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Transcript of Managing Strategically at IBM
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Running head: MANAGING STRATEGICALLY 1
Managing Strategically at IBM
Charles L. Hines
MBA690 Strategic Management
January 10, 2012
Dr. Craig Cleveland
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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
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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
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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
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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.
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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
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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
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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.
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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:
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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
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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
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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
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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
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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.
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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,
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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,
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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).
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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
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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
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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
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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