When IBM utilized technology to tap into the ideas of its employees, it discovered a way to shape its future direction. Julian Birkinshaw and Stuart Crainer share the story.
In 1982 Tom Peters and Robert Waterman’s In Search of Excellence was published. Its selection of excellent companies was examined, debated and analysed from every angle, but no one questioned the inclusion of International Business Machines (IBM). At that time, the company nicknamed Big Blue was the untouchable benchmark of American corporate life: hard selling, technology-driven, and reassuringly decent; a company which had never laid anyone off built around a set of enshrined company values established by its founder, Thomas Watson Senior, and developed and fully expressed by his son, Thomas Watson Junior. For the first three years of Fortune’s most admired companies ranking, IBM was number one. No one was surprised.
A decade later, Big Blue was in deep trouble. Digital Equipment’s minicomputers were making deep inroads into the mainframe computer market. The advent of UNIX was creating a non-proprietary platform for enterprise-level computing. And the PC industry – which IBM had helped to legitimize in the early 1980s – was shifting the industry’s centre of gravity away from hardware toward software and component technologies such as microprocessors. This gave rise to formidable new players such as Microsoft, Intel, Oracle and Sun. At one point, IBM had earned 70 per cent of the worldwide computer industry’s profits. But the shifts in technology and in the IT industry’s growth drivers – combined with IBM’s inability to adjust – caused its gross profit margins to fall from 55 per cent in 1990 to 38 per cent in 1993. The IBM brand was ranked third in the world in 1993; by 1994 it was rated as having a negative value.
At the beginning of the 1990s, IBM stared into the corporate abyss. Its travails were financially and commercially disastrous. What had made IBM great no longer worked: its culture and values had stagnated.
It was a symptom of the malaise that an insider was no longer trusted with the job of turning the company around. Lou Gerstner, a hard-boiled former McKinsey consultant, got the job. Changing the company’s culture was at the heart of the wide- ranging changes instigated by the combative Gerstner. As he later reflected, his discovery was that culture isn’t part of the game – it is the game. But, how do you change the culture and values of such a large corporation?
One of the answers lay in utilizing technology to provide organizational glue for IBM’s hundreds of thousands of employees. For a technology-based organization this does not appear a big leap, but the creators of technology are often not its earliest practitioners.
The company launched its Intranet, a web-based internal network, in autumn of 1996. “The Intranet’s chief goal was to help change the culture,” says Mike Wing, recruited from employee communications at Time Warner to lead the strategy and development of the company’s Intranet.
After the launch, IBM’s human resources department carried out its standard annual survey of employees, including a range of questions about compensation, job satisfaction, understanding the company’s strategy, and so on. Employees were also asked what they considered the best (most useful, credible, trusted) sources of information about the company. They were given a range of alternatives, from formal communication channels (things like annual reports, executive meetings or publications) to informal channels (such as manager and co-workers).
Says Wing, now IBM’s vice president of strategic communications: “People invariably prefer informal communication channels to formal. They trust people they know more than some formal source and that had always been the case at IBM, too.” The first year of its appearance on the list, the Intranet topped the survey as the preferred formal channel of communication.
But it was what happened the following year that proved a kind of epiphany: the Intranet leapt up to surpass the manager. By 2000, the Intranet had tied with co-workers (read: the grapevine) as a source of information. The following year, it was rated more highly than managers and co-workers combined.
IBM realized that it had a trusted platform for all sorts of communication. Says Wing: “This was a revelation. While we were always very deliberate in our attempts to use the Intranet to change the culture, this raised a whole new level at which you could imagine transformational intervention opportunities.” So, with this heavily used platform at their disposal – on any given day about 275,000 to 280,000 of the 335,000 IBMers access the corporate Intranet – Wing’s team began to look at how they could leverage and extend its impact.
Of course, many organizations have enthusiastically explored the communication channels created by new technologies. IBM’s management innovation was to connect technology with the transformational need of the company: to reinvent its core values. The means of doing this was a live companywide conversation – an activity known as a “jam”.