Department of Business &

Management
p

Assignment Brief

Module Title: Leading and Managing change MG625

Assessment
Assignment No/Title: IBM case study (See pp. 4 to 6) of the brief 50%
Weighting:
Feedback Target To be
Submission Date: 16th October 2020 by 2PM
Date: announced
Module Co-ordinator/
Dr Syed A Tarek and Dr Kwabena Frimpong Course Area:
Tutor:

Instructions to Students:

1. Complete an Assignment Submission Form ensuring that you enter your correct ID number.
2. Submit the assignment via the assignment submission boxes at the Helpdesk at E2.08.
3. You are reminded that it is your responsibility to keep both an electronic and a hard copy of your assignment for
future reference. You may be required to submit an electronic copy of your assignment.
4. You are reminded of the University’s regulations on cheating and plagiarism. In submitting your assignment you
are acknowledging that you have read and understood these regulations.
5. Late submission within 2 weeks of the deadline will result in the mark for the assignment being capped at 40%.
Beyond two weeks the work will not be marked.
6. This is a group work. Maximum 4 in a group.

This assignment tests the following Learning Outcomes for the module:
Understand the strategic and operational importance of change in organisations

Critically evaluate change management theory, strategies and tactical options

Critically assess the key areas of organisational and individual resistance to change

Understand change within the context of organisational leadership and business strategy

Page 1 of 6
The Assignment Task:

Read the case study on the changes that have taken place at IBM and prepare a report (with
references) to the company on how the company planned and implemented the change.

In doing this, include answers to the following two questions. Each question carries equal marks.

1. Either (i) draw up a Cultural Web diagram for the organisation before and after Gestner took
over and implemented change and describe the main differences and implications for change.

Or (ii) draw a change kaleidoscope for the organisation at the point at which Gestner
took over. Using this model (Balogun and Hope-Hailey), discuss the change options
available to him at that point.

2. What theories are you aware of that would explain the steps Gestner might have taken to help
to overcome resistance to change?

Do not exceed the word limit of 3000 words

Page 2 of 6
Assessment Criteria

Coursework
Assignment

Criteria Weigh 70%+ 60-69% 50-59% 40-49% Fail

ting Marginal Fail
%

Generic: 5 Clear precise Mostly clear precise Well structured and Insufficient Poor structure and
assignment with assignment with good relatively clear structuring with some argument
Communication excellent structure. structure. Fairly argument. flaws in argument.
Coherent and coherent and well
comprehensive argued.
argument.

Knowledge & 30 Demonstrates Demonstrates clear Basic level of Demonstrates only Very limited
excellent understanding of the understanding of the superficial understanding of
Understanding understanding of the topic, objectivity and topic, some reference understanding, theory topic. Provides no
topic, objectivity and reference to theory. to theory. Provides limited or absent. contextual research.
reference to theory. small amount of Provides limited
Provides appropriate research, research,
level of additional benchmarking may benchmarking may
research. be limited or missing. be limited or missing.

Analysis 30 Demonstrates clear Demonstrates Demonstrates some Demonstrates weak Demonstrates

and accurate analysis acceptable analysis level of analysis of level of research and inadequate analysis.
of research and of research and research and conclusions drawn
conclusions drawn conclusions drawn conclusions drawn

Evaluation 30 Fully evaluates Evaluates Adequately evaluates Evaluates Displays only weak
implications, using implications using implications, using implications using evaluation, not
appropriate reflective appropriate reflective appropriate methods poor or inappropriate reflective or based on
methods based on methods based on based on theory methods. theory.
theory theory

Assignment 5 Precisely meets Mostly meets Partially meets Guidelines on word Guidelines on word
guidelines on word guidelines on word guidelines on word count, presentation, count, presentation,
Parameters count, presentation, count, presentation, count, presentation, and referencing and referencing fully
and referencing. Must and referencing. and referencing. generally disregarded disregarded
be within word count
+/- 10% to achieve
overall Distinction.
Total 100

Page 3 of 6
 Change in IBM

IBM was originally formed as Computing Tabulating and Recording [CTR), a combination of three companies
put together by Charles Flint, a former arms dealer. Flint recruited Thomas Watson, who became its chairman
in 1924. Watson renamed the company International Business Machines in 1929. IBM has a long history of
dominance: at this early stage it already had 95 per cent of the market in punched-card machines - a
mechanical predecessor of the electronic computer.

