International Business Machines Essay ⋆ Business Essay Examples ⋆ EssayEmpire

International Business Machines (IBM) products and services have been a foundation for global business and trade; arguably, without its influence there would be none of the standardization within the information technology (IT) industry so influential in the economic developments of the 1990s. However, IBM has experienced significant losses, notably in 1992, and has had to overcome a cultural and organizational legacy that, although foundational for its growth, had become a barrier to change. This historical legacy runs the entire length of the global IT industry and earlier, with its roots in the activity that even its most sophisticated products still retain: counting.

In the 19th century, at a time of heightened immigration levels in the United States, the U.S. Census Bureau ran a competition to find an efficient way to tabulate census data. This was won by Herman Hollerith, with a punched-card tabulating machine. Hollerith then formed the Tabulating Machine Company (TMC) in 1896. On June 16, 1911, TMC was incorporated in the state of New York as the Computing-Tabulating-Recording Company (CTR). In 1914 Thomas J. Watson, Sr., was recruited from the National Cash Register Company. As company president, he expanded CTR’s operations globally, leading to its name change to International Business Machines Corporation on February 14, 1924. During the Depression, Watson counterintuitively produced new machines while demand was low and invested heavily in research and development (R&D). With this excess inventory, IBM was ready when it won the government contract for what was then the largest data processing operation of all time, to maintain all U.S. employment records.

The relationship with the U.S. government proved essential for maintaining IBM’s dominance in technological innovation. IBM became a chief contractor for developing computers for the U.S. Air Force’s automated defense system. IBM gained access to research being done at the Massachusetts Institute of Technology, working on the first real-time, digital computer. IBM’s movement toward electronic computers began with the Automatic Sequence Controlled Calculator in 1944. Increased stability of computers along with other technologies developed with the defense industries during the postwar transition to a civilian economy, combined with the increasing importance of corporate accounting and accountability in U.S. corporations, moved computers into business applications such as billing and inventory control, where IBM already had influence through its tabulating devices.

In 1964 IBM introduced the System/360 product line. In a break from usual practices, IBM unbundled the hardware, software, and service components and offered them for sale individually. In the 1980s, with the Personal Computer (PC), IBM moved into new markets of homes, small businesses, and schools.

However, IBM profits diminished during the global recession of the early 1990s. Mainframe revenue declined due to corporate “downsizing” and the profit margin on microprocessor-based systems was far lower. Louis Gerstner became IBM’s CEO on April 1, 1993, and took drastic actions including exiting the consumer business, cutting thousands of jobs, and appointing non–computer industry “outsiders” to key executive positions. Gerstner’s successor Sam Palmisano continued this transformation, divesting IBM of its storage, printer, PC, and laptop businesses. As during the Depression and war era, work done in commercially lean times was foundational for success.

When corporate IT expenditures increased during the internet boom and customers were looking for integrated business solutions to contend with new challenges, they required advice as much as technology. Services became the fastest-growing segment of the company. In July 2002 Palmisano purchased PricewaterhouseCoopers’s consulting business for $3.5 billion, making IBM the world’s largest consulting firm. Despite the emphasis on services, IBM maintains its leadership position in technological innovation, for example, creating the Deep Blue computer that defeated world chess champion Garry Kasparov. The same technology has commercial applications in weather forecasting and modeling financial data.

In 2004 IBM announced the sale of its IBM Personal Computing Division to the Chinese firm Lenovo in a reportedly $1.75 billion deal.

Bibliography:

David Hart, “Red, White, and ‘Big Blue’: IBM and the Business-Government Interface in the United States, 1956–2000,” Enterprise & Society (v.8/1, 2007);
IBM, “IBM Archives,” www-03.ibm.com/ibm/history (cited March 2009);
IBM IT Governance Approach Business Performance through IT Execution (Vervante, 2008);
Kumar, Rajkumar Venkatesan, Tim Bohling, and Denise Beckmann, “Practice Prize Report—The Power of CLV: Managing Customer Lifetime Value at IBM,” Marketing Science (v.27/4, 2008);
Kevin Maney, The Maverick and His Machine: Thomas Watson, Sr. and the Making of IBM (Wiley, 2004).

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