Case Study Analysis: Dynamic
Capabilities at IBM
IBM
has historically been able to transform itself with the dynamic nature of the
technology industry for over 100 years, losing almost $28 billion in revenues
over the past six years, and 20
consecutive quarters of declining revenue, IBM has been underperforming the
broader technology market. Not coincidentally, this drop in revenue began as
soon Rometty was promoted to CEO in 2012, and
the decline has continued until now.
Many critics call for a replacement of Rometty and criticize her
strategic approach, blaming her for IBM’s underperformance. A drastic change Rometty made was terminating
the popular “anytime, anywhere workforce,” which may be a big part of the
reason the tech company has been struggling to face three technology
disruptions at once. IBM has options for
finding a better footing to turn their decline around. Options are
presented with pros and cons for each, and a solution suggests the best course of action for IBM to
generate revenue and satisfy shareholders.
Background
As the data information industry has changed, IBM has been able to transform many times
over more than 100 years successfully. Refocusing
itself to satisfy the changing market needs but often, stubbornly, sticking
with rigid business models for too long before succumbing to the rapidly
changing dynamics of the industry’s technological transformations and subsequent
industry value chain disruptions (Rothaermel, 2019). From
kickstarting the PC revolution in 1981, exiting commoditized businesses,
refocusing to better accommodate demanding sophisticated IT services in 1993,
remixing their portfolio toward services, software, and
integrated solutions to better meet client’s expectations of value (Rothaermel,
2019), IBM has strengthened its positions in business consulting,
service-oriented architecture, information on demand, visualization, open-modular
systems. Additionally, it has integrated
into the fabric of the network economy with a more sensible business model for
the changing global technological landscape in the 21st century
(Slideshare.net, 2011). In spite
of structural headwinds, the lack of incentives for management to drive revenue
growth may have contributed to poor total company revenue growth and stock
performance
The
problem is, after over six years of declining sales, the newer businesses IBM
has been counting on to promote future growth, known internally as their
strategic imperatives, have grown over the past three years, but have not
achieved their promise to generate consistent performance across their
portfolio (Fortune.com, 2018). Despite
their strategic positioning, IBM’s grip on mega opportunities has been sluggish
in the second decade of the 21st century, underperforming the larger market by a wide margin (Rothaermel,
2019). Critics argue that IBM is no
longer a tech company, has lost their vision, and revenues are declining
because there's a big shift in the way
companies are buying tech (Bort, J., 2014). Most point the finger at the unpopular new CEO
of IBM Virginia Rometty, who has abandoned her promises to increase market share
and has been unable to deliver for shareholders (Bort, J., 2014). She was
promoted to CEO in 2012, and in the same year, the
company experienced the lowest stock share
price through the end of 2017 (Ashworth, W., 2018). Many argue that Rometty has been a failure
at delivering for shareholders and does not live up to the high responsibility
that coincides with her big paycheck which they deem unacceptable as she brings
in over $33 million annually and is one of the highest-paid CEOs in the S&P
500 (Ashworth, W., 2018). The critics
agree that removing herself from her role as CEO could be the catalyst IBM needs to deliver on their share price. Rometty stays committed to a new strategic
focus that she believes will benefit the company in the long run.
One
measure Rometty took to counteract the problems, and, in an attempt to foster
innovation through co-location, was to abruptly end their work from home
strategy telling employees to work from a regional office or leave the company
(Rothaermel, 2019). IBM argues that in
fields such as software development and digital marketing, the nature of work
is changing, which requires new ways of working. Defending Rometty’s decision, IBM says, “we
are bringing small, self-directed agile teams in these fields together” (Isidore,
C.,2017). This change has not been well
received, especially since IBM was the
leader in allowing employees to work from home and once bragged about the
savings and increased productivity that has resulted. Hailed as a savvy business strategy, about 40%
of its nearly 400,000 employees worldwide did not have a traditional office,
the company said in 2007, which resulted in increased productivity and cost
savings on office space to the tune of 78 million square feet and almost $2
billion gain (Isidore, C.,2017). Taking
away the “anytime, anywhere workforce,”
also shattered IBM’s previous belief that a distributed workforce enabled
employees to perfect technology solutions for its customers who had similarly
dispersed workforces (Rothaermel, 2019). A company with declining revenues risks
falling into a corkscrew of constant cost
cutting if it fails to grow revenues, which begs the question, was this
decision just a layoff?
