IBM lost its dominance of the computer hardware market when it allowed other companies to clone its PCs. Instead, although it remains a major force in servers and other storage devices, the group reinvented itself very successfully as the world's foremost technology consulting and services business. As a result it was one of the few IT companies to survive the dotcom downturn virtually unscathed, arguably in better shape since 2000 than it was at any time in the two decades before. In a major break with its past, IBM agreed to sell its entire desktop and notebook computer division to Chinese manufacturer Lenovo in 2004. That divestment made barely a scratch on revenues which continued to soar to record levels for 2006 and 2007, bolstered by a series of acquisitions for its substantial software division, now its most profitable business. Its extensive global services division also houses IBM Interactive, a unit which offers digital development and marketing services to clients. The group celebrated its centenary in 2011, but significant challenges have begun to appear since then as a result of competition from a new generation of technology services providers led by Amazon and Google. IBM has compensated by pushing into new areas, not least cloud computing, artifical intelligence and digital marketing. Its IBM iX division is now the world's second biggest digital agency.
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Adbrands Weekly Update 25th Jan 2018: Some faint signs of a turnaround at IBM where 4Q revenues rose by 4% year on year, ending an unbroken run of 22 consecutive quarterly declines. The last increase was at the end of 2012, just after Gini Rometty took over as CEO. There was still a decrease for the year, with topline slipping 1% to $79.1bn, and further cause for concern in IBM's services division where profit margins plunged by as much as a third in the final quarter. That slide combined with a mammoth $5.5bn write-off of deferred tax assets to generate a net loss for the quarter. For the year, net income more than halved to $5.8bn.
Adbrands Weekly Update 17th Aug 2017: IBM's longtime marketing chief Jon Iwata moved to a newly created role as chief brand officer. Michelle Peluso, already VP & chief marketing officer, moves up to SVP, and will now report directly to CEO Ginni Rometty rather than to Iwata.
Adbrands Weekly Update 4th May 2017: Some intriguing soundbites from the article in this week's AdAge about the rise of the consultancies. "We don't believe brands are built from advertising any more," says Accenture Interactive senior managing director Brian Whipple. "They are built from an amalgamation of customer experiences, so that is what we are focused on." And Leo Burnett's new North America CEO Andrew Swinand told AdAge, "I don't see my competition as WPP and Omnicom, I see my competition as the consultancies." That may certainly be the case as far as data analytics and strategic positioning is concerned, or digital services, but we haven't yet seen Leo Burnett lose a major creative pitch to a the likes of Accenture or PwC. However, admittedly, all it would take for the competition to become explicit would be another acquisition similar to Accenture's of Karmarama in the UK. Perhaps the most accurate viewpoint was that expressed by Coca-Cola's SVP strategic marketing Ivan Pollard. "The big consultancies are underestimating the value of creativity and the agencies are underestimating the value of business analytics. Someone's going to crack that soon because data plus creativity is the future." For the first time, four of the major consultancies were listed among AdAge's estimates of the top ten agency companies worldwide. Accenture, PwC, IBM and Deloitte now hold the next four slots below the traditional big five groups, ahead of challengers like Havas and Hakuhodo DY. AdAge placed Accenture as the world's biggest consolidated network, above Young & Rubicam. Agency-side executives suggested that key to the consultancies' growth has been their ability to find alternative routes into corporate marketing budgets. Rather than compete with established marketing groups by pitching to the CMO via traditional channels, they are entering the fold through direct contact with the CEO or IT director or non-executive members of the board. Another advantage, according to R/GA's CSO Barry Wackman, is that "consultant work is much less prone to being scrutinised by procurement".
Adbrands Weekly Update 14th Apr 2016: Ads of the Week: "Designed For Data". IBM has been keeping longtime agency Ogilvy & Mather busy recently, unveiling a succession of lavish new spots highlighting its cloud computing facilities and cognitive thinking service Watson. There's been an average of one new campaign a month since the start of the year (no doubt designed to turnaround IBM's weakening financial performance). Here's the best of this month's ads, a flashy sell for the IBM Cloud in the style of that holy grail for all filmmakers, the single-take tracking shot. Nicely done too, though we suspect it was mostly assembled in post-production not in the camera.
Adbrands Weekly Update 7th April 2016: In another sign that IT consultancy firms are becoming a genuine threat to traditional marketing agencies, IBM announced the appointment of Bob Lord as chief digital officer. Most recently Bob Lord was president of AOL, but before that he was global CEO of Razorfish. He rejoins former colleague David Kenny, ex-Digitas, ex-Publicis Groupe's senior management committee, and recently CEO of the Weather Company, a large part of which was recently acquired by IBM. Neither man is working specifically in the IBM Interactive digital agency, but their influence is inevitable. Lord has been tasked with accelerating "all aspects of IBM's digital presence, operations and ecosystem".
