Managing Strategically at IBM

8/3/2019 Managing Strategically at IBM

1/31

Running head: MANAGING STRATEGICALLY 1

Managing Strategically at IBM

Charles L. Hines

MBA690 Strategic Management

January 10, 2012

Dr. Craig Cleveland


2/31

MANAGING STATEGICALLY 2

Managing Strategically at IBM

As part of the global technological market, IBM strives to strategically make

decisions that will gain market share. In fact, by prudent strategic planning, IBM has

been one of the leaders in the computers industry for many decades. With products like:

Dos, Lotus, Personal Computers, Mainframes, and other products on the market, IBMs

future looks bright on the horizon of the technological landscape. Lynch (1997) observes

that despite the volatility of the information technology (IT) industry over the past

decade, IBM has consistently delivered superior performance, with a steady track record

of sustained earnings per share growth (p. 234). Alternately: The company has shifted

its business mix, exiting commoditized segments while increasing its presence in higher-

value areas such as services, software and integrated solutions (p. 234). In addition,

Lynch states that as part of this shift, the company has acquired 116 companies this past

decade, complementing and scaling its portfolio of products and offerings. IBMs clear

strategy has enabled steady results in core business areas, while expanding its offerings

and addressable markets (1997, p. 234). As a result, managing strategically at IBM is

the driving force that has allowed its customers like: China and the U.S. government, and

others who consistently request its technological services.

Introduction

The New York Times (2012) reports that I.B.M. is the largest single supplier of

information technology to corporations worldwide, selling more than $100 billion a year

in services, software and hardware to businesses and governments. Profits, more than

sales growth, have been the big technology companys focus in recent years (p. 1). The

company delivered a steady performance in the fourth quarter of 2011, reporting profits


3/31


that easily surpassed Wall Street forecasts. Sales were just below analysts estimates,

weighed down by a slowdown in mainframe sales, compared with the previous year when

new models were introduced. The company reported that its net income rose 4 percent,

to $5.5 billion. (The New York Times, p. 1). Alternately: But its operating earnings

per share rose 11 percent to $4.71 a share. There were far fewer outstanding shares than a

year earlier after I.B.M. spent billions to buy back shares in 2011 (The New York

Times, p. 1). The quarterly result was well above the $4.62-a-share average estimate of

Wall Street analysts, as compiled by Thomson Reuters. I.B.M.s revenue rose 2 percent

to $29.5 billion, but it fell short of analysts forecast of $29.7 billion (The New York

Times, p. 1). Virginia M. Rometty, I.B.M.s chief executive, called the quarterly

performance a strong finish to a year of record earnings per share, revenue and profit.

In recent years, I.B.M. has shed more cyclical hardware businesses like personal

computer and disk drives, while stepping up its investment in more stable services and

software businesses (The New York Times, p. 1). Alternately: It has been aggressive

in tapping fast-growing markets abroad, while developing new businesses, like analytics

software that helps companies sift through data for insights about how to cut costs and

help sales (The New York Times, p. 1).

According to Bellis (2011) IBM or International Business Machines is a well-

known American computer manufacturer, founded by Thomas J. Watson (born 1874-02-

17). IBM is also known as "Big Blue" after the color of its logo. The company has made

everything from mainframes to personal computers and has been immensely successful

selling business computers (p. 1). Alternately: The roots of the IBM company spans

over a century beginning in early 1900. From modest annual revenue of a few hundred


4/31


thousand dollars to billions annually making IBM one of the most successful companies

in the world (Bellis, p. 1). Similarly, Madrigal (2011), On this day in 1911, IBM began

operation as the Computing-Tabulating-Recording Company. Since then, IBM's

institutional career has mirrored both the rise of computing and modern corporations, two

hallmarks of our age (p. 1). Alternately: The following timeline traces Big Blue's

adventures from its start as a company with $950,000 in revenue to its current state.

Today, the multinational rakes in almost $100 billion a year and employs 450,000

(Madrigal, p. 1). Below is a picture of one of the first inventions of CTR.

Timeline: 1911

Bellis (2011) states that on June 16, 1911, three successful 19th century

companies decided to merge, marking the beginnings of IBM history. The Tabulating

Machine Company, the International Time Recording Company, and the Computing

Scale Company of America joined together to incorporate and form one company, the

Computing Tabulating Recording Company(2011). Alternately: In 1914, Thomas J.

Watson Senior joined CTR as CEO and held that title for the next twenty years, turning

the company into the multi-national entity (Bellis, p. 1). In addition, Madrigal (2011)

notes that IBM's precursor, the Computing-Tabulating-Recording Company (CTR), was


5/31


created by the merger of The International Time Recording Company Computing Scale

Company, and the Tabulating Machine Company. The companies combined revenue for

the fiscal year 1910 was "excess of $950,000." A bulletin ran in United States Investor in

July of that year (p. 1). The merger was the catalyst for the formation of the IBM

enterprise.

