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Salud, Matthew

IBM Rebuilding with a New Leader

In 1993 John Akers resigned as CEO and Louis Gerstner took over at IBM. Gerstner was brought into a company that was struggling in a rapidly changing industry. After contemplating the company’s issues, he concluded that to fix the problems they needed to improve the value that the customers were getting. To address this issue he decided to integrate all thirteen divisions that were created by Akers.

His goal was to distribute computers that would satisfy the customer’s need for the having a computer. Gerstner was also dissatisfied with the innovation and decision making processes because it was too slow. To speed up these processes he made the decision to fire many senior executives and hired in new ones to replace them. Gerstner continued to make the company leaner, by firing employees in divisions that he believed would not contribute to the company’s vision for success in the future. To speed up the decision making process, he also designed a new headquarter, which allowed various management positions to communicate better by placing their desks closer to each other.  Akers had different management positions on different floors, which made it hard for each of them to frequently communicate. Gerstner was also effective in the board room. To make business meetings more efficient he required his employees to come more prepared. Employees that attended his meetings have to bring documents containing summaries about any suggestions or findings.

            Gerstner realized that mainframes were becoming less attractive, and demanded that the employees increase the computer’s scalability. He understood that he had to alter the business to change with the customers needs. The result of this change was positive. Not only did IBM have a low costs in mainframe computing, but they also had a cost advantage over competitors.

            Gerstner began concentrating on the company's strengths, since IBM was successful in making microchips, he wanted to sell chips to other computer manufactures. His goal was to make money on custom build microchips, and at the same time learn how to customize chips for various industries. Another one of his strategies to improve to company was successful, reporting high revenues from the custom chips. 

            Gerstner also understood the weaknesses of the company, knowing that they were weak in software design. To compete with competitors in this area, he bought companies that had attractive network software. The purchasing of companies specializing in network software turned out be beneficial

because it positioned the company to compete with Microsoft’s software.

            In 1995, Gerstner began to mimic the strategy used by Jack Welsh, a former CEO of GE. Welsh’s strategy was to attract business to buy their complicated product at a cheap price. The company would make money on the high prices that were charged to upkeep the product. Since the product is very complicated, they were the only ones that were able to maintain and fix the product. Gerstner altered and renamed their previous service division, to become what is now known as Global Services, which was successful in the 1990s in many corporate deals.

Hill, Chales W. L.. "Case 22: The Rebirth of IBM." Strategic Management. Seventh Edition ed. 
    Boston: Houghton Mifflin Company, 2007. C373-C388. Print.

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