Why do large established companies, like IBM, find it difficult to build successful and sustainable new businesses?
Large companies like IBM find it difficult to build successful new businesses since they become skeptical concerning the idea of building and defining their strategic goals together with boundaries. This is because they make it an assumption that their strategies are already known and explicitly defined. The companies also have got the tendency of delegating goal and boundary definitions to the various newly established business units without considering a strong corporate context (Anthony et al, 2008, pp 45-47). The process at times leads to multiple directions and risks which ultimately undermine corporate goals within the company.
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Additionally, companies find it difficult to innovate due to several reasons such as financial woes, appropriate application of technical principles as well as the use of power which gives the ability to influence and direct either individual or group behaviors. Difficulties arise when it comes to the level where employees are required to embrace change, the efforts and price required for change maintenance always seem higher to be attained. Inclusive is the use of authority and gender and their contribution towards administering and exercising power over change (Grant, 1991, pp 114-350).
Large companies have the tendency of defining their boundaries under tight conditions which makes them at times to extend into their innovator’s dilemma; this makes them lose the principles underlined for new growth business which could ultimately lead to empowering transformation within the company’s new businesses. In many instances, companies realize that the methods they use for resource allocation do not match their intended strategies. There is the problem of appropriate allocation of resources towards innovation; this is what purely determines the kind of strategies used (Anthony et al, 2008, pp 45-47)
Evaluation of IBM’s approach to leading mature, high growth, and emerging business
IBM underwent deep structural problems that exposed the company to terrible financial losses. The return on sales, assets, and equity declined tremendously in the mid-1980s, the main frame based thought blinded the company’s innovative abilities making the company terribly fail within the middle market (Applegate and Austin, 2008, p 8). Wars were experienced amongst the autonomous divisions, high fixed costs were experienced within the company as well as quality issues. This is where customers returned most of the goods sold to them which ultimately made warranty costs to hit record levels (Applegate and Austin, 2008, p 14).
IBM through the newly appointed CEO took the initiative of making the company employees realize the importance of treating customers as kings. The company laid down strategies on managing and sourcing customers from far including recruitment of analysts and experts concerned with various industry sections.
This would assist in integrating and providing company solutions alongside company senior executives who were required to pull droves of customers towards the company by applying the principle of “bear-hug”, where they were responsible and accountable for every customer assigned to them. Each executive was required to draft recommendations the company required for solving problems and pursuing opportunities. The other key principle which the company applied was retaining key employees (Applegate and Austin, 2008, pp 6-27).
The company at some point was able to outsource PC manufacturing giving the marketing and development team able to move forward with common and shared goals. This contributed towards cost-cutting IT expenses; the other approach used by IBM was reducing the number of data centers to only three mega-centers supplied by eleven server farms. Several operations were centralized including IT leaders and CIOs. The response towards customer complaints was a reorganization of sales and service teams into up-graded vertical industry teams with product specialists assigned to each team. There was also a set of principles which assisted in governing business within the company, these included basic beliefs and core values (Bolman and Deal, 2003).
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Organization’s design and leadership models required to manage each type of business
IBM’s design and leadership models emphasize the importance of teamwork and giving proper attention to team members by providing appropriate advice on ways of improving the overall performance. Management ensures that all the programs used are appropriate and up to the tasks. Overall leadership roles have been reinforced through delegation of some duties to senior executives; this ensures that all employees and members are actively involved in the running of the company. Members of the staff are engaged through open conversations and every crucial matter arising from conversations well attended.
One of the key contributing designs was downsizing, where the number of employees was reduced. This helped in reinforcing bureaucracy by centralizing most of the operations at the management level. Networks were converted, system development re-engineered as well as decreasing of internal applications. This ensured the positive experiences of the company towards profit margin (Bolman and Deal, 2003).
There was the formation of a corporate management group known as Corporate Executive Committee (CEC) which assisted in global strategies and operations. These included the reorganization of sales teams in accordance with market geography and products (Applegate and Austin, 2008, pp 18). The CEO’s ability to develop the idea of communicating directly with the employees through written notes contributed to the enhancement of their ability to accept change.
IBM assigned each member of the corporate Executive Committee the responsibility of reengineering projects towards global use. This would help in the sustenance of global cost competitiveness through the removal of unnecessary executive governing structures and processes (Applegate and Austin, 2008, p 19). Management reversed the belief and use of the internet not only to be based upon browsing and marketing to consumers but also to incorporate the use of business-to-business and e-commerce within company businesses (Applegate and Austin, 2008, p 23).
How should a company like IBM manage the innovation process?
Innovative processes within businesses like IBM cannot be developed in a vacuum. There is a need for utilization of all resources of all sorts incorporating capital, customers, suppliers, and lucrative business networks. IBM should be concerned with treating different types of innovation opportunities in different ways. The company should not rely on using a single set of metrics in running the company for a long period of time. All new inventions should be taken through an iterative development process where various specialists should be contacted to identify and address key assumptions and risks. Instead of discarding old innovations, IBM should find means and ways of incorporating them by following different paths and finding a manner in which they can shape ideas.
IBM became the world’s dominant IT industry since it developed the System/360 computer which was the first of its kind with its components based on an integrated semiconductor chip as well as providing interchangeability of components. This was one of the biggest improvements from the traditional vacuum tube computers. Also during this period, the company invented the first English-like computer languages. There was also the invention of supermarket check-out stations, hard disks, and up-graded ATM versions. This implies that continuous creativity should be encouraged despite laxity within the industrial market.
IBM should appropriately use positional power as a means of exercising command and control over people. However, current beliefs yearn for equality, harmony, and those who are considerate of their demands and leadership principles. There is the issue of power struggle, which is a result of members resisting much control given to an individual. This requires the company to consider the appropriate application of diversity and conformity which gives meaning to the process of reaching decisions and attaining the expected and required standards within the market environment (Grant, 1991, pp 114-350).
The use of appropriate communication channels and finding common grounds to base innovations and implementations presents some of the most influential ways of managing innovations. Tradition may breed resistance, but clear rules on the chain of command and application of hierarchy status could be of great benefit to IBM.
Anthony, S., Johnson, M. W., & Sinfield, J. (2008). Institutionalizing Innovation. MITSloan Management Review, 2 (49), 45-47.
Applegate, L., & Austin, R. (2008). IBM’s Decade of Transformation: Turnaround to Growth. Harvard Business Review, (1), 5-35.
Bolman, L. G., & Deal, R. E. (2003). Reframing organizations; Artistry, choice and Leadership. (3rd Ed). San Fransisco: Jossey-Bass.
Grant, R. (1991). The resource-based theory of competitive advantage: implications For strategy formulation. California Management Review, 33 (5), 114-350.