Timeline: 1924

Bellis (2011) notes that in 1924, Watson changed the companys name to

International Business Machines Corporation or IBM. From the beginning, IBM defined

itself not by selling products, which ranged from commercial scales to punch card

tabulators, but, by its research and development (p.1). Likewise, Madrigal (2011)

observes that CTR becomes International Business Machines aka IBM. Here's a look at

the history of the IBM logo from its birth through the CTR days until today (p. 1). IBM

changed its logo over the years to reflect its corporate image. However, the change has

been very slight over the last sixty years.

1911---------------1924 24-46 47-56 57-72 72-Present Now

The current logo features stripes with a light blue color. This design is to

incorporate the name: big blue for IBM. It is the only logo that is not black and white.


6/31


Timeline: 1942

Madrigal (2011) observes that IBM becomes involved in the war effort, helping

keep track of vital statistics. Below, we see an IBM tabulating machine below used in

keeping track of freight traffic in the country (p. 1). The tabulating machine was

revolutionary during this time period. It made freight tracking easier and more efficient

due to IBMs efforts.

Timeline: 1944

Madrigal (2011) states that IBM co-develops its first computer, the Automated

Sequence Controlled Calculator aka Mark I, with Harvard University. It was used by the

Navy to calculate gun trajectories (p. 1). Below is the computer prototype.

Timeline: 1956

According to Madrigal (2011), During this period, IBM made a number of

important electronic advancements. Below, you can see the first commercial hard disk

drive, the 350 RAMAC Disk Storage Unit, which was a major component of the

groundbreaking 305 RAMAC computer (p. 1). One can see that this hard drive is


7/31


massive. However. It paved the way for computer data storage, and the smaller hard

drive with huge capacity capabilities in computers today.

Timeline: 1981

Bellis (2011) states that in July 1980, Microsoft's Bill Gates agreed to create an

operating system for IBM's new computer for the home consumer, which IBM released

on August 12 1981. The first IBM PC ran on a 4.77 MHz Intel 8088 microprocessor (p.

1). Alternately: IBM had now stepped into the home consumer market, sparking the

computer revolution (Bellis, p. 1). In addition, Madrigal (2011) states that The IBM

Personal Computer 5150 debuts, a landmark in the transition of computing from the

province of the military and big government to everyday people (p. 1). Below is the fact

sheet and specifications on the IBM personal computer.

Timeline: 1997

This year turned out to be a good one because it gave IBM a chance to show off


8/31


Its ingenuity. In fact, Madrigal (2011) notes that IBM Deep Blue beats Garry

Kasparaov; marking the first time a computer had defeated a reigning world champion in

a traditional match. Kasparov resigned after 19 moves (p. 1). IBMs Deep Blue was one

of the first of its kind in the world.

Timeline: 2005

Because of the way the personal computer industry was going, IBM decided to

sale its personal computer interest and place more focus on mainframe computing. In

fact, Madrigal (2011) states that Lenovo purchases IBM's personal computing division,

completing IBM's transition into a services company and away from selling directly to

consumers. The company makes tens of billions of dollars selling services -- not

machines -- to businesses (p. 1). However, IBM still has a controlling interest in

Lenovo.

Timeline: 2011

The year of 2011 marked the culmination of a great history of innovation,

strategy, and engineering at IBM. Madrigal (2011) notes that IBM turned 100. The

company celebrates by passing Microsoft's market value for the first time in 15 years and

watching the Watson computing platform destroy the human competition in Jeopardy.

(Even Kasparov had to laud IBM's team for the win.) (p. 1). Of course the Watson

computing platform was named after IBMs founder: namely, Thomas J. Watson.


9/31


Vision Statement

David (2011) states that many organizations today develop a vision statement

that answers the question What do we want to become? Developing a vision statement

is often considered the first step in strategic planning, preceding even the development of

a mission statement (p. 43). In addition, IBMs web site (2011) notes the IBM vision

statement as follows: At IBM, we strive to lead in the invention, development and

manufacture of the industrys most advanced information technologies, including

computer systems, software, storage systems and microelectronics. We translate these

advanced technologies into value for our customers through our professional solutions,

services and consulting businesses worldwide (p. 1). That is, our goal at IBM is to be

the pacesetter in the computing industry in innovation and design. Subsequently, with

our smarter planet motto, IBM desires to lead the way in communication, hardware,

and software advancing technologies that will benefit companies domestically and

globally. In fact, with a confident staff of managers, engineers, and employees, IBM is

hard-set and committed to provide the most professional services to its customers in

various markets worldwide.

Mission Statement

According to David (2011), Mission statements are enduring statements of

purpose that distinguish one business from other similar firms. A mission statement

identifies the scope of a firms operations in product and market terms: (p. 43).

