imgbd Wise Advice: Evolve

To succeed, you must lead, not merely survive

imgbd IBM's rise, fall and dramatic evolution is one of the most studied cases in B-schools around the world. More than just the facts around its rise, fall and evolution, what really stands out are two key facets that underpinned its dramatic turnaround - and in these lie very important lessons for us in the money management and financial advisory business, as we grapple with rapid change just the way IBM did in its IT business years ago.


1984: King of the IT world with the iconic IBM PC as its flagship.

Assembled its PCs by sourcing hardware components from vendors and Windows OS from Microsoft (unlike Apple which built everything in house). Made a lot of money with its low cost assembly solution, but also sowed the seeds for lower cost competitors who assembled and sold for less

1993: IBM posted the largest loss (then) in US history - US$ 8 Bn

Could not compete in cut throat Windows PC market, failed to adapt to new dynamics of the PC market.

1995: Took a huge call - exited its main business (PCs, printers, memory chips) and decided to use reserves built up over the years to enter new age IT businesses.

1995 - 2010: IBM acquired over 200 companies in IT services sector. In the hardware space, focused heavily on servers.

2012 - 2015: Under new CEO, IBM focuses on two new age services: cloud computing and artificial intelligence - data analytics services to large corporations to help them analyse the mass of data they were collecting from customers and products

2015: IBM acknowledged as the leader in enterprise servers, one of the leaders in cloud services and a key player in the cutting edge space of artificial intelligence


IBM's evolution has become a case study in many B-schools across the world. Two key facets stand out that enabled this lumbering giant to evolve into a nimble footed new age player:

  1. To succeed, you must lead, not merely survive: IBM could have resorted to cost-cutting in its old PC business to remain in the market, even at lower market shares. After all, it had a venerable brand and presence in the PC market, and could have tried to milk that to the extent it possibly could. But that, at the end of the day, would be a survival game - not a leadership game. IBM recognized that it never would be able to compete on costs with the Asian tigers. It could only claw back a little market share, but never really dominate the game ever again, in the changed circumstances. It took, what at that time was regarded as a colossal risk - abandon its main business, in search of newer pastures.

  2. Follow your clients: In its years of market dominance, IBM had built up a lot of cash reserves and deep relationships with practically all large corporations, most of which had IBM PCs and mainframes installed across their offices. When IBM decided to abandon its main business, it started off on a blank slate, and started filling this slate with products and services that their clients were now demanding in the IT sphere. So, even as its corporate customers said no to IBM PCs, they were buying software from someone else, they were buying servers from someone, they were getting into cloud computing, they needed cyber security, they needed help analysing the mass of data they were gathering off the net, off their products. IBM picked a range of products and services from this shopping list where it thought it can build up a leadership position over time, and went about acquiring companies to rapidly scale up in its newly chosen areas of business.

Lessons for us in the financial services business

Both these facets: (1) To succeed, you must lead, not merely survive and (2) Follow your clients is so true in our rapidly changing world of money management and financial advice. When you see the game changing in the financial advisory space, don't just try to cling on and steadily find yourself losing market share. Take a clear headed call whether you think your existing business model is likely to survive and thrive 10 years from today. If the answer is not a resounding yes, you are only in a survival game, not in a leadership game. If you really want to be a leader in your space, listen closely to what your clients are telling you, observe closely what your clients are doing. Therein lies the answer of how you need to adapt your business model to continue remaining relevant to your clients, who are rapidly changing their preferences on how they engage, communicate and buy.


Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.

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