Design Management Group

Case study - IBM PC

The IBM PC is a striking example of how a company can quickly bring a new product to market by drawing on the expertise of other specialist companies.

Inspired by the success of the Apple II, IBM felt that it too should have a personal computer. Although IBM possessed the capability to design and produce processors and operating system software in-house, it chose to set up a completely new operation in Boca Raton, Florida to develop the new product. (This decision may have been influenced by earlier experience with the short-lived IBM 5100 'portable' computer, introduced in 1975 after 2 years of development and selling at $10,000 - $20,000).

Significantly, IBM chose to use an open architecture and use existing system components, rather than create proprietary designs. Indeed, the only proprietary part of the system was the BIOS (low-level software).

Two sourcing decisions were to prove highly influential for the future of the computer industry. Firstly, the chosen microprocessor was the Intel 8088, establishing Intel as a leader in microprocessor design and manufacture. More famously, the operating system DOS was supplied by Microsoft who managed to secure a licensing deal which would secure it huge revenues in years to come. (Interestingly, Microsoft did not create MS-DOS from scratch: they bought the rights to an operating system called QDOS from Seattle Computer Products, which in turn borrowed heavily from the CP/M operating system).

The consequence of using existing technology was that the PC took only 13 months to develop. The IBM PC Model 5150 was launched on August 12, 1981, with prices from $1500.

Although viewed as technically 'inferior' by Apple, it nonetheless had the image as a 'serious' machine, benefiting significantly from the IBM brand. Within 3 years IBM PC sales had overtaken Apple, reaching 40% market share by 1985.

However, one consequence of the open architecture was that the PC was easily 'cloned'. Indeed, it was Compaq who were first with an 80386-based machine in 1986.

IBM attempted to re-establish control over the PC platform in 1987 with a homegrown replacement for the DOS operating system, OS/2, and the introduction of the PS/2 based on the proprietary MicroChannel architecture (MCA). Neither had the desired effect.

By 1995, IBM's share had fallen to 7.3% behind Compaq at 10.5%, and in 2003, IBM (6%) were a distant third behind Dell (16.3%) and HP (16.9%).

In 2002, IBM started to outsource PC production to Sanmina SCI, a trend which continued in 2003. And in 2004, IBM prepared to leave the industry it created, with the announcement that it was considering the sale of its PC business, possibly to Chinese company Lenovo (formerly Legend). For IBM, the PC business just wasn't worthwhile anymore. In the first 9 months of 2004, the PC business made less than $100m on revenue of $9.4bn compared with $3.2bn on $36bn for consulting / services.

The PC industry has been larely outsourced for some time now, with most firms dependent on both engineering and manufacturing operations provided by EMS and ODMs in Taiwan and China. It remains to be seen what will happen to the IBM / Thinkpad brands should the sale go through - and how IBM's corporate customers will react.

For all that, the IBM PC can be said to have established the 'dominant design' for the personal computer.

What they said at the time...

"There is no reason anyone would want a computer in their home." - Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977

"640K (of RAM) ought to be enough for anybody" - Bill Gates, 1981 (although the authenticity of this last one has since been questioned)

Further information

• Ancestors of the IBM Personal Computer from the IBM archive site
• The IBM PC 5150 from old-computers.com
• The history of the IBM PC by Mary Bellis
• Inventors of the modern computer by Mary Bellis
• A PC history timeline
• PC market share data for 2003 from Gartner Group
• PC history rewritten by Bill Machrone, PC Magazine, Sep 4, 2001 (how it all might easily have turned out differently!)
• Teece, D. (1986) "Profiting from technological innovation: implications for integration, collaboration, licensing and public policy", Research Policy Vol 15, No 6, pp 285-305
• Utterback, J (1994), Mastering the dynamics of innovation , MIT Press:New York (more on dominant design)

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