Alternately: It addresses the basic question that faces all strategists: What is our

business? A clear mission statement describes the values and priorities of an

organization (43). In addition, IBM web site (2011) states the following as its mission:


10/31


At IBM, our goal is to produce the finest quality global technology products and to offer

the most reliable business service provision. Our reason for existence is to ensure that

our customers receive the highest quality products and services, outstanding customer

support and dependable products and services that can be depended upon in their

enterprise (p. 1). Our main focus is to assist them by any means available in order that

their organization operates as efficiently and effectively as possible (IBM web site, p. 1).

In addition, Linch, (1991) notes that IBM main strategy is to find solutions to its wide

range of clients using advanced information technology. Its clients are individual users,

specialized businesses, and institutions such as government, science, defense, spatial and

educational organizations (p. 23). Alternately: To meet and respond to its customers

needs, IBM creates, develops and manufactures many of the worlds most advanced

technologies, ranging from computer systems and software to networking systems,

storage devices and microelectronics (p. 23). The mission of IBM is based on four

strategies:

1. Reallocating resources to enhance their server product business and reduceoperation costs and optimize the efficiency.

2. To pursue an innovation agenda with its clients, partners and in otherrelationships, and to continue refining its portfolio to achieve higher value.

3. Acquiring businesses that contribute strategically to its portfolio.4. To maintain its leadership of this rapidly changing business by focusing on

high-value innovation-based solutions and services while consistently

generating high returns on invested capital for its shareholders. (Linch, p. 23)

Consequently, at IBM, our name stands for quality of technological products and


11/31


services. Because our name reveals the character of IBM, our goal is to provide

this IBM brand to our customers. In fact, we provide 24/7 customer support by our

highly trained support personnel for the many products that we offer. Similarly, we offer

various communication channels so that we may assist: companies, organizations,

governments and consumers by any means necessary. In fact, we take pride in servicing

our clients, and coming up innovative ideas that meets our partners business objectives.

Similarly, our face-to-face meetings with our clients sets the stage for long lasting

relationships. That is, we tailor our business to meet their needs.

Samuel Palmisano, the outgoing CEO of IBM sums up the mission of IBM in a

letter to fellow IBMers in 2011. Palmisano states, To me its just common sense. In

todays world, where everyone is so interconnected and interdependent, it is simply

essential that we work for each others success (IBM web site, 2011, p.1). If we are

going to solve the biggest, thorniest and most widespread problems in business and

society, we have to innovate in ways that truly matter (IBM web site, p. 1). Alternately:

And we have to do all this be taking personal responsibility for all our relationships

with clients, colleagues, partners, investors and the public at large. This is IBMs mission

as an enterprise, and a goal toward which we hope to work with many others, in our

industry and beyond (IBM web site, p. 1). However, there are external forces that can

hinder ones strategic goals from coming to fruition.

External Environment/ Steep

Davis (2011) states that external forces can be divided into five broad categories:

(1) economic forces; (2) social, cultural, demographic, and natural environment forces;

(3) political, governmental, and legal forces; (4) technological forces; and (5) competitive


12/31


forces (p. 93). These five external forces will be explored as they relate to IBM business

operations. The first one deals with the social and cultural aspect of the business

environment.

Socio-Cultural Environment

Davis (2011) states that social, cultural, demographic, and environmental

changes have a major impact on virtually all products, services, markets, and customers

(p. 98). Alternately: Small, large, for-profit, and nonprofit organizations in all

industries are being staggered and challenged by the opportunities and threats arising

from changes in social, cultural, demographic, and environmental variables ( Davis, p.

98). In fact, social networking is the new phenomenon for technological interaction.

Comscore (2007) observes that such widespread use has bred familiarity and comfort

with the mediumfor both individuals and business. Social networking has expanded

rapidly worldwide. For example, the number of users at Facebook.com grew by 270

percent in just one year, from June 2006 to June 2007 (p. 3). In addition, Gareiss (2007)

notes that the number of MySpace.com users also grew by 72 percent in that same time

frame. According to a recent study of businesses, use of Web conferencing also has more

than doubled in a year (p. 7). Alternately: Its increase from a 32 percent to 79 percent

adoption rate makes it, according to the study, the top IP-based real-time collaborative

application in use at companies (Gareiss, p. 7). Moreover, Gartner (2008) states that

the growth of tools such as social networking Web sites and Web conferencing are clear

indicators not only of the growth but also of the changing nature of collaboration. Gartner

predicts that by 2010, the average salaried worker will actively participate in at least five

different ad hoc teams simultaneously (p. 20). Alternately: Gartner further states that


13/31


by 2011, social networking and social interaction will be more popular than team

collaboration among enterprise users (p. 20). Also, the external environment is causing

technological changes at IBM.

Technological Environment

According to Davis (2011), Revolutionary technological changes and discoveries

are having a dramatic impact on organizations (p. 101). At IBM, there are four ways

that we plan to deal with changes in the technological environment. IBM PartnerWorld

(2011) explains:

1.

Plan: Start planning new infrastructure solutions with your clients now. Make

sure that the technology will match their business needs as they start

developing budget criteria and a timetable for implementation.

