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COMPETITIVE DYNAMICS | CHAPTER 11 323

up new channels of distribution through companies like IBM now focuses on solving the world’s most challeng-
Sears and ComputerLand. However, its decision to out- ing high-tech problems, such as better water manage-
source components of the PC to companies like Microsoft ment, lower traffic congestion, and collaborative health
and Intel marked the end of IBM’s monopoly in computing. care solutions. Its most recent campaign, entitled “Smarter
During the 1980s, its market share and profits eroded as the planet,” highlights a few of the company’s accomplish-
PC revolution changed the way consumers viewed and ments to date and explores IBM’s ideas for the future.
bought technology. IBM’s sales dropped from $5 billion in Palmisano explained, “We are looking at huge problems
the early 1980s to $3 billion by 1989. The dip continued into that couldn’t be solved before. We can solve congestion
the early 1990s when IBM felt pressure from Compaq and and pollution. We can make the grids more efficient. And
Dell and attempted to split the company into smaller busi- quite honestly, it creates a big business opportunity.”
ness units to compete. The results were disastrous, and IBM Today, IBM is the largest and most profitable information
posted net losses of $16 billion between 1991 and 1993. technology company in the world, with over $103 billion in
Things turned around when a new CEO, Louis sales and 388,000 employees worldwide. It employs scien-
Gerstner, refocused the company in a new strategic direc- tists, engineers, consultants, and sales professionals in over
tion. Gerstner reconnected the company’s business 170 countries and holds more patents than any other U.S.-
units, shed its commodity products, and focused on high- based technology company. From 2000 to 2008, IBM spent
margin businesses like consulting and middleware soft- over $50 billion on R&D; and approximately 30 percent of its
ware. IBM then introduced the iconic ThinkPad, which annual R&D budget goes toward long-term research.
helped regain lost share. To rebuild its brand image, the
firm consolidated its marketing efforts from 70 advertising Questions
agencies to 1 and created a consistent, universal mes-
1. Few companies have had such a long history of ups
sage. In 1997, IBM’s chess-playing computer system,
and downs as IBM. What were some of the keys to its
Deep Blue, also helped lift IBM’s brand image by defeating
recent success? Can its plans to solve some of the
the world’s reigning chess champion in a historic event
world’s most challenging problems succeed? Why or
that captured the attention of millions.
why not?
At the turn of the 21st century, IBM’s newest CEO,
Samuel Palmisano, led IBM to new levels of success in the 2. Who are IBM’s biggest competitors today, and what
wake of the dot-com bust. He moved the company further risks do they face with their current strategy?
away from hardware by selling its ThinkPad division to
Lenovo and exiting disk drives. In addition, Palmisano em- Sources: Steve Lohr, “IBM Showing That Giants Can Be Nimble,” New York Times, July 18,
2007; Jeffrey M. O’Brien, “IBM’s Grand Plan to Save the Planet,” Fortune, April 21, 2009;
braced global consulting and data analytics by acquiring “IBM Archives,” IBM, www.ibm.com; Louis V. Gerstner Jr., Who Says Elephants Can’t Dance?
close to 100 firms, including PricewaterhouseCoopers. Inside IBM’s Historic Turnaround (New York: Harper Business, 2002).