Do you remember when IBM was a case study in complacency? Insulated from the real world by layer upon layer of dutiful managers and obsequious staff, IBM’s executives were too busy fighting their endless turf battles to notice that the company’s once unassailable leadership position was crumbling around them. The company that held the top spot on Fortune’s list of most admired corporations for four years running in the mid-1980s was in dire need of saving by the early 1990s. Fujitsu, Digital Equipment, and Compaq were hammering down hardware margins. EDS and Andersen Consulting were stealing the hearts of CIOs. Intel and Microsoft were running away with PC profits. Customers were bemoaning the company’s arrogance. By the end of 1994, Lou Gerstner’s first full year as CEO, the company had racked up $15 billion in cumulative losses over the previous three years, and its market cap had plummeted from a high of $105 billion to $32 billion. Armchair consultants were nearly unanimous in their view: Big Blue should be broken up.
A version of this article appeared in the July–August 2000 issue of Harvard Business Review.