81751402-IBM - Description of IBM business model PDF

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Description of IBM business model...

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1 Running head: STRATEGIC MANAGEMENT CRITICAL REVIEW

International Business Machines (IBM) Corporation “Think” Name: Course: Lecturer: Date:

2 STRATEGIC MANAGEMENT CRITICAL REVIEW Introduction IBM Corporation is a software and business services company operating globally. The company manufactures and markets mainly computer products. These products range from computer hardware, middleware, and software which are manufactured and marketed. The company also offers to host and to consult services primarily in mainframe computers. It is a corporation that operates in several countries across the world with an extensive market ranging from the Americas, Europe, and Asia to Africa. This paper is a research done by critically analyzing the strategic positioning of IBM Corporation about Porter’s generic competitive advantage theory. The study also involves the critical analysis of the porter’s strategic generic competitive advantage of the IBM Corporation (Walter, 2010). It also gives recommendations on how to implement the desired and suitable strategy for the firm. Critical Analysis of Porter’s generic competitive strategies According to Michael Porter’s theory of generic competitive strategies, the position of a firm in the industry explains the profitability level of the firm about the average standard of the entire industry. For a company to maintain or increase its profitability degree in the long term basis, it needs to have a competitive advantage that is sustainable during this period. Porter discovered three competitive advantage strategies that a firm can adopt to achieve this. They include; the cost leadership strategy, the differentiation strategy and the focus strategy. The focus strategy was then categorized into two, the differentiation focus and the cost focus (Verbeke, 2013). These strategies when implemented by a firm give a competitive advantage over their competitors. The cost Leadership Strategy

3 STRATEGIC MANAGEMENT CRITICAL REVIEW This is a strategic management strategy that gives the firm an advantage of becoming a producer with low-cost production expenses. This strategy is basically to enable a firm to minimize the cost of production and general operation costs while continuing with production as normal. When you increase profits, you get to cut other costs (Grant, 2016). This strategy may be achieved through strategizing on raw material access and other useful resources that are essential for production. Adopting an advanced business and information technology to enable cut on the cost of labor during production. Taking advantage of economies of scale to cut on the operation and production costs. The offering of lower prices on services and products to increase the market shares keeping in mind profit-making to a reasonable point. The cost of goods is crucial because all customers would like to have the best products at the lowest prices. Consumers are very sensitive to price especially when it comes to technology and therefore the cost leadership strategy is very important. The success of the cost leadership strategy depends on certain cost drivers that ensure the company is able to minimize its costs. The company must have access to the necessary capital that can be used to purchase raw materials at cheaper prices. IBM is a huge company with massive capital that can enable them to access raw materials at cheaper prices. The other cost driver would be the availability of technology that ensures goods are produced efficiently and cheaply. The existence of an efficient logistics system that ensures goods are made available to consumers within the shortest time. Applying cost cutting measures is also crucial such that the company uses low-cost materials, lower labor costs and facilities. Gaining competitive advantage varies according to industry structure that the firm operates in. A company seeking to be a cost leader in the industry has to capitalize and exploit every cost advantage that presents itself. It must also be able to take advantage of any such opportunity and

4 STRATEGIC MANAGEMENT CRITICAL REVIEW also employ the latest technology and experts to help innovate and create new cost-benefit strategies for the firm to continue being in cost leadership in the industry above their competitors (Gingerich, 2012). Differentiation Strategy Differentiation strategy is a technique where a firm develops unique and distinguished products. It also includes the adoption of services or operation methods that are different from those of its competitors. Things like brand image, product functionality, distinguished product and brand features and product durability. This strategy can be achieved through some ways, may include research of customer expectations and desires about the product or service in the market to be able to improve on the design and features. Employment of technological experts and skilled personnel in coming up with new ideas about product differentiation. Strategic and effective marketing models aimed at popularizing the differentiated products, services or brands (Thompson et.al. 2014). This strategy if well implemented can be a high-income earner for the company since it gives the customers loyalty to the brand. This loyalty minimizes the buyer’s price sensitivity and hence some of the cost is transferred to the buyers. Differentiation strategy is one strategy that a firm should always be on the fore front in making the changes and improvements on the products, services, and brands. In case a company does not adopt this strategy, they might get surpassed by their competitors since we live in a competitive world that is full of globalization and every day a new differentiation technique is developed (Richard, 2015). The difference between this strategy and the Cost Leadership Strategy is that for the Cost leadership strategy, the firm’s gains increases the market share while differentiation

5 STRATEGIC MANAGEMENT CRITICAL REVIEW strategy, the firm can generate more profits due to customer brand loyalty which establishes entry barrier for competitive firms. Focus Strategy According to Porter, a firm pursing the focus strategy selects few market segments as the major target of focus. It may be planning, methods of marketing, promotion or the 4Ps of marketing. The firm then dedicates all of its strength on the selected niche where it tailors its marketing mix to achieve a competitive advantage over the competitors. This strategy is divided into two, the cost focus where the firms focus on minimizing the cost in the selected niche of interest and the differentiation focus where the firm seeks on making this selected niche unique and distinguished from others with a motive of gaining a competitive advantage. Developments to Michael Porter’s generic competitive advantage Theory Bowman’s Strategy Clock This is a model that helps in the positioning of a product to ensure they occupy the most competitive position in the market. It is a model that enables the producer to position their products based on either its perceived value or its price. The clock is shown in the image below.

