IBM Strategic Analysis 1 Essay Example

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IBM: A Strategic Analysis

Table of Contents

Executive Summary

The International Business Machines Corporation (IBM) is an American technology organization whose operations extend to more than 170 nations worldwide. Today, IBM continues to rank among the largest information technology companies worldwide with its strategic approaches to business maintaining its relevance and success. In particular, IBM has continuously altered its business mix through different approaches including its commoditization of markets that place priority focus on more profitable markets offering higher value. With regards consistent innovation and advancements, IBM has made strategic moves such as going “fabless” as it maintained its semiconductors design but outsourcing their manufacturing to other companies such as Global Foundries. The company also retains the record for the most patents globally in the loud computing field. IBM, therefore, provides a valuable case study of an organization’s strategic management. This paper will focus on an analysis of the external environment, internal structure, and environment associated with IBM in the company’s line of business. The report will also attempt to provide strategic recommendations for the company for future growth and expansion in its ultimate bid for enduring competitiveness.

Introduction

The International Business Machines Corporation (IBM) is an American technology organization whose operations extend to more than 170 nations worldwide. The IBM reference started in 1924 after its renaming from the initial reference, Computing-Tabulating Recording Company, given since its establishment in 1911[ CITATION Gal12 l 1033 ]. IBM has hence grown in the computing and digital arena to become one of the most successful and renowned firms in the technology field. Currently, the company is involved in the manufacturing and marketing of computer hardware, software, and middleware. IBM also offers data hosting and consultancy in nanotechnology, mainframe computing, among others.

IBM is also renowned for its being a significant player in the research field. In fact, the company has held a 24-year record for owning the most research patents by a business organization as of 2017. It’s computing platforms have long dominated the technology arena as exemplified by its mainframes’ usage in the 1960s and 1970s[ CITATION Ann12 l 1033 ]. Other well-known and popular inventions from the company include the Personal Computer and the Automated Teller Machine. IBM has also come up with major inventions in the storage field with its invention of the hard disk drive, floppy disk, and the dynamic random-access memory being some of the notable products. Its research extends to programming as IBM originated the SQL programming language that is widely used for creating relational databases-also one of the company’s inventive concepts. IBM also invented the UPC barcode.

Today, IBM continues to rank among the largest information technology companies worldwide with its strategic approaches to business maintaining its relevance and success. In particular, IBM has continuously altered its business mix through different approaches including its commoditization of markets that place priority focus on more profitable markets offering higher value. For instance, the company spun off Lexmark, its printer manufacturing sector in 1991. More recently, IBM also sold off its server in 2014 and personal computer business sectors in 2005 to Lenovo. The company has also acquired other companies including The Weather Company in 2016, PwC Consulting in 2002, and SPSS in 2009. With regards consistent innovation and advancements, IBM has made strategic moves such as going “fabless” as it maintained its semiconductors design but outsourcing their manufacturing to other companies such as Global Foundries. The company also retains the record for the most patents globally in the loud computing field.

IBM’s strategic positioning in its business sector and market have manifested in its comparatively high revenue levels that stood at 79.919 billion dollars by the end of the 2016 fiscal year. The company’s 13.031 billion dollars operating income and 11.872 billion dollars net income also demonstrate its competitive successes in the field. Its current total assets stood at 117.47 billion dollars by the end of 2016 while its total equity was 18.392 billion dollar. The company also boasts a human resource pool of about 380,000 employees whose skill and innovation has seen the company gain strategic advantage by advancing its reputation through the many awards they have earned. The employees have earned five National Medals of Science, five Nobel Prizes, 10 National Medals of Technology, and six Turing Awards among others.

IBM, therefore, provides a valuable case study of an organization’s strategic management. This paper will focus on an analysis of the external environment, internal structure, and environment associated with IBM in the company’s line of business. The report will also attempt at providing strategy recommendations for the company for future growth and expansion in its ultimate bid for enduring competitiveness.

External Analysis

Customer Groups and Market Segmentation

IBM offers a broad range of diversified products and services for customers ranging from individuals of all ages to groups and corporations. As such, the company caters to all customer groups requiring digital and other technology services hence also representing its operations across the different market segments in the technology field. By 2016, IBM catered for market segments including IT infrastructure, mobile and security, analytics, and commercial data. The company is also involved in the Internet of Things sector as well as the related cognitive and cloud computing sectors.

