77789611 IBM Case Study Strategic Management Final Report PDF

Preview

Summary

Fortune Ranked 2nd largest u.s. Firm in terms of number of employees. Newsweek Ranked 1st Green company worldwide. IBM - Globalization Venturing into international domain.Internal and External Analysis of the company. We focus on the SWOT to make an accurate analysis and helpful strategies....

Description

Ca An

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

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

1|Page

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.

2|Page

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.

3|Page

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.

4|Page

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.

5|Page

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%

6|Page

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.

7|Page

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

8|Page

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

Focus more on OEM Hire and use international expertise

0.1 0.16

2 3

0.2 0.48

Globalization in order to balance the fluctuations in different economies

EFE MATRIX

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

THREATS 0.06

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

9|Page

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.

10 | P a g e

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%)

11 | P a g e

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 geographical 0.07 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

12 | P a g e

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.

13 | P a g e

SWOT MATRIX Weaknesses

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)

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

W0 Strategies

S0 Strategies

Opportunities 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

14 | P a g e

Weaknesses

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) 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, overc...