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Analysis of IBM’s strategic positioning about the relevant generic strategy Concepts and Theories According to 2015 inter-brand rankings, IBM was among the top five brands in the entire industry. IBM Corporation is a worldwide Software and business services company (IBM, 2014). A major success for the company is attributed to E-Business and the Smarter Planet campaign, and the recently developed Cognitive Business has ushered in a new era for IBM Corporation. These three achievements are said to be major definers of the company’s Business Strategy which is to display a look beyond feel and to create a value position that is fundamentally differentiated from those of competitors (Bharadwaj et. Al. 2013). The company has continued to be an innovator coming up with game-changing innovations from time to time that has enabled it

7 STRATEGIC MANAGEMENT CRITICAL REVIEW to not only keep their customer base in tact but also dictate the trends in the technology market due to their huge market share and influence. Since IBM is a worldwide brand, there are several strategies put in place by the corporation that ensures IBM brand stands out among competitor brands. This is achieved through; The Differentiation Strategy Establishment of the Cognitive Business which is the latest platform for the company come with a new generation of technology which displays a new way of business and how business persons think in ways of approaching the business. The IBM had to come up with a platform that no another competitor has implemented, talk of the Watson platform. This platform was used before in 2011 at research (IBM, 2013). Currently, it is being used by users everywhere offering some services; visual recognition, face identification, language detection, tone recognition and many others (Davidson & Wiklund, 2013). This differentiation has greatly marketed IBM products as both superior and reliable even in the case of stiff competition from other players in the market. There are so many other IBM based solutions that the consumers are using due to the differentiation strategy that has gained their loyalty to IBM brands. They include the development of Cognitive Oncology a new way to beat cancer while other competitors are still engaging the old Chemotherapy (Gamble et.al. 2010). Conclusion The world we live in is defined by technological advances. Every firm in the technology industry needs to develop strategies to distinguish them from competitors in the market. Firms should learn, adopt and implement Porter’s generic competitive strategy which provides

8 STRATEGIC MANAGEMENT CRITICAL REVIEW competitive advantages. These strategies include; Cost Leadership strategy provides companies with an advantage of minimizing costs of production and those of operations. When cost expenses are cut then, profit margins are increased. Firms should also employ the differentiation strategy, creating unique brands with differentiated features, elongated durability, and improved functionality and be able to support other services or brands. The brands or services a firm offers to the customers should stand out as different and unique to earn customer interest in using the brand name and that leads to earning their loyalty.

Reference Assen's, D. (2010). Hybrid strategy: Sustainable competitive advantage. Retrieved from http://www.daanassen.com/hybrid-stratgy--sustainable-competitive-advantage. Bharadwaj, A., El Sawy, O. A., Pavlou, P. A., & Venkatraman, N. (2013). Digital business strategy: toward the next generation of insights. MIS Quarterly, 37(2), 471-482.

9 STRATEGIC MANAGEMENT CRITICAL REVIEW Davidsson, Per, and Wiklund, Johan (2013) - New perspectives on firm growth Gamble, Arthur A. Thompson, Jr., A.J. Strickland III, John E. (2010). Crafting and executing strategy: the quest for competitive advantage: concepts and cases (17th ed.). Boston: McGrawHill/Irwin. p. 149. ISBN 9780073530420. Gingerich, E. (2012). Smart Change in Strategy: IBM‘s Response to Challenging Times. The Journal of Values-Based Leadership, 4(1), 2. Grant, Robert M. (2016) - Contemporary strategy analysis Hitt, Michael A., Ireland, R. Duane and Hoskisson, Robert E. (2016) - Strategic Management: Concepts / competitiveness & globalization (12th ed). IBM (2013). The IBM Strategy. IBM (2014). International Business Machines Corporation (IBM) Form 10-K, 2014. Kiechel, Walter (2010). The Lords of Strategy. Harvard Business Press. ISBN 978-1-59139-7823. Lynch, Richard L. (2015) - Strategic Management (7th ed) Porter M E (1979) ‘How competitive forces shape strategy’ Harvard Business Review March Thompson, John L., Scott, Jonathan M. and Martin, Frank (2014) - Strategic management: awareness and change (7th ed) Verbeke, A. (2013). International business strategy. Cambridge University Press.

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