Transitions are challenging for any company, but in the early 1990’s IBM found that it had to undergo revolution in order to survive. Its exceptional size and complexity was bogging it down during a time of radical evolution in commerce. With over 200,000 employees spread around the world in numerous divisions, IBM’s outmoded structure threatened its ability to compete with start-ups offering customer-focused service. If they did not adapt on time, one very likely option was to break the company into pieces and sell them off. Instead, IBM restructured with a focus on customer relationship management to become process-driven rather than hierarchical or research-and-development-driven.
What developed was one of the world’s largest outsourcing and consulting organizations. It required a massive reorganization of what had once been a regional account structure in order to focus on customer solutions. Although IBM began to meet customer needs and increase revenue, the internal processes to accomplish this were rough and threatened the corporation’s continued competitiveness.
IBM brought in Vantage Partners to analyze the pitfalls and help them fine-tune their operations. First, Vantage’s Jeff Weiss diagnosed precisely what was causing the internal challenges. He found that sales were lost due to slow turn-around time, that opportunity teams were pulled together at the last minute and were comprised of people who did not normally work together and had no accountability to each other, and that deals were decreased by IBM’s own people in order to avoid internal conflicts. The underlying factor was a lack of constructive conflict management.
Weiss recommended several fundamental changes. The first was re-management of current conflicts, the second was conflict management training, and the third was training in monitoring new kinds of conflict over time to analyze their underlying causes and thereby assess further implications for the business.
This translated into a number of changes, starting with restructured employee incentive packages to encourage the development of broadly-bundled deal building. The new packages included variable pay based not only on an individual’s performance but also that of the business unit and overall company, and included an increase of stock options for many more employees. Also fundamental were the improved communications between divisions and within organizations. IBM used its own e-business concept to streamline its operations. By putting their own procurement system on-line, $240 million was saved. $300 million in call-center and field-specialist support costs was saved by instituting an on-line customer support system. Internal information technology expenses were reduced by nearly a third since 1993.
The new services organization increased revenues from $16.2 billion in 1996 to $23.7 billion in 1998, excluding maintenance. In 1998, IBM had 38 signed strategic outsourcing deals valued at more than $100 million excluding maintenance (up from 26 in 1996). Market value has increased almost four-fold since 1994, up to $169 billion in 1998. By 1998, IBM’s total revenue reached $81.7 billion.
IBM anticipated the changes commerce dictated, met the need, and stayed on top. Vantage Partners met IBM’s needs and enabled them to move to the front of the field.