Comparison of Business Restructuring

Business Restructuring: the case study of IBM and HP

The word "restructuring" is interchangeably used as a whole and is a universal and broad world for all sorts of substantial changes and alterations that take place within an organization. Change management, restructuring as well as reorganization are all procedures and practices that are signified by the fact that they evaluate and assess the prevailing structures with the main intent of changing such processes by means of targeted and categorical interventions. This in particular takes place within the organization during its changing aspects. The decisions which are made are evaluated and assessed with mainly high doubts as a result of the scrutiny of procedures and structures. One distinguishing aspect of all kinds of organizational change processes is the directness and sincerity of the subsequent results. Even though, it is regarding purposely designed interventions, the intricacy and complication is very extreme to the extent that a constructive evaluation of intentional and unintentional impacts cannot be attained exclusively or solely by a forceful restructuring notion (Bohn, 2007; Koper & Richter, 2014).

In actual fact, restructuring implies renewal or reestablishment of a structure. For this reason, it is apparent that the continued existences of a prevailing structure for instance a firm or a business division, is up for negotiation. First and foremost, measures are targeted at the corporate structure getting accustomed to the constantly changing and fluctuating market conditions and therefore targeted at the economic outcome for most part (Krystek & Moldenhauer, 2007). From an economic standpoint, organizations cannot avoid crises and the subsequent need for restructuring, and therefore this happens again from time to time (Koper & Richter, 2014).

Business restructurings are severe, perceptive and every so often secluded interferences into the prevailing organizational structure and procedures in addition to the technique of service delivery, and are largely fixated on effectiveness in the short run. On the other hand, organizational development represents a more uninterrupted procedure that goes along between the medium and long run, and where the managers and also the workers have a massive impact on its design. Different from continuous and planned adaption, existential organizational predicaments necessitate decisions which are pressured in terms of time, with high ambiguity of outcomes, and are as a result a platform for distinct small political encounters (Koper & Richter, 2014). The effective application of change processes is integral in moving markets and distressed periods for the continued existence and success of an organization. The accomplishment of reorganization is ascertained by measuring the objectives that are set out at the start of the process.

IBM and HP restructuring

Overview of the IBM

International Business Machines (IBM), also commonly referred to as Big Blue, is deemed to be one of the largest IT Companies in the world. In accordance to the rakings of the year 2009, IBM was placed as the 14th best company globally. In the same year, the company was ranked position 28 in terms of international corporations in the Forbes Global 400 list. In terms of its business operations, IBM produces and sells hardware and software for computers and also provides infrastructure and hosting services as well as providing consultation in information technology stretching from PCs to laptops to nanotechnology fields. It is quite hard to obtain a corporation that operates in different areas and this offers IBM a competitive advantage. The company faces strong competition from other major companies in the IT industry such as Cisco where they compete for cloud inventions, competes with Microsoft Company in the application of desktop efficiency and competes for database products with Oracle (IBM at 100, 2010; Gesmin et al., 2011).

IBM is the global leading organization when it comes to business research. The corporation boasts of having 8 research laboratories encompassing over three thousand researchers in total spread over six countries. The chairman evaluates and assesses the headway made by the company every year. The strategy of the company, in addition to change practices incorporate the business procedures of a firm with technology with a determination to enable and assist in realizing the objectives and aims of the business. IBM's main strategic proportions encompass commercial, operational, organizational change and technological approaches that are custom-made and personalized to cultivate and nurture organizational novelty and development. With regards to the setting of the company, change is necessitated on a regular basis as a result of the active and forceful nature of the marketplace and the incessantly changing technological developments that force the company to ensure that its organizational procedures measure up to the changing periods and the amassing requirements of the business (Change Management, n.d; IBM, 2009).

HP overview

Hewlett-Packard Company (HP) was incorporated in the year 1947. The company offers its products, software, IT solutions and services to individual consumers, small and medium sized companies and also large establishments and multinational corporations. The company also provides these products and services to the government particularly the health care and education sectors. The business operations of HP have been categorized into seven distinct divisions which include HP Financial Services (HPFS), Imaging and Printing Group (IPG), Corporate Investments, HP Software, Enterprise Servers, Services, Storage and Networking (ESSN), and the Personal Systems Group (PSG). Hewlett-Packard partakes in making provisions which consist of personal computing and other access devices, technology support and maintenance, imaging and printing associated products and services, services for consultation and incorporation, and application development and support services. The company also offers enterprise information technology infrastructure which encompasses networking products and solutions, information management solutions, enterprise storage and server technology and risk management solutions.

