How Did IBM Lose Its Market Dominance

How Did IBM Lose Its Market Dominance?

How Did IBM Lose Its Market Dominance – IBM was one of the profit-generating and most leading companies in the world. However, due to their policies and a lot of other factors, they lost the dominance. The industry once known for producing the mainframe computers had a decline in their profits due to several reasons which we will discuss here:

Why IBM Lose Its Market Dominance?

 

IBM International business machine ruled the computing world when it was introduced into the market. In the 1970s, IBM had 70% shares in the market; it was one of the major industries in mainframe computers. In the 1980s, it was one of the industries that made the most profit in the whole world. However, in the 1990s and onwards, it started to lose its dominance, a decline in profit was observed, and eventually, it leads to the downfall of IBM.

 

IBM lost almost $16 billion, and they reduced the market shares from 70 % to 25%. The decline was due to a lot of factors. For example, they enhanced corporate culture because they lost touch with their customers and the employees; they could not adapt to the market change and could not catch up with the new opportunities of market trends. In 1993, IBM hired a non-tech person as a CEO. CEO Lou Gerstner, a businessman, wanted to fix the broken infrastructures of IBM as the first step. They shut down the useless and non-performing departments and cut $7 billion from the annual costs. Due to Lou’s ‘One IBM’ policy, it stabilized IBM growth, but still, the growth was prolonged. The CEO and his team’s focus was on cost-cutting.

 

IBM was over-focused on their previously produced technology

 

What did Lou observe that the industry always misses the new scientific opportunities to create something new? The market was changing, but IBM was over-focused on their previously produced technology. They did not focus on customer acquisition and did not work for the future. And  they only wanted short-term revenue due to previous track records and the decline in profits and did not work on long-term projects which will generate revenue in the future.

They never focused on making and experimenting with new products with the newly invented technology. Also, the budget pressure created by the CEO and his team lead to the restrictions of innovation and experimentation of new objects. Along with this, social and political factors also impacted the growth of IBM. IBM is still in the market but has lost its dominance in the 1970s and 1980s and even before this time.

How Did IBM Lose Its Dominance?

 

There is quite a lot of reason of how and why IBM lost its market dominance. One by one, we will discuss the reasons:

Economic Factors:

 

Economic policies of different companies also led to the decline of profits of IBM and hence the decline in dominance in the market. The big companies bought IBM computers, and they were the primary customers, but due to the global crisis of 2008, many companies started to focus on cost-cutting. Budget control was the main priority of the companies. It reduced the sales of computers because of budget pressure. Even the hardware produced by IBM was not in want anymore. It reduced the demand for both the software as well as the hardware in the market. Computers were costly, so computer production companies thought of lowering the prices to let the company grow and make more customers. It also led the lower their operating cost to the downfall of IBM’s dominance.

Political Factors:

 

In the 1980s, a protectionist policy of different countries was on peak. Adapting protection policy meant that the nations would now focus on their domestic products rather than buying them from other countries. Most Asian countries interested in technology like South Korea, Japan, and Singapore started to focus on their innovations and invested budget in building their computers and technology.

 

Soon after this, these countries started to invest in making hardware devices for computers as well. Countries like China and Japan were not importing anything from the USA. They put heavy-duty on imports, so they stopped importing from the USA. China charged 82% will Japan charge 25% heavy-duty. They did it all to discourage the importance and encourage the country’s domestic growth. Hence perfectionist policy was a hindrance to IBM’s dominance in the market. It limited the chances of IBM to come and sell products on the global ranking. Since Asia was the most populous continent and their imports stopped, IBM’s global sales declined.

Business Apps For Apple:

 

IBM was not creating new products other than mainframe computers. In addition, with this, they started developing apps for Apple. They made business IOS apps for iPhones and Ipads. But such apps are only used by big corporates and not small-scale businesses. Small businesses can also create such apps, or even an individual can make an app at home by using the web and at lower costs. So IBM’s decision to develop Apps was a useless one.

Windows can even create these apps. The most well-known apps for IOS are leaded by Google and Microsoft. Apps by them are easily accessible and are free to use. No individual will install an IBM app if a free and an app with a good layout is available. The apps by Google and Microsoft are the most used in the world. Big companies only use IBM apps. So the decision to make apps was not a good one; instead, they could have used the money to invent new products.

Cutting Costs:

 

The biggest mistake of IBM was to cut annual costs. They only focused on cost-cutting. Cost-cutting by not investing in the new project was the wrong policy that IBM adopted. Due to this policy, they stabilized the revenue. The revenue did not decline, but it did not grow as well. IBM could have cut costs by replacing the expensive, highly skilled, and high-demand employees with the cheaper, low experienced, and still skillful people. They could have hired a few experts in addition to common in-demand, skilled people. Cost-cutting and budget pressure were some of the main reasons for the decline in IBM and its market dominance.

Social Factors:

 

Along with other factors, social factors also contributed somehow to the decline of IBM. Back in the 1980s, computers were in use, and production was increasing. The government required computers for administration use and educational purposes. In the late period of the decade, a computer was being used by the elite class for entertainment and learning. For student purposes, a personal computer was required, which could be used at home easily. The computers were made for administration purposes, and many companies came into the market to create better computers. They also introduced laptops in the health sector, so computers in society were increasing day by day. Along with this, the number of companies who produced computers also increased, and they built many better computers. It is how social factors were a part of the decline of IBM.