Watson had previously worked for NCR and had a reputation for aggressive sales activity - to the extent that
he had been indicted in an anti-trust suit From these inauspicious beginnings however Watson modelled a
sales force on a highly ethical basis He required his staff to behave in an honest fair and square way. This
sober behaviour was expected at home as well as work and included wearing the familiar dark suits and white
shirts The company benefits included lifetime employment and IBM country clubs which developed a
collective feeling Company songs and slogans (such as THINK) were encouraged and inculcated at company
training schools.

This approach was eventually transmitted to Japan. In the 1950s Japanese management style was deliber-
ately modelled on IBM by the Ministry of International Trade and Industry IMITI) who found the IBM way eulo-
gized in American business textbooks. Ironically the company resembled civil service organizations more than
other industrial corporations. Its style was paternalist and hierarchical offering employment for life and
excellent career paths for its brightest workers

Computing began in Britain and the USA in the 1940s and the first significant commercial product Remington
Rand’s UNIVAC was launched in the early 1950s IBM entered the market soon afterwards and used its
powerful resources to take a leading position Under Watson’s son Thomas J Watson Jr IBM and computing
became virtually synonymous controlling 70 per cent of the world market in the 1960s Big Blue became one of
the largest corporations in the world its international workforce reaching a peak of 405 000 in 1985.

IBM s overwhelming control of the computing industry was symbolic of the USA’s technological and economic
dominance in the post—war world. This strength was based on an integrated product range of highly
expensive mainframe computers, peripherals and software, which locked users into IBM once they had made
their initial purchase. Gradually, however, cracks appeared in this dominance. Despite being an IBM
invention, the personal computer liberated individual users from the mainframe PC ‘clones’ were supplied
more cheaply by competitors with much lower overheads. PC’s became more powerful, not just because of
increasingly faster processing chips but also from the software this speed allowed. Profitability moved from
the mainframe sector to the PC. and particularly to software producers such as Microsoft.

People management
IBM was traditionally a non-unionized organization. In fact the corporation was accused of being anti-union —
but most of its staff seemed to like it that way. An ACAS survey in 1977 showed that only 49 per cent of the
company’s British employees wanted a union, with 91 per cent saying they would refuse to join if there were
one. For half a century its culture was strongly based on lifetime employment and excellent working condi-
tions. The company did not possess a formal system of employee relations as such: the nature of the employ-
ment relationship was implicit in the corporation’s human resource policies. Need e (1994 p332) describes
these as taking the form of:

• A sophisticated system of human resource planning, recruitment and training.

• A system of lifetime employment in which staff changed their jobs as and when required by the
organization.

• Equal status for all IBM employees in terms of fringe benefits, staff restaurants and other
facilities, although company cars were restricted to senior management and some sales staff.

• Centrally determined salaries, geared to bettering hose of competitors and reviewed annually;
increases based on a performance objective system

Page 4 of 6
• Considerable emphasis on training, particularly related to people management and averaging 40 days a
year for managers.

• An audit of staff opinion held every two years, focused on attitudes towards work methods, HR practices,
pay and conditions.

• A model HRM approach with decision making and people management delegated to line managers at the
lowest possible level.

• Formal communication procedures designed to encourage debate of business problems and to allow
aggrieved staff to appeal against local management decisions.

By the early 1990s, however, IBM was in serious trouble. The company had been cutting costs for six years
under the chairmanship of John Akers, a lifelong IBM man in his late 50s. A former navy pilot, he joined IBM
as a sales representative and was soon identified as senior management material. Silver-haired and youthful,
he was the image of the IBM corporate employee. The severity of the problem and Akers’ bleak assessment
of sales performance and poor productivity came to light in 1991. A middle-manager who attended a
confidential briefing inadvertently distributed his summary of the meeting through IBM’s internal electronic
mail network. This soon brought the media spotlight on the corporation, publicizing Akers’ attempts to correct
the situation. One failure was the recruitment of 5000 additional sales representatives, to boost the existing 20
000, which increased revenues by less than 4 per cent. He then announced 14000 job cuts, increased this
17000 shortly afterwards. In IBM-speak these were referred to as ‘management-initiated-separation’ (MIS).
Some 47000 IBM employees had already had an MIS experience over the previous five years but the latest
announcements would still leave the company with a worldwide workforce of over 350 000.

The media and industry analysts increasingly criticized the momentum of change. Forecasts of reduced
profits and static turnover led to calls for more radical action. IBM’s strong points, its culture and structure, had
apparently become its major weaknesses. The company was described as insular and complacent, slow to
react to the move away from large expensive mainframe computers to powerful PCs and workstations.

