77789611 IBM Case Study Strategic Management Final Report

Case Analysis

Shazil Ahmed Saad Akhtar Ibrar Chaudary Rao Kamran Muhammad Umer Jafar Muhammad Naqeeb Arshad

Shazil

Strategic Management

Table of Contents INTRODUCTION TO INTERNATIONAL BUSINESS MACHINES..................................................................2 VISION AND MISSION STATEMENTS......................................................................................................3 OBJECTIVES & STRATEGIES....................................................................................................................4 PORTER’S FIVE FORCES MODEL.............................................................................................................5 FINANCIAL ANALYSIS.............................................................................................................................6 CPM MATRIX.........................................................................................................................................7 EXTERNAL OPPORTUNITIES AND THREATS............................................................................................8 Opportunities.....................................................................................................................................8 Threats...............................................................................................................................................8 EFE MATRIX...........................................................................................................................................9 INTERNAL STRENGTHS AND WEAKNESSES..........................................................................................11 Strengths.........................................................................................................................................11 Weaknesses.....................................................................................................................................11 IFE MATRIX..........................................................................................................................................12 SWOT MATRIX.....................................................................................................................................14 QSPM...................................................................................................................................................17 GRAND STRATEGY MATRIX..................................................................................................................20 BCG MATRIX........................................................................................................................................21 IE MATRIX............................................................................................................................................22 SPACE MATRIX.....................................................................................................................................23 CONCLUSION.......................................................................................................................................24 RECOMMENDATIONS..........................................................................................................................25 WORKS CITED......................................................................................................................................26 APPENDIX............................................................................................................................................27

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INTRODUCTION TO INTERNATIONAL BUSINESS MACHINES International Business Machines or IBM was founded in 1888 as “Herman Hollerith and the Tabulating Machine Company”. Its name was later changed to IBM in 1924 when it became a Fortune 500 company. It is known to have more patents than any other American tech company. It was taken by the US government at the beginning of World War II in the war effort and given a one percent profit, which it used to fund war victims and orphans.

IBM was one of the leader brands of I.T industry which is basically related to computing various dimension of technology weather it is about gadget or the software. It developed products from punch-card tabulating machines to room sized calculators and main frame computers. In 1980, the company introduced IBM Personal Computer (PC) in which the processor came from Intel and operating system from Microsoft. In 1992, the company introduced laptops which were named ThinkPad. IBM introduced cost effective technologies like instead of pure silicon chip, they introduced a blend of silicon and germanium. IBM has On Demand Innovation services where different teams offer business transformation and technology consultation services. Today, IBM is the largest information technology company and the eight largest company in the world with workings in over 170 countries. More than 60% revenue of the company is generated from outside of US.

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VISION AND MISSION STATEMENTS Vision Statement “Solutions for a small planet” Mission Statement At IBM, we strive to lead in the invention, development and manufacture of the industry's 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.

Proposed Vision Statement “To maintain quality, by continuous innovation and creativity, and to satisfy consumers” Proposed Mission Statement IBM strives to provide the world with leading innovations in the IT industry, for people who appreciate the brands quality. Products of utmost reliability and rigidness include Computer systems, software, storage systems & microelectronics. IBM provides unmatched build quality known for its durability. We are committed to stay in the market as a continuous leader in technology and innovation and at the same time being profitable for our investors. We follow the belief of respect for the individual, the best customer service and superior accomplishment of all tasks. We give continuous motivation, appraisal and promotions to our employees. IBM is committed to environmental leadership in all of its business activities, from its operations to the design of its products and use of its technology.

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Component Check IBM’s Mission Statement

Proposed Mission Statement

Customers Products Markets Technology Concern for survival, growth & profitability Self-concept Concern for employees

OBJECTIVES & STRATEGIES IBM is repositioning itself from a computer company to an information technology service company through a series of acquisitions and divestitures. Thirteen acquisitions of approximately $4.8 Billion were completed enabling IBM to expand its business. Since then IBM concentrated on becoming stronger in high-added businesses. It concentrates on development and manufacture of the advanced information technologies, including computer systems, software storage systems and microelectronics. It engaged 50,000 employees in an online intranet discussion over a period of three days using its Jam technology IBM generated over 46,000 ideas through this.

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PORTER’S FIVE FORCES MODEL Threat of New Entrants It is relatively low as this field requires heavy investment in research and innovation.

Bargaining Power of Customers There are a lot of similar products available which makes the power of bargaining higher.

