Strategic Intelligence Briefs
IBM: Then and Now

These notes supplement Alain Paul Martin’s book Harnessing the Power of Intelligence,
Counterintelligence and Surprise Events published in 2002 by Executive.org.

• IBM: Then and Now

Until the early eighties, IBM was the leader in its market. However, Its success became a breeding ground for intelligence complacency that ultimately contributed to the $20-billion loss suffered between 1990 and 1993.

In 1980, CEO John Opel invited Bill Gates to develop an operating system for IBM-PC. He did not want IBM competitive intelligence staff to monitor Microsoft, which he described as merely "Mary Gates’ boy’s company."(1) Overconfidence also led IBM to fast track the production of several ill-fated machines without sufficient intelligence on established competitors (Apple, Compaq, Dell) who mounted successful counter-attacks that forced IBM to withdraw both the Portable PC and the PC Junior.

During the same period, IBM faced a barrage of anti-trust hearings in Washington. Yet, it had less resources devoted to tracking anti-IBM forces than its smaller competitors or any company of comparable size. Without sufficient intelligence to act early when issues pertaining to its business were still in incubation stage, IBM "concentrated on vindicating itself in court" generating over 50,000 tons of legal documents to win a costly victory. Rather than focusing on innovation, production and marketing, IBM executives wasted countless hours on the so-called defense-posture meetings. They raised unprecedented barriers to research. IBM’s "chief scientist at the time recalled being forbidden from even purchasing the machines made by competing manufacturers in order to study how they worked."(2)

Furthermore, capitalizing on IBM complacency, "Oracle was founded on a database technique, called SQL, that IBM researchers described in a technical paper. Oracle beat IBM to market with software using the technique and has since grown to $6.7 billion in revenue… as that technique came to dominate mainframe databases."(3)

IBM was not alone in turning a blind eye on emerging trends and on the rise of dark horses. Digital and other computer manufacturers were also running strategic intelligence without world-class talent or significant budgets and only one had an intelligence committee in its board of directors. As a result, they underestimated the strategic moves of Intel and Microsoft.

Lower barriers to entry made the PC market increasingly commoditized. But, improverished intelligence blinded IBM to this fact prior to Lou Gerstner's arrival.

Thanks to Gerstner, however, IBM has since rebounded, carving a dominant share of the high-end IT systems with a respectable position in the management consulting and integrated solutions markets. Bruce Harreld, a successful entrepreneur and a war-room expert who joined IBM senior management in 1995, has also played an instrumental role in building IBM intelligence team and operations. Before joining IBM in 1993, Gerstner led companies where competitive intelligence is a common practice. The IBM he left in 2002 has a premier research pipeline, and is either first or second in the IT markets where it has chosen to compete.

Important

A detailed coverage of intelligence, counterintelligence, strategy, risk, F-Scale and strategic negotiations is the subject of the management seminar:

Strategy, Risk, Negotiation & Leadership.
For seminar objectives, outline and upcoming sessions in the US and Canada, contact www.executive.org.

Footnotes

1. Robert Levering, Michael Katz, Milton Moskowitz: The Computer Entrepreneurs, New American Library, New York, 1984.

2. David Hart: Red and White and Blue All Over: The Political Development of IBM, John F. Kennedy School of Government, Harvard University, Faculty Research Working Papers Series, January 2001, RWP01-003

3. Paul Carroll (Editor in Chief): Spy Counter-Spy, Virtual Horizons, Context Magazine Archives, Digital Partners, Chicago, IL, Summer 1998.