Case Ibm

1-Why do large companies like IBM find it so difficult to create new business? What are the primary barriers to success?

Nowadays, a company to grow up has to start new businesses, and this is a difficult point for them. Normally it is not for economic reasons but for cultural reasons (HBR Garvin 2004). Generally between 50% and 60% of the new businesses fail in their first six years. The principle problems when starting a new business are the following:

Normally big companies seem to be very enthusiastic to develop a new business, but not all the initial ideas become successes. In any case managers should know that current products and technology get obsolete. Therefore, they must focus on new opportunities and not only involved in core businesses (HBR Garvin 2004).

As the article “Emerging business opportunities at IBM” says, big companies use to have a very complex structure that means that the company is divided into several business units. These units are based in different brands that have their own profit and loss statements. Sales and distribution are organized geographically and by industry sectors. The result of this situation is that to start a new business there are too many parties required to support the new idea, because bureaucratic way of making decisions. This is also the case in big companies as IBM.

Another problem is that starting a new business is always time consuming. Experimentation particularly consumes a lot of time. New concepts are difficult to validate and the first reactions of the customers are not always good predictors of long-term sustainability. Therefore, managers expecting a quick return are often disappointed, some studies show that businesses took about seven years to become profitable and none of the businesses have a positive cash flow in its first two years (HBR Garvin 2004).

Managers inside new-growth businesses often feel tremendous pressure to quickly increase sales volume. But disruptive businesses cannot get big very fast. The only way to make them grow quickly is to cram them into large, obvious markets. In established markets, customers do not care about the disruptive innovation's strengths. They only care about its weaknesses but big companies usually adopt the easiest posture that is to serve current markets because is too risky start new businesses in new markets, therefore big companies try to avoid it.

Finally must be mentioned four critical components that could be the way for a new business to success in big companies such as IBM, these are (SB Brikinshaw 2003):

• Direction: this can be defined as the company’s strategy (objectives, market and position in the market).

• Space: this is the degrees of freedom provided for unit business managers

• Boundaries: they are the limits within the company operates.

• Support: referred to the help given to the managers for doing their jobs.

2-What is your evaluation of the “”horizons of growth” model? What are the distinguishing features of emerging H3 businesses?

IBM uses the model of The Alchemy of Growth, by Baghai, Coley and White to categorize the different kind of new business opportunities and the type of general management style needed for projects in that horizon. The model is well structured because it gives a framework to think about growth in a way that balances the competing demands of focusing on the present as long as investing for the future. The horizons are measured over years and each of this includes different sets of strategies to address the development needs of the organization.

The model can be used in a wild range of business and is easy to understand by providing a way to cluster strategic thinking in terms of goals and strategies over particular time periods, especially in long range forecast.

The capacity to scatter the usual-to-big-project into small discrete steps, each of which can be justified individually but can also be linked to form a larger scale project make it a good tool for ambitious and complex project analysis.

Using the Three Horizons approach, leaders can adopt an evolutionary perspective across the entire business portfolio. A strong H1 provides a healthy flow of capital, human resources and capabilities to the other horizons. Strengths in H2 and H3 increase the market value of the company by raising expectations of future growth. The challenge lies in achieving the proper balance across the Three Horizons to maximize shareholder value.

Horizon 3 is where the Visionaries excel in the area where futures must be imagined, researched and then developed. This requires seeding options today for the future and just as options cost on the market, so these type of options cost as well in the form of research, pilot projects and possibly investment in start-ups.

H3 consists of nascent business ideas and opportunities that could be future growth engines; otherwise with uncertainty with unknown level in today’s business environment even the best analysis to determine probable outcomes will leave much doubt about potential businesses. Nevertheless building successful future businesses requires much seeding. These options must be consistent with possible scenarios that could reshape or perhaps entirely transform industries. Typically they require little investment and no obligation, but they can be expanded if and when appropriate.

Horizon 3 Create viable options for the future (seeds of tomorrow):

• Numerous options to seed

• Most will fail

• Unproven opportunities

• Nurture/kill

• Internal external criteria for support

3-How did the EBO management system evolve over time? What was accomplished during: The Thompson era? The corporate strategy era?

At the end of the 20th century Gerstner asked three senior executives to define the many problems IBM had to cope with towards its business opportunities. The company had stopped growing for more than 5 years, despite the dynamic market IBM was situated in with most of its business. New businesses are needed for a company if it wants to grow and keep up with rapidly changing environments (Garvin, 2004). The team assigned by Gerstner concluded that no adequate EBO (Emerging Business Opportunity) management system was in place and new businesses had many difficulties

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