Bargaining Power of Suppliers In most areas of IBM, there are number of suppliers which make the power of suppliers low.

Substitutes IBM provides number of products which have low or no substitutes.

Competitive Rivalry It is high as there are large companies like HP, Microsoft and EDS to compete IBM.

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FINANCIAL ANALYSIS

Current Ratio (2005) = 45,661,000/35,152,000 = 1.3 Current Ratio (2006) = 44,660,000/40,090,000 = 1.1

Return on Equity (2005) = 7,934,000/33,098,000 = 24% Return on Equity (2006) = 9,492,000/28,506,000 = 33%

Profit Margin (2005) = 7,934,000/91,134,000 = 8.7% Profit Margin (2006) = 9,492,000/91,424,000 = 10.4%

Debt to Equity Ratio (2005) = 72,650,000/33,098,000 = 2.2 Debt to Equity Ratio (2006) = 74,727,000/28,506,000 = 2.6

Earnings per Share (2006) = 9,492,000/207,663,223 = 4.5%

Sales Growth (2006) = (91,424,000-91,134,000)/91,134,000 = 0.3%

Asset Growth (2006) = (103,233,000-105,748,000)/105,748,000 = -2.3%

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CPM MATRIX Critical Success

Weights

IBM Microsoft HP EDS Rate Score Rate Score Rate Score Rate Score

Factors Diversification Financial

0.1 0.15

3 4

0.3 0.6

4 2

0.4 0.3

1 2

0.1 0.3

4 1

0.3 0.15

position Market share Advertisement Customer relation Management R&D TOTAL

0.2 0.2 0.1 0.05 0.2 1

2 1 4 2 4

0.4 0.2 0.4 0.1 0.8 2.8

4 2 2 4 4

0.8 0.4 0.2 0.2 0.8 3.1

2 4 3 3 2

0.4 0.6 0.3 0.15 0.4 2.25

3 1 1 3 2

0.6 0.2 0.1 0.15 0.4 1.9

The CPM shows the critical success factors for companies, which would be same for all in a given economy. Seven factors were tested among competitors of IBM (i.e. Microsoft, HP, EDS). Microsoft holds a strong competitive position among its competitors followed by IBM, HP & EDS.

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EXTERNAL OPPORTUNITIES AND THREATS Opportunities Globalization in order to balance the fluctuations in different economies Create products appealing to a younger generation, e.g. iPod Use patents to generate revenue Focus more on OEM (17.9% revenue increase) Hire and use international expertise

Threats Over reliance on developing economies like India (38% growth) Unstable electronics market Change in technology (iPad) Customers have low switching costs Rapid product development from competitors Fierce competition from Microsoft & HP

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EFE MATRIX KEY EXTERNAL FACTORS

OPPORTUNITIES WEIGHT RATING 0.05

3

WEIGHTED SCORE 0.15

Create products appealing to a younger

0.16

1

0.16

generation, e.g. iPod Use patents to generate revenue

0.04

2

0.08

0.1 0.16 THREATS 0.06

2 3

0.2 0.48

1

0.06

0.06 0.1 0.07 0.1

2 3 2 3

0.12 0.3 0.14 0.3

0.1 1.00

3

0.3 2.29

Globalization in order to balance the fluctuations in different economies

Focus more on OEM Hire and use international expertise Over reliance on developing economies like India (38% growth) Unstable electronics market Change in technology (iPad) Customers have low switching costs Rapid product development from competitors Fierce competition from Microsoft & HP

TOTAL

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The EFE matrix shows various opportunities to be availed by IBM and the threats it faces. After listing them, weights were assigned according to their importance and the degree to which they affect the company. The weights are industry specific and assess the importance of each factor in terms of surviving in the industry. The ratings were given as the following: 1.

Is the “response is poor”.

2. Is the “response is average”. 3. Is “response is above average” 4. Is “response is excellent”. The weighted score calculated by multiplying the weights with the rates assigned. The sum of the total weighted score for opportunities and threats is called the total weighted score, which for IBM are 2.29. This tells us that the business is performing below average and is not capitalizing on its opportunities neither is reducing or avoiding threats.