Reason for restructuring

Organizational change is a vital determining factor for access for any company or establishment. The prevailing business setting cannot be similar or identical to previous business setting and neither can it be the same for business environment in the forthcoming time (Drucker, 2007). Taking this into account, it means that IBM as well as other companies faces challenges and difficulties in making sure that change approaches which they use are efficacious in keeping with the prevailing business necessities and the nature of the business setting. Some of the determining factors that steer organizational change include the need to have changes with regards to modifications in the business operations and also the organizational culture ("Change Management," n.d).

In accordance to IBM (2009), the key factor that forces an organization to change is having the need to guarantee that the organization is able to take into account the increasing requirements of the consumers and to update and modernize the business procedures of the company with the contemporary technological aspects and current tendencies and inclinations in organizational culture. In particular, the influences that forces International Business Machines to implement a change in policy is the necessity to build up the efficiency and output levels of its workforces and also the necessity to minimize the costs incurred by the business initiatives so as to increase the revenue and profits of the company. More significantly, the company operations have to sustain themselves even during the encounters related with the active fluctuating business settings and advancements in technology (Change Management, n.d; IBM, 2009).

There are numerous challenges being faced by HP, majority of which are linked to issues with structure and implementation. These challenges consist of the company taking into account the poor investment in research and development and also in the internal IT systems of the company which has made it become less productive and efficient and therefore less competitive. The company also has to ensure that its expenses are aligned with its revenue curve and also the necessity to execute the data collection, reporting constituents and structures required to observe, as well as account on all strategic business performance metrics in order to most successfully manage an organization of its size, measure and multiplicity. Another challenge that is faced by the organization is the changes in market tendencies such as shift to software, growing demand for computing infrastructure which necessitates for HP to manufacture and generate products and services which place the company in a better position to lead in the competitive markets (2012 annual report, 2012)

Restructuring Processes

IBM

Naturally, processes of change are different and dissimilar and can include factors such as organizational changes, technological changes and also encompass changes in the manner in which an organization undertakes and implements its business procedures. Prior to a change process being executed, it is vital to undertake a critical analysis of the prevailing business setting so as to assess whether implementing or executing the change is reasonable and worthwhile. Change is warranted in the business setting of IBM as a result of the lively nature of technologies in its sector and for this reason an organizational change is intended to make certain that the business continues to be competitive in the market. Successful execution of change is reliant on how effective the change management strategies that will be undertaken by IBM are (Duane & Hoskisson, 2008). Before any changes are executed or implemented, a company ought to make sure that there are constructive and positive change management strategies put in place or set in motion. These strategies are intended to battle the obstacles that are linked with implementing change within an organization (Change Management, n.d).

The corporation also faced forceful competition from other fresh IT firms for instance Intel Corporation and Microsoft Corporation. Regardless of the fact that the advancement in the internet generated plenty of demand levels for network technologies, the corporation did not recognize such demands from the consumers. The business tactics and methods employed by IBM were designed to reduce loss and reclaim the profitable position in which the company boasted in previous periods as the leading company in the IT sector. As a result, the corporation took the following phases so as to realize and accomplish its aims (Gesmin et al., 2011).

i. Change of Management

The management that was there before being led by Mr. Ackers did not have the ability to come up with the proper course of direction to save the business from its deterioration. The poor performances from the company made the stakeholders become intolerant. For this reason, the stakeholders realized the essence of having a fresh idealistic manager that could steer the company past the rough period. Subsequently, the board hired Lou Gerstner as the new Chief Executive Officer of the company to administer these change activities. Gerster's reputation followed him as he had spent more than a decade as one of the top senior managers at American Express (Gesmin et al., 2011; Applegate et al., 2009).

ii. Restructuring the Organization

Immediately after being appointed, Gerstner placed emphasis and concentrated on ensuring the company was reorganized and restructured. As a result, all of the business operations within the corporation were divided into three main groups. The first group was categorized as H1 which encompassed all the businesses undertaken in the short run. The second group H2 encompassed all the businesses growing at a very fast rate and lastly H3 consisted of all the businesses that would develop in the long run. The CEO also slashed the number of data centers from a whopping 155 to just three in the region. In the same manner, he reduced the number of Chief Information Officers to only one who would be directly reporting to him. Other aspects of restructuring the corporation included reducing the costs of the business processes and also incorporating new technologies so as to meet the demands of the consumers (Applegate et al., 2009; Gesmin et al., 2011).

iii. Re-organizing the Organization's Culture

Gerstner was mindful that in order to guarantee a simple transformation, there was great need for changing the organizational culture. As a result, 'One Voice' was the resulting e-business strategy that would steer organizational culture change. This came in the form of a booklet which highlighted the strategy of the company to the workforces. It simply explained what the personnel needed to undertake. More so, since this booklet was produced before the start of the campaign itself, it assisted the personnel in grasping the direction in which the company wanted to go. It is imperative to note that this strategy did not transform IBM. However, it did bring about a new orientation and altered the organizational culture (Gazis, 2010; Gesmin et al., 2011).

