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Business Future: Case Study Report IBM Company,

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Table of Contents Executive Summary....................................................................................................................................... 3 1-Industry Overview...................................................................................................................................... 3 2-Factors Affecting IBM ................................................................................................................................ 4 3-PESTEL Analysis.......................................................................................................................................... 5 3.1Threats...................................................................................................................................................... 5 3.2Opportunities ........................................................................................................................................... 7 Recommendations ........................................................................................................................................ 8 4-Porters-Five Analysis................................................................................................................................ 10 4.1-Bargaining Power of Buyers ................................................................................................................. 11 4.2Threats of New Entries ........................................................................................................................... 12 4.3 Threats of Existing Rivalry ..................................................................................................................... 12 4.4Bargaining Power of Suppliers ............................................................................................................... 13 4.5Threats from Substitutes........................................................................................................................ 14 Recommendations ....................................................................................................................................... 15 Reference List: ............................................................................................... Error! Bookmark not defined. Appendices:................................................................................................................................................. 16 IBM PESTEL Analysis.................................................................................................................................... 17 Porters Five Analysis ................................................................................................................................... 19

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Executive Summary IBM is among the leading technology companies in the globe. It is mainly known for its hardware and software products, but has diversified its operations to include services. In the past few years, the company has been performing poorly recording either a decline in revenues or stagnation in the revenues. One of the best approaches to understand the situation of company is to conduct a PESTEL and porters five analysis that highlights the various factors that affect the business. The essay will focus on those factors that affect the company on a global perspective and offer the appropriate recommendations for the company. If the company can follow the recommendations provided and exploit the opportunities offered by the developing nations, it can manage to improve its performance.

1-Industry Overview IBM is an international company headquartered in the U.S. It produces computer hardware, software and offers consultation services. It is among the leading computer technology companies in the globe employing more than 435 3

000 employees and ranking number nineteen in term of revenue size. The current chief executive office of the company is Virginia Rometty, who is seeking to raise the revenues of the company that have went through a series of decline and remaining flat for the last few years. Rometty is focused on improving the performance of the company to avoid being fired or leaving a legacy of poor performance in the company. To avoid being perceived as the CEO, who oversaw the failure of IBM; Rometty needs to focus on several key areas of the company with its global aspect being among these issues.

2-Factors Affecting IBM Businesses are affected by either the internal or the external factors. The internal factors include business policies, management, departmental performance, labor relations, infrastructure, brand image, and research and development of a company. The internal factors are easy to control with the management always tasked with the responsibility of managing the factors. On the other hand, the external factors involve customers, suppliers, competitors, technology, political, and economic factors. According to research, IBM delays in responding to the external factors, which have led to the company experiencing

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decline in revenues and a situation of no growth (Cadle et al, 2010). One of the strategies that the company is using for its expansion is the global market development. Having expanded in more than 133 countries, IBM is using the global business platform as one of its primary means to improve its revenues. The following is a PESTEL analysis for the firm to help understand the global business environment better and recommend possible solutions for IBM to use as development strategies.

3-PESTEL Analysis The PESTEL analysis, which is also commonly referred to as the PEST analysis, considers the external environment of a company. It involves political, economical, social-cultural, and technological factors. In some cases, the last two letters are included to represent the environment and legal issues affecting a business organization. The PESTEL analysis allows the management and policy makers to identify the threats and opportunities facing the firm in the external environment. 3.1Threats

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Political Regulations and Policies, Using the PESTEL analysis, it is possible to understand and advice IBM on the most appropriate strategies to implement for its global participation. The political regulations and policies create a threat to the company’s expansion and performance from the moment they are made until they are changed. Therefore, in nations where there are strict policies that do not favor foreign investment such as China, IBM performance will be declining or remaining flat over the next 5 to 10 years. Additionally, nations with high taxes on foreign companies will reduce the growth of the company since its returns will be lowered by the huge tax cuts that are applied to the revenues generated.

Competition, In the next five or more years, IBM will have reduced revenues, and low ranking in company size and performance given that the competitors are doing well in the local market while IBM is performing poorly globally. Given that the worth of the dollar is continuously declining, foreign revenues are similarly declining leaving companies dependent on global revenues at risk of collapse. Another threat that IBM will be facing in the next five or ten years is increased competition from rivals such as HP and Dell in the developing nations after they 6

realize the potential of such nations. Given the rate at which technology is changing, IBM will be faced with the threat of some of its investments becoming obsolete. With the society always adopting the new technology and disregarding the old one, IBM faces the threat of some of its hardware and software becoming obsolete in the next 5-10 years.

