Streamlining for Success: How IBM saved itself

In the cutthroat world of corporate, too big can be no good. For IT giant IBM in the 1990s, its monolithic size and bloated structure was all but killing it. Once the American poster child for corporate stardom, Big Blue was on the verge of extinction by the end of 1994. It had lost almost $16bn by failing to keep up with the times, and at one point had just enough cash to sustain it for another 100 days.

When businessman Lou Gerstner was brought in to engineer a rescue, he faced a mammoth – and some thought downright impossible – task. IBM’s monstrous size and lazy corporate culture had made it all but irrelevant in the fast-moving technology sector. Each unit within Big Blue was acting as a separate company – with the different units competing against each other and ultimately bringing down the whole. Gerstner immediately broke this cycle and tied the rewards of the employees to the performance of the entire company, rather than to the unit that they were working for. As a result, there was smoother integration between the units as employees worked towards a common goal. In addition, Gerstner made the employees a partner in the turnaround by issuing stock options which till then was restricted only to a select few. Big Blue responded beautifully to Gerstner’s magic touch, growing by around 40% in 9 years with the majority of the growth coming from the services and consulting division. Investors were also clearly impressed, with the stock price of the company rocketing by 8 times during the same period.

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