Introduction
IBM is an innovation company, serving the needs of enterprises and institutions worldwide. IBM seeks to deliver clients success by enabling their own capacity to innovate, so that they may differentiate their organizations to create unique competitive advantage.
IBM draws upon the world’s leading systems, software and services capabilities to turn enterprises of all sizes, in every major industry, into on demand businesses to help its clients achieve growth, productivity, efficiency, and the realization of greater value through innovation.
IBM views enterprise innovation not only in terms of products and services, but across all dimensions of a business: its business processes, business model, management systems, culture and role in society.
This paper will focus on identifying the problems encounter by IBM. The paper also attempts to identify strategies through analyzing the internal and external micro and macro environment of the company.
2000’s
The decade begins with a Y2K-related drop-off in customer demand and the collapse of the dot-coms. If 2000 is seen as a watershed for e-business, 2001 is the year the world’s established enterprises awake to its true possibilities — and information technology requirements.
The 2000′s are also marked by a transition in IBM’s leadership. It also marked a rapid technological invention of IBM. However, it is also marked a highly competitive market for the software industry.
Problems encounter
According to (2002), IBM is currently selling off, at a huge paper loss, its disk manufacturing operations. The deal is complex and mainly secret. IBM says Hitachi is buying 70 percent of the business up front for just over billion and that it would pick up the remainder within three years. IBM is also selling its original big factory in Endicott, New York, while contracting with the group buying the plant to lease back some of the facility and to keep 2,000 people, half of the current staff, on the payroll for an unspecified period. Work done in Endicott was to be shifted to a factory in China, according to a report published by
IBM has dropped out of manufacturing quite a few products, including dumb tubes, networking apparatus, printers, tape transports, and desktop PCs. In some cases, IBM has stayed in the related markets, selling equipment made by others but bearing the IBM brand. In other cases, IBM has arranged for another firm to inherit the discontinued business.
While there is nothing unusual about IBM adjusting what it makes according to changes in market conditions, for most of IBM’s history it added net manufacturing capacity year after year. Unless IBM reverses a course it has proclaimed will be its route for the future that it will continue to shut down manufacturing plants, even as it strives to boost sales of both goods and services.
Far more often than not, customers buying products from IBM will neither know nor care whether the machinery was made in an IBM plant. iSeries customers who have opened up their machines and seen disk drives with Seagate, rather than IBM, labels might have been a bit shocked at first, but none of them returned the equipment.
Still, in the hard-hitting world of computer marketing, IBM’s competitors are going to try to turn any sign of IBM weakness into a sales opportunity. Hitachi, for example, may be able to win some storage deals by persuading prospects that its vertical integration is the basis of superior quality, value, and performance.
IBM is in stormy seas and must ask itself whether it can keep all of its sails, for if it does not, it could be dismasted.
SWOT Analysis
Strengths
IBM’s diverse portfolio of products and offerings is designed to gain market share in strong and weak economic climates. The company accomplishes this by not only having a mix of offerings with long-term cash and income streams as well as cyclical transaction-based sales, but also by continually developing competitive products and solutions and effectively managing a skilled resource base. The company’s portfolio of capabilities ranges from services that include Business Performance Transformation Services to software, hardware, fundamental research, financing and the component technologies used to build larger systems. These capabilities are combined to provide business insight and solutions in the enterprise computing space. The company has exited commoditized businesses, increased its concentration in higher-value businesses and created a more balanced portfolio.
The company’s Systems & Technology Group develops leading and often pioneering technologies that can be integrated with software and services to provide client solutions.
IBM maintains an effective internal control structure. It consists, in part, of organizational arrangements with clearly defined lines of responsibility and delegation of authority, and comprehensive systems and control procedures
Weaknesses
With a large company like IBM, it has the incapability to react and reform at a speed. The company can react on the sudden changes but slower and reluctantly. In addition, nimbler companies are taking IBM’s share. The company also has trouble financially. Moreover, customers are losing their confidence on IBM. It has also currently had a huge paper loss with its disks operation in which the company is selling off.
Opportunities
The company can integrate across its portfolio to create solution offerings for its global client-base, driving profit and cash growth over the long term. The company also can strategically invest in services and technologies that have the best long-term growth and profitability prospects based on the value they deliver to clients. IBM can continually transform itself to take advantage of shifting demand trends, focusing on client- or industry-specific solutions, business performance and open standards. IBM has also the opportunity to drive greater productivity, flexibility and cost savings by transforming and globally integrating its own business processes and functions.
IBM can invest to improve its ability to help its clients innovate. Investment may occur in the research and development of new products and services, as well as in the establishment of new collaborative and co-creation relationships with developers, other companies, and other institutions. To deliver value that helps clients differentiate themselves for competitive advantage, IBM can move away from commoditized categories of the IT industry and into areas in which it can differentiate itself through innovation and by leveraging its investments in R&D. Areas of investment include strategic acquisitions, primarily in software and services, focused client- and industry-specific solutions, BPTS, key technologies and emerging growth countries such as China, Russia, India and Brazil. The company can refocus its business on the higher value segments of enterprise computing — providing technology and transformation services to clients’ businesses.
Threats
IBM has a number of competitors in the IT industry with significant resources and investments that are committed to closed and proprietary platforms as a way to lock clients into a particular architecture. This competition will result in increased pricing pressure and/or IP claims and proceedings. In addition, currency rate fluctuations of non-US currency can affect the company’s result. Currency changes can result to asset or liabilities depending on the local currency translated to dollars. Another threat is market risks associated with collectibles of accounts receivable and recoverability of residual values on leased assets
Porter’s Five Forces Model
IBM has no bargaining power over their suppliers since the company has its contracts and business to business agreement over their suppliers and switching suppliers would be costly for the company.
Buyers on the other hand have strong bargaining power since IT business has grown rapidly in the recent time. There have been many small IT businesses which are competing with IBM.
However, threats of new entrants are weak since processes of discovering new technology is patented and venturing in the same business is too expensive. Customers also tend to be brand loyal and since the company has gained its reputation in the market.
Threat of substitution is also low because IT technology is differentiated from other products and there are no substitute for IT solutions.
Rivalry in the industry is the strongest since there have been many IT businesses emerging in the market and offering new technology that is different with what IBM offer.
BCG Matrix
Source:
Currently, International Business Machine is at the star of the matrix since the company has still it lead position in the market and a high business growth rate despite the emerging of competitors.
Strategy
From the BCG matrix, the best strategy that IBM must undergo is to invest. Investment strategy may include capitalizing on innovation on business performance or acquiring businesses.
Pros and Cons of Strategy Identified
In the pursue of IBM to invest in innovation through understanding of where technology, client requirements and global business are headed, the company continually makes strategic decisions 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. The company utilizes its entire portfolio — hardware, software, services, technology and research to maintain its leadership. With those broad capabilities to enable enterprise innovation, the expertise and diversity of its global workforce and its large network of suppliers and business partners, it is considered that IBM can well-positioned itself to capitalize on the opportunities represented by the needs of its clients and current trends in economics and society. However, there could be a disadvantage of innovation when the strategy will not be appropriate for the company.
Another strategy to consider is acquisition of business. An advantage of acquisition of business is that in an establish business there would be less risk involved. When you purchase an ongoing business, there is an existing reputation, customer base, suppliers, equipment, leases and cash flow. The infrastructure and management team are also in place.
However, purchasing an existing business is like buying a used car. You inherit all the problems and headaches that someone else has caused.
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