3.2Opportunities Friendly Policies, IBM has its opportunities created by governments as they encourage foreign direct investment as part of their economic growth strategy, hence make friendly policies that allow companies to invest. For example, developing nations such as most of the African nations cultivate policies that attract foreign companies to invest in their nations. Additionally, the development of the nations presents a good ground for companies to invest in since the returns made in these growing economies are high. What is more, the society is constantly changing and adopting the use of new technology as seen with the growing number of Internet users. Therefore, IBM has an opportunity to grow by offering Internet related services that are in great demand by the society. In the recent research, more than 90% of the society are using the internet, hence providing a 7

large market for IBM to invest and grow its revenues, which have been declining since Rometty took over.

Technology Change, Technology is the central factor on which IBM is built and as a result, its change provides the company with the opportunity to develop new products and services for the society. One of its strategies for development is research and development of new products and means of services. Therefore, the changing technology is one of the company goals as it seeks to better the available technology and provide more effective and efficient products.

Recommendations Regulation of Global Expansion Given the threats facing IBM operations, it is advisable that Rometty and the management team avoid global investments in areas with strict business policies that will hinder the operation of the firm. Instead, the management should concentrate on areas that are more profitable and maximize the operations in such regions. Another approach to managing the problem of strict 8

policies and regulations in the global expansion of the company is to collaborate with local companies of the target nations, which are exempted from the harsh regulations and policies. Reduced Over Dependency on Foreign Markets, IBM is presented in over 133 countries, which makes it highly dependent on external revenues. Considering that the worth of the dollar is declining, it is recommendable that IBM avoids over depending on foreign revenues and focuses its attention on the local market. Focusing on the local market will ensure that even when the global business arena fails, the company will still be having some significant revenue to grow the firm. To manage the threat of increased competition from rival companies in the developing nations, IBM will build strong customer relationship that will in return ensure customer loyalty pushing away the competitors. Exploit Opportunities, To exploit all of its opportunities IBM needs to invest in nations that have attractive policies that will ensure an increase in the company’s returns. For example, investing in Africa’s and South America’s growing nations will offer the high company returns. Additionally, developing new technology that matches the 9

changing social-cultural technology demand will ensure that the company remains relevant and preferred by the largest number of customers. Since the company has a good reputation in the public, using a strategy such as systems engagement initiative will bring success to the firm (Williams, 2008).

4-Porters-Five Analysis The Porter’s five-tool is a strategic business tool that enables a company to understand the extent and position of its powers in the market. A business that does a proper analysis of the tool can counter its threats by understanding the extent and strength of the current competition. In addition to that, the tool helps a business anticipate the position it is moving into thus making its management towards that direction easier ("Porter's Five Forces: Assessing The Balance Of Power In A Business Situation",2016). IBM Company can effectively utilize Porters Five Forces tool to understand its competition and make proper plans for its future. I assess its competitors based on the tool and anticipate better direction in movement. The following is the company’s analysis based on the tool and the recommendations that it could consider.

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4.1-Bargaining Power of Buyers When the buying power of buyers is high, the effectively compete with the company by forcing the prices to go down, bargaining for better and higher quality products or higher quality services as well as playing competitors with each other. All these are done at the expense of the profit that should be made by the company. The degree of the power of the buyers to bargain highly depends on the number of available competitors, the value of the brand, switching cost, the enjoyed position by the company in that specific area of operation, and availability of products that are the same in the market ("Porter's Five Forces: Assessing The Balance Of Power In A Business Situation”, 2016). IBM manufactures computer software and hardware and sells them to the wide range of customers. The bargaining power of their customers or buyers is high, especially in the IT industry given a large number of competitors. The main competitors in the industry are Hp, Microsoft, Dell, Wipro, Oracle, and HCL (Rothaermelet et al, 2015). Therefore, the company, needs to offer a high quality end product to cope with the competition of this size especially when its value is gradually declining. IBM has managed to do better in dealing with the competition by offering highly customized products according to the

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requirements of the business but has a long way to go if it is to keep up with the increasing competition.

