Tuesday, July 19, 2011

IBM Rolls On

One of the most remarkable stories in American business, in my opinion, has been the evolution of IBM over its 100 year history.

We're all pretty familiar with the story: started by Tom Watson to sell adding machines, the company was on the forefront of computer technology research. By the late 1960's, IBM was so dominant that the US government brought a monopoly suit against it in an effort to break up the company.

However, as is almost always the case in technology, new and more aggressive rivals sprang up, and IBM slowly began to slide towards what appeared to oblivion. The old way of selling "big iron" to corporate American through an army of men dressed in blue suits began losing badly to more nimble start-ups.

Enter Lou Gerstner. Named as IBM's CEO in 1993, Gerstner brought a whole new mind-set to the company that changed not only the course of IBM but also the way that many other large technology companies operate today.

Gerstner's insight was simple: most CEO's are less interested in technology than they are in simply using technology to deliver products and services.

For example, Gerstner recalled that when he was head of American Express he was really only interested in having customers use his company's service. Technology enabled Amex to deliver a service, but their main product was credit cards, not technology.

Gerstner wrote an excellent book about his time as head of IBM named Who Says Elephants Can't Dance.

I can truthfully say that Gerstner's book is one of the few business books that I have read twice, and think about often in my daily business life.

The idea of looking at one's business from the customer's point-of-view, rather than the other way around, should be central to every company, yet too often the customer is forgotten in strategy discussions.

Here's a quote about Gerstner from Widipedia:

{Gerster} describes his arrival at the company in April 1993, when an active plan was in place to dis-aggregate the company. The prevailing wisdom of the time held that IBM's core mainframe business was headed for obsolescence... Gerstner reversed this plan, realizing from his previous experiences at RJR and American Express that there remained a vital need for a broad-based information technology integrator. His decision to keep the company together was the defining decision of his tenure, as these gave IBM the capabilities to deliver complete IT solutions to customers...

Today a number of companies - including Oracle and Hewlett-Packard - often cite IBM as their role model for how they are trying to structure their companies.

I thought of IBM's history, and how far it is come, when I read the company's most recent earnings release. Big Blue continues to produce strong results:

IBM, which turned 100 last month, delivered better-than-expected quarterly results Monday that showed the old company had a lot of life in it.

The company got a lift from robust sales of new models of mainframes — I.B.M.’s heritage — while its biggest current businesses, software and services, generated healthy growth as well.

The company reported an 8 percent increase in net income, to $3.7 billion. Its operating profits per share rose 18 percent, to $3.09 a share, reflecting fewer shares outstanding because of I.B.M. stock buyback programs. Bolstered by the strong performance, I.B.M. raised its guidance for earnings for the full year, to “at least $13.25 a share” from the previous level of “at least $13.15 a share.”

I.B.M. Beats Analysts’ Forecasts - NYTimes.com