Dynamic capabilities at IBM

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Chapter 3.3: Cultural change:

In order to be successful a company doesn't only need to have the right strategy but also the corporate culture that matches with the company's strategy. Otherwise the culture would hinder the company's strategy. Former CEO of IBM Louis V. Gerstner, Jr. stated that IBM al-ready had the right strategies; the question though was if the existing culture supports these strategies. As the example of one division that had been competing on technical excellence in stable markets and announced a new growth initiative that placed a premium on initiative and risk taking only to find out that the dominant culture was highly risk averse and thus required a significant shift in the culture of that unit shows, this was not the case within IBM. What IBM needed concerning Gerstner was a cultural change that allowed them to reconfigure themselves and to reallocate resources that they could execute their strategies.
Changing a culture within a company however is not easy. Usually organizations and people are not open for change and willing to do so, especially when it affects them directly. Often it is hard for people to understand why the culture they feel good and comfortable in should be changed, especially when they also had success with it. And even if they know that it must change it might be difficult for them to do it. Thus transformation begins with a sense of crisis or urgency, as Gerstner says. "No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive." And this is what Gerstner started to do within IBM when he arrived. What helped him in doing this was that he was an outsider and had no emotional attachment yet. The main change in the corporate culture was that teamwork counts more. Before Gerstner's arrival different divisions competed against each other and the entire company was more preoccupied with itself than with its customers. The change was to reward teamwork. Compensations of employees were measured of the performance of the whole company instead of the employee's particular division. Furthermore he wanted his employees to getting things done fast and not to studying things to death nor to chase obsessive perfectionism. This whole process of cultural transformation wouldn't be an easy and fast track, Gerstner estimated it would take five years to turn around IBM's culture; in fact it probably took even longer. To integrate as a team inside the company was the right decision as IBM's success indicates. Now the culture of a common language and a problem solving methodology as manifest in the IBM Business Leadership Model is employed throughout the whole company.
3.4 The success in concrete results and figures:

Until the early 1990s IBM was a technology, traditional hardware company. Back in 1993 for example the services unit of IBM accounted for only 27 percent of the company's total revenues and the software unit didn't exist yet. But IBM was on a massive downturn and change became necessary. IBM recognized that and Gerstner, its new CEO at that time, made the following forecast: "our bet was this: Over the next decade, customers would increasingly value companies that could provide solutions - solutions that integrated technology from various suppliers and, more importantly, integrated technology into the processes of the enterprise." As described before, not only sensing new opportunities but also seizing them is important. IBM anticipated new customer value propositions to positioning itself, now the key was execution to capturing the market. Thanks to its new approach to strategy and its dynamic capabilities, IBM leveraged and reconfigured its resources and could provide the type of value desired by customers. IBM was able to make the transition from a technical company to this service providing "on-demand business", which gave them a strong competitive advantage. In 2007 more than 70 percent of IBMs total revenues came from software and services.
Then again IBM recognized other new trends in the fast changing and developing IT market. Global integration, new computing models, new client needs for integration and innovation and a massive amount of data transformed the industry and the global economy. IBM adapted fast and transformed itself to change their business mix to higher value, more profitable technologies and market opportunities. Growth Markets, Cloud, Business Analytics and Smarter Planet became the key fields from which IBM draws big revenues. What helped IBM to accelerate this transformation were strategic sales, merger and acquisitions. Since 2000 IBM has been acquiring more than 140 companies in different areas such as analytics, cloud or smarter commerce. The latest deals were partnerships with Apple, SAP and Tencent and a strategic alliance with Twitter. IBM not only grew new businesses through acquisitions but also organically and by reinventing business continually. IBM still continues to come up with more innovations than any other company year after year.
Due to this transformation from a pure hardware company to a high value innovation, service and software company pretax income of IBM grow steadily over the years and the product scope changed continuously, as figure 8 shows [.].