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Decline of the IBM Company

Updated on July 11, 2017
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Jack is currently a volunteer at the Westchester County Archives. Jack has worked at IBM for over 28 years.

Introduction

As a former IBMer of 28 years, it pains me to see a great company such as IBM decline in stature. I have studied the history of IBM and read up on many books written about the company's past history. There is no question that the world of business have changed over the last 40 years. There were some key moments that lead to IBM's decline. This is my humble opinion taking the view as an insider from 1974-2002 and since 2002 till present based on what I've read and from speaking to colleagues that are still working. My observations and suggestions are from the heart.

-February 2016

Background

I am an IBMer and will always consider myself to be an IBMer. I guess you can say I am from the old school of thinking. Working at IBM was the greatest part of my life and I am thankful for the time there and the many friendships. It is not easy for me to write this part. I have to force myself to be objective and not let my emotions cloud my judgement. What I'm describing here is the truth as I see them. You can take it or leave it. My goal is to explain a little of the slice of history that I saw while working there and comment on the changes that came about in recent years. I hope to help IBM find its way.

Recently, I read a book by Charles Koch called "Good Profit." In the book, he described their company practices that lead to their success and it sounded very much like what the Watsons promoted at IBM.

The Watson Legacy

Besides the three beliefs, the Watsons promoted a culture that stress the importance of family and community. The importance of satisfying our customers and providing the excellence of service. That is why they instituted an annual Family day where all the family members were invited for a picnic and some fun. They also celebrated Christmas with some toys for every children under 12 and a visit from Santa Klaus. When my daughter was born, IBM sent us a silver spoon engraved with her name as a welcome gift. It is these small gestures that made being an IBMer special.

As the size of the company grew, they never forgot their roots. "THINK" signs was a common fixture around the office. Major anniversaries were celebrated with a luncheon.

In my own personal experience, one Christmas Eve, on a snowy night, I got into an accident on the way home from a family gathering. It was a fender bender but the car was disabled. I was a few miles away from the Hawthorne Building. I had my whole family with me including my in-laws. It was late at night and no car services were available. I called the IBM security and they drove to my location and pick us up and took us back to the lobby. We waited till dawn until a taxi could be summoned. I was so grateful for their caring support. It is that kind of response that makes IBM a special place. I wrote a thank you note to the Security Supervisor when I got back to the office.

Thomas Watson - Father and Son

IBM vs. Microsoft

The IBM PC is no doubt a revolutionary product. It was invented by IBM working with Microsoft, a small software startup by Bill Gates. It is my contention that IBM's decline can be traced back to it's relationship with Microsoft. I'm not saying it is the only cause but it is one of the key reason for IBM's decline.

I was there when the IBM PS/2 and OS/2 were the talk of the technology sector. This was IBM's foray into the business world with a top of the line PC designed for business use as opposed to the PC for personal use. The new Operating System OS/2 was a joint development between Microsoft and IBM. Internally, we embraced both systems as the way of the future. OS/2 was the first 32 bit architecture with GUI interface and security. It is a much superior product than Microsoft's Windows OS which was also developed by Microsoft in parallel for the home market.

What was not understood and believed by IBM executives at the time was that Microsoft was not dealing with IBM fairly and transparently. In fact, they were undermining IBM at every turn and especially with the application developers. In the public announcements, they were supporting OS/2 but privately, behind the scene, they were sabotaging the success of OS/2 in favor of Windows. This was later the subject of a large law suit between Microsoft and IBM. The suit lasted many years and by 2005, IBM won the suit but by then, the damage was done. OS/2 went under and Windows became the dominant OS for all PCs. What's worst about this story is the fact that Microsoft developers used OS/2 internally to develop the code for Windows. Not many people knew this about Microsoft.

Microsoft did this and many other questionable practices to eliminate their competition. For that, I am not a fan of Bill Gates. He may be the richest man on the planet and he may donate large sums of his fortune to his charitable foundation, however, he and the company he co-founded are ethically challenged.

Direct Quote of Bill Gates

The Selling of IBM Assets

Another reason is the selling of IBM's assets. Starting with the selling of IBM's gallery, a large collection of artwork. I understand that some assets are not important to the core business. However, they are part of the companies history and culture and heritage. Just like a country, a company has its unique signature. Would the US consider selling the Liberty Bell or the Statue of Liberty? of course not. The same goes with IBM buildings. IBM 590 Madison is an iconic building in NYC. Why was it necessary to sell it?