There
are a few alternatives for IBM to resolve their performance issues and ramp up
their market share in services, software, and integrated solutions to better
meet client’s expectations of value and create a competitive advantage.
Alternatives
Many believe part of the reason for
IBM underperforming the broader technology market for the last several years,
and competitive disadvantage is the
result of Rometty’s removal of the work from home. Options are
given to either continue with the decision to do away with the work from home
strategy and keep the workforce working together through co-location where they
can collaborate face to face, or bring the work from home, “anytime, anywhere
workforce” back to IBM.
Possible
Option 1
Option
1 proposes to support Virginia Rometty’s decision to do away with work from home
because innovation and collaboration are more effective fact to face. Critics of working remotely say that work-from-home organizations will always struggle
with productivity and effectiveness issues. According to the CEO of American
management services, the key to a successful business is “managing a staff that
has a laser focus on driving results. You can’t kick someone in the fanny when
they’ve lost focus if they’re working from home” (Mosca, L., 2017). The work from home option may be the best option for specific companies and a few
industries and not the best for others.
For IBM, collaboration, innovation, and face to face interaction are essential for developing technology for its customers.
Pros
-Face to face interaction is information rich. Along with developed collaborative relationships, nonverbal feedback, and instantaneous
responses help to gauge and interpret ideas (Goman, C., 2017).
-Innovation takes place in face to face meetings. Innovation is less the product of virtual conferences, and most often, the result of
informal conversation (Goman, C., 2017).
-Promotes team spirit
improves morale and therefore increases
productivity.
Cons
-Employees can be
scrutinized more directly, but there’s no strong correlation with better
results or increased output. In reality, it’s not about geography; it’s about bureaucracy (Workfutures.com,
2017).
-IBM will diminish the quality of its workforce while
its competitors reap the benefits. Many
of the best talents will relocate to
companies with work from home.
-Productivity will suffer. The Harvard Business Review posted a study in
2014, finding that remote workers were more loyal and productive than their
peers at the office. Experts at IBM found that remote workers were
more productive, happier, more engaged, and less stressed with their work
(Workfutures.com, 2017).
-Cost of living. Top Tech hotspots, like New York City and San Francisco, may be missing out on talent
unwilling to relocate to expensive
cities. These companies must explore
creative alternatives to the finite resource of local talent (Mondo.com, 2017).
Possible
Option 2
Completely
changing the culture of IBM and taking a hard edge approach may not have been
the best decision for IBM. The company
went from one end of the spectrum to the other without a period of
transition. Some believe Rometty needs a
way to get rid of a bunch of high-priced workers without calling it a layoff
(Workfutures.com, 2017). Additionally,
the change contradicts the same social tools they make for their customers like
Sametime, Verse, and Connections to successfully utilize the anytime, anywhere
workforce , with the value proposition that people can work together
effectively no matter where they are (Workfutures.com, 2017). It’s a mystery to enforce such a contradictory directive, so what message are
they sending to their customer?
Moreover, to further strengthen the position
against Rometty’s decision, the same conclusion
hasn’t fared so well for other tech companies like Yahoo. They initially stood
by the policy change, but in the years
that followed, they failed at regaining their position as a leading internet
company and sold out (Kasriel, S., & Kasriel, S., 2017). This is an
excellent example of what may lay
ahead for IBM if they don’t rethink the decision. Option 2 proposes to put an end to Rometty’s
co-location decision and return to the work from home anytime, anywhere
workforce.
Pros
-Less time off.
Remote workers take less vacation time and sick days (Mosca, L., 2017).
-Industry culture.
A report by Gallup found 57 percent of employees working in
computer/information systems spent some of their time working remotely especially
in the computer/information systems industry which currently ranks second in
industries using remote work (Mondo.com, 2017).
-Retention. Companies that extend remote work have more growth,
remote employees report higher job satisfaction, and retention rates are higher
(Mondo.com, 2017).
-Overhead costs are
lower. Return on investment (ROI) is higher due to the lower overhead
costs such as HR.
-More diversity.
Often, and especially in areas where the cost
of living is high, making child care expenses out of reach, working moms
working from home is the best possible option for employment.
-Higher productivity and creativity. Many stifling meetings might be hindering
creativity and productivity. A lot of shy personality types may work better alone.