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Free for all users | see full profile for current activities: IBM was first incorporated in 1911 in New York with the ungainly name of The Computing Tabulating Recording Company. It was created by the merger of three separate companies involved in different forms of automated processes. In its early days, CTR made everything from card-punch counting and time recording machines to industrial weighing scales and cheese slicers. In 1914, salesman Thomas Watson joined CTR from The National Cash Register Co (NCR) as general manager, and quickly began to introduce a more cohesive structure to the sprawling business. He also introduced what came to be the IBM mantra: his favourite slogan was "THINK", and this was quickly adopted by his staff, along with an evangelical sense of company pride. Watson became president of the company in 1915 and focused its approach towards large-scale business tabulating solutions, and away from more mundane applications (such as cheese slicing). As a result the company expanded fast, tripling revenues within five years, and opening offices in Europe, South America, Asia and Australia. In 1924, its name was changed to International Business Machines to reflect its new profile.
The Great Depression of the 1930s ruined many businesses, but it brought IBM one of its most lucrative contracts. Following the Social Security Act of 1935, which introduced welfare, IBM was commissioned to create a system which would allow the US government to maintain employment records on more than 26 million people. Other government contracts followed, including the manufacture of military equipment after war broke out in 1941. The company also began to develop its first computers. The Automatic Sequence Controlled Calculator, built in 1944, was 50 feet long by 8 feet tall and weighed 5 tons. It could add two numbers together in just under one second. Multiplication took six seconds; division took twelve. It was slow, but it was a start.
By the end of the 1950s, vacuum tubes and then transistors had allowed computers to get faster and faster. The IBM 7090 was able to handle not one, but 229,000 calculations a second, and was used to run the US government's Ballistic Missile Early Warning System. Computers were made more versatile by IBM's invention of disk-based storage from 1957, and of the programming language Fortran in 1958. Commercial uses became widespread and IBM set up a separate company, World Trade Corporation, to handle non-US business. By the start of the 1960s, WTC was responsible for installing 90% of all computers used in Europe.
Thomas Watson was succeeded by his son, Tom Jr, as president in 1956, and the new boss aggressively set about developing the company's computer business. During the course of the 1960s, IBM introduced upgradeable hardware, interchangeable software and storage media that could be used on different machines, and fast Solid Logic Technology circuit boards. Later it invented the floppy disk (in 1971) and the first laser printer (1975). In the first 14 years of Tom Watson's presidency, revenues grew from $900m to $8bn, and the number of employees almost quadrupled to 270,000. The office environment was dominated by IBM's products, not just computers but also the popular Selectric electric typewriter with its replaceable font 'golfball'. The "Big Blue"? IBM got this famous nickname during the 1960s because its towering mainframe computers were housed in bright blue cases.
During the 1970s IBM led the way in introducing computers into everyday transactions. The first computerized supermarket checkout was launched in 1973, as well as an early version of an automated cash dispenser for banks. By mid-decade, IBM virtually dominated the market with around 80% share. The next leap forward came in 1981, with the arrival of the IBM Personal Computer or PC. For the first time, IBM contracted out some of the technology. The processor was supplied by Intel; the disk operating system, or DOS, was developed under contract by a small Seattle-based company called Microsoft.
Suddenly the company faced serious competition for the first time. IBM had become the epitome of monolithic big business, a faceless, impersonal giant that was skilled at selling its ideas to customers, but was too big to react if those customers had different ideas of their own. During the 1980s, IBM put its energy into developing token-ring networks, designed to connect PCs as equal links in a chain. But instead, the market gradually shifted towards client/server networks, where one host computer (or server) linked several subservient workstations. For the first time, developments in technology were being driven by end-users rather than by IBM, and the company struggled to stay abreast of the changing environment.
At the same time, by contracting out the technology on a non-exclusive basis to Intel and Microsoft, IBM had opened up the market to other manufacturers. These other companies quickly learned how to make "IBM-compatible" PCs which were cheaper and arguably better than the inventors of the format. Certainly, IBM's mistake made a lot of other manufacturers wealthy. Ironically in the long term it worked to everyone's advantage. PCs proliferated, and instead it is the format that didn't allow cloning - Macintosh - that came to be gradually marginalized.
