International Business Machines Corp. (IBM) rose to prominence throughout the second half of the twentieth century, as it was a market leader in the so-called computer revolution. As the computer revolution sored IBM came to control the computer market; its name became associated with quality, excellence and integrity. Starting in the late 1980s, however, the company began to lose its luster. What was once perhaps the most successful and profitable company in the world’s computer market suddenly started to saw its profit margins decrease, and to make matters worse, the company became more bureaucratic and less efficient/productive. The company fell into financial crisis during the second half of the 1980s; in the early 1990s things worsened and the company suffered never before seen losses. By this time, it was clear that the company needed revitalization; the company needed to head in a new direction and the board of directors decided that it was time to bring an outsider on board. The new management saw that the company’s core priorities for survival had to be downsizing and customer service. Downsizing was a problem for many reasons; it was a desperate measure that would inevitably affect thousands of people across the United States. Employees, families, and the company itself needed for jobs to be saved, and telecommuting appeared to be the company employees’ savior. Telecommuting paid off, but it came with a whole new set of problems of its own. Fixing these new problems, and making sure that past problems never occur again, is what IBM is set on achieving.
First and foremost, it becomes clear that IBM brought financial distress on itself by losing sight of two management principles: keeping costs down and keeping productivity/efficiency up. After years of continued success, growth, and development, the company lost its competitive edge. The company indulged in increased costs (both operational and otherwise) and made matters worse. 400,000 employees worldwide started becoming less and less efficient, as processes became more bureaucratic and the red tape started making it increasingly hard for the company to function, as it had done so in the past. During his tenure at the helm of IBM, former CEO John Akers let go more than 100,000 employees; the logic behind such a move was to diminish costs, enhance efficiency and the customer service experience.
The strategy of John Aker
Over years, Akers downsized IBM from over 405,000 to around 300,000 employees worldwide, attempted to focus IBM more on needs of its customers, reorganized the company twice, cut IBM’s product development cycle time in half, and replaced most of the IBM product line with quite competitive hardware (Pearson Education, 2004, p. 164).
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Clearly, John Aker’s strategy aimed at going away with losses and strengthening the company in all areas, so that it could rapidly reclaim its place at the top of the computer market. His efforts, unfortunately, did not pay off; he decided to step down as CEO of IBM in 1993. After Aker’s departure, the board decided to bring in an outsider; they chose Louis Gerstner a seasoned manager with experience in the financial and banking sectors, as well as the food sector. The idea behind this choice was bringing someone with new ideas, someone that could innovate and help the company device a new strategy that would enable it to overcome old hindrances and rise once again to the top. This was unequivocally a decent decision, as Mr. Gerstner immediately realized that it was necessary to continue downsizing, but not just for the sake of cutting down costs, but rather for the sake of offering a better service (a more personalized service) to customers. In his first year at the helm of IBM Gerstner planned to bring the total number of IBM employees down to 225,000; he explained his intentions by stating the following: “I start with the premise that our customers are looking for us to deliver solutions to their problems. So we’ve got to get back to delivering superior solutions to our customers” (Pearson Education, 2004, p. 164). This too was a decent angle that the new CEO was trying to push. IBM had always been associated with quality of service and innovation. Therefore, in order for the company to overcome its problems, it was necessary to innovate, and not just externally, but also internally. This is exactly what the company did.
The General Manager IBM – Michael Wiley
In 1992, Michael Wiley became the General Manager for IBM in the state of Indiana. In 1992, during his first year as GM, Wiley had to downsize his workforce by 30%, and it seemed that in 1993 the same would have to occur (as the company suffered its worst financial results ever in 1992) (Pearson Education, 2004, p. 164). Fortunately for employees in the state of Indiana, and for IBM as a whole, this was not the case. Operations Manager in Indiana, John Frank, and one day walked into one of IBM’s facilities in Evansville, and soon came to realize that the company could cut down costs by simply restructuring operations and processes of diminishing real estate costs. This was undoubtedly an excellent, well-thought out idea. Not only did such a strategy guarantee larger savings (in terms of costs), but also allowed for the efficiency to be enhanced and quality service to be secured. On this point, it is necessary to remember that IBM always managed to differentiate itself from competitors by offering higher quality service and innovation, something that only skilled and specialized labor could provide. If the company were to let go its employees, it would surely be severely hindered in terms of its growth possibilities. Lesser employees would signify lesser customer visits and lesser potential customer visits, as well. It is necessary on this point to consider that it was a desperate time for the company, one in which the fundamental priority was to keep customers happy, and increase the number of customers (while at the same time diminishing costs).
Telecommuting, having considered the situation that the company was in by the time that Gerstner, Wiley and Frank came into the picture was dire. Costs had to go down and efficiency had to go up, if the company was to survive. Surely, the plan that Frank and Wiley came up with in Indiana was attractive, as it made possible to cut down costs significantly without sacrificing its precious man power. it was a sound strategy. Telecommuting was a novelty for IBM, and in fairness, it was something that at the time was not too frequent to see. However, it was an alternative that held promise. Management recognized this and so Wiley’s and Frank’s proposal to cut down real estate costs by focusing on telecommuting was approved. Now, this decision was not all decent; telecommuting, despite being a strategy that promised to help the company overcome its difficult situation, presented a whole new array of problems. In discussing problems associated with telecommuting, it is crucial to distinguish between two main types of problems: employee resistance and technological support shortcomings.