2. Acquire: IBM Global Financing can offer competitive rates and help extractcash from existing technology assets that can be applied to new equipment.

3. Manage: Once installed, your technology financier can help clients managethe equipment right down to the serial number. Additionally, financiers like

IBM Global Financing are flexible enough throughout the leasing cycle to

facilitate mid-lease upgrades to the latest technology so your equipment never

falls behind the curve.

4. Retire: As infrastructure equipment approaches the end of its lease, IBMGlobal Financing's Asset Recovery Services can help take-back equipment,

make sure it is disposed of in compliance with environmental law and manage

the proper cleansing of data off the storage devices. (1)

Environmental Factors


14/31


To guard against potential environmental threats from known unknown sources,

IBM has put in to place specific safety measures that will prevent serious fallouts.

IBM (2012), states that IBM operations could potentially impact the environment in a

number of ways. Chemicals needed for research, development, manufacturing processes

and services must be properly managed, from purchase through storage, use and disposal.

Certain processes are energy and/or water-intensive (p. 1). In addition, IBM notes that

IBM products should be designed so that they can be reused, recycled or disposed of

properly at the end of their useful lives (2012, p. 1). Furthermore, to identify and

effectively manage the potential environmental impact of IBM's operations, IBM

established and has maintained a strong worldwide environmental management system

(EMS) for decades. It is a vital element in the company's efforts to achieve results

consistent with environmental leadership (IBM, p. 1). In addition, IBM's

environmental affairs policy provides the strategic framework for the company's

environmental management system and environmental affairs objectives (IBM, p.1).

Alternately: These objectives address areas such as workplace safety, the conservation

of energy and other natural resources, environmental protection, and the development and

manufacture of environmentally conscious products (IBM, p. 1). There are also

economic factors that affect business strategy.

Economic Environment

It is not surprising that increasing numbers of two-income households is an

economic trend in the United States. Individuals place a premium on time. Improved

customer service, immediate availability, trouble-free operation of products, and

dependable maintenance and repair services are becoming important (Davis, 2011, p.


15/31


95). Because of the economic down-turn, many companies are taking drastic measures to

cope with downswings in the economy. In fact, IBM (2011) suggests that as part of its

talent assessment, an organization should review those work processes that are core to its

current and future strategy and examine the potential for outsourcing non-core activities

(p. 6). By outsourcing activities not central to the organizations strategy, such as HR

administration, IT desktop support and accounts payable administration,

Companies can shift these functions from a fixed to a variable cost model, making it

easier to adjust costs with changes in the overall workforce size (IBM, p. 6). For

example, organizations needing fewer employee call center representatives or recruiters

during a downswing in their business cycle can more easily adjust their staffing levels

using an outsourcer, rather than continually letting go and rehiring their own employees

(IBM, p. 6). In addition, outsourcers can also provide specialty services, such as merger

and acquisition integration assistance, that would be too costly for organizations to

maintain on staff. This can enable the firm to act more quickly, as well as reduce the

transition time and costs associated with one-time events (IBM, p. 6). Actually,

according to IBM Today (2011), the annual reports for 2010 states a historic economic

expansion is underway in the emerging markets of the world as their populations join

the middle class and their economies join the global marketplace (p. 5). These markets

are expected to achieve average GDP growth of 5 percent through 2015, more than

double the projected growth rate of the developed world (IBM Today, p. 5). In the

largest of these emerging markets, such as China, India and Brazil, IBM is broadening its

well-established base of skills and capabilities, nearly doubling our number of branch

locations (IBM Today, p. 5). Alternately: In less developed markets, such as Africa,


16/31


we are leveraging anchor clients in sectors like communications and banking. Our recent

partnership with Bharti Airtel to provide 21st century wireless telecommunications across 16

countries of Sub-Saharan Africa is one example IBM Today, p. 5). Our Growth

Markets Unit accounted for 21 percent of IBMs geographic revenue in 2010. We are

aiming to approach 30 percent by 2015 (IBM Today, p. 5). In addition, the political and

legal arena is a major factor in the importing and exporting goods and services globally.

Political/Legal Environment

According to Davis (2011), governments are taking control of more and more

companies as the global economic recession cripples firms considered vital to the

nations financial stability (p. 100). Similarly, as a major importer around the world,

IBM must comply with all import laws, regulations and requirements when engaging

in international trade. This includes compliance with obligations made to government

agencies when participating in supply chain security and other trusted partnership

programs (IBM, 2011, p. 22). Alternately: Because of the continued globalization of

IBMs business, there are many situations, some of them very subtle, in which your role

or work may have import implications (IBM, p. 22). Moreover, in our globally

integrated enterprise, regardless of your work assignment or location, your actions may

have export compliance implications. As a U.S. company, IBMs hardware and software

products, services, and technology (i.e., technical data for the design, development,

production or use of those products and source code) are subject to both U.S. and non-

U.S. export laws and regulation (IBM, 2011, p. 23). In addition, before IBM products,

services and technology can be exported, re-exported, or delivered anywhere, IBM must

validate that it has the authorization to export under U.S. export regulations and any


17/31


applicable non-U.S. laws and regulations (IBM, p. 23). Likewise, export laws and

regulations affect many IBM transactions, including: (a) intercompany transactions; (b)

in-country transfers of technology to recipients who are not citizens or permanent

residents (e.g., where the recipient is a non-U.S. person located in the U.S.); and (c)

transactions with third parties, including clients, suppliers, and original equipment

manufacturers. (IBM, p. 23). The EFE matrix will help gauge some of the external

factors will affect the IBMs domestic and global strategy. That is, opportunities and

threats.