In the meantime, IBM's profits began to slump, and in 1990 the company recorded the first of three years of steadily escalating losses, peaking at a record $8bn in 1993. The typewriter and printer business was sold off to become Lexmark, and IBM concentrated on its computers. With the business on the verge of collapse, Lou Gerstner was recruited as CEO in 1993 from Nabisco and he began the restructuring process that would put IBM back on its feet. Instead of splitting the company up to make it more flexible, Gerstner concentrated on redeveloping IBM's approach. From his experience at other companies, Gerstner knew that the holy grail for all large corporations was to sort out their internal IT departments. He set about making IBM the company they hired to carry out the task. The business was back in the black in 1994. In 1995, IBM acquired software developer Lotus, followed by Tivoli Systems the following year. In 1997, the newly rejuvenated company repositioned itself to put the internet at the heart of every aspect of its marketing and product mix, and placing a special emphasis on e-business. Also that year it resurrected discussions about artificial intelligence when its Deep Blue supercomputer beat world champion Gary Kasparov at chess.
To reinforce its new financial health and further boost market share, IBM began a series of aggressive acquisitions from 1995 onwards. Software businesses were the principal target. In addition to Lotus, more than 45 businesses were acquired including NetObjects, Object Technology International, Footprint Software, Early, Cloud and Company, Cimad Consultants, CommQuest Technologies, Edmark, Software Artistry, Transarc, Catapult, and Unison Software. (Several, such as Edmark and NetObjects, were later sold on again as the company focused on its core businesses). In 1999 IBM acquired business computer manufacturer Sequent for $810m, with a view to using that company's specialised technology to manufacture an inexpensive substitute to traditional mainframe machines. Later the same year the group launched an attack on rivals Sun and Hewlett-Packard with the launch of a new range of more powerful S80 Unix computers, designed for web service providers. In 2000, reacting to an unexpected revival in Macintosh's fortunes following the introduction of the stylish iMac, IBM introduced its own style-conscious PC range, NetVista.
But the group's main focus increasingly became IT services. From 1999 onwards IBM's Global Services division won a string of billion-dollar outsourcing contracts, from the likes of Dell, BP, Nissan, Aventis, Bank of Scotland and many others. In 2000 the group formed a strategic alliance with Ariba and i2 Technologies to pool their respective ranges of software products which allow companies to build and operate online B2B exchanges. In addition, the group agreed an alliance with US telecoms business Qwest to build and run internet data centres to house online operations of US businesses.
IBM also announced it would put its full weight behind the freely available Linux operating system, in a bid to end the potential domination of the server market by Microsoft. IBM has committed more than $1bn to support the software companies which program and distribute Linux in attempt to establish it the free-to-use common language for e-business applications. The group also spent over $1bn acquiring or investing in a string of computer chip companies developing specialised communications chips. In 2001, IBM doubled the size of its database division, spending another $1bn in cash to acquire database developers Informix. This made IBM the new main rival to Oracle, the database market leader. A month later the Global Services division announced its biggest ever outsourcing deal, a $6bn contract to handle back office systems for Fiat.
As expected, Lou Gerstner relinquished the role of CEO in 2002 to Sam Palmisano, formerly president & COO, and was able to step down on a high note as the company reported record profits. Almost immediately Palmisano was obliged to deal with falling expenditure in the technology and IT services sectors, which forced IBM to issue its first profit warning in ten years in early 2002. Tasked with the rather uncomfortable job of sorting out the group's less profitable operations, he licensed contract manufacturer Sanmina-SCI to produce the bulk of its desktop computer range in a deal worth $5bn over four years, and agreed to sell the group's loss-making disk drive manufacturing operations to Hitachi for just over $2bn.
At the beginning of 2004 the group took a tentative step into the online entertainment sector, agreeing an alliance with media software company Real Networks to establish online stores to sell video content to consumers over the internet. However an unexpected blow was dealt to the group's Global Services unit later in the year when leading customer JP Morgan Chase decided to scrap a $5bn outsourcing deal after concluding that the work would be better handled in-house. Also during 2004, IBM said it would make a $320m charge against profits to cover costs of a settlement of a long-running class action lawsuit brought by employees over changes made during the 1990s to IBM's pension scheme.
The group's most significant deal came in 2005 when it broke with its heritage in personal computers, announcing a plan to sell that division to China's Lenovo. The deal was suspended temporarily on concerns that the sale could lead to the transfer of national security technology to China. A full investigation was launched, but the sale was cleared after IBM made changes to security procedures at one of its main research facilities in the US to avoid direct contact between the PC unit and continuing IBM divisions. In another break with the past, Apple, for whom IBM had produced the PowerPC processors which for many years formed the basis of desktop Macintosh computers, said it was switching this business to IBM's traditional rival Intel. see full profile for current activities
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