Concept of telecommuting
Firstly, it is necessary to annotate that historically, markets have conditioned employees. Paradigms about the importance and necessity of physical office space, having to drive to work, having a secretary, etc., have grown in minds of employees in all levels. Because of this, introducing a new and innovative concept such as telecommuting, which is working from home in a remote system equipped with the required computer software (Hartman, Stoner & Arora, 1992, p. 1), was bound to face severe resistance. Fortunately, in IBM, many employees took telecommuting well, and for the most part, they welcomed the opportunity to save time and efforts by working from home. However, and much likely, it was expected to happen, managers were not keen on accepting this new work dynamic, at least not initially. Growing accustomed to an office environment with a certain set of privileges can spoil managers, and this is what Wiley found with a significant portion of managers in Indiana. However, his decision to approach them and make them realize that telecommuting was not an arbitrary decision, but rather something that was required for IBM to stay afloat and for them to keep the best option available to him. As well, it was positive that he decided to make them realize that managers had to be at the front line, engaging customers and bringing in more and more business to IBM.
Not only did they have a problem with prestige, but they had a problem with what to do all day if they did not have an office to come to. They had to ask the question: “What marketable skills do I really have?” If they had none, then they had to go get a skill that brings some value to customers or there would be no reason for them to be here (Pearson Education, 2004, p. 167).
Here again it becomes clear that telecommuting was the best possible choice for the company at the time, and not only because it brought costs down and promised to bring employee output up (via increased efficiency), but also because it allowed the company to screen its workforce and recognized what employees were truly company assets and which ones were simply part of a bureaucratic bulk that contributed nothing to the company’s plan to overcome its financial distress.
Thus far, it becomes clear that telecommuting was the best option. Not just for the company, but for the vast majority of employees, as well. This owes to the fact that the most welcomed opportunity of being able to spend more time at home, with their spouses and children. However, they also complained about problems in terms of shortcomings associated with the technological support put in place. Even though telecommuting decreased costs immensely in terms of real estate and overall operations and administrative expenditures, it was challenging for employees to be able to communicate fluidly and efficiently with colleagues and other departments. Several remote work stations were not properly equipped; there were problems with phones, printers, and information software; “one of the lessons learned from the previous feedback was that success of telecommuting is heavily influenced by the supporting technology that is available” (Pearson Education, 2004, p. 169).
It appears that given that the change from traditional in-office processes to telecommuting was not quite well implemented; many mistakes were made initially with all that had to do with system configurations and logistics involved with the entire process. This was undoubtedly, due to the fact that the entire process was rushed (it was all done in 90 days when initial estimates had placed the transition at 9 months for it to be completed effectively) (Pearson Education, 2004, p. 166). Unfortunately, there was no time for properly preparing the transition, making test trials, collect feedback and make improvements, etc. Improvements had to be made on the way, and it was a solid year before the system got on the right track and most of the technological support related problems were resolved. Lots of efforts were put into making the transition as amicable and seamless as possible for employees, but only when the right software was installed in workstations, when phone problems were resolved, and when laser printers were installed that Indiana’s telecommuting team finally started to yield results that far exceeded initial expectations.
After one year of applying telecommuting, another change was sought by Wiley and his team: mobility. Desktops were replaced by laptops (each containing the same software and tools as the remote workstations possessed), dial up connections were procured for all employees, and many employees received pagers in order to enhance communications even further. With mobility employees were not limited to their homes for working; they could go on trips and work while on the road, which allowed for more expedient communications and increased efficiency (as it was possible to work faster and have all the required information on the spot while meeting customers). Of course, it would have been the best to invest in mobility from the beginning, but on this point, it is vital to annotate that IBM was in no shape to incur in costs associated with mobility. Therefore, the transition had to be delayed for one year, and the decision was extremely sound, as savings exceeded three million dollars in that year (Pearson Education, 2004, p. 169). Furthermore, it was expected that starting from the second year the company would be saving four million dollars a year just in the state of Indiana. The best thing of it all was that it was possible to economize immensely without having to sacrifice the specialized labor that IBM depended on to overcome its financial problems.
After having reviewed the IBM’s case between the late 1980s and the early 1990s, as well as decisions made by Michael Wiley to bring costs down in the state of Indiana, it is clear that the strategy of shifting to telecommuting and later on to mobility was quite well executed (considering the desperate situation that the company was in, the technology available, and the time and resources that the company could allow itself to spare at that particular junction). There is no question that, in order for the company to survive, costs had to go down and efficiency had to go up (just as it was mentioned at the beginning), but Wiley and his team were quick to recognize that, if they cut down costs by downsizing, the company was also losing efficiency. IBM always differentiated itself from competitors through innovation and excellent customer service. And these two differentiating factors could only continue to be trademarks of IBM, if there was a team of skilled, experienced employees. The company went from having more than 400,000 employees in the mid-1980s to just fewer than 300,000 by the start of the 1990s. There is no question that it was necessary to downsize, because over years, the company had developed a chronic problem of bureaucratic positions that hindered the company’s finances and its efficiency.
Notwithstanding this fact, once the inefficient elements had been removed, it was necessary to commit skilled employees that were making a difference in the company. This is what John Akers failed to recognize. In his way, more job cuts would have ensued throughout the 1990s and quite probably the company would have gone bankrupt and disappeared altogether. Fortunately, Indiana’s experience persuaded top directives to emulate the model of telecommuting and subsequent mobility in other states across the country. Indiana’s success not only proved that the company could still salvage its image and finances, but also that the strategy was the best one, from a financial and administrative point of view.