The External Factor Evaluation (EFE) Matrix

Davis (2011) notes that an External Factor Evaluation (EFE) Matrix allows

strategists to summarize and evaluate economic, social, cultural, demographic,

environmental, political, governmental, legal, technological, and competitive

information (p. 112). Below is an EFE matrix for IBM.

EFE Matrix for IBM

Key External Factors Weight0.0 to 1.0

Rating1 to 4

Weighted Score

OPPORTUNITIES

Chinese Market 0.1 4 0.4

Healthcare Industry 0.1 2 0.2

Retail Industry 0.1 3 0.3

Consumer Products 0.1 3 0.3

Cloud Computing 0.1 3 0.3

THREATS

Siemens IT 0.1 3 0.3Weak Economy 0.1 2 0.2

Decline in the dollar 0.1 2 0.2

Global Competition 0.1 3 0.3

Client Loyalty 0.1 2 0.2

TOTAL 1.0 2.9


18/31


19/31


According to Davis (2011), The Competitive Profile Matrix (CPM) identifies a

firms major competitors and its particular strengths and weaknesses in relation to a

sample firms strategic position (p. 113). Below is a CPM matrix for IBM.

CPM Matrix for IBM

IBM HP MS

Critical Success Factors Weight Rating Weighted

Score

Rating Weighted

Score

Rating Weighted

Score

Global Expansion 0.21 3 0.63 3 0.63 4 0.84

Market Share 0.19 4 0.76 3 0.57 3 0.57

Customer Loyalty 0.2 4 0.8 3 0.60 3 0.60

Financial Position 0.2 4 0.8 3 0.60 3 0.60

Management 0.2 3 0.6 3 0.60 3 0.60

Total 1.00 3.59 3.00 3.21

The CPM matrix measures the strengths and weaknesses of its competitors

(Hewlett Packard and Microsoft) against IBMs. A rating of 1 to 4 is given to each

external or internal item. That is, (a) IBM: I rated IBM a 3 for Global expansion because

they are ever increasing their presence in the global market. In fact, the removal of trade

barriers and access to the internet has increased work flow. I rated them a 3 in market

share because of the potentiality of the computing business. In fact, everything from

cars, phones, appliances, and cameras are being computerized. Customer loyalty has

always been good for IBM so I rated that category a 4. IBM has made substantial profits

over the last several years, therefore I rated its financial position a 4. IBM has had three

CEOs in the last twenty years so I rated its overall management position a 3. (b) I gave

HP a 3 in all of the categories because of their balanced portfolio. (c) Since Microsoft

leads the world in computer operating system software, I rated them a 4 in this area.

However, they are more or less balance in the other categories so I rated them a 3. Then


20/31


the rate is multiplied by the weight for each company to get a weighted score. Finally,

the weighted score for each company is totaled. Our company (IBM) has the highest and

best score at 3.59. Next, the IFE matrix for IBM will examined.

The Internal Factor Evaluation (IFE) Matrix

Davis (2011) states that a summary step in conducting an internal strategic-

management audit is to construct an Internal Factor Evaluation (IFE) Matrix. This

strategy-formation tool summarizes and evaluates the major strengths and weaknesses in

the functional areas of a business, and it also provides a basis for identifying and

evaluating relationships among those areas (p. 154). Below is the IFE matrix for IBM.

IFE Matrix for IBM

Key Internal Factors Weight0.0 to 1.0

Rating1 to 4

WeightedScores

INTERNAL STRENGTHS

Management 0.10 3 0.30

Strategic Planning 0.13 4 0.52

Employee Loyalty 0.10 2 0.20

Company Values 0.09 2 0.18

Global Market Share 0.10 3 0.30

INTERNAL WEAKNESSES

Diversity 0.08 4 0.32

Aging Workforce 0.12 2 0.24

Employee Overtime Issues 0.07 2 0.21

Decrease in Revenues in China 0.10 3 0.30

Innovation 0.11 3 0.33

Total 1.0 2.9

The IFE matrix is an internal management tool design to show a firms strengths

and weaknesses. A rating of 1 to 4 is given to each entry in matter of significance. For

example: (a) internal strengths-- strategic planning is rated a 4 because of IBMs R&D

department is very strategic. I gave employee loyalty and company 2 ratings because of a