-Access to otherwise inaccessible talent. There may be a large pool of extraordinary
talent that IBM will be losing that for whatever reason, prefer remote
work. Introverts, working mothers,
persons with disabilities, cost of living concerns, or commute time, there are many reasons more people prefer the option.
Cons
–
-Communication takes time. An IBM software trainer says, “It used to be
we’d create a shared understanding by sending documents back and forth. It
takes forever. They could be hundreds of pages long” (Useem, J., 2017).
-Information exchange.
Information richness is often sacrificed
when nonverbal cues aren’t available, making it more difficult to exchange
information with immediate feedback.
Proposed
Solution
My
suggestion for IBM is to find a way to allow a percentage of employees to
continue to work from home, especially highly qualified, valuable employees so
they can continue to retain their good
talent. I also suggest they have a
6-month proving period for new employees to prove their ability to manage their
work without micromanagement. Work from
home should be earned, and it should be an incentive for employees to
do well independently. Additionally,
remote work should be continually evaluated to ensure performance levels are
meeting standards, or the incentive will be lost.
Recommendations
and Conclusion
IBM
could turn around the 6-year revenue losing streak and handle all three
technology disruptions they are currently facing if they make a strategic move
that will have the most significant impact the soonest. Although
replacing Virginia Rometty may be one strategy IBM could easily and immediately
do, it will not solve for the problem. However,
when employees are valuable, talented, and tools are given for better collaboration, then what IBM will immediately
experience is better service and happier customers. Rometty’s reasons for pulling the plug on the
program has to do with the response time it takes to deal with problems
remotely vs. addressing them as a group face to face. Solutions for the cons such as response time,
information exchange, and collaboration can be
easily dealt with using technology for holding meetings and for ensuring
accountability. IBM could stand to
gain much from the benefits of having a well-managed work from home
initiative. They could potentially turn
their numbers around and realize the benefits almost immediately. With benefits like cost savings, access to
otherwise inaccessible talent, higher productivity and creativity, more
diversity, culture, and retention, it becomes clear that the benefits are a no
brainer when the cons can be solved for. I
predict that more industries will implement work from home options as technology makes it possible because the pros
outweigh the cons. Technology has made
working from home not only possible but well managed and can be tailored to the different needs of
organizations for their unique systems.
Companies will have to assess the cost-benefit
of installing the technology, teams, and resources responsible for the
oversight of the remote employees to determine if it is less costly than
providing the infrastructure for large numbers of employees.
References
Ashworth, W. (2018). It's time for
IBM to move on from CEO Ginni Rometty. Retrieved on March 19, 2019 from https://investorplace.com/2018/01/its-time-for-ibm-to-move-on-from-ceo-ginni-rometty/
Bort, J. (2014).
Mark cuban slams IBM: It's 'no longer A
tech company. they have no vision.'.
Fortune.com (2018). IBM stock falls
the most in 4 years after quarterly earnings disappoint. Retrieved on March 17,
2019 from http://fortune.com/2018/10/17/ibm-stock-price-earnings-2018/
company
might be next. Retrieved on March 18, 2019
from https://www.forbes.com/sites/carolkinseygoman/2017/10/12/why-ibm-brought-remote-workers-back-to-the-office-and-why-your-company-might-be-next/
Isidore,
C. (2017). IBM tells employees working at home to
get back to the office. Retrieved on
Kasriel,
S., & Kasriel, S. (2017). IBM’s remote work
reversal is A losing battle against the new
normal. Retrieved from https://www.fastcompany.com/40423083/ibms-remote-work-reversal-is-a-losing-battle-against-the-new-normal
Mondo.com (2017). Why
remote work is the future of IT & tech. Retrieved on March 19, 2019
Mosca, L. (2017).
Working from home: Don't allow it! Retrieved from
Rothäermel, F. T.
(2019). Strategic management (Fourth edition, international student edition
ed.).
New York, NY: McGraw-Hill Education.
Slideshare.net. (2011). IBM's ongoing
transformation journey Retrieved on March 17, 2019
from https://www.slideshare.net/gmattathil/ibms-transformation-journey
Useem, J. (2017). When working from
home doesn’t work. Retrieved from https://www.theatlantic.com/magazine/archive/2017/11/when-working-from-home-doesnt-work/540660/
Workfutures.com. (2017). IBM ends
remote work: But it’s really just another
layoff. Retrieved on March 19, 2019 from https://workfutures.substack.com/p/ibm-ends-remote-work-but-its-really-just-another-layoff
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