IBM is on a roll, at least as far as PCs are concerned. Granted, the company has just announced the Mother of all Corporate Losses, and John Akers has joined the ranks of presidents without portfolio. Nevertheless, there’s one part of the company that appears to have gotten its act together and is competing effectively — the Personal Computer Co.
The descent into the netherworld of non-competitiveness took a while: After all, IBM has always been a force, and what might have killed other companies just weakened Big Blue.
Yet from 1988 to the end of the third quarter of 1992, it was pretty darn hard to justify buying a Blue box, and fewer and fewer customers did. Prices ranged from merely exorbitant (50 percent more for the same configuration) to outrageous (250 percent more for similar systems).
Worse, the Entry Systems Division seemed to be run according to a single principle: “Ignore the competition and do things the same old way.”
Change was inevitable
Well, after seeing not only its market share drop precipitously, but its actual unit volumes as well, IBM started to change. The usual management changes occurred, of course, but more important was the development of a fundamentally new approach to the PC business, one that could make IBM competitive with Dell, Gateway and Compaq.
Compaq’s reinvention was a major motivation. After watching its nearest competitor make a quantum leap in its business model, IBM saw the writing on the wall: Change or die.
The most obvious result of this change is in the product line. The new products are actually competitive in features and, for the first time, price. It’s clear that IBM hasn’t achieved this by flushing quality, either.
Two product sets that stand out are the ThinkPad notebooks and the PS/ValuePoints. As a diehard notebook user, I find the ThinkPad 700C contains features that measure out well in the labs and in the field. This product is clearly driven by the world-class machines made by Toshiba, Compaq and NEC.
On the desktop, the ValuePoint line and its companion, the PS/1, are nothing to dismiss. In fact, finding a 486-based PS/1 was no small chore around Christmas. The ValuePoint hits the mark by combining the features and price necessary to sit on corporate America’s desks.
IBM generally had a good feature set in the past, but price was always its Achilles’ heel. So how did the price come down so much? This involves a peek behind the scenes of the new Personal Computer Co.
Although many observers tend to focus solely on product and technology engineering, a large part of IBM’s resurgence to a position of PC strength is based on the business and financial engineering going on there. At the root of this is the separate nature of the Personal Computer Co. When the decision was made to allow the business units to act more independently, this was the level playing field the PC folks needed. You wouldn’t believe the overheads the PC company was saddled with just for being part of IBM.
Bob Corrigan once made a great comment: “I told them I wouldn’t pay any overhead for the corporate jets. Besides, I never get to use them anyway.” It isn’t just corporate jets, either. While IBM doesn’t publish information on the extent of overheads or other product-cost issues, I’d guess it had $500 more in non-product cost and overhead allocations on some systems than its competitors.
This responsiveness to the market is also paying big dividends for customers. One clear manifestation of this is the flexible merchandising programs the company offers on its product lines. You the customer can decide if you want on-site, depot, or time and materials repairs. Software bundles are also broad and not limited to one operating system or set of applications. In fact, IBM is going to be doing some really exciting things with the non-hardware elements of buying a PC that should raise the bar for the Dells, Compaqs and Gateways.
This reincarnation is good for customers in another way. IBM, rather than being the easily beatable benchmark it’s been, is tough now. This means that other suppliers who want to compete will have to build even better systems and offer ever more attractive support and services.
Raising the general level of quality and performance for the entire industry is certainly a welcome sight, and one key benefit of a strong IBM PC offering.