IBM ? The Comeback Under Gerstner Coming off the success of the 1970?s and 80?s IBM executives had every right to feel confident in their companies ongoing fortunes. However the realisation that IBM was far from healthy came in the form of a double whammy: demand for mainframes, IBM?s bread and butter at the time was softening due to the rise of the client/server model, while competition from other, low-cost mainframe vendors was eroding margins. IBM?s initial reaction to the looming crisis was to scale back its costs in a draconian fashion, but the task proved daunting due to, among other things, the extreme complexity that characterised IBM?s operations with regards to both product offerings and company structure. However a key milestone in IBM?s transformation occurred with the hiring of Louis Gerstner as CEO.
Gerstner saw that IBM was a company in dire need of simplification.
In the years before Gerstner?s arrival, IBM had become deeply bureaucratic, inefficient, slow to market, complacent, greedy & non-market oriented; problems that required major organisational surgery.
Their first major mistake was the reluctance to listen to, and observe its customers who were becoming burdened by IBM?s focus on its expensive mainframe computers. Customers were being bombarded by alternatives in the fast growing lower priced mini computer and PC markets. It seemed that customers did not see value in paying up to $88,000 more for an IBM mainframe which it was espoused provided the additional features of ?serious network and systems management, around the clock availability, efficient mass storage and genuine data security. Perhaps customer had found alternative ways to achieve the same criteria above at a lower cost, or perhaps the mainframe was more than customers needed and the rise of the PC and minicomputer ignited latent needs for...