IBM and HP Business Restructuring: A Comparative Case Study

Introduction to Business Restructuring

The word "restructuring" is used broadly and universally to describe all sorts of substantial changes and alterations that take place within an organization. Change management, restructuring, and reorganization are all procedures and practices characterized by the evaluation and assessment of prevailing structures, with the main intent of changing those processes through targeted interventions. This takes place within organizations during periods of transition. The decisions made are evaluated under considerable scrutiny, which generates high levels of uncertainty regarding outcomes. One distinguishing aspect of all kinds of organizational change processes is the directness of the subsequent results. Even though such changes involve purposely designed interventions, the complexity is so extreme that a constructive evaluation of both intentional and unintentional impacts cannot be achieved solely through a forceful restructuring approach (Bohn, 2007; Koper & Richter, 2014).

In practice, restructuring implies the renewal or reestablishment of a structure. For this reason, the continued existence of a prevailing structure — for instance, a firm or a business division — is open to negotiation. Measures are primarily targeted at adapting the corporate structure to constantly changing market conditions, and are therefore aimed largely at economic outcomes (Krystek & Moldenhauer, 2007). From an economic standpoint, organizations cannot avoid crises and the subsequent need for restructuring, and therefore this process recurs from time to time (Koper & Richter, 2014).

Business restructurings are severe, sensitive, and often isolated interventions into the prevailing organizational structure and procedures, as well as the techniques of service delivery, and are largely focused on short-run effectiveness. Organizational development, by contrast, represents a more continuous process unfolding over the medium and long run, in which managers and workers have a substantial influence on its design. Unlike continuous and planned adaptation, existential organizational crises necessitate decisions that are time-pressured, surrounded by high ambiguity of outcomes, and therefore a platform for distinct internal political encounters (Koper & Richter, 2014). The effective application of change processes is integral to navigating moving markets and distressed periods, and to ensuring the continued survival and success of an organization. The success of a reorganization is measured against the objectives set out at the start of the process.

Company Overviews: IBM and HP

International Business Machines (IBM), also commonly referred to as Big Blue, is considered one of the largest IT companies in the world. According to rankings from 2009, IBM was placed as the 14th best company globally and ranked 28th among international corporations on the Forbes Global 400 list. In terms of its business operations, IBM produces and sells computer hardware and software, and also provides infrastructure and hosting services as well as information technology consulting, spanning fields from PCs and laptops to nanotechnology. The diversity of its operational areas gives IBM a notable competitive advantage. The company faces strong competition from other major IT firms such as Cisco in cloud innovations, Microsoft in desktop productivity applications, and Oracle in database products (IBM at 100, 2010; Gesmin et al., 2011).

IBM is the global leader in business research, boasting eight research laboratories with over three thousand researchers spread across six countries. The company's strategy integrates business processes with technology to enable the realization of organizational objectives. IBM's main strategic dimensions encompass commercial, operational, organizational change, and technological approaches, all customized to cultivate organizational innovation and development. Given the dynamic nature of the marketplace and the incessant pace of technological change, IBM must continuously ensure that its organizational procedures keep pace with evolving business requirements (Change Management, n.d.; IBM, 2009).

Hewlett-Packard Company (HP) was incorporated in 1947. The company offers products, software, IT solutions, and services to individual consumers, small and medium-sized businesses, large enterprises, and multinational corporations, as well as to government entities in sectors such as health care and education. HP's business operations are categorized into seven distinct divisions: 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 provides personal computing devices, technology support and maintenance, imaging and printing products and services, consulting and integration services, application development and support, and enterprise IT infrastructure including networking products, information management solutions, enterprise storage, server technology, and risk management solutions.

Reasons for Restructuring

Organizational change is a vital determinant of competitive access for any company or establishment. The prevailing business environment cannot remain identical to the business environment of the past, nor can it be the same as the business environment of the future (Drucker, 2007). This means that IBM, as well as other companies, faces challenges in ensuring that its change approaches remain effective in keeping with prevailing business necessities and the nature of the business environment. Key determining factors that drive organizational change include modifications in business operations and shifts in organizational culture (Change Management, n.d.).

