IBM has established by Herman Hollerth in 1896. It first specialized in punched card data processing equipment, and gradually changed its focus of business operations in response to the development of computer industry and technologies
In the past, IBM mainly dealt with hardware, especially large mainframe computers for large organizations such as governments, military, and other private large corporations. However, the rapid change of business environment forced IBM to change their focus from hardware to software and services.
The change of environment is actually triggered by IBM itself when it decided to outsource its processers to Intel and operating software to Microsoft. The decision destroyed its monopolistic position and later heated up the competition in the computing business not only in personal computing sector, but also in business computing sector. Unbundling of software and hardware and outsourcing to external vendors lead to the development of modular architecture of both system and hardware. It allowed increasing number of players to enter each component segment (e.g., CPU, Application, Graphic card, Mother Board). Competition intensified. Profitability had been decreased.
Until very last moment, IBM was not aware of the silent shift of the market from mainframe to distributed computing, as it still managed to be profitable in its mainframe hardware business for decades after it decided to adopt the open architecture. However, increasing performance of desktop computers gradually destroyed traditional boundary of PC and server. “Down sizing” became the keyword in the market. Price level of the server system consisting of the cluster of small servers has dropped significantly below the level of mainframes. IBM finally faced significant threat by the emergence of distributed computing even in the large customer segment. Hardware was no longer a profitable and comfortable market. IBM had to adopt this change.
At this point, IBM’s technological capabilities were no longer able to differentiate it from others. However, it still had tangible and intangible assets generated by the long-term relationship with its customers. The charismatic leader, Louis Gerstner, realized the importance of software and service, which have to be tailored to each customer. IBM found the way to survive, started to acquire necessary skills such as consulting and to sale unnecessary assets such as hard disk and personal computer division for its strategy to provide “on-demand” computing.
One view is that IBM found technologies as tradable assets that cannot differentiate an organization for a long period of time in computer industry. Instead, IBM found relationship with clients, knowledge about clients, trust of the clients, or other tangible/intangible assets result from continuous long-term relationship can generate considerable advantages in this rapidly changing market. Based on this understanding, IBM successfully transformed its organization from hardware centric to software and service centric, formed alliance of key vendors to provide all-in-one service to customers, and re-positioned it as an coordinator of different modules of a system.
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