Wednesday, March 27, 2013

Elementary, my Dear Watson!

Over Seven years have Passed since IBM Decided to get into growth markets with a Missionary Zeal. Has Big Blue’s Strategic Planning with respect to these Markets been Vindicated?

For IBM Chairman, CEO & President Samuel J. Palmisano, his best career advice ever was to never view a career as a linear progression, and to thrive in uncertainty (as quoted to Fortune in 2008). Perhaps that’s one reason why he is so eager to restructure IBM’s business every now and then, navigate a new direction, redefine where future revenues are going to come from and spend billions towards inorganic growth as well as R&D. Coincidentally (or maybe not), even his paycheck in 2010 is away from the ordinary at $31.7 million, a growth of 30% yoy. His non-stock compensation almost doubled over the previous year to reach $9 million. Sam’s commitment to uncertainty and taking up unstructured situations seems to just about define the character at IBM in the current era. His lieutenant Mike Daniels, head of IBM’s global services division and a likely successor to Sam, is a case in point. In an interaction with Financial Times on March 11, he challenged HP, saying that the company could not hope to match IBM’s integrated strategy because of its (HP’s) division oriented focus. Between the lines, it means that any strategy by HP would not work. The interesting part is that he said that before Léo Apotheker, HP’s new CEO, was going to announce his strategy for the company!

When we think IBM, we think product and service innovation in myriad ways (in 2009, IBM won 4,914 patents, making it the world leader for 17 consecutive years). But while Big Blue looks confident enough to throw down the gauntlet at any opposition, it’s biggest future challenge is one that could befuddle even Watson (its much acclaimed supercomputer). The challenge, which it took up way back in 2003, was to go where the growth is, which meant that they had to look at all those markets that were traditionally underserved, but hold future potential; especially now, in the context of the recession hit and maturing developed world. One of the first steps was to consolidate its back office operations all over the world with shared services, which cut costs by around $6.2 billion between 2005 and 2010. Besides, its executives are on a consistent exploration spree; seeking opportunities to expand to relatively virgin markets across Asia Pacific excluding Japan (APeJ), Middle East, Eastern Europe, Africa & Latin America. A separate division called the growth markets division was set up. In 2000, IBM had operations in 42 countries other than North America, Western Europe and Japan with 95 branches. This had increased to 53 growth markets, with 218 branches by 2010, and the company expects to take it to 78 countries and 451 branches by 2015. India has 12 branches currently (3 in 2000) and IBM expects to increase it to 49 by 2015, while the China figure should grow from 28 to 70 in the same period. But is IBM’s early surge, much before Lehman put the Third World at the very centre of global economy and business, really helping? How is Big Blue actually adapting its business model to these companies? 


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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