21/31


shift in company ideology. That is, years ago, IBM had a philosophy of respect for the

individual. In other words, each individual employee was importantyou had a job for

life when you worked for IBM. However, IBM like many other companies are

downsizing, laying-off workers, sending jobs overseas, and giving out early retirement

packages which has decreased moral and company loyalty. (b) internal weaknesses

IBM has worked hard in the area of diversity, however there is still a lot of work to be

done in hiring minorities for key upper management positions. In addition, like most

companies, IBM has an aging workforce. Because of the economy, many employees are

working longer on the job instead of retiring. As well, IBM do not allow overtime accept

by management approval. Then the rating is multiplied by the weight for each item and

given a weighted score. Finally, the weighted scores for each item are totaled. A

weighted score less than 2.5 is considered low. However, IBMs weighted score is 2.9

which is extraordinary. Next, the Porters Five Model of competitive analysis will be

explored.

Competitive Analysis: Porters Five-Forces Model

According to Learn Marketing (2011), Porter's fives forces model is an excellent

model to use to analyze a particular environment of an industry (p. 1). Alternately: if

we were entering the PC industry, we would use Porter's model to help us find out about:

1) Competitive rivalry2) Power of suppliers3) Power of buyers4) Threats of substitutes5) Threat of new entrants.


22/31


The above five main factors are key factors that influence industry performance.

(Learn Marketing, p. 1). In addition, the Porters five forces model help strategists build

a strategic management plan against the rivals and competition.

Rivalry among Competing Firms

According to Davis (2011), rivalry among competing firms is usually the most

powerful of the five forces. The strategies pursued by one form can be successful only to

the extent that they provide competitive advantage over the strategies pursued by the rival

firms (pp. 107-108). Changes in strategy by one firm may be met with retaliatory

countermoves, such as lowering prices, enhancing quality, adding features, providing

services, extending warranties, and increasing advertising (Davis, p. 108). At IBM, we

have a competitive advantage in cloud computing, green technologies, of which rivals are

very low. However, the computer industry is a very competitive business with software

and hardware companies coming into the technological landscape every week; therefore

the rivalry is high. Companies like Microsoft, which is a formidable foe in the software

area, and Hewlett Packard who is a hardware rival are very high. Nevertheless, the IBM

brand has been around for over a hundred years producing quality computer and software

products. Therefore, our R&D department is working hard to a competitive advantage.

Potential Entry ofNew Competitors

Davis (2011) states that whenever firms can easily enter a particular industry, the

intensity of competitiveness among firms increases (p. 108). Barriers to entry, however,

can include the need to gain economics of scale, the need to gain technology and

specialized know-how, lack of experience, strong customer loyalty, strong brand

preferences, large capital requirements, lack of distribution channels, and government


23/31


regulatory policies. (Davis, pp. 108-109). IBM has one of the top-notch research and

development departments in the world designing innovative products for the future. In

fact, three years ago, we began describing the Smarter Planet that we saw emerging

(IBM web site, 2012, p1). It was a world in which the primary industries

transportation, healthcare, energywere becoming more instrumented and

interconnected, and intelligent, producing data that could be used to improve the quality

of our lives and our work across a variety of industries IBM Web site, p. 1). Therefore,

the high dollar amount to produce the Smarter Planet technologies is a barrier to entry.

In addition, based on the first mover theory, the new entrants may face a difficulty in

order to meet economies of scale and experience curve when there are already many

well-establish brands in the market (Hill, 2005, 223).

Potential Development of Substitutes Products

Davis (2011) notes that in many industries, firms are in close competition with

producers of substitute products in other industries. Examples are plastic container

products competing with glass, paperboard, and aluminum can producers, and

acetaminophen manufacturers competing with other manufactures of pain and headache

remedies (p. 109). In addition, the presence of substitute products puts a ceiling on the

price that can be charged before consumers will switch to the substitute product. Price

ceilings equate to profit ceilings and more intense competition among rivals (Davis, p.

109).

Furthermore, competitive pressures arising from substitute products increase as

the relative price of substitute products declines and as consumers switching costs

decrease (Davis, 2011, p. 109). As well, The competitive strength of substitute


24/31


products is best measured by the inroads into the market share those products obtain, as

well as those firms for increased capacity and market penetration (Davis, p. 109). At

IBM, our biggest threat to our consumer computer products is pricing. For instance, Dell

pc computers are priced at a lower price than IBM (Lenovo) personal computers, servers

and other web software, even though the brand and quality is not as good. In addition,

Siemens IT servicing competes directly with IBM servicing and consulting. However,

Siemens pricing and quality of contractual service is much lower. Therefore, the threat of

substitute is low to moderate.