Overpriced:

 

IBM’s business policy was to sell the products at high prices and to generate revenue. This trick did work in the 1970s and 1980s because computers were something new, and people did buy the product. Mainframes computer were helpful. But they were expensive. They were overly priced, and people still bought from IBM because they were the only good computing company at that time. With time, their prices increased, but new companies started to make products of almost similar quality and less cheap. Eventually, people preferred to buy even small devices and hardware from cheap companies and not from IBM. They did not work on customer acquisition; a good policy is that first sell the product for low cost and then high it a little bit.

IBM Only Goal Was Mainframe Computers:

 

IBM in 1950 started the development of mainframe computers. Mainframe computers were a great success for IBM. Mainframe computers were sold worldwide by many companies, and countries other than the United States of America are used in computers for administrative and educational purposes. This worldwide sale generated tremendous revenue for IBM. Since mainframe computers brought great success for IBM, so they only focus on creating mainframe computers. They only relied on the success of computers for their revenue. IBM did not invest in developing new products, due to which IBM suffered a loss in profits. Everyone used mainframe computers, but by the end of the decade, it was used by big companies as mainframe computers can operate with a single layer between hardware and software.

 

New products are being invented in the market, for example, personal computers, laptops, mobiles, tablets, etc. IBM still focused on creating mainframe computers. In the current scenario, mainframe computers are only used by banks, big companies, and ATMs (automated teller machines). On a small scale, personal computers or laptops are used, which IBM did not produce. If only IBM invested in other products and limited themselves to mainframe computers, they would not have lost their dominance in the market.

New Companies Entered The Market:

 

The entrance of new companies in the same market created problems in the dominance of IBM. Companies like Toshiba, HP, and Dell were introduced in the market and started very efficient products with low costs. Now the shares in the market were divided, and by that time, IBM had only 25% shares in the market. IBM jumped down from 70 % to only 25% in the whole market. With the addition of such companies, now people also introduced independent developers and computer producers. These individual developers changed the market, especially the software development industry. Somehow they also changed the hardware segment of the market, and IBM was now not dominant in either of software or hardware industry. IBM lost its shares and dominance due to the entry of new businesses and software developers.

Technological Factors:

 

Technology has constantly been advancing; there are constant improvements in technology. With new technology, companies seize opportunities to create new products and thus become popular in the market. IBM always focused on short-term revenue projects and not long-term projects. The companies who made new products with new technology came into the market. These companies invest in new technology and new searches. They experimented and did surveys. With time new companies introduced new computer models and devices which were actually in demand. Due to the increase in technology, producers of computers also increased, the number of individual software developers also increased, and the high competition leads to the fall of IBM’s dominance.

Broke Contracts:

 

In the late 1980 and early 1990, IBM abrogated contracts with both customers and employees. The management broke the partnership with the customers to finance a substantial expansion. First, the company’s top executives did not realize that the administration rescinded the contract, but later on, they ignored it and didn’t care when it came to light. But when the expansion failed to materialize, IBM broke its promise of security to employees to protect its shareholder.

 

When IBM defaulted on its commitment to customers, they grew angry at the company’s arrogance for giving equipment that did not work correctly, was delivered late, or did not meet expectations in other ways. The defaulted employees also became delusional because the ineffective IBM management fooled them and let thousands believe that employee security had little connection with performance. The management showed tolerance toward poor performers rather than their dismissal to reduce financial loss significantly. These factors left IBM’s business uncertain for the remainder of the decade.

Failed Even At The Basics:

 

IBM failed even at the basics; the basics were to collaborate with other companies in such a way that you also earn a profit from the shares. Secondly, keep in touch with your customers; know what they want and your customers’ interests. Thirdly, invest in something new. IBM, as the leading technology company in the era, collaborated with Microsoft and Intel. They made a deal so that a significant portion of the share went to the Microsoft accounts, and they left IBM with less profitable shares. It was a very wrong move.

 

They took an interest in technology and software, but this blunder leads to a decline in profits. This move made the executives of IBM realize that they need to save costs now. Secondly, the company was known for its relations with the customers. They suddenly lost interest in customer’s wants. IBM kept on creating mainframe computers when the customers no more wanted mainframe computers. The fundamental failure was that the company failed to understand the microcomputer technology. The customers were interested in new computers that are personal computers and laptops etc. But the company never invested in the interests of customers. Instead, they lost the customers. It leads to the decline in the dominance of IBM in the market.

Conclusion:

 

IBM was one of the biggest and profitable companies worldwide until it saw a decline in its profits due to several factors.  IBM in the 1970s had the most shares in the market and the computing world. It dominated the market with almost 70% shares in the market. But due to some policies and other factors, it faced a decline and lost the dominance. They were a victim of their success.

 

The main goal of IBM was to sell mainframe computers. They got massive revenue from mainframe computers, but at the same time, they kept their focus on mainframe computers only, even when the trend was changing. They didn’t invest in new products rather focused on cost-cutting, and under budget pressure, they missed the new scientific opportunities. Meanwhile, the entry of new companies who seized the opportunity to produce new products with the improved technology entered the computing world. It contributed to the decline of the dominance of IBM.

 

The new companies like HP and Toshiba produced better computers and started to invest in experimenting. They had better laptops and devices. Soon, people no longer dominated the software and the hardware segments of the world by IBM. If only IBM invested in the new products and adopted better policies, they would still have a dominant share in the market.

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