AS it turned 100 last week, I.B.M. was looking remarkably spry. Consumer technologies get all the attention these days, but the company has quietly thrived by selling to corporations and governments. Profits are strong, its portfolio of products and services looks robust, and its shares are near a record high. I.B.M.’s stock-market value passed Google’s earlier this year. Not bad for a corporate centenarian. Yet, not so long ago, I.B.M.’s corporate survival was at stake. In the early 1990s, it nearly ran out of money. Its mainframe business was reeling under pressure from the lower-cost technology of personal computing.
New leadership was brought in, and thousands of workers were laid off. It was part of the company’s painful journey to what might be called “post-monopoly prosperity” — that is, a new path to corporate success once a dominant product is no longer the turbocharged engine of growth and profit it once was.
“I.B.M. faced the challenge that all great companies do sooner or later — they dominate, they lose it, and then they re-create themselves or not,” observes George F. Colony, the chief executive of Forrester Research.I.B.M. met the challenge, moved beyond the mainframe and built a business increasingly based on software and services. So as it celebrates a milestone, the company holds lessons for others.
Evolving beyond past success is a daunting task for companies in all industries. But that problem is magnified in the technology arena, where companies can quickly rise to rule a market, seemingly invincible, until a shift in the technological landscape opens the door to a new generation of corporate dynamos.
That is certainly the test that Microsoft is struggling with today, as it seeks growth beyond its lucrative stronghold in personal computer software. If they are to prosper for the long haul, Google and Apple, too, must reach beyond their dominant businesses. Each of these companies, in its way, is trying.
So, then, what broader insights are to be drawn from the I.B.M. experience?
One central message, according to industry experts, is this: Don’t walk away from your past. Build on it. The crucial building blocks, they say, are skills, technology and marketing assets that can be transferred or modified to pursue new opportunities. Those are a company’s core assets, they say, far more so than any particular product or service.
In I.B.M.’s case, the prime assets included strong, long-term customer relationships, deep scientific and research capabilities and an unmatched breadth of technical skills in hardware, software and services.
Though once a mainframe company, I.B.M. has recast itself as the supplier that can best manage and stitch together diverse technologies in modern data centers. Mainframes still have a role, and I.B.M. has invested heavily in them — $5 billion in mainframe research in the last decade — so that different kinds of software can run on them and new kinds of processors can plug into them.
But it is the technology surrounding the mainframe that really pays off for I.B.M. today. Mainframe hardware alone accounts for less than 4 percent of its revenue. But when the software, storage and services contracts linked to mainframe computers are included, the figure rises to 25 percent — and as much as 45 percent of operating profit, estimates A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company.
I.B.M. has redirected its research labs and sales force to focus on services and software, retraining thousands of people, and supplementing in-house programs with acquisitions. In big, complex services contracts, from running smart-grid projects for utilities to traffic-management systems for cities, I.B.M. acts as a high-tech general contractor whose expertise spans research, software, hardware and services. These so-called Smarter Planet projects build on its legacy of broad technical skills and deep knowledge in fields like energy, transportation and health care.
AT the moment, Microsoft is the tech company that most squarely confronts the post-monopoly predicament, as I.B.M. once did. Some of the similarities are striking, right down to the long-running federal antitrust suits that both companies endured.
But unlike I.B.M. in the early 1990s, Microsoft is not a company in crisis. It is growing steadily and remains immensely profitable. It has nurtured new businesses beyond its lucrative stronghold in personal computer software: the Windows operating system and its Office programs for word processing, spreadsheets and presentations.
Microsoft has invested for nearly two decades to build up business database software and server operating systems that run larger data-serving computers in data centers. An I.B.M. executive once declared that Microsoft’s attempt to move into data center computing would be its “Vietnam,” a humbling setback. And many analysts predicted that Microsoft would be thwarted in data centers by competition from Linux, the free operating system.
New leadership was brought in, and thousands of workers were laid off. It was part of the company’s painful journey to what might be called “post-monopoly prosperity” — that is, a new path to corporate success once a dominant product is no longer the turbocharged engine of growth and profit it once was.
“I.B.M. faced the challenge that all great companies do sooner or later — they dominate, they lose it, and then they re-create themselves or not,” observes George F. Colony, the chief executive of Forrester Research.I.B.M. met the challenge, moved beyond the mainframe and built a business increasingly based on software and services. So as it celebrates a milestone, the company holds lessons for others.
Evolving beyond past success is a daunting task for companies in all industries. But that problem is magnified in the technology arena, where companies can quickly rise to rule a market, seemingly invincible, until a shift in the technological landscape opens the door to a new generation of corporate dynamos.
That is certainly the test that Microsoft is struggling with today, as it seeks growth beyond its lucrative stronghold in personal computer software. If they are to prosper for the long haul, Google and Apple, too, must reach beyond their dominant businesses. Each of these companies, in its way, is trying.
So, then, what broader insights are to be drawn from the I.B.M. experience?
One central message, according to industry experts, is this: Don’t walk away from your past. Build on it. The crucial building blocks, they say, are skills, technology and marketing assets that can be transferred or modified to pursue new opportunities. Those are a company’s core assets, they say, far more so than any particular product or service.
In I.B.M.’s case, the prime assets included strong, long-term customer relationships, deep scientific and research capabilities and an unmatched breadth of technical skills in hardware, software and services.
Though once a mainframe company, I.B.M. has recast itself as the supplier that can best manage and stitch together diverse technologies in modern data centers. Mainframes still have a role, and I.B.M. has invested heavily in them — $5 billion in mainframe research in the last decade — so that different kinds of software can run on them and new kinds of processors can plug into them.
But it is the technology surrounding the mainframe that really pays off for I.B.M. today. Mainframe hardware alone accounts for less than 4 percent of its revenue. But when the software, storage and services contracts linked to mainframe computers are included, the figure rises to 25 percent — and as much as 45 percent of operating profit, estimates A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company.
I.B.M. has redirected its research labs and sales force to focus on services and software, retraining thousands of people, and supplementing in-house programs with acquisitions. In big, complex services contracts, from running smart-grid projects for utilities to traffic-management systems for cities, I.B.M. acts as a high-tech general contractor whose expertise spans research, software, hardware and services. These so-called Smarter Planet projects build on its legacy of broad technical skills and deep knowledge in fields like energy, transportation and health care.
AT the moment, Microsoft is the tech company that most squarely confronts the post-monopoly predicament, as I.B.M. once did. Some of the similarities are striking, right down to the long-running federal antitrust suits that both companies endured.
But unlike I.B.M. in the early 1990s, Microsoft is not a company in crisis. It is growing steadily and remains immensely profitable. It has nurtured new businesses beyond its lucrative stronghold in personal computer software: the Windows operating system and its Office programs for word processing, spreadsheets and presentations.
Microsoft has invested for nearly two decades to build up business database software and server operating systems that run larger data-serving computers in data centers. An I.B.M. executive once declared that Microsoft’s attempt to move into data center computing would be its “Vietnam,” a humbling setback. And many analysts predicted that Microsoft would be thwarted in data centers by competition from Linux, the free operating system.
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