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INTERNAL STRENGTHS AND WEAKNESSES Strengths Brand name Rising revenue to 91 billion and rising net income to $9.4 billion Diversification (Software, hardware, financing) Acquisition of Watchfire Company in 2007 InnovationJam capability Ranks second in market capitalization, net income, and long-term growth behind Microsoft Widespread operations in 170 countries Rising earnings per share (23% in 2006)

Weaknesses Lack of synergy resulting from a series of acquisitions and divestitures Difficult to coordinate over four geographical segments Too many employees (around 400,000) Concentration or focus on three major divisions or segments puts the company at a vulnerable position if revenues from them decline Declining profit margins from hardware (-7.6%)

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IFE MATRIX KEY INTERNAL FACTORS

WEIGHT RATING

STRENGTHS Brand name 0.09 Rising revenue to 91 billion and rising net 0.1 income by 9% to $9.4 billion Diversification (Software, hardware, 0.05 financing) Known to have more patents than any other 0.03 American technology company Acquisition of Watchfire Company in 2007 0.03 InnovationJam capability 0.15 Ranks second in market capitalization, net 0.05 income, and long-term growth behind Microsoft Widespread operations in 104 countries 0.05 Rising earnings per share (23% in 2006)

0.1

WEAKNESSES Lack of synergy resulting from a series of 0.05 acquisitions and divestitures Difficult to coordinate over four 0.07 geographical segments Too many employees (around 400,000) 0.03 Concentration or focus on three major 0.08 divisions or segments puts the company at a vulnerable position if revenues from them decline Declining profit margins from hardware (0.12 7.6%) TOTAL 1.00

WEIGHTED SCORE

4 4

0.36 0.4

3

0.15

3

0.09

3 4 3

0.09 0.6 0.15

3

0.15

4

0.4

1

0.05

1

0.07

2 1

0.06 0.08

2

0.24 2.89

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The internal factor evaluation matrix shows that IBM’s internal position is above average. They can come up with more planned and innovative techniques in order to improve their position as there is room for improvement. IFE value is above 2.50 which means that IBM is taking advantage of its strengths and minimizing weaknesses. The IFE matrix lists the weights of each internal factor, both strengths and weaknesses and assigns them ratings and then finds total weighed scores to assess the internal position of IBM. The weights are industry specific and assess the importance of each factor in terms of surviving in the industry. Coming to the ratings, they indicate how effectively the firm’s current strategies respond to the factor. The total weighted score is found by multiplying the weights with the ratings to find the weighted score.

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SWOT MATRIX Strengths 1.

Brand name

1.

2.

Rising revenue to 91 billion and rising net income by 9% to $9.4 billion

Lack of synergy resulting from a series of acquisitions and divestitures

2.

Difficult to coordinate over four geographical segments

3.

Too many employees (around 400,000)

4.

Concentration or focus on three major divisions or segments puts the company at a vulnerable position if revenues from them decline

5.

Declining profit margins from hardware (-7.6%)

3.

Diversification (Software, hardware, financing)

4.

Acquisition of Watchfire Company in 2007

5.

InnovationJam capability

6.

Ranks second in market capitalization, net income, and long-term growth behind Microsoft

7.

Widespread operations in 104 countries

8.

Rising earnings per share (23% in 2006)

Opportunities 1.

Globalization in order to balance the fluctuations in different economies

2.

Create products appealing to a younger generation, e.g. iPod

3.

Use patents to generate revenue

4.

Focus more on OEM

5.

Hire and use international expertise

Weaknesses

S0 Strategies

W0 Strategies

1.

Use InnovationJam technique to get in touch with younger customer base in order to appeal to them well <>

1.

Hire and use international expertise in order to eradicate lack of synergy within business units <>

2.

Capitalize on worldwide existence to hire international expertise to a larger extent <>

2.

Look for new emerging markets where profitable business can be carried out from hardware products <>

3.

Use brand name to get into Gaming PCs and Laptops for 27% youth in the world <>

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Strengths

Weaknesses

1.

Brand name

1.

2.

Rising revenue to 91 billion and rising net income by 9% to $9.4 billion

Lack of synergy resulting from a series of acquisitions and divestitures

2.

Difficult to coordinate over four geographical segments

3.

Too many employees (around 400,000)

4.

Concentration or focus on three major divisions or segments puts the company at a vulnerable position if revenues from them decline

5.

Declining profit margins from hardware (-7.6%)

3.

Diversification (Software, hardware, financing)

4.

Acquisition of Watchfire Company in 2007

5.

InnovationJam capability

6.

Ranks second in market capitalization, net income, and long-term growth behind Microsoft

7.

