IBM is a multinational company that provides hardware, software, and related services in any computer-related field. Established in 1911, the International Business Machines company has garnered a reputation for making bigger computers known as “mainframes” that take up entire rooms. As IBM keeps reinventing itself and creating newer products, today it has over 270,300 employees present in more than 170 countries. The company’s revenue in 2024 sits at $62.7 billion. 

Business reinvention expert Dr. Nadya Zhexembayeva says that IBM is a great example of how companies reinvent themselves before they have to. IBM didn't wait for failure to force change. Instead, the company rebuilt itself three separate times over 30 years, moving from computer maker to service provider to cloud and artificial intelligence specialist.

The Problem That Started Everything

What happens when your main product becomes outdated? IBM found out in the early 1990s. The company had dominated the computer industry for decades by selling massive mainframe computers to big corporations. These room-sized machines processed data for banks, airlines, and government agencies.

But personal computers were getting more powerful. Companies started buying smaller, cheaper computers instead of IBM's expensive mainframes. IBM's revenue dropped. Stock prices fell. The company that once seemed unstoppable was losing customers fast.

As to why this took place: Technology moved faster than IBM expected. The company had focused so much on making better mainframes that it missed the shift toward personal computing. IBM needed to change or risk becoming irrelevant.

First Reinvention: Becoming a Service Company

Lou Gerstner became IBM's CEO in 1993. He made a bold decision that surprised everyone. Instead of selling off IBM's different parts, Gerstner kept the company together and changed what it sold.

• IBM stopped trying to compete just on hardware. The company started offering consulting services, helping other businesses solve technology problems. This meant IBM's employees would work directly with customers to design computer systems, not just sell them computers.
• This change required new skills. IBM recruited thousands of new consultants and retrained current employees. The company learned to sell solutions, not just products. What does this mean? IBM would instead say, “let us help you run your business better with technology,” instead of saying, “buy our computer.”
• The results came quickly. At the end of the 1990s, services accounted for over half of IBM's revenue. The company had transitioned smoothly from sourcing hardware to providing software for its clients. 

Second Reinvention: Betting on Cloud and AI

Did IBM stop changing after the services worked? No. In the 2000s, new challenges appeared. Companies, such as Amazon, began offering cloud computing, which lets companies rent computer power instead of buying it.

• IBM realized it needed to change again. The company started to spend billions of dollars on two things: cloud computing and AI. Cloud computing means storing and accessing data over the internet instead of on local computers. Artificial intelligence is a computer system that can’t perform tasks that a human would.
• In 2019, IBM made its biggest bet yet. The company acquired a software company, Red Hat, for $34 billion. This buy provided IBM the tools to assist other firms in moving to the cloud. Red Hat makes open-source software, which means anyone can use it for free and modify it as they want.
• More than half of IBM’s revenue came from these new focus areas in 2020. Hybrid cloud profit alone accounted for more than a third of revenue and grew 14% annually in 2022.

Changes That Made Reinvention Possible

The company rebuilt its culture from the ground up. IBM broke down the walls between different departments. Engineers started working directly with salespeople. Consultants collaborated with software developers.

IBM also changed how teams worked together. The company took on agile methods, which work in short-term cycles and adjust wisely based on feedback. This helped IBM blockchain respond rapidly to customer requirements and market changes.

Training became a priority. IBM spent millions teaching employees new skills. Hardware engineers learned about software. Salespeople studied cloud computing. The company created a culture where continuous learning was expected, not optional.

What IBM Achieved Through Reinvention

IBM's willingness to change paid off in several ways:

• The company maintained its position as a major technology provider despite facing serious threats to its original business model.
• Revenue streams diversified significantly. Instead of depending mainly on hardware sales, IBM now earns money from consulting, software licenses, cloud services, and AI solutions. This variety protects the company when one area faces challenges.
• IBM also gained the ability to adapt quickly to new technologies. The company's experience with multiple reinventions created an organizational skill: the ability to spot trends early and adjust accordingly.

5 Business Lessons from IBM's Reinvention Journey

1. Change before you have to. IBM didn't wait for a crisis to force action. The company started planning its next phase while the current one was still working.
2. Keep what works; change what doesn't. IBM maintained its strong relationships with big corporations while completely changing what it sold to them.
3. Invest in employee skills. New business models require new capabilities. IBM spent heavily on retraining workers instead of just hiring new ones.
4. Make a culture support strategy. Breaking down departmental barriers helped IBM execute complex changes across the entire organization.
5. Diversify revenue sources. Depending on one product or service creates vulnerability. IBM spread its income across multiple areas to reduce risk.

Dr. Nadya’s Perspective on IBM's Success

IBM thrived through continuous reinvention, a process that Dr. Zhexembayeva advocates for all businesses. Most companies only change when forced to by a crisis. IBM developed the ability to identify profitable risks early on and capitalized on them successfully through clever acquisitions and joint ventures such as Siemens, Chenet, Wang, and Ricoh.

IBM had more options for change because it was ready. The firm could take time to think of changes carefully instead of making moves out of desperation. IBM’s story illustrates that successful reinvention needs vision and also discipline.

IBM's evolution from a mainframe maker to a leader in AI and the cloud shows that big companies can also make worthwhile changes. The secret is constant adaptation, employee development, and the courage to abandon profitable but declining business models before market forces do the honor for you.

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