Reference no: EM133088381

Part A - Case Study

In 1980, IBM executives reviewed current trends and concluded that IBM should continuebuilding itself to support $100 billion in sales by fiscal 1990, which meant that it had to have large new capacity for mainframe computers. IBM's corporate strategy had several keyelements: to grow the business, to be the most profitable firm in the industry, and to compete where it chose. This decision had an enormous adverse impact on IBM's relationswith itscustomers.

Steep DeclineNow the landscape is very different. R&D efforts would be directed at the microcomputer, which was about to burst onto the technological scene bringing a future full of personalcomputers, networks, and computer servers. With competitors such as Hewlett-Packard and Dell entering and competing in the information technology market on equal terms,squandered R&D on building a largermainframe.

In the 1980s, IBM's profit margins suffered a steep decline. Because the company's costsremained level, profits dropped. During this period, IBM became a follower of technological development, more so than in the past. This was a major contradiction in its strategy ofsupplying one-stop shopping for information services to large firms because in the 1960s, IBM had led the information technology industry with a grand innovation - the 360 Series ofcomputers. IBM displayed a surprising naiveté in its partnering strategies, giving Microsoft and Intel extremely profitable portions of the industry while choosing to retain less profitableportions for itself. The decline of profit margins was a result of falling customer interest in mainframe computers.IBM executives seemed to miss this aspect altogether. IBM's enormous R&D effort of the 1970s were directed at building a larger mainframe and shifted its relationshipswith customers and losttouch with their interests and concerns. Its profit margins on mainframes declined precipitously. In the early 1990s, IBM had missed a number of key technology shifts. Customers who hadpreviously said "no one ever got fired for buying IBM" were abandoning IBM for faster, nimbler competitors. Subsequently, IBM hit a new low and was struggling. IBM's stock pricedropped from$43 in 1987 to $13 in the 1990s. The Wall Street analysts, industry experts andpundits had predicted the end of IBM. Many business executives expected that IBM would fold in sevenyears. Almost everyone was of the view that the computer industry was driven by rapid technological change and only a smaller, nimbler firm could adapt quickly and grow while thecompany of IBM's size would struggle as it would be impossible to react quickly enough to meet the changing market conditions. One major business publication labeled IBM a dinosaur. Anothersaid its era had passed.

Using the course reading "Organizational Structures and Design," discuss and explain the best organizational structure Gerstner needs to put in place so that IBM can carry out its plans and achieve its goals.