Widespread operations in 104 countries

8.

Rising earnings per share (23% in 2006) ST Strategies

Threats

WT Strategies

1.

Over reliance on developing economies like India (38% growth)

1.

Use rising revenues to invest in latest technologies <>

1.

Reposition employment to more profitable regions <>

2.

Unstable electronics market

2.

2.

3.

Change in technology (iPad)

Capitalize on financial strength by acquiring more small similar businesses like Watchfire to compete better with MS & HP <>

Focus on reasonable horizontal acquisition to safeguard against unstable electronics market <>

4.

Customers have low switching costs

3.

Use InnovationJam talent to engage in product development. <>

5.

Rapid product development from competitors

6.

Fierce competition from Microsoft & HP

The SWOT Matrix of IBM lists its strengths, weaknesses, opportunities and threats and then devises strategies by aligning the strengths with the opportunities, weaknesses with the opportunities, strengths with the threats and weaknesses with the threats. The aim is to capitalize on the strengths by taking advantage of the opportunities, overcoming the weaknesses, and undermining the threats. Coming to the strengths and opportunities cell, 15 | P a g e

Strength5 and opportunity 2 it can use the innovation jam technique to appeal to the demands of a younger population. Coming to the weakness opportunities cell, weakness 1 and opportunity 5 have been aligned by devising the strategy of eradicating lack of synergy within business units. Coming to the strengths threat cell and aligning the weakness of change in technology (threat 3) with the strength of rising revenues (strength 2) the strategy arrived at is that IBM should use revenues to invest in latest technologies. Aligning the weakness of too many employees (weakness 3) with the threat of over reliance on developing nations (threat 1), the company should reposition employment in more profitable regions.

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QSPM

KEY FACTORS OPPORTUNITIES Globalization in order to balance the

STRATEGY 1

STRATEGY 2

Enter the market for Google’s Android tablets. WEIGHT AS TAS

Enter the market for cellphones. AS

TAS

0.06

3

0.18

4

0.20

Create products appealing to a

0.06

4

0.24

4

0.10

younger generation, e.g. iPod Use patents to generate revenue Focus more on OEM Hire and use international expertise

0.1 0.07 0.1

2

0.2

3

0.3

fluctuations in different economies

THREATS Over reliance on developing

0.05

-

-

-

-

Change in technology (iPad)

0.16 0.04

2 -

0.32 -

1 -

0.16 -

Customers have low switching costs Rapid product development from

0.1 0.16

1 4

0.1 0.64

4 3

0.4 0.48

competitors Fierce competition from Microsoft &

0.05

3

0.15

1

0.05

economies like India (38% growth) Unstable electronics market

HP

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STRENGTHS Brand name Rising revenue to 91 billion and rising net income by 9% to $9.4 billion Diversification (Software, hardware, financing) Acquisition of Watchfire Company in 2007 InnovationJam capability Ranks second in market capitalization, net income, and long-term growth behind Microsoft Widespread operations in 104 countries Rising earnings per share (23% in 2006) WEAKNESSES Lack of synergy resulting from a series of acquisitions and divestitures Difficult to coordinate over four geographical segments Too many employees (around 400,000) Concentration or focus on three major divisions or segments puts the company at a vulnerable position if revenues from them decline Declining profit margins from hardware (-7.6%) TOTAL

0.09 0.1

4 -

0.36 -

2 -

0.18 -

0.05

4

0.2

3

0.15

0.03

-

-

-

-

0.03

-

-

-

-

0.15

-

-

-

-

0.05

3

0.15

4

0.20

0.05

-

-

-

-

0.05

-

-

-

-

0.07

-

-

-

-

0.03

-

-

-

-

0.08

4

0.32

3

0.24

0.12

3

0.15

4

0.20

1.00

-

3.01

-

2.66

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The Quantitative Strategic Planning Matrix states critical internal and external success factors and evaluates each of them for alternative strategies that are made at Stage 1 and Stage 2 of the Strategy Formulation Framework. We have arrived at two strategies for IBM namely 1) Enter the market for Google’s Android tablets. 2) Enter the market for cellphones. Now the relative attractiveness of each strategy has been evaluated against critical internal and external success factors that can be improved upon or capitalized. Weights are the same for these internal and external factors as were previously used in the IFE and EFE matrix respectively. These are industry specific and show the importance of each factor in terms of surviving in the industry. For example, fierce competition from Microsoft and HP has been assigned a high weight of 0.05 as it is extremely important to the whole industry. Both strategies are inter-related or similar as both relate to product development. Note that the strategies are mutually exclusive and cannot be assigned the same AS for a given factor. The total attractiveness scores (TAS) have been arrived at by multiplying the weights for each internal/external factor by the AS. The sum of the total attractiveness scores for each factor is then calculated .Strategy 1 has a higher Sum Total Attractiveness Score(STAS=3.01) as compared to Strategy 2 (STAS=2.66) which suggests that IBM should adopt Strategy 1, that is, go for investing in Android tablets.

