International Business Machines Essay

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International Business Machines (IBM) products and services have been a foundation  for global business and trade; arguably, without its influence there would be none  of the standardization within the information technology (IT) industry so influential in the economic developments of the 1990s. However, IBM has experienced  significant losses, notably in 1992, and has had  to  overcome  a cultural  and  organizational legacy that, although foundational for its growth, had become  a barrier  to  change.  This historical  legacy runs the entire  length of the global IT industry  and earlier, with its roots in the activity that even its most sophisticated products still retain: counting.

In the 19th century, at a time of heightened immigration  levels in the United  States, the U.S. Census Bureau ran a competition  to find an efficient way to tabulate census data. This was won by Herman  Hollerith, with a punched-card tabulating machine. Hollerith  then  formed  the  Tabulating  Machine  Company (TMC) in 1896. On  June 16, 1911, TMC  was incorporated in the state of New York as the Computing-Tabulating-Recording  Company   (CTR).  In 1914 Thomas J. Watson,  Sr., was recruited  from the National Cash Register Company. As company president,  he expanded  CTR’s operations  globally, leading  to  its  name  change  to  International  Business Machines Corporation on February 14, 1924. During the Depression, Watson  counterintuitively produced new machines  while demand  was low and invested heavily in  research  and  development  (R&D). With this excess inventory, IBM was ready when it won the government  contract  for what was then  the  largest data processing operation  of all time, to maintain  all U.S. employment records.

The relationship with the U.S. government  proved essential for maintaining  IBM’s dominance  in technological innovation.  IBM became  a chief contractor for developing computers  for the U.S. Air Force’s automated   defense  system.  IBM gained  access  to research  being done  at the Massachusetts  Institute of Technology, working on the first real-time,  digital computer.  IBM’s movement toward electronic computers began with the Automatic Sequence Controlled Calculator in 1944. Increased stability of computers along with other technologies developed with the defense industries  during the postwar transition to a civilian economy, combined with the increasing importance   of corporate   accounting  and  accountability in U.S. corporations,  moved computers  into business  applications  such as billing and inventory control, where IBM already had influence through its tabulating devices.

In 1964 IBM introduced the System/360 product line. In a break from usual practices, IBM unbundled the hardware, software, and service components and offered them for sale individually. In the 1980s, with the Personal  Computer  (PC), IBM moved into new markets of homes, small businesses, and schools.

However,   IBM  profits   diminished   during   the global recession  of the early 1990s. Mainframe  revenue declined due to corporate  “downsizing” and the profit margin on microprocessor-based systems was far lower. Louis Gerstner became IBM’s CEO on April 1, 1993, and took drastic actions including exiting the consumer  business,  cutting  thousands  of jobs, and appointing non–computer industry “outsiders” to key executive positions. Gerstner’s successor Sam Palmisano continued  this transformation, divesting IBM of its storage, printer, PC, and laptop businesses. As during the Depression and war era, work done in commercially lean times was foundational for success.

When  corporate  IT expenditures  increased  during the internet  boom  and customers  were looking for integrated business solutions to contend with new challenges, they required advice as much as technology. Services became  the  fastest-growing  segment of the  company.  In July 2002 Palmisano  purchased PricewaterhouseCoopers’s   consulting   business   for $3.5 billion, making IBM the world’s largest consulting firm. Despite the emphasis on services, IBM maintains its leadership position in technological innovation, for example, creating  the Deep Blue computer that defeated world chess champion Garry Kasparov. The same technology has commercial applications in weather forecasting and modeling financial data.

In 2004 IBM announced the sale of its IBM Personal Computing  Division to the Chinese firm Lenovo in a reportedly $1.75 billion deal.

Bibliography:   

  1. David Hart, “Red,  White,  and  ‘Big Blue’: IBM and the Business-Government Interface in the United States, 1956–2000,” Enterprise & Society (v.8/1, 2007);
  2. IBM, “IBM Archives,” www-03.ibm.com/ibm/history (cited March 2009);
  3. IBM IT Governance Approach Business Performance through IT Execution (Vervante, 2008);
  4. Kumar, Rajkumar Venkatesan, Tim Bohling, and Denise Beckmann, “Practice Prize Report—The Power of CLV: Managing Customer Lifetime Value at IBM,” Marketing Science (v.27/4, 2008);
  5. Kevin Maney, The Maverick and His Machine: Thomas Watson, Sr. and the Making of IBM (Wiley, 2004).

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