Diagnosis and Design

Abstract

On Saturday, January 30, 1993, the Herald Sun, the local newspaper in Durham, North Carolina, reported that IBM was facing problems. IBM had in the previous week announced a cut in dividends and planned to replace its chairman, John Akers. IBM’s profit went from a $6 billion profit in 1990 to $2.8 billion and $4.9 billion losses in 1991 and 1992 respectively. Peter Lieu, a computer analyst at Furman Selz, was quoted as saying that “John Akers inherited a mess and the mess is a highly centralized organization with virtually no delegation of responsibility.” The problems facing IBM were compared to the situation at AT&T, which after losing $1.23 billion in 1988, turned profitable in 1990 with a reported 1992 fourth-quarter profit of $1 billion. The success of AT&T was attributed to a decentralized management style introduced by the late James Olson and continued under the new leadership by Robert Allen. Allen cut staff by 5 percent and wrote off $6.7 billion in old analog tecnology. He diversified and brought in a new management. Meanwhile, IBM was struggling with its old management style and was accused of “failing to ‘obsolete’ its own products quickly enough.” IBM’s problems had arisen because of a new competitive situation in all of its markets-a change away from the use of mainframe computers and toward workstations and networks. Additionally, competition in the personal computer market had changed with declining growth and confusion about which operating system would take the lead. Further, IBM also “had some bad luck in the form of the global recession, which cut into international profits.” This story points to a key issue important for business success. Situations changed in the past and they will change in the future. Competition, technology, and economic conditions change over time, and firms have to adjust to these changes. Adjustments depend on the management and its style, which is the basis for selecting a strategythat will lead the firm to success in its new conditions. Finally, the firm needs an organization and an organizational structure that will enable it to carry out its selected strategy. The proper fit among the firm’s strategic factors: leadership style, climate, size, environment, technology, strategy, and the firm’s structure is a necessary condition for a business success. However, it is not sufficient nor a guarantee for success.