Not only physical assets were sold, but many product lines as well.

  • IBM Printers sold to Lexmark
  • IBM PC sold to Lenovo
  • IBM Servers sold to Lenovo
  • IBM Chip Manufacturing sold to Global Foundries
  • IBM Disk Storage sold to Hitachi
  • IBM Palisades Conference Center sold to HNA
  • IBM announced they are selling the Somers site in Spring of 2017

It is getting to the point of no return. If you don't make anything, what can you sell?

The Purchase of PWC 2002

IBM acquisition of PWC in 2002 was also a turning point for IBM. PWC is a consulting company. It sells consulting services and made it into a business. It is one thing to advice other companies on efficiency but quite another to advice them how to outsource human talent. This idea of bean counting and delivering profits per quarter is short sighted. In my opinion, the purchase of PWC was a bad investment for IBM - a technology company. Time will tell if I am right.

IBM Core Beliefs ...

I've noticed that IBM have changed their three beliefs in recent years. One that has been around for over 50 years.

The following is taken from IBM's website in 2015. I don't know about you but I like the old one better. It is succinct and to the point and set the priority where it belongs-on the individual.

Dedication to every client's success.
IBMers...
are passionate about building strong, long-lasting client relationships. This dedication spurs us to go "above and beyond" on our client's behalf.
are focused on outcomes. We sell products, services and solutions to help our clients succeed, however they measure success.
demonstrate this personal dedication to every client, from the largest corporation and government agency to the smallest organization.
no matter where they work, have a role in client success. It requires the full spectrum of IBM expertise.
Innovation that matters - for our company and for the world.
IBMers...
are forward thinkers. We believe that the application of intelligence, reason and science can improve business, society and the human condition.
love grand challenges, as well as everyday improvements. Whatever the problem or the context, every IBMer seeks ways to tackle it creatively — to be an innovator.
strive to be first — in technology, in business, in responsible policy.
take informed risks and champion new (sometimes unpopular) ideas.
Trust and personal responsibility in all relationships.
IBMers...
actively build relationships with all the constituencies of our business — including clients, partners, communities, investors and fellow IBMers.
build trust by listening, following through and keeping their word.
rely on our colleagues to do the right thing.
preserve trust even when formal relationships end.

What Does IBM Sell? and What is it's good profit?

You have to ask what is IBM's core business today in 2016. Is it hardware, software, services, solutions or consulting? Referring back to the book by Koch, you want to ask what is IBM's good profit? What service or product that IBM provide to its customers that will allow them to beat the competition and earn good profit for its shareholders?

I tried to find some information on this and could not even find a catalog of IBM products. I have read that cloud computing is IBM's focus going forward. Is that the answer?

A Tale Of Two Companies

Apple and IBM. In the 1990s, IBM was on the Fortune top 10 list and Apple Computer was near death on life support. What happened? The answer is the iPod. This one product revolutionized the way we listen to music. It also saved Apple and lead to a slew of successful products such as the Mac Computer, iPad and the iPhone. Today, in 2016, Apple is the largest Company by capitalization in the world. IBM's ranking has dropped to 82.

What caused the reversal of fortune? IBM stopped making innovation and creating products that customers wants. In contrast, Apple took a chance and created a popular product that everyone wants. It is the genius of Steve Jobs willing to take a chance and bet his whole company on the iPod. This was unlike what Thomas Watson Jr. did back in the 1960s when he made a huge bet on the IBM 360 series of computers. The success of System 360 lead to a long run of profits lasting over 30 years. IBM had a similar opportunity with the introduction of the IBM PC in the 1980s. Unfortunately, that was not a success for IBM.

IBM Vs. AAPL Stock Last 10 Years

A Graphic Illustration

Summary

The bottom line is IBM stopped being the success it has been because it lost track of the Basic Beliefs. When a Company stopped valuing their employees (the most precious of resources), they have turned over their unique advantage and became just another regular mediocre company.

IBM did not loose it's innovation advantage. They still have the highest number of patents application and yet they were not able to take advantage of them in this new fast paced business environment. Like Kodak, they failed to recognize the new innovations that would replace their bread and butter. IBM treated the PC as a second class product and did not see the long range potential that it had created.

This is the last chapter of My Life so far. Thanks for reading.

© 2016 Jack Lee

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