further changes. The attitude did not begin to turn until reengineering initiatives demonstrated the ability to produce real results.
• Gerstner came from outside the organization, and had experienced IBM's cumbersome and sluggish processes and unresponsiveness to their needs. Not only is poor service a problem unto itself, but it also creates a perception of incompetence if the face of nimble rivals
• The firm created a fairly simple process map for each of its major core processes that place suppliers on one side, customer son the other, and the processes that linked them in-between. Very often, process improvement meant recognizing the value its own suppliers could add, and were better qualified or able to add than badge-carrying employees. Who-does-what does not matter to the customer so long as they get the value they sought to purchase.
• Diagrammed function maps reduced redundancy in the organization by assigning each process to a specific top-level executive, who had authority over it. There were some issues that arose because of conflicting processes, but these could usually be resolved between two executives rather than requiring a committee to be convened.
• Prior to reengineering, corporate strategy was a separate department that reported to the CFO, and as such it had little influence, and was often resisted as coming from outside and being impractical. The reengineering task meant making strategy a part of each line of business, where it was informed, governed, and conducted by the people who had an interest in the outcome, and who were interested in achieving specific goals.
• Some attention is given to compensation and rewards: the degree to which the company succeeded determined the amount of pooled funds provided to each business unit for variable pay increases, then individuals were rewarded based on their contribution to specific and measurable goals. Additional wares programs were put in place, such as the Chairman's Awards, given to teams that demonstrate excellence in customer relations and contribute the most to improving business operations.
• Some examples are given of improvements: purchase-order processing went from one month to one day; contract approval dropped from six months to one; the average contract length shrank from 40 pages to six; procurement expenses dropped from 30% to less than 2%; etc.
• The importance of top-level support was recognized early in the process. Previous management had shuffled people around, made decisions on resourcing based on unfathomable criteria, and expected low-level managers to figure out what to do to succeed. The decision and related support must come from a higher level if it is to be sustained.