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Dynamic Capabilities at IBM: Driving Strategy into Action
(White Paper Draft)
J. Bruce Harreld Senior Vice President IBM
Charles A. O’Reilly III Graduate School of Business Stanford University
Michael L. Tushman Harvard Business School Harvard University
August 10, 2006
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2 Abstract In the past 15 years, the IBM Company has undergone a remarkable transformation from a struggling seller of hardware to a successful broad range solutions provider. Underlying this change is a story of foresighted strategy and disciplined execution—of connecting knowing to doing. In strategic terms, the IBM transformation illustrates the ideas behind dynamic capabilities, showing how the
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We then describe how the company’s brush with failure led to the evolution of the IBM Business Leadership Model and how a set of related strategic processes, including deep dives, Emerging Business Opportunities, the Strategic Leadership Forum, and the Corporate Investment Fund, are managed by IBM’s Strategy Group and involve 25,000 executives to help identify and capture opportunities across
Louis V. Gerstner, Who Says Elephants Can’t Dance? Harper Business, 2002; Paul Carroll, Big Blues: The Unmaking of IBM. Reed Business, 1993; Doug Garr, IBM Redux: Gerstner and the Business Turnaround of the Decade, Harper Collins, 1999. 2 M. Tushman, C. O’Reilly, A. Fenelosa, A. Kleinbaum and D. McGrath, “Toward relevance and rigor: Executive education as a lever shaping research and practice” Academy of Management Learning and Education, 2006.
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5 140 geographies with constantly changing competitors and technologies. This process, while hardly perfect, has, in the words of former CEO Gerstner, “helped the elephant to dance.”
Strategy: Why it is so important—and often fails We suspect that every regular reader of the business press has, in one way or another, been steeped in the logic of strategy and competitive advantage. We have all been exposed to the notions of the five forces, core competencies, SWOT, “coopetition,” and a myriad of other frameworks for how leaders can help
There has been a large amount of research into what strategy is, since Michael Porter’s perennial work in the 1980s. Studies done on the execution of strategy have been far less numerous. However, there is one major understanding about the execution of strategy. The execution of strategy is a vital part of success in business. A summary of many myths surrounding various strategic executions will be outlined, along with their subsequent analyses.
Strategy is a set of complicated tactics formulated by the executives of a company directed towards the achievement of company’s goal (Salmela, 2002). It is about all the path ways that a company would follow to reach its ultimate goal. It is a company’s strategy which helps to identify what it does better than the other companies in the industries, which may be different from what it does best. For successful strategy formulation and implementation, a company should know the needs of customers and should have knowledge of its competitors. Through a good strategy a company would identify that opportunity which makes it different from the others (Thompson, 2005).
Because no organization is immune to the constant forces of change, uncertainty and complexity, those forces should be channeled to drive and fuel the competitive landscape. The core values serve as its foundational strategy. “A strategy, at its essence, attempts to capture what the company wants to be and how it plans to get there” (Morris, 2011, p. 206). In order for an organization to cohesively work toward a common objective, a strategic plan must be put into place. The strategy should reflect core values and identify
Strategy formulation has been acknowledged as one of the most crucial factors of ensuring the long-term growth of the business. However, the manner in which strategy is formulated, and most importantly, the nature of the strategy chosen for the company determines its future position in the marketplace (Grant, 2005).
Leaders are conceptual thinkers and must think in the abstract. Decisions made by leaders are non-programmed decisions, which have never been made before, in respect to the direction in which the leader intends to take the organization into the future. The leader is hired by the Board of Directors (BOD) to maximize the wealth of the stockholders whom they represent. The leaders planning horizon is generally three years and beyond, depending on the employment contract signed. The BOD reserves the right to fire the leader at any point in time, during the contract period; they
Look at the whole world, more and more enterprises, some of them in the competition become more and more stronger, and some have failed. Strategy is like the backbone of a company, leading enterprises to the correct direction of development. Commercial field is like a battlefield, every business to choose and create the most suitable for their own set of strategies, and other enterprises to do competition. Losers are always in the wrong. So we can know, strategy is the soul of a company, the value of a company, but also a company's ability reflect.
Today, strategies are vital for businesses, in many cases it helps to achieve a competitive advantage. Increasing competition in most sectors and technological development has led to accelerated changes in the global economy. In order to meet the market needs, strategies encourage and enable the adaptation of companies in a changing environment (Tribe, 2010).
The book “Who Says Elephants Can’t Dance?” (Gerstner, L.V., 2002) is an account of IBM 's historic turnaround told by Louis V. Gerstner, Jr., the chairman and CEO of IBM from April 1993 until March 2002. This book touches on Gerstner’s life before joining IBM, highlighting his years in McKinsey & Company, American Express and RJR Nabisco, but is primarily centered on his IBM experience particularly relating to the turnaround strategies he implemented which took IBM from less than $18 per share in 1993 to $78 per share in 2003 (Reuters, 2014). Gerstner’s tenure in IBM is boasted to be one of most successful corporate turnarounds we have seen in the last few decades. This book is divided into five parts “Grabbing hold “,” strategy”, “Culture”, “Lessons learned “, “observations “.
In 1992, IBM incurred a loss of $5 billion and underwent a CEO change which began a turnaround for them in their revenue. The drive to generate greater profits and maintain its status as a giant in the industry, led to the discovery of the service business through IT solutions. As a result of this, the company obtained $90 billion in revenue in 2006 from its Global Services department (Chesbrough, 2007). However, its main focus has been innovation for decades.
Consumers were no longer content with the technology that IBM offered in computer systems and growing complexities in the workplace brought the demand for real world solutions. IBM’s financial backing enabled Gerstner to market custom based programs and networks to individual businesses and offer a support team to accompany the hardware and software that his company sold. IBM’s deep pockets also provided the capability for research and design that few companies could match. “Under Gerstner, IBM's new strategy was to use processes and culture to regain advantage. Moving from proprietary standards to open standards, for example, was important to IBM's new strategy, and the ramifications for processes and culture were enormous. Using IBM's technological finesse to make solutions for customers in addition to just creating fancy technology was also a key to its new strategy. Customers wanted solutions, he said. They didn't want to know what their equipment ran on (Martha Lagace, 2002)”.
This book is a great example of how a leader must adapt and reinvent a company that must change in the face of disruption. The author talks about how manager must be part of the solution and not just supervisors with a checklist. Gerstner gives great lessons on how to view your company and take failures as opportunities to grow.
Question 1. What competences has IBM had to invest in arising from its transformation from a ‘product-centric’ to a ‘service-centric’ organization?
‘Who says elephants can’t dance?’ the book is an account of IBM’s historic turnaround as told by, the chairman and CEO of IBM, Louis V. Gerstner, Jr. He led IBM from April 1993 until March 2002. He raised IBM from the brink of bankruptcy and mainframe obscurity back to the forefront of the technology.
Strategy can be defined as being different from one’s competitors, finding the race to operate and accomplished it. According to Michael Porter (1996), while becoming better at what you do is desirable, it will not benefit you in the long run because it is something other competitors can also do. Strategies for organizations are originally developed by Michael E. Porter in 1979 by introducing the five forces model. A company can identify the industry profitability and attractiveness by analyzing the five forces of Porter (Johnson et al., 2008). And then a reasonable strategy can be set up in line with the strengths and the weakness of an organization is able to create a plan for a stronger position for the organization within its
A company’s bid to rally an industry ecosystem around a new competitive view is an uncertain gambit. But the right strategic approaches and the availability of modern digital infrastructures improve the odds for success.