As it turned 100 this month, IBM 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. IBM's stock market value passed Google's (GOOG) this year. Not bad for a corporate centenarian.
Yet, not so long ago, IBM'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.
"IBM 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 Colony, chief executive of Forrester Research.
IBM 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.
Growth conundrum
That is certainly the test 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 (AAPL), 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 IBM 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 IBM'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, IBM has recast itself as the supplier that can best manage and stitch together all the diverse technologies in modern data centers. Mainframes still have a role, and IBM has invested heavily in them -- $5 billion in mainframe research in the past 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 IBM 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.
At the moment, Microsoft is the tech company that most squarely confronts the post-monopoly predicament, as IBM once did. But unlike IBM 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.
The long-term problem for Microsoft is that more than 80 percent of its operating profit still comes from its PC software franchise. "Microsoft has delivered some singles and doubles, but is there going to be another home run?" asks David B. Yoffie, a professor at Harvard Business School.
Because of such concerns, Microsoft's stock price has stagnated for years.
Beyond engineering
Google, meanwhile, has the purest engineering culture among the major technology companies. Its founders, Larry Page and Sergey Brin, former Stanford graduate students in computer science, set the tone. And the assets most prized at the company are brains and data.
"Google is all about information -- searching, discovering and sharing information more intelligently," says Peter Sondergaard, senior vice president for research at Gartner.
But it is also moving into the more closed realm of software for devices, mainly for smartphones and tablets, with its Android operating system. The move is partly defensive but it could also put the company in a powerful position to shape the future of mobile devices, which are eclipsing PCs as the center of gravity in computing.
In recent years Apple has been unmatched in applying its core assets to new markets. Its hallmark skills are the intuitive usability of its software and the inspired design of its hardware -- talents long appreciated by loyal Mac users.
Apple looks to be riding a money train for some time. Yet its product designs, however impressive, will eventually be mimicked and come under price pressure, just as the mainframe did, predicts Michael A. Cusumano, professor at the Sloan School of Management at Massachusetts Institute of Technology.
Apple, he suggests, can build a large business around offerings like its new iCloud online storage and syncing service. "Becoming a platform for delivering digital services is the way Apple can make big money in future decades," Cusumano says.
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