BargainingP

ower of Supplies

According to Davis (2011) the bargaining power of suppliers affects the intensity

of competition in an industry, especially when there is a large number of suppliers, when

there are only a few good substitute raw materials, or when the cost of switching raw

materials is especially costly (p. 109). Alternately: It is often in the best interest of

both suppliers and producers to assist each other with reasonable prices, improved

quality, and development of new services, just-in-time deliveries, and reduced inventory

costs, thus enhancing long-term profitability for all concerned (Davis, p. 109). At IBM,

we produce a variety of computer products which require various parts and materials to

make and produce. We look for the best price for these materials. Since we are a global

company, we look for, and bargain for the best prices globally. The computer industry is

very competitive; therefore we seek suppliers who will give us the best bang for our

buck. Of course, we could always switch suppliers if need be to make this happen.

Bargaining Power of Consumers


25/31


Davis (2011) states that when customers are concentrated or large or buy in

volume, their bargaining power represents a major force affecting the intensity of

competition in an industry (p. 109). In addition, Rival firms may offer extended

warranties or special services to gain customer loyalty whenever the bargaining power of

consumers is substantial. Bargaining power of consumers also is higher when the

products being purchased are standard or undifferentiated (Davis, pp. 109-110).

Moreover, When this is the case, consumers often can negotiate selling price, warranty

coverage, and accessory packages to a greater extent (Davis, p. 110). Because there are

many competitors in the computer industry, consumers can shop around for the best

prices. Consumers can negotiate with IBM for a lower price, or switch to one of its

competitors: HP, Dell, Siemens, and Microsoft, for more price effective products. In

addition, the business-to-business (B2B) online servicing, which IBM is a part of, is a

highly competitive market. However, the SWOT matrix shows some additional

strengths, weaknesses, opportunities, and treats to IBM.

The Strengths-Weaknesses-Opportunities-Treats (SWOT) Matrix

According to Yousigma (2012), SWOT is an acronym for the internal Strengths

and Weaknesses of a firm and the environmental Opportunities and Threats facing that

firm. SWOT analysis is a widely used technique through which managers create a quick

overview of a companys strategic situation (p. 1). Besides, The technique is based on

the assumption that an effective strategy derives from a sound fit between a firms

internal resources (strengths and weaknesses) and its external situation (opportunities and

threats) (Yousigma, p. 1). Alternately: A good fit maximizes a firms strengths and

opportunities and minimizes its weaknesses and threats. Accurately applied, this simple


26/31


assumption has powerful implications for the design of a successful strategy (Yousigma,

p. 1). In addition, a Maxi-Pedia (2012) state that SWOT analysis, method, or model is a

way to analyze competitive position of your company. SWOT analysis uses so-called

SWOT matrix to assess both internal and external aspects of doing your business (p. 1).

Additionally, The SWOT framework is a tool for auditing an organization and its

environment.SWOT is the first stage of planning and helps decision makers to focus onkey issues. SWOT method is a key tool for company top officials to formulate strategic

plans (Maxi-Pedia, p. 1). Alternately: Each letter in the word SWOT represents one

strong word: S = strengths, W = weaknesses, O = opportunities, T = threats. SWOT

model analyzes factors that are internal to your business and also factors that affect your

company from outside (Maxi-Pedia, p. 1). However, IBM possesses many internal

strengths.

Strengths: IBM

Novak (2012) notes that IBM leads the world in technological success with

patents in the United States for 17 straight years. In 2008 IBM earned 4186 patents and in

2009 they increased that amount to 4,914. (p.1). In addition, It published almost 4,000

technical inventions and products without patent protection in 2009; this is a valuable

intellectual property (Novak, p. 1). Alternately: They are the company handling 95%

of all business in the 1000 most profitable companies in the US. In 2009 they were

recognized as the 4th most recognized brand name in the world and they have been

consistently in the top 10 for 20 years (Novak, p. 1). As well, IBM is one of the largest

and most profitable companies in the world, with a value of $66 billion. They have over

400,000 employees worldwide (Novak, p. 1). It is an old, established company,


27/31


founded in 1896 as the Tabulating Machine Company by Herman Hollerith, in Broome

County, New York (Novak, p. 1).. Alternately: In 1945 they were the first company to

establish dedicated research labs for the creation of technological innovation, which lead

to the creation of computers, voice recognition software and products that assist those

working in medicine and radiology (Novak, p. 1). Nevertheless, IBM has various types

of internal weaknesses.

Weaknesses: IBM

According to Novak (2012), IBMs size is also its weakness. IBMs goliath size

can make it slower to react to customers needs and wants as well as to the industrys

fluctuations (p. 1). And its more than 400,000 employees can make it difficult to find

the support and services needed. Enormous operating costs and competitors eating into

their market share forced them in 2010 to buy back $8 billion in stock (Novak, p. 1).

Moreover, transferring jobs oversees has been an option IBM is using more and more.