iv. The Role of Technology

Subsequent to making an analysis of the performance of the company, the new CEO Gerstner came to the conclusion that the business operation consisting of mainframe computers would bring about shrinking and weakening profits. He had the conviction that in time, this business would be largely replaced by client-server networks in the forthcoming periods. Despite the fact that the corporation's financial performance had upgraded, IBM was still finding it hard to increase competitiveness in high growth market segments for instance the PC sector which kept on being slow in fetching new technologies to the marketplace. For this reason, Gerstner decreased the level of spending on the development of mainframe computers by two thirds. In turn, he invested quite a lot in products which are software-based which ascertained to be a daring move for the corporation. With the main intent to increase its market share in the software industry, IBM made acquisitions of several firms such as Lotus Development Corp whose software was of great assistance in appealing to consumers who were vested in user friendly and reliable desktop publishing software. As the sales of the software increased and improved, the corporation was able to counterbalance the deteriorating demands of mainframe computers (Moreau, 1995; Gesmin et al., 2011).

HP

In the course of the 2012 financial year, Hewlett-Packard employed a number of leadership and organizational changes which consisted of assimilating its international accounts sales group into ESSN, combining its PC and printing business operations under the same senior executive management and also unifying all of its marketing and communications activities. The company also started employing initiatives of cost reduction which encompassed the company-wide restructuring plan. Additionally, HP started making substantial changes and alterations in its sales force in order to reduce expenses and enhance its go-to-market retailing activities and also the company reintroduced its concentration and emphasis in coming up with new products, services and answers. In the course of the 2013 financial year, the company concentrated on dealing with the expected challenges that came along with the changes they had introduced the previous year as well as go on ensuring that it had reduced costs. The company was quick to accept that it was expecting interruptions in the projected effectiveness and scheduling of activities associated to these determinations and greater than expected or surprising costs in executing them. In addition, the company also noted that it was susceptible to increased risks that are related with the execution of these changes taking into account that the company has a large portfolio, the comprehensive variety of geographic expanses in which the company exists, expanse of its clienteles' and associates' operations and also the number of companies that it had acquired in recent years. HP was aware that if the company would not attain success in these aspects or that these determinations would be more expensive than expected, then the business operations might be negatively impacted which in turn could restrict its capacity to invest and also develop its business (2012 annual report, 2012).

In the month of May for 2012 financial year, Hewlett-Packard approved and espoused a multi-year restructuring plan which was dubbed 'The 2012 Plan' intended to make the business procedures much simpler, enhance the level of innovation and provide better outcomes for consumers, personnel and investors. The company made estimations that it would get rid of roughly 29,000 positions in relation to this plan all the year through to the 2014 financial year with some of these positions being those exiting the company through voluntary early retirement program. Most of this program centered in the United States would be catered for using the company's pension plan. In relation to the 2012 plan, the company recorded an expense of roughly $2.1 billion at the end of the 2012 financial year. This figure encompassed expenses for EER plans in the United States and Canada which was a stock-based reward expenditure for fast-tracked vesting of stock-based rewards held by partaking EER personnel amounting to $41 million and also a special termination benefit outlay amounting to $126 million for a number of particular EER members whose retirement inducement benefit will be paid in cash and not included in the pension plans of the company. By the culmination of the 2012 financial year, HP had eradicated approximately twelve thousand positions (2012 annual report, 2012). The restructuring plan consisted of both voluntary early retirement programs and non-voluntary labor force decreases with an expected ratio of about thirty thousand employees leaving the company. Substantial risks connected with these activities as well as other labor force management problems that may well have impaired the firm's capacity to realize expected price discounts or that may have otherwise damaged the corporation consisted of interruptions in application of expected labor force decreases in exceedingly controlled settings outside of the United States, for the most part in Europe and Asia. These risks also included reductions in worker self-confidence and the disappointment of meeting operational objectives as a result of losing workers (2012 annual report, 2012).

Comparison of the restructuring processes

There are several aspects which IBM and Hewlett-Packard share in common. For instance, both of these corporations are working in tandem with small, medium and large firms in managing their technology. Another common ground is that these two companies are renowned brands with rich heritages which have had a significant impact in the technology industry. In addition, both of the companies are setting sights to gain market share particularly with regards to products and services such as cloud computing which have great growth potential (Kelleher, 2012). These two companies have a common vision in seeking success and achievement and they experience the same difficulties while making an attempt to such realizations such as an increase in unsettling new technologies and also a slow growth in the international economy (Kelleher, 2012). Finally, in recent periods, both companies have unveiled new CEOs with Virginia Rometty taking charge of IBM in January and Meg Whitman having been unveiled about a year ago as the head at HP. However, despite the fact that these two corporations share a lot of aspects, IBM and HP are advancing and progressing in dissimilar directions. On one hand, IBM is still developing based a long-term strategy that was designed several years ago. On the other hand, Hewlett-Packard is in the middle of a multi-year turnaround journey. None of the directions being followed by the companies was plotted for most part by their prevailing leaders for the reason that to begin with their perspectives on roles that software and hardware play in the future of information technology and secondly their strategy and tactic when it comes to mergers and acquisitions would be at a faorly initial stage (Kelleher, 2012).

