International Business Machines Corporation (IBM), the company that originally created and dominated the personal computer (PC) market, has faced a lot of challenges due to increased competition and increasing costs. As the home PC market began to emerge, IBM announced a new division to enter that market as well. However, competition was tough and IBM began losing market share to companies such as Dell, Compaq, and Gateway. These companies discovered that consumers prefer low price to the extra “frills” that IBM offers in its computers. Furthermore, IBM found that many consumers were no longer willing to pay higher prices for IBM’s reputation.
By introducing a new line of computers while reducing its PC workforce from 10,000 to approximately 9,000 employees and cutting other costs, IBM regained enough market share to be listed as No. 5 for PC shipments in the United States, and went on to grow sales into a No. 3 position in 2004. However, competition continued to drive down prices, resulting in IBM’s PC division barely breaking even. The PC pioneer determined that it could no longer compete and in 2005 sold its entire PC business line to the Chinese company Lenovo for $1.75 billion.
1. Did IBM make a good decision in setting up its consumer division? How so?
2. Analyze IBM’s decisions and actions involving the consumer division. Try to categorize these decisions and actions following the threefold management process of planning, controlling, and evaluating.
3. Based on the threefold management process of planning, controlling, and evaluating, where do you think IBM was weakest in its decision-making practice with respect to the consumer division? Where do you think it was strongest?