IBM also caters for the hardware market with its POWER microprocessors that are used in the production of gaming consoles such as PlayStation, Xbox, and Wii. In the field, the company also offers encryption hardware. IBM is further involved in the IT outsourcing sectors through its data centers across the world numbering over 40. Besides these technology and digital sectors, the company is also involved in weather forecasting through its ownership of the Weather Company. Finally, IBM also engages in development and sustainability efforts through its Smarter Planet initiative. This initiative focuses on the achievement of economic growth, development of sustainability, short-term competence, as well as societal improvement.

Positioning of Competitors

IBM compares well to its main competition that includes Amazon Com Inc. and Oracle Corporation. Amazon beats IBM with regards revenues with its 150 billion dollar revenues compared to the 70 billion dollar revenues by IBM. Oracle, on the other hand, falls behind with 37 billion dollar revenues[ CITATION CSI17 l 1033 ]. IBM then employs 380,000 workers representing more people than both Amazon and Oracle that have 117,000 and 132,000 employees respectively[ CITATION CSI17 l 1033 ]. IBM, however, has higher incomes than both Amazon and Oracle as of 2016 with 11 billion dollars income compared with 1 billion and 9 billion dollars for the two competitors respectively. Other competitors such as HP and Microsoft are positioned lower than IBM in most market segments[ CITATION CSI17 l 1033 ].

Competitor’s strengths and weaknesses

The competitors’ advantage manifests mainly in its strategic acquisitions. Oracle, for instance, has, to today, spent over 4.2 billion dollars in acquiring different strategic partners for its marketing cloud including Responsys and Eloqua automation platforms[ CITATION TFM17 l 1033 ]. Also the competitors have strong data and content management partners as well as marketing analytics, analysis, and optimization acquisitions. In comparison, the competitors also have strengths in having fewer employees than IBM.

The competition’s weaknesses manifest in their lower brand values in comparison to the robust IBM global brand. Indeed, Forbes ranked the IBM brand as the fifth most valuable brand in the world in 2015. The companies do not also compare well with regards pricing and reputation in comparison to IBM. Their diversity and divestiture are also a significant weakness as they compare low to IBM’s diversification activities.

Trends and their potential impact on future strategy formulation

Recent technological advancements have seen IBM’s competitors, as well as new entrants, lead to a trend of increasing bargaining customer power. In particular, these advancements have seen a lot of products and services similar to those the company offers introduced hence making the customer’s bargaining power increased. Indeed, there has also been an increment of new products that bring in more competition and rivalry and ultimately reducing the company’s bargaining power in comparison to that of the customers. Although the trend of new entrants has been comparatively low, the upcoming startups have brought with them new inventions previously not in IBM’s portfolio. As such, the company has sometimes been left behind in some digital sectors such as social media.

These new entrants, their associated competitiveness, and ultimately the increasing customer bargaining power trends will impact on the future strategy formulation in the organization. Indeed, IBM’s strategies will have to focus more on research and innovation. Further, the company will have to strategize on countering these new entrants by offering more products and services that will, in essence, have no or low substitutes to maintain and increase its competitiveness in the different markets. The company might also have to come up with innovative pricing and customer appeal strategies to increase its bargaining power in its interaction with its clientele.

Internal Analysis

IBM’s Organizational Strategy

The main strategy that IBM follows is the integration in front of its clientele. Rather than separate its different sectors, into piece parts of software and hardware, the company integrates all its roles together through a cultural transformation that was first led by the consulting expertise that the purchase of PWC brought with it. The company then places primary focus on the objective of advancing the smartness of the world’s systems via the application of technology in a bid to serve people’s needs as societies and individuals. In essence, IBM focuses on building and maintaining a brand that prioritizes progress by focusing on making the world function more efficiently by applying science, reason, and intelligence.