In the past ten years, IBM's management and leadership have been in pursuit of a long-term direction. As an approach and tactic to shift from its past operations of manufacturing big computers, the corporation moved its business operations into software and offering consultation services for IT in a move to shift further away from hardware and even retailed its PC sector to Lenovo Company (Kelleher, 2012). Hewlett-Packard, similar to International Business Machines, a number of years ago made the realization that the future of technology did not lie in retailing big computers such as PCs to corporations, but rather in tackling and undertaking the progressively more intricate responsibilities of managing them and all the preceding technologies. However, different from IBM, Hewlett-Packard upheld that hardware would not become obsolete and would carry on having a vital role in the company's tech outsourcing business operations. This perspective can be seen by the acquisition of Compaq by the company in the year 2002 (Kelleher, 2002). Subsequent to this acquisition, the company went on to develop and grow. The company's revenue levels increased from $57 billion in the year 2002 to about $107 billion the previous year. On the other hand, the growth rate of IBM was comparatively slow as to that of HP (Kelleher, 2002).

One aspect that can be deemed crucial is the rate of CEO turnover. Whereas IBM has enjoyed time in outlining its five-year plans, Hewlett-Packard has moved from having hardware executives such as Hurd and Fiona, to having software executives such as Apotheker and also to electronic-commerce executives such as Whitman. It can be noted that implementing these changeovers or lack thereof has had an influence on the strategies of the corporations (Kelleher, 2012). In essence, this implies that IBM has great belief that its massive invested capital will be used in software firms that have just began revealing their potential. Hewlett-Packard will also obviously be making attempts in investing in software firms, but the organization seeks to balance and equalize these investments in software against a number of hardware firms that the company acquired in the past years. In general, it is a discussion and deliberation between investing purely on software against investing in a combination and mixture of hardware and software (Kelleher, 2012).

Taking all this into consideration, Hewlett-Packard can be deemed to be a risk taker. This is largely for the reason that the tech world is progressively more driven by software. It has to be agreed that hardware continues to be and will continually be a significant element of the tech world but with regards to several aspects such as PCs, routers, switches and servers, software is the driving force when it comes to invention and productivities. Despite the fact that hardware keeps improving, it is more and more perceived as a commercial product that generates low margins (Kelleher, 2012). On the other hand, it has to be agreed that software without a doubt has been a commercial product generating high margins. Despite the fact that Hewlett-Packard, all through the years of its acquisitions has generated increased revenues compared to IBM, the latter has generated higher profit levels. In this past year, the operating profit margin of IBM was 27% compared to a minimal 8% for Hewlett-Packard (Kelleher, 2012).

The following chart indicates the growth areas which the company expected to work on:

Source: http://marketrealist.com/2014/09/hps-multi-year-restructuring-plan-focuses-new-style/

Opinion and conclusion

IBM was able to make an astounding and phenomenal about-turn from the bankrupt path that it was on. The ingenious selection of tactics by the CEO of the company and the effective execution of these strategies facilitated the firm in attaining its initial return in the year 1994 (Applegate et al., 2009). The newly instituted chief executive officer implemented his ideas of taking the interests of the consumer first within the organization. Once he had had interactions with consumers far and wide, Gerstner made the decision that he wanted to instigate and unveil the campaign 'One IBM' into the market place. This was an idea that encompassed the incorporation of IBM entities making use of it to come up with solutions for its clients. Gerstner started out by delegating diverse tasks and duties to senior executives. He employed different managers to be liable for the different challenges being experienced by the company. For instance, to begin with, he employed Jerry York to instigate an ideal analysis in order to compare the expenses incurred by IBM in each of its business operations against those incurred by competitors. The whole idea of 'One IBM' is exactly what was the driving force and impetus in the restructuring and reorganizing of IBM. A Corporate Executive Committee was created by Gerstner with the intention of convening ideas every fortnight to place emphasis on the organizational strategy and the improvement of IBM. In addition, the CEO came up with the Worldwide Management Council which would converge every month to develop and execute global strategies and operations. What is more, the CEO restructured the sales organization of the firm in order to take into account the reaction and responses of the consumers (Gesmin et al., 2011).