Adapt or Die: IBM Lessons on Transforming Your Business

In a recent Forbes, IBM's CEO predicted the following three ways technology will transform the future of business:

1. Data Analytics Will Revolutionize Decision Making - "Many more decisions will be based on predictive elements versus gut instincts," said Ginni Rometty, IBM's CEO. In most businesses, "leaders and managers interpret information through the lens of their subjective perspective and set of experiences." Future's focus will be on analyzing data to make better objective calls. Example cited by Rometty was IBM's use of software analytics with the Memphis Police department in its CRUSH (Criminal Reduction Utilizing Statistical History) initiative. The data found a correlation between rapes and outdoor pay phones. Moving the phone indoor ultimately contributed to a 30% reduction in crime.
2. The Social Network Will Drive Value - "The social network will be the new production line in a company," Rometty predicted. In the future, "your value will not be what you know, but what you share." Employees will be rated by bosses, fellow workers, and customers on the value of information created. The social network will also impact future compensation.
3. Consumer Segments Will Cede To The Individual - "What you will see with rapid data and social sharing is the death of the average and the era of you," Rometty said. Rather than serve the needs of aggregate consumer segments - geographic, age, or income - businesses will target direct individuals.

Before commenting further on the above three ways that technology will transform future business, it is worth re-visiting IBM's own journey to today's company structure and strategies.

During the 1980s and early 1990s, with the explosion of the personal computer and client / server networks, IBM business model was challenged. The buyer for IBM products changed and the company was not structured to respond. By 1993, IBM's net losses reached a record $8 Billion.

In April 1993, Louis Gerstner Jr., an outsider from RJR Nabisco, took over as Chairman and CEO of IBM to begin the journey back to profitability. Some key lessons on the company's transformation from survival to success were shared in 2010 by Bridget van Kralingen, then General Manager of IBM North America:

1. Businesses Must Be Genuinely Global - IBM was operating at the country level in the early 1990s, e.g. IBM Japan, IBM France, etc. Each country had its own unique profit and loss statements, its own legal and human resources, its own information technology, financial systems, etc. With global reach, IBM adopted a shared services model, standard processes, and reporting procedures for all internal functions and consolidated those activities in key centers. The same approach was expanded to the development, delivery and support of services and products. "Nine out of 10 IBM employees now focus on developing, producing and delivering high-value solutions for our clients rather than servicing the internal workings of IBM."
2. Sometimes Companies Must Fully Transform Their Portfolios - In the 1980s and 1990s, information technology was rapidly becoming commoditized. To transform, IBM acquired 200 companies at the cost of $30 Billion and shifted their delivery model to greater focus on services and software. The transition also meant exiting low growth and low margin product lines such as memory chips, technology components, printers, displays, personal computers, and more recently POS systems.
3. Success Comes From Leadership, Not Mere Survival - "The only thing anyone ever accomplished by standing in the way of progress was to get run over." The path to success starts by understanding the important trends, figuring out how your strengths can capitalize on them, and staking out a leadership position. For IBM in the mid 1990s, this meant understanding the growth of the Internet and helping their customers harness it for their businesses. The "Smart Planet" campaign today is only the latest evolution of the same theme.

In the early 1990s, faced with commoditizing hardware, IBM aggressively transitioned to software and services. The three ways that technologies transform future businesses is a continuation of that journey. Data analytics will revolutionize decision making. The social network will drive greater value and consumer segments will cede territory to the individual.

As in the 1980s and 1990s when PCs and Client / Server technology brought computing to the masses, today we are on the verge of a new computer revolution. Data and data analytics will be the engine for new business models. Social media will be the check & balances and the vehicle to grow them. Each individual, if they spend the time understanding the industry trends around them, has the power to disrupt existing business models, even for companies such as IBM. If you need proof, read some of the recent press around Oracle and its challenges with new competitors nipping at their core business.

The good news for IBM is that it has the DNA and the historical experience to embrace change. Key will be leaders such as Sam Palmisano who was instrumental in steering the company through the last technology evolution wave.

In December 2012, a Harvard Business Review blog summarized 5 key steps that under Sam Palmisano transformed IBM from "a good company back into a great one."

1. Craft the strategy and organization to implement the vision.
2. Get rid of the businesses that don't fit and acquire the capabilities that you do need.
3. Make sure the economic model is profitable.
4. Empower the teams that can deliver for the customer but hold them accountable.
5. Take care of succession from within.

Status quo is the enemy to transformation. Change is your greatest friend to identifying new business opportunities to thrive in the future. Create a clear vision, drive execution every day, adjust the product mix, and empower your team members to exceed customer expectations.

In December 1911, the future founder / chairman of IBM, Thomas J. Watson, Senior while still working at the National Cashier Register said as a sales meeting "The trouble with everyone of us is that we don't think enough. Thought has been the father of every advance since time began. 'I didn't think' has cost the world millions of dollars.". He then wrote the letters T-H-I-N-K with a blue crayon on the easel behind him.

Change will disrupt your success formula. To win today and in the future, always THINK and plan for future transformational business models. Leadership and constant technology change require it. Adapt by learning from successful transformational models such as what IBM went through in the last 30 years or simply accept the unpleasant alternative and slowly die.

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