At the end of 2009, IBM USA had a workforce of 105,000 down 30,000 in just a few

years (Novak, p. 1). Alternately: In 2009, there were rumors that IBM wants to get the

US workforce down to 70,000. This is not a weakness for other countries that are

absorbing many of these US jobs. Communication across these different countries can be

very challenging (Novak, p. 1). For example, having the helpdesks in India creates

language barriers in the US. Also, India has exported many engineers to the US because

they are cheaper to pay but also Indian Engineers do not have both the educational and

experiential accolades of their US counterparts (Novak, p. 1). Many of them come

over to the states and the few US employees left in the department have to re-train them,

wasting countless hours that could be used in supporting their customers (Novak, p. 1).


28/31


Novak observes that The current recession has hurt everyone and IBM is not exempt.

Financial services, which accounts for 30% of IBM revenue, has declined (p. 1).

Alternately: Its riddled with subprime mortgages forcing to mark down their portfolios

to ridiculously low market prices on packaged securities that are trading at a fraction of

their theoretical value (Novak, p. 1). Besides, this, in turn, is affecting the equity of

banks, and therefore their ability to lend. Servers and Storage which account for about

20% of IBMs revenue has declined to 16% and a 6% decline in margins (Novak, p 1).

In addition, the year 2000 has brought great prospects to the domestic and global

technological markets. Therefore, it is imperative that IBM keeps up with global trends.

Opportunities: IBM

Novak, (2012) observe that increased globalization is an important opportunity

that can be exploited by IBM in order to balance the fluctuations in different economies.

Their brand image is synonymous with big and old they need to create products

appealing to a younger generation and reposition their company (p. 2). In addition,

IBM needs to maintain a competitive edge in the marketplace and innovation is key and

working with IT-related companies to create new products in the ever changing market;

use patents to generate revenue (Novak, p. 2). Alternately: IBMs love of open source

operating systems, specifically Linux, benefits IBM in both the short and long term. IBM

can sell its i-series platforms with Linux to respond to the growing demands of the

operating systems (OS) (Novak, p. 2). Novak states that IBM can also use Linux on its

Z-series mainframe line and even its p-series machines which mostly use IBMs own

AIX which usually competes against the UNIX operating system. Open architecture is

key to creating and maintaining market share (p. 2). Similarly, IBMs small-medium


29/31


business (SMB) has improved over the years but there is definitely a need to increase its

market share to have an overall competitive edge Novak, p. 2). However, since IBM

has been around for over a century, there are many threats from companies looking to cut

into its profitability.

Threats: IBM

Novak (2012) notes that the fact that they are completely dependent on

Microsoft (in their computer services division) could be a huge problem if anything ever

happened to them.

Hackers and sensitive information can be exposed and exploited by individuals and IBM

needs to be innovative with regards to firewalls and protective software (p. 2). The

supply chain has very few suppliers, leaving IBM very little to negotiate with or switch

to. HP, Sun Microsystems are all competitors and are all threats to IBMs bottom line

(Novak, p. 2). In addition, their competitors are able to create cheaper products and

make more a considerable profit (Novak, p. 2). Alternately: Smaller companies that

can move faster and provide less expensive products and services than IBM can become

very costly to IBMs more lucrative bundles focusing more on larger companies with big

budgets Novak, p. 2). The SWOT matrix below summarizes IBMs position.

SWOTAnalysis Matrix: IBM

Strengths

Lead world in technology

Fourth recognized brand name

Profitability

Weaknesses

Company size

Outsourcing jobs overseas

Downsizing


30/31


Strong in research and development

Sound leader in innovation

Large operating budget

Recession: economic downturn

Opportunities

Globalization

Generational appeal

Create new products: first mover advantage

Market share in mid-range products

Maintain competitive advantage in

mainframe technology

Threats

Firewall protection

Reliance on Microsoft

Dell, HP, Siemens

Cheaper products from competitors

IBM prices are too high

The SWOT analysis matrix data was derived from reference materials detailing IBMs

current place in todays technology market. Just to reiterate a few points: (1) strengths

IBM leads the world in the technology domain. Its research and development department

is extraordinary in producing new products and innovative ideas for future technological

advances. (2) weaknessescompany size definitely a weakness at IBM. In fact, IBM

has over 400,000 employees worldwide. As a result, benefits and salaries takes away

some on its profit margin. On the hand, Facebook also makes several billion dollars a

year in profit; however, it only has about 3,000 employees. (3) opportunitiessince

China has opened its doors to outside businesses, IBM has found a niche in the Chinese

technology market because of globalization. In fact, at this time IBM does a great deal of

business with the Chinese government. In addition, IBM has found success in other

Asian and European markets as well. (4) threatsIBM is under constant threats from


31/31


outside competition. Primarily, high products and services prices has given its

competitors access to IBMs customers. HP, Dell, and Siemens has taken away many

contracts from IBM by under biding, and offering lower prices for services rendered.

However, the SPACE tool is another matrix by which company strategies can be defined.

The Strategic Position and Action Evaluation (SPACE) Matrix

IBM SPACE MATRIX

Date post:	06-Apr-2018
Category:	Documents
Upload:	charles-hines
View:	232 times
Download:	0 times

Managing Strategically at IBM

Documents