4.2Threats of New Entries Threats of new entries are very critical for IBM as it discusses how the company reacts when new companies come in the market. Being one of the best organizations in IT provisions, the company has an adamant research department and high investment of capital to ensure it keeps enjoying the profits. The dominance that was once enjoyed by IBM Company is being threatened by Compaq, HP, Dell, HCL, among other companies. Thus, the company reacts by providing efficient and innovative products. The company carries out product identification as a way of reacting to new entries. It does product differentiation and economies of scale to deter new aspirants from entering the market. The company also responds by investing heavily in the market to keep up with the intense competition given its large capital diversity which makes it hard for new entries.

4.3 Threats of Existing Rivalry For any company, success is measured regarding profit. It is very important to judge the success of a business, and rivalry is very critical. Force is always 12

inversely proportional to profits made by a company meaning that if the forces are too intense, then it follows that the profits are low. In the software industry, the rivalry intensity is very high given the high number of companies in the domain. IBM faces rival companies in different categories such as a server for instance the Microsoft and HP, software development by companies like Wipro Tech, software products in Lotus by Microsoft, and DB2 by Oracle Company. These brands are very strong as far as competition is concerned. The rivalry intensity is judged on the criteria of bundling, where extra privilege is given with the base products. IBM has bundled its software as well as its hardware support for a long time to deal with competition from Microsoft and other competitors. Other features that are used in judging intensity in rivalry are a point of parity, a point of difference where IBM has made some of its products different from the same products of rival companies.

4.4Bargaining Power of Suppliers From the time it was started, IBM has been based on several fundamental values. The values of the company define it and the relationship it has with its shareholders, clients, community and the company itself. In fact, over $2billion every year is spent by the company in its diverse supplies which are the greatest 13

in comparison to all other technology companies. The building of these diverse supplier communities and their maintenance ensures the company increases its opportunities to apply various approaches, hear and gather new ideas, and gain access to more solutions that responds to the needs of the customers. This kind of collaborations helps IBM offer quality products and high-quality services to its customers. Certain factors like price, service reliability, the flexibility of the supplier, and product safety help a company decide which supplier to focus on. IBM provides its products and services in various fields like Office Supplies, Environmental, and Security. Hardware provided to the suppliers include power PC/RISC processors, X86/CISC processors, network products among others.

4.5Threats from Substitutes Substitutes refer to products that can serve the same purpose as the original products in its absence. They are used to ensure work continues as the original products get manufactured. In an organization, time is paramount and should never be wasted. IBM is very cautious about time and takes it very seriously. When software is absent, it always affects the performance of the company and for that reason the company has several substitute products. The company creates its own software that is cheap to stand for cases of software privacy. IBM 14

has a broad range of research network and invests a lot to ensure that new products are discovered to stand in places of original products. It provides products at lower prices and ensures they penetrate the market more.

Recommendations In light of the Porter’s five-tools and the competition the company faces, it can improve its positions through various means. IBM Company has to keep doing more and more research to ensure it provides the best products with more customized features and counter the ever increasing competition from its competitors. Investing heavily in regions that bear more opportunities will help the company deal with any threats of new entries. It will have set very high standards for any new entry such that it will not be threatened. IBM should also select the best suppliers through proper analysis of the supplier power to ensure its products trend in the market effectively.

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Appendices:

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Appendix1:

IBM PESTEL Analysis Factor

Issues

Political

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IBM faces conflicting regulation in the countries it ventures to invest

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Conflict in local laws compared with the global expectations

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Political conflicts in some nations affecting the productivity and performance of the company such as the war in North Korea. Iraq war in 2003 caused the stock of the company to fall

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Tax laws in some of the nation deter the company from high performance

Economical

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The recent economic slumps have affected the performance of the company along other nations

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The conversion rate of the foreign currency to local currency is low minimizing the revenues of the firm

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The economy of developing nations growing at a high rate

Socio-cultural

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The company has a good public image globally

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Large number of people in the contemporary society use the internet creating a large market for IBM

Technological

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Technology is constantly changing, which is a direct effect on a company that deals with computer products

Environmental

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Disease outbreaks affect supplies in the nations which IBM is operating

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Demand for environment protection is one the rise with call for sustainable production practices

Legal

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Government sanctions against warring states such as North Korea affect IBM operations in such regions.

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