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GRAND STRATEGY MATRIX

The grand strategy matrix defines and analysis the current position of the company. According to our analysis, we place IBM in the fourth quadrant. It is a slow growth firm, which has a strong competitive position in the industry. IBM can move into promising growth areas through the following strategies



Related or un-related diversification



Joint ventures

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BCG MATRIX Division Financial services Public Industrial Distribution Communications Small & medium businesses OEM Other Total

Revenue ($ Million) 25,181 13,401 11,535 9,034 8,679 16,981 3,856 2,756 91,423

Revenues (%) 27.54 14.65 12.61 9.88 9.49 18.57 4.21 3.01 100

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IE MATRIX

The IE Matrix shows the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y axis. On the x-axis, the total weighted score of 2.29 shows an average internal position of IBM in terms of capitalizing on its strengths and overcoming its weaknesses. On the other hand, on the y-axis, the total weighted score of 2.89 is considered medium when we look at how the company is taking advantage of its opportunities and undermining the threats it is exposed to. This results in the company falling in cell number 5 of the IE Matrix which suggests that it should use the hold and maintain strategy that includes applying intensive strategies like market penetration and product development. The IE matrix has been applied for the whole organization rather than its individual divisions so it is an overall analysis of the internal and external position of IBM and what strategies it should employ considering its internalexternal position.

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SPACE MATRIX Financial Strength

Industry Strength

Rising ROE

+6

Growth

Profit margin

+4

Ease of entry +1

Average

+5

Average

+4

+2.5

Competitive Advantage Product quality -5 Customer loyalty Average

-2 -3.5

Environmental Strength Competitive -5 pressure Barriers to -6 entry Average -5.5

The average of FS, IS, CA and ES were calculated after giving them points between -6 to +6. Then the co-ordinates were calculated by adding FS & IS and CA & ES. After calculating the co-ordinates for the vector on the space matrix, the vector has been drawn which points towards the defensive strategies. Under defensive strategies come retrenchment, divestiture and liquidation. According to the case, IBM should go for divestiture.

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CONCLUSION The study of IBM and its current position shows that with its current situation and strategies it will be forced into the lane of defensive strategies. IBM in order to maintain its competitive advantage strives on research & development and diversifies its operations. The study shows that IBM has ample room for improvement in its Internal as well as external environment. The fact that the company needs to further strengthen its brand image can be done through exploiting potential markets in the long run. In addition, IBM has some loss making departments which are a burden on the company. The company has not yet come up with any strategy to divestiture such departments. There is room for improvement IBM needs to reinstate its line of brands through effective advertisements around the global market.

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RECOMMENDATIONS 

The company needs invest more in research and development in order to gain market leadership through differentiation.



IBM needs to get rid of their loss making departments, this should be done through the following 1. Divestiture



For the company’s profit making departments they should use competitive strategies and opt for 1. Product development 2. Market penetration



IBM should launch android based Tablets to cater the markets new demand for touch screen Tablets



Another Category which should be introduced by IBM is the cell phone market as they have the IT required for most of the work



IBM should cater the youth by providing high end gaming PC’s and Laptops.



They should improvise on their marketing department as well. There can be more of celebrity or branded programming entertainment.



They should move forward with the plan of acquiring intensive strategies.



IBM should lay off its employees as they are a burden on the company.

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WORKS CITED International Business Machines – 2007, Vijaya Narapareddy, University of Denver International Business Machines – 2009, F athi Salem Muhammad Abdullah, University of Jordan Strategic Plan: IBM – 2010, Yiri Hujizen, College of Applied Sciences www.prb.org/pdf06/YouthInAGlobalWorld.pdf http://www.ibm.com/annualreport/2009/2009_ibm_higher_value.pdf (2009 Annual report) http://www.ibm.com/annualreport/2008/note_t.shtml

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APPENDIX

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