In the 1980s, IBM consolidated its mainframe business, and expanded the scope of mainframes with the S/390 and ESA/390 series. Importantly, during this time, the company embarked on the practice of converting its large rental base of mainframes to lease agreements. This financial strategy created the perception that IBM's revenues and profits were much stronger than they really were as in the mid to latter part of the decade, management scrambled to react to the spending shift towards distributed computing, which threatened the monopoly IBM held within the technology business.^{[citation needed]}

The original IBM PC (ca. 1981)

The company hired Don Estridge at the IBM Entry Systems Division in Boca Raton, Florida. With a team known as "Project Chess," they built the IBM PC, launched on August 12, 1981. Although not cheap, at a base price of US$1,565 it was affordable for businesses — and many businesses purchased PCs. Typically, these purchases were not by corporate computer departments, as the PC was not seen as a "proper" computer. Purchases were often instigated by middle managers and senior staff who saw the potential — once the revolutionary VisiCalc spreadsheet, the killer app, had been surpassed by a far more powerful and stable product, Lotus 1-2-3. Reassured by the IBM name, they began buying microcomputers on their own budgets aimed at numerous applications that corporate computer departments did not, and in many cases could not, accommodate.

Up to this point in its history, IBM relied on a vertically integrated strategy, building most key components of its systems itself, including processors, operating systems, peripherals, databases and the like. In an attempt to speed time to market for the PC, IBM chose not to build the operating system and microprocessor internally, rather it sourced these vital components from Microsoft and Intel respectively. Ironically, in a decade which marked the end of IBM's monopoly, it was this fateful decision by IBM that passed the sources of its monopolistic power (operating system and processor architecture) to Microsoft and Intel, paving the way for rise of PC compatibles and the creation of hundreds of billions of dollars of market value outside of IBM.

In the midrange arena, IBM consolidated the market position its General Systems Division (GSD) had built in the 1970s with the System/3, System/32 and System/34. The System/38, with its patented advanced architecture and integrated relational database manager (DB2 RDBMS), experienced initial delays to customers after its 1978 announcement, but became very successful with robust sales establishing a loyal customer base. In 1982, IBM disbanded the organization leaving the Data Processing Division (DPD) to sell only mainframes to large customers while the General Systems Division sold only S/3x midrange machines to small and medium-sized customers. Instead, the new ISM (for small and medium customers) and ISAM divisions (large customers) could sell from the entire IBM portfolio.^{[citation needed]}

1983 saw the announcement of the System/36 to replace the System/34. Later in 1988, IBM announced the AS/400, combining the System/38 and System/36 computing environments into a single platform. The 1970s had seen IBM develop a range of Billing, Inventory Control, Accounts Receivable, & Sales Analysis (BICARSA) applications for specific industries: construction (CMAS), distribution (DMAS) and manufacturing (MMAS), all written in the RPG II language. By the end of the 1980s, IBM had almost completely withdrawn from the BICARSA applications marketplace. Because of developments in the antitrust cases against IBM brought by the US government and European Union, IBM sales representatives were now able to work openly with application software houses as partners. (For a period in the early 1980s, a 'rule of three' operated, which obliged IBM sales representatives, if they were to propose a third-party application to a customer, to also list at least two other third-party vendors in the IBM proposal. This caused some amusement to the customer, who would typically have engaged in intense negotiations with one of the third parties and probably not have heard of the other two vendors.)

As the decade ended, it was clear that competition and innovation in the computer industry was now taking place along segmented, versus vertically integrated lines, where leaders emerged in their respective domains. Examples included Intel in microprocessors, Microsoft in desktop software, Novell in networking, HP in printers, Seagate in disk drives and Oracle Corporation in database software. Soon IBM's dominance in personal computers would be challenged by the likes of Compaq and later Dell. Recognizing this trend, CEO John Akers, with the support of the Board of Directors, began to split IBM into increasingly autonomous business units (e.g. processors, storage, software, services, printers, etc.) to compete more effectively with competitors that were more focused and nimble and had lower cost structures.