Story of IBM's Turnaround:

From a Besieged Box-maker to a Pre-eminent Service Provider

Jayashantha Jayawardhana

He work as the Project lead-Marketing content at eBEYONDS (PVT) Ltd, a leading Digital Marketing Solutions company in Sri Lanka. He holds a special degree in Business Management from Wayamba University of Sri Lanka.

By early 1990s, IBM was in deep trouble. Having been on the top spot of Fortune's most admired companies for four consecutive years in the mid 1980s, it was about to become a has been now. While Fujitsu, Compaq and Digital Equipments were hammering down at the hardware margins, EDS and Anderson Consulting were courting the CIOs. As endless turf battles kept IBM's executives busy, its solid presence as a market leader was caving in.

To worsen the matters, Intel and Microsoft pocketed the greater share of its PC profits. Also, IBM was drawing scathing criticism from customers for its arrogance. By the end of 1994 Lou Gerstner had served his first full year as the CEO of IBM. With a whopping $15 billion in cumulative losses racked up over the previous three years and the market capitalization having plummeted to $32 billion from $105 billion, the prospects were pretty grim for IBM. 'The giant should be broken up' sang the chorus of armchair consultants in unison.

Gerstner's famous remark "The last thing IBM needs right now is a new vision" aside, the company was rudderless in cyclonic winds. However, during the next six years, the company transformed itself from a beleaguered box-maker into a pre-eminent service provider. IBM's Global Services Unit, once a backwater, blossomed into a $30 billion business with over 135000 employees. Corporations swarmed to IBM consultants seeking their help in exploiting the huge potential of the Internet. IBM had carried out 18000 eBusiness consulting engagements by the end of 1998 and about one third of its $82 billion revenue came from the sources related to Internet.

It's intriguing to see how a company that had lagged behind every computer trend from the mainframe rode on the internet wave - a wave which even the Microsoft had missed first. It was thanks to an unlikely gang of rebels who had kindled a bonfire beneath the Big Blue's rather broad behind. I'm going to tell you their story.

Winter Olympics 1994

As the official technology sponsor for Winter Olympics 1994 in Lillehammer, Norway, IBM was responsible for gathering and telecasting all the results. David Grossman, a mid-level IBMer was at home watching it on television. He saw IBM's logo at the bottom of his TV screen. From time to time, commercials touting IBM's contribution to the iconic sports event were being run.

Grossman, a programmer, was then attached to Cornell University's Theory Centre. Using a supercomputer connected to an early version of the Internet, he'd downloaded the Mosaic browser and explored the graphical world of the Web. The Web fascinated him. He envisioned a range of interesting applications for the inchoate technology.

When Grossman sat at his UNIX workstation and started surfing the web, he saw something strikingly odd. A rogue Olympic website run by Sun Microsystems was taking IBM's raw data feed and webcasting it under Sun's banner. An Internet-literate already, he quickly realized what was going on and knew also that IBM was virtually clueless about what was happening on the open Internet. However, IBM's crass ignorance about Internet startled him but little. On his arrival at IBM a few years earlier, he saw people still using mainframe terminals. They knew little about UNIX and the Internet.

Outraged by Sun's skullduggery, he logged on to the corporate directory and searched for the name of the senior executive in charge of all IBM marketing: Abby Kohnstamm. Somehow, he managed to inform her that IBM's Olympic feed was being ripped off. After a couple of days, one of Abby's subordinates rang him. At the end of a long frustrating conversation, he was sure as hell that one of them was living on another planet.

Disconcerted though, he was too persistent to renounce it yet. He attempted to email a couple of screen-shots captured from Sun's rogue Olympic website to IBM's marketing staff in Lillehammer, but IBM's internal email system failed to cope with the web software. Still, IBM's zealous legal department sent a cease and desist letter to Sun Microsystems and got the site shut down.

Few frontline employees would've gone beyond that. But, Grossman felt Sun was about to eat IBM's lunch. Once everyone returned from Olympics, he drove down to IBM's headquarters, four hours away in Armonk, New York to personally demonstrate the Internet to Abby.