Additionally, IBM places importance on its values as the core of its brand. The company is, therefore, compelled to pursue the delivery of value, invention, as well as staying close to the needs of the client. Today, these company values converge with IBM’s core identity. Indeed, an increasing number of people like the organization behind the service or product and perceive it similarly essential as the service or product itself[ CITATION Pau99 l 1033 ]. In a related context, IBM also focuses on how all human being stakeholders experience its brand. The company views the people associated with it a key to making IBM what and who it is. In particular, IBM perceives its currency as constituting the reputation, intelligence, skill, and experience of its employees, popularly known as IBM-ers.

Continuously, IBM invests on its stakeholders as a strategic approach to creating an experience that it aims at delivering for its brand. The company perceives all its stakeholders including investors, communities, clients, and employees as forward-thinking as tailors its brand to catering to this characteristics. In the company’s view, consistent branding is an essential today especially since organizations have reduced control over the communication of their brands. For instance, as the participation of the employees in social media infers that they require a strong understanding of their organization’s brand to bring out consistent and appropriate communication.

In essence, IBM considers its reflection and representation as the delivery of purposeful design that enhances understanding. Interaction is the company’s chance to make an individual smarter about a particular thing or concept. Further, the company then asserts that to sound like it, one is required to maintain a listening posture while also engaging with a viewpoint that portrays intelligence and pragmatic optimism. Then, to think like the company involves thinking with a statesman’s ideals, and industrialist’s scope, and a scientist’s rigor. IBM, therefore, amalgamates these traits in its approach to solving problems. As such, the company then perceives performing like IBM as the delivery of expertise and quality as expected. Ultimately, this strategy means aligning all these concepts to the values of the company.

IBM references this internal strategy as ‘conversation marketing’ that essentially focuses on how to engage clients. This model is led by the recognition that clients currently do more self-discovery. In fact, about 60% of buyers reveal that relevance and consistency in the information offered by an organization’s sales and marketing are key factors in impacting their decisions about purchases[ CITATION Hua02 l 1033 ]. Additionally, a majority of buyers assert that they choose solution providers mainly based on the provider’s provision of ample content that helps them as the clients to navigate the process of making particular purchases. Accordingly, IBM settled on the conversation marketing model to develop a system that is founded on these facts. The model focuses on developing an approach where sales and marketing are in congruence, the content created is minimized, and that the company’s brand is maintained in all interactions with the clientele across all divides, physical and digital.

IBM has, therefore, created the company’s blueprint for the conversation marketing model by considering the potential dialogue involved from the time a potential client learns about the company to the time they become ready to become an actual customer. These considerations resultantly offer insights into a comprehensive brand narrative that show and maintains relevance across this said journey from potential to the actual customer.

IBM’s Vice President of Demand Programs in the North American branch, Michele Grieshaber, gives a practical example of this strategy where smarter cities aim at crime prevention. In such a case, the company searches for insight regarding its audience and the main topic at hand, which is crime prevention in the definition of the important aspects of the conversation. IBM then employs social listening and search in the identification of what the audience says with regards the crime prevention topic, where this audience seeks information, as well as, to whom they trust.

Though such a strategic approach, the company identifies and understands their audience effectively in particular conversations and the audience’s language of use that IBM then maps into the particular dialogue. Through this process, the company also learns the triggers and pain points in a special purchasing journey that helps their potential clients in learning, solving, comparing, and ultimately gaining readiness to buy. As such, IBM constructs a conversation map that highlights the company’s assets are aligning to these different sections of the dialogue and can hence keep every stakeholder in sync. The company also employs the same dialogue map alongside its many assets to plan its sales enablement and implementation of marketing. Ultimately, the synergy and effectiveness brought about by the conversation marketing model are a key strategic strength for the company.

IBM’s Strengths and Weaknesses

Alongside the above-discussed strength in its general internal strategy, IBM also has several strengths as a major player in the technology, research, and consulting industry. Chief among these strengths is the IBM brand name[ CITATION Gur16 l 1033 ]. Another of these strengths is the fact that the company has experienced increasing revenue over its history of business operations currently reaching over 70 billion dollars. The company’s increasing earnings per share is also a key strength. It’s diversification of business activities to include the sale of software, hardware, consulting services, as well as financing and research also manifests as one of IBM’s strengths. The company also has a heightened innovation capacity as demonstrated by the record number of patents it holds. Additionally, within its main industry sector that is the technology field, IBM ranks second after Microsoft with regards long-term development, net income, and market capitalization. Further, its extensive operations globally across more than 170 countries have also added to IBM’s strengths. The company’s acquisition of other strategic companies over its history also manifests as an internal strength.