According to IBM (2009), the primary factor that compels an organization to change is the need to meet increasing consumer requirements and to modernize business procedures in alignment with contemporary technology and current tendencies in organizational culture. Specifically, the forces driving IBM to implement policy changes include the necessity to build the efficiency and output levels of its workforce and to reduce the costs of business initiatives so as to increase revenue and profits. Critically, the company's operations must sustain themselves even through the encounters presented by the active and fluctuating business environment and rapid advancements in technology (Change Management, n.d.; IBM, 2009).

HP faces numerous challenges, the majority of which are linked to issues of structure and implementation. These challenges include inadequate investment in research and development and in the company's internal IT systems, which has made the company less productive, efficient, and competitive. The company must also ensure that its expenses are aligned with its revenue curve, and must implement the data collection, reporting structures, and performance metrics required to manage an organization of its size and diversity. Additional challenges include shifts in market trends such as the move to software and the growing demand for computing infrastructure, which require HP to generate products and services that position the company to lead in competitive markets (2012 Annual Report, 2012).

Conclusion and Outcomes

IBM was able to make a phenomenal turnaround from the path toward insolvency it had been on. The ingenious selection of tactics by the CEO and the effective execution of these strategies helped the firm achieve its initial return to profit in 1994 (Applegate et al., 2009). The newly appointed chief executive officer implemented a consumer-first philosophy throughout the organization. After engaging with consumers widely, Gerstner decided to launch the "One IBM" campaign — an initiative that brought together IBM's various entities to develop integrated solutions for clients. Gerstner began by delegating diverse tasks to senior executives and hiring managers to address specific challenges. For instance, he hired Jerry York to conduct an analysis comparing IBM's expenses in each business operation against those of competitors. The "One IBM" concept was the central driving force behind the corporation's restructuring and reorganization. Gerstner created a Corporate Executive Committee that convened every two weeks to focus on organizational strategy and improvement, as well as a Worldwide Management Council that met monthly to develop and execute global strategies and operations. He also restructured the firm's sales organization to better account for consumer feedback and responses (Gesmin et al., 2011).

The financial outcomes of HP could be adversely impacted by conflicts in distribution arrangements or by deterioration in the financial condition of distribution partners. Business results might be negatively influenced by misunderstandings between different sales networks, the breakdown of any collaboration or distribution arrangement, or damage to selling shelf space. Several of HP's wholesale and retail providers have operated on low or negligible profit margins and have been adversely affected by pressures emanating from the business environment. Substantial trade receivables that are not indemnified by collateral or credit assurance remain outstanding with the company's retailers and distributors, meaning that revenue from indirect sales could be adversely impacted if the borrowing capacity or financial condition of its distributors deteriorates (2012 Annual Report, 2012).

Managing HP's inventory remains a complex challenge, as the company retails a substantial proportion of its products through distributors. The company must therefore maintain effective inventory management — particularly with top sales distributors — which includes the ability to forecast demand and pricing issues. During periods of production shortage, distributors might increase order quantities or cancel orders if they carry excess inventory, experience delays in new product launches, or adjust orders in reaction to supply levels from HP or competing companies, or to seasonal fluctuations in end-user demand (2012 Annual Report, 2012).

Over a comparable three-year period, IBM invested approximately $18 billion in research and development — equivalent to roughly six percent of its company revenue. HP, by contrast, incurred approximately $9 billion on R&D over the same period, equivalent to about 2.5% of its revenues. Looking ahead, it may be that both companies will need to prioritize R&D investment over acquisitions. With both corporations oriented toward a promising future, this approach appears to be a sound strategic wager (Kelleher, 2012).

The strategy pursued by Whitman at HP appears to be to compete for success in a crowded space while wagering that HP's research labs and engineering capabilities will produce the innovative products needed to restore the company's competitive standing. This contrasts with IBM's strategy, which emphasizes identifying important commercial, creative, and organizational challenges and then designing and delivering targeted solutions. Because HP's executives did not fully capitalize on the opportunities available to them over previous decades, the company became trapped in a low-margin position that it must exit as quickly as possible. It is therefore important for HP to establish itself in the most competitive areas of the tech industry while producing inventive and distinctive products. The central challenge facing Whitman is achieving all of these objectives in a practical and financially disciplined manner (Rasmussen, 2015).

The restructuring of IBM is widely regarded as effective. As reflected in the company's financial history, the income growth achieved through restructuring has been steady and sustained, confirming that a well-designed and carefully executed restructuring strategy can reverse even a severe organizational decline.