In the aftermath of the demo

Grossman arrived at IBM headoffice, his UNIX workstation in his hands. He ascended the winding staircase to the third floor, the sanctum sanctorum of the world's biggest computer maker. Borrowing a T1 line from a guy who'd been working on a video project, he plugged in his UNIX workstation. He was now ready for the show-a tour of a couple of early websites that included one for the Rolling Stones. As sober-suited IBM executives hurried through their rounds, they heard Mick Jagger wailing from the closet.

Present at the demo along with Abby Kohnstamm were two senior IBMers. One of them was Irving Wladawsky-Berger, head of Supercomputer division where Grossman worked. The other was John Patrick who sat on a strategy taskforce with Irvin Wladawsky-Berger. Patrick, a veteran IBMer and lifelong gadget freak had been head of marketing for the enormously successful ThinkPad laptop computer and was then working in corporate strategy, on a talent-search for his next project.

A few minutes into the demo, the colourful world of web enthralled Patrick. "When I saw the web first time", says Patrick "all the bells and whistles went off. Its ability to include colourful, interesting graphics and to link audio and video content blew my mind." What he saw in that primitive web browser (not everyone saw what he saw in it, of course) kindled his imagination. He could already see that people would do their banking and access all types of information on internet.

With its endless possibilities, the web ignited their passions and Patrick and Grossman became IBM's Internet Tag Team. The duo made a strong team with Patrick taking care of the business side and Grossman handling the technology side. Patrick contributed as a sponsor and as a resource allocator while Grossman built and maintained close ties with the Net-heads of IBM's far-flung development community. The toughest challenge Grossman faced was getting the attention of the senior management. For that, Patrick would be both his mentor and go-between.

The 'Get Connected' team

Shortly afterwards, David Singer, yet another Internet enthusiast at IBM joined their team. A researcher in Alameda, California, Singer had developed one of the first Gopher programs which fetched information off the Net. With great zeal, the tiny team of three got down to the job. Grossman and Singer began developing a primitive corporate intranet while Patrick composed a nine page manifesto highlighting the merits of the Web. Distributed informally via email, the manifesto elicited a telling response from IBM's hitherto unknown Internet enthusiasts. The next step was to create an online news group where IBM's underground hackers could exchange technical tidbit. Oddly enough, the top management at IBM was still in the dark about these goings-on. Within months, over 300 Internet aficionados at IBM had signed up for the virtual 'Get Connected' team.

John Patrick

Patrick and Grossman would use the web to rally a community of web fans. As the community grew, some people advised Patrick to go corporate and transform the budding web initiative into an officially authorized project. Jim Canavino, the Senior Vice President for Strategy and Development who was also Patrick's boss wouldn't sanction it, though. But, he asked Patrick to keep the grassroots initiative going as long as possible. Patrick too wanted to penetrate IBM with their web initiative rather than run some isolated project team. He reasoned to himself that it while it'd be easy for others to disregard a small department, they wouldn't stand in the way of a groundswell.

Even if he refused to sanction an official website for IBM, Canavino wouldn't also risk having dozens of uncoordinated websites. Therefore, he ordered that nobody could build a website without Patrick's approval. Although few people at IBM had a clue as to what the Internet would become, Patrick had become IBM's semi-official Internet monarch.

The army of volunteers

It wasn't that no one knew about the existence of Internet. There were a good many of Net addicts at IBM but who, until Patrick's intervention, hadn't known that the others shared their passion. 'What John ended up providing' says Grossman 'was the ability to articulate and summarize what everyone was doing and to open a lot of doors.' The Web, with its egalitarian outlook and scalability, enchanted the army of volunteers led by Patrick. When they assembled for their first meeting in person, they all pondered the big question 'How do we wake IBM up?'