On the other hand, some of the company’s main features and characteristics also manifest as weaknesses. For instance, IBM’s over 380,000 employees bring out the weakness of the organization having too many employees. IBM can also be said to have a lack of synergy as a resultant effect of the several divestitures and acquisitions it has done across diverse business sectors. The company can also face the weakness of a difficulty to coordinate its diverse operations over four different geographical regions. Although the company has diversified over the years, its main concentrations have been on three major sectors, the software, hardware, and cloud services that are under the umbrella technology sector. Under this approach, IBM is then placed in a vulnerable situation particularly if the revenues from these three main sectors decline. The company has, for instance, experienced a reduction in profit margins from its hardware sector that further manifests as an organizational weakness.

Strategy Recommendations

Conclusively, a look at the company’s internal strengths and weakness using the internal factor evaluation matrix reveals that the internal position of IBM already stands at above-average levels. However, the company still has room for improvement and can, therefore, establish plans with more innovative strategic approaches in a bid for improving its position. Essentially, IBM should retain its focus on ensuring benefits from its internal strengths while simultaneously minimizing its weaknesses.

In particular, IBM should employ InnovationJam approaches to get more in touch with a target market of younger clientele in a bid to add the company’s appeal to them[ CITATION Rac14 l 1033 ]. IBM should also make the most of its global existence and coverage in its efforts to hire international expertise to a broader extent across its business operations. IBM should also make sure to exploit its robust brand name, mergers, and acquisitions to diversify further into the technology and digital fields it is yet to engage in such as Gaming personal computers. Indeed, its acquisition by Lenovo and the resultant increased laptop production has had significant success and should serve as a blueprint for similar strategies to reach the increasing percentage of youths across the globe.

Continuously, IBM should also engage strategies to cater for its internal weaknesses. For instance, the company’s strategy to hire and engage international expertise is essential in the bid for the eradication of the lack of synergy of organization units across several different geographical regions. In relation, IBM should also reposition employment to regions that show more profitability or potential for profitability. Focusing on judicious and practical horizontal acquisition is a strategic approach that can serve as a safeguard against the electronic and digital markets that sometimes demonstrate high instability. The company should also target increased operations in new emerging markets that can serve in the increment of business and profits from its hardware products.

Other recommendations include the utilization of the company’s rising revenues for the investment into latest technology advancements. In fact, IBM should also profit from its financial strength to acquire smaller and strategic firms that would help the company compete better with industry competitors such as HP and Microsoft. The company should also utilize the innovative talent it attracts through InnovationJam to increase its research reach and resultantly improve on its development of products and services.

Ultimately, the company should devise strategies by focusing on a SWOT analysis of the current organizational status. In particular, IBM should align its strengths as well as its weaknesses with the opportunities with which it is presented. The company should also align these strengths and weaknesses with the potential threats it faces. Essentially, IBM’s strategies should take advantage of the strengths by countering its shortcomings, exploiting the opportunities, and reducing the potential for the threats.

Conclusion

The analysis of IBM’s strategic positioning in its markets and industry reveal that despite currently performing at above-average levels, the company has to take strategic action to maintain and ultimately improve its competitiveness. In particular, IBM will mainly focus on reactive, defensive, and some offensive strategies. With regards defensive and reactive strategies, the company should concentrate on countering the current internal weaknesses and the prevention of the manifestation of potential threats. Conversely, with regards offensive strategies, IBM should focus on advancing into strategic and profitable global markets while exploiting the employment, research, innovation, and development opportunities presented by globalization.

Conclusively, this study demonstrates the potential for further improvements that IBM has in the contexts of its external and internal environments. In essence, the company has to strategize towards additional diversification to counter its loss-making sectors and the exploitation of potential global markets. The company needs to advance its brand levels through strategic entry and marketing into new emerging markets across the worldwide market.

References