IBM’s bureaucratic decision-making structure dragged down its ability to react at a time when the industry was
becoming increasingly fast moving. Whereas a local office in Europe, for example, had to refer to its regional
head office and possibly to New York, competitors could take the initiative immediately. Procedures which
functioned adequately when product development had a four-year cycle, were hopelessly ineffective when the
lead time had shrunk to a year. IBM had a tradition of producing virtually everything in-house, further
increasing its insularity and inability to react quickly to market changes.

A loss of over US$4 billion in 1992 led to Akers’ replacement by the first outsider, Louis Vincent Gestner,
destined to take the serious decisions, which Wall Street analysts had demanded. Despite making IBM’s first-
ever job cuts the conclusion had been that Akers was too imbued in the IBM culture to be able to take
sufficiently drastic measures.

New broom sweeps….

Louis Vincent Gestner Jr, 51, was appointed chairman in April 1993 with no experience of running a computer
business. Gestner, a devout Catholic, was the son of a truck dispatcher from Long Island. He started his
career with management consultants McKinsey after Harvard Law School and later became head of RJR
Nabisco. ‘There will be no pussyfooting, no more salami-slicing,’ he told shareholders a month later. He
quickly hired two experienced cost-cutters as aides: Jerome York, former chief financial officer of Chrysler;
and Gerald Czarnecki, who had implemented reductions in staff at Honolulu’s HonFed bank. Gestner listed
four immediate priorities:

 major staff reductions, reducing IBM’s workforce worldwide to about 250 000 and including the first
compulsory redundancies in the company.s history
 defining IBM’s core areas
 improving customer relations
 decentralization.

In 1993 Gestner announced a record quarterly loss of US$8 billion that included an US$8.9 billion charge for
Page 5 of 6
laying off 50000 employees that year — double the previous estimates. Gestner said: ‘Getting IBM’s costs
and expense structure in line with the revenue realities of our industry — right-sizing the company — is my
highest near-term priority’. But he declined to break up IBM’s eight product groups and disappointed stock
market analysts who were looking for more radical surgery.

One key element of cost was, of course, the company payroll. Gerstner’s team made significant changes to
IBM’s compensation [pay] plan:

• Look to the marketplace. The single salary structure [for non-sales employees] was changed to different
salary structures with merit budgets for different job families. This allowed IBM to pay employees in
different job families according to market-oriented rates.

• Fewer, faster jobs in a flatter organization. The traditional salary grades were scrapped in the USA, and the
number of separate job titles cut from over 5000 to less than 1200.

• Reward for performance. The old compensation plan based pay raises on a complex formula linking
performance assessments to salary increases measured in tenths of 1 per cent. Under the new system,
managers were given a budget and told to differentiate between the pay given to ‘stars’ and ‘acceptable
performers’ on the grounds that otherwise the stars would not stay too long.

According to Czarnecki: ‘IBM did deliberately foster paternalism with a social contract between employer and
employee. But economic realities forced us to rethink the relationship. Now we’re no longer asking people for
total commitment to us. They’re eager to stay but prepared to leave’ [Sampson, 1995: p. 228].

The company still refrained from using terms such as ‘layoff’, but employees soon got the message. At the
original IBM site, Endicott in New York State, the process was called ETOP — the Endicott Transition
Opportunity Program. Cynical staff translated this as ‘Eliminate the Older People’. Local mental health ser-
vices reported a massive increase in requests for stress counselling. ‘Surplused’ staff felt stigmatized and
rejected by the firm. For the company itself, however, the picture was looking better. By 1995 the corporation
returned to profitability.

Restructuring HR
When the business units were given autonomy in the early 1 99Ds, the HR department had to react without
an expansion of staff [Shugrue, Berland, Gonzales and Duke’, 1997). HR was turned into a separate business
with a national benefits call centre. Separate human resource functions were consolidated into a number of
geographical regions where experts were relocated. Their expertise was offered to other companies on a
commercial basis. Small teams of HR advisers were left at individual IBM locations. The business made a
saving of more than US$100 million from these changes in just 2 years.

Following this event, IBM’s new CEO re-centralized the autonomous business units and indicated to the HR
department that its costs should be cut by 50 per cent. Taking the national benefits centre as its model, the
company then consolidated the remaining regional HR units within the National Human Resource Service
Centre in Raleigh. North Carolina, so that all human resource functions were under one roof,

In recent years IBM’s 2500 HR specialists around the world have focused on reducing the paper load of deal-
ing with the company’s huge workforce, with some 500 pieces of data on each employee. Much of this
information is required by other departments, making fast and accurate communication a priority. A number of
electronic HR initiatives have transferred paper driven processes on to human resource management
systems accessible through web technology.

Page 6 of 6