Gathered at Patrick's vacation home deep in the woods of Pennsylvania, the Get Connected conspirators patched a mock-up of an IBM home page. Then, they approached Gerstner's personal technology advisor who acceded to arrange for a demonstration of the prospective IBM corporate website in the presence of CEO. When he saw the mock-up, Gerstner queried 'Where is the buy button?' For Patrick and his team, the mighty IBM CEO was not a quick study but an instant study. But Patrick knew an intrigued CEO wasn't enough. There were thousands at IBM who still needed to be converted to Internet religion.

Miraculously, the first opportunity for a mass conversion came at a meeting of IBM's top 300 executives on May 11, 1994. Patrick wangled himself a slot on the agenda of the august gathering and argued his point home. He toured the IBM top brass through a host of websites that were already up and running. They included among others the websites of Hewlett-Packard, Sun Microsystems, the Red Sage restaurant in Washington D.C. and one done by Grossman's six year old son Andrew. The point was patent- everyone could have a virtual presence.

Patrick wrapped up the demo by saying 'Oh, by the way, IBM is going to have a home page too, and this is what it will look like.' He showed to the stunned executives a mock-up of www.ibm.com with 36.2 second video clip of Gerstner saying 'My name is Lou Gerstner. Welcome to IBM.' When the skeptical old-hands at IBM wondered how the company could earn money from it, Patrick was frank enough to admit that he was yet to see how, but also told them that Internet was the most potent medium of communication both inside and outside of the company that had ever come.

The 'Internet World' trade show

Soon afterwards, Patrick along with a few colleagues attended one of the first Internet World trade conventions. They were amazed to see Digital Equipment, one of IBM's arch-rivals stealing the show with the largest booth. Driven by the urge from within to emulate Digital Equipment, the following day, Patrick signed IBM up for the biggest display booth when the organizers auctioned off the space for their next exhibition slated for December, 1994. Patrick knew it'd cost IBM a fortune. Also, it was way beyond his budget. But he was confident that he could raise enough money to foot the bill. 'If you don't occasionally exceed your formal authority', says Patrick, 'you are not pushing the envelope.'

Now that the name of IBM was at stake, Patrick could make a rallying cry across the entire IBM Empire for people to chip in. He wrote to the general managers of all the business units requesting for anything that was akin to the Internet, no matter how remote. They would have to put in a little money, he wrote, and he'd coordinate everything. The response he got from them convinced him that there was a lot more web technology coming to life at IBM than he'd anticipated. But, none of it was marketable yet.

However, at the Internet World trade show in December 1994, Patrick succeeded in showcasing IBM's global network as the world's biggest internet service provider as well as a Web browser that was predecessor to both Netscape's Navigator and Microsoft's Internet Explorer. IBM became the cynosure of the entire show and a fixture at every Internet World after that.

Patrick continually battled parochialism at IBM as he strongly maintained that the Web was a companywide issue, not the preserve of a particular division. At the next Internet World in June 1995, he challenged his compatriots to abandon their local biases and embrace the open, borderless culture of Internet. When asked whom he reported to, he said 'The Internet'.

Patrick, a persistent campaigner picked every opportunity he could to get other IBMers to subscribe to their initiative. When he was invited to talk about 'ThinkPad', he would speak about the Internet instead. Also, he'd use the ThinkPad to give Web page presentations rather than PowerPoint slides. When talking to the media, he chiefly addressed the vast crowd of IBMers who were still skeptical or simply ignorant about the power of the Internet. 'If you believe it, you've got to be out there constantly talking about it, not sometimes but all the time' says Patrick, 'if you know you're right, you just keep going.'

Support from the Top

As Patrick and his crew cajoled their way into every meeting they could to propagate the Internet religion, Gerstner began to back it up from the top. His early belief in the significance of network computing dovetailed nicely into the logic of Internet. Gerstner endorsed the Internet project and was raring to extend his support to IBM's Web heads. He emphasized that the company post its annual and quarterly reports on the Web. He also signed up to deliver a keynote speech at Internet World. This happened as Bill Gates and others still kept wondering if the Web was a secure enough medium for eCommerce.

Patrick became a trusted envoy between the company's management and the programmers who were plugged into the Internet culture and living on Internet time. He had the ear of IBM's top brass. His message to them was simple and unambiguous: 'Miss this and you miss the future of Computing.' Simultaneously, Patrick assured Grossman and his ilk not all people in the head office were Neanderthals. 'I used to think that IBM at senior levels was clueless', admits Grossman 'that these guys had no idea how to run a company'. But soon he and the others knew that they were savvy businesspeople and somehow, they connected them to the street through the shortest paths available.

Their campaign culminated in the formation of a small but formal Internet group at IBM with Patrick as the Chief Technical Officer. However, he resolved to keep his team separate from IBM's traditional software organization. His proactive move would pre-empt any threat to its functions or its very survival such as being pulled into a bigger division and shuttered in the face of budget-cut. Despite this formal unit, Patrick and Grossman didn't disperse their grassroots alliance.

The first-ever Olympics website

As the 1996 Summer Olympics drew nearer, the group saw a few landmark events. Grossman was borrowed out for 18 months by the corporate marketing which was in charge of the Olympics project. With Grossman as the architect of the project, IBM was ready to build the first ever Olympics website. Soon after he'd embarked on the project, he beseeched Patrick for extra staff. And Patrick virtually conjured up extra hands.

To get ready for Olympics, Grossman and his team also began building websites for other sporting events such as the 1995 U.S. Open and Wimbledon. For the U.S. Open site, he assigned to a team of college interns from MIT the job of writing a program to link a scoring database to the website. They just managed to hold the site together with a million people a day pounding away at it for scores. But, it taught them a good lesson about scalability.

The next event that took IBM by surprise was the Chess match between the then world champion Garry Kasparov and an IBM supercomputer named Deep Blue. The news of the match generated a flood of global interest. As Grossman's plate was full, the website for the match was outsourced to an advertising agency. Their website which was little more than a cheesy chessboard got overloaded with traffic and crashed sending IBM into the panic mode.

Immediately, Grossman and several engineers jumped in to rescue the site. They had just 36 hours before the next match to revamp the site. As the clock was ticking they got Wladawsky-Berger to pull a $500,000 supercomputer off the assembly line. Although the site didn't crash again, it forewarned them about the likelihood of a more challenging scenario during the Olympics.

As the anxiety level rose, Patrick went begging again requesting all the general managers to lend him the best people and the best equipment. He got not one, but three supercomputers and his team grew to some 100 people. With 17 million hits a day and few shutdowns, it was spectacularly successful and was also, by then, the world's largest website. Its content was replicated on servers across four continents. Also, IBM did a little bit of eCommerce when a demo site for online ticket sales drew a flood of credit card numbers and $5 million in orders.

The paradigm shift

Grossman used Olympics as a high profile way to demonstrate to IBM the possibilities of the Internet. Also, this approach launched an outside-in change initiative. As the spotlight fell on the Olympics site and by extension on IBM, the merits of Internet was communicated to the latter in a much more persuasive way.

The on-the-fly development that Grossman used was clearly antithetical to the custom of IBM's software development. The usual practice was to push the developers to perfect software before they were released to the market. As Grossman saw it, creation of Web-enabled software demanded a new set of software development principles. Much of the Web technology that Grossman and his team invented would later be developed into important products. The web server software they wrote for the Olympics site would later blossom into a product called 'Websphere'. Their initiative also pioneered the business of web hosting that supports hundreds of thousands of websites today. Grossman, who was by then a senior technical staff member on Patrick's team, also set up an Internet lab where IBM executives could experience the countless possibilities of the Web. 'Web Ahead', yet another of their bold initiatives were launched with the aim of revolutionizing the company's own IT systems through Internet technology and would become an extraordinary success.

The phenomenal success of their grassroots movement owes a great deal to the collaborative, selfless approach Patrick took in dealing with both IBM's top management and their sister departments. While staying independent of other departments, they made sure that they posed no threat, perceived or real, to the other departments.

The other most critical success factor was the power of results they achieved which the others couldn't question let alone negate. Without big titles or a mega budget, Patrick and his team helped turn the besieged box-maker around. A grand feat, any way you cut it. And history witnesses that it's not a black swan.