IBM Case Study

INTERNATIONAL BUSINESS SCHOOL Strategic Management (MBSA 1213) FINAL EXAMINATION: IBM STRATEGIC PLANNING NUR SYAZANA (MBS 1001) Lecturer Dr. Shathees Baskaran  Table of content Vision and mission statement of IBM........................................................................................2 External Analysis: General Environment...................................................................................4 Justification on General Environment External Analysis..........................................................6 Industry Environment Analysis: Porter 5 Forces.....................................................................10 Competitor Environment Analysis...........................................................................................11 External Factor Evaluation (EFE) Matrix for IBM..................................................................13 Strategic Group Map................................................................................................................14 Competitive Profile Matrix (CPM)..........................................................................................15 Capabilities, Core Competency and Competitive Advantage of IBM.....................................16 Internal Analysis: Strengths and Weaknesses..........................................................................17 Justification on Strengths and Weaknesses..............................................................................18 Internal Factor Evaluation (IFE) Matrix of IBM......................................................................23 Value Chain of IBM.................................................................................................................24 TOWS Matrix...........................................................................................................................27 SPACE Matrix..........................................................................................................................30 The Boston Consulting Group (BCG) Matrix..........................................................................32 Internal External (IE) Matrix....................................................................................................33 Grand Strategy Matrix..............................................................................................................34 Summary on Strategies.............................................................................................................34 Quantitative Strategic Planning Matrix (QSPM).....................................................................35 Long-term Objectives...............................................................................................................37 Annual Objectives....................................................................................................................38 Corporate Level Strategies Formulation for IBM....................................................................39 Porter's Five Generic Strategies...............................................................................................43 Vision and Mission statement of IBM According to the case study, as in 2015, there are no official vision and mission statement of IBM on its website. Nevertheless, based on my findings on IBM website (https://www.ibm.com/ibm/ke/en/examples.html) on 15 December 2017, there is a statement found that seemed to be its abandoned mission during the 2003 statement which is “at IBM, we strive to lead in the creation, development and manufacture of the industry's most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics. And our worldwide network of IBM solutions and services professionals translates these advanced technologies into business value for our customers. We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide.”. However, there is no vision statement of some sorts to be found in its website. Vision and mission statements both serve purposes of putting the company in clear direction as the statements provide clear company’s goals to all its employees, which later act as important key priorities for them to construct effective strategic planning. For vision statement, there are 3 elements should be considered which are: What the company wants to become in the future? The type of business the company is in. Constructed in one sentence, preferably. Thus, the proposed new vision statement for IBM is, “to be the world leader in information technologies manufacturer and developer”. For mission statement, which officially IBM does not have, there are 9 components to be considered in creating a good mission statement which are: Customers Technology 7. Self-concept Product or services Survival, growth & profitability 8. Public image Market Philosophy 9. Employees Apart of that, it should be inspiring, broad in scope without any numbers included and is fewer than 150 words. If I were to consider the unofficial mission statement of IBM mentioned which is “at IBM, we strive to lead in the creation, development and manufacture of the industry's most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics. And our worldwide network of IBM solutions and services professionals translates these advanced technologies into business value for our customers. We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide”, and compare it to the mission statement elements, the elements analysis results are as following: 1. Customers 4. Technology 7. Self-concept No No Yes 2. Product/services 5. Survival & growth 8. Concern for public image Yes No No 3. Markets 6. Philosophy 9. Concern for employees Yes No No The proposed new mission statement for IBM is: “We strive to create the most advanced information technologies (IT) devices, systems and software [2] to IT users [1] from all around the globe [3] through our broad network of IBM professional solutions, services and consulting businesses [7]. By using advanced technology in our creation [4], we prioritise our business growth and sustainability [5] to further forge our philosophy of “Innovation that matters—for our company and for the world” [6] that helps making the world better for the community [8] and as a way to appreciate our employees [9]. (90 words)  External Analysis : General Environment Element Extrnal Analysis Demographic Economic Political/legal Sociocultural Technological Global Physical Opportunities Asia has best growth rate in IT Potential market growth on emerging market countries IT and management consulting high growth in US Growth in business of data Worldwide growth of software business Cloud computing high growth percentage High-end server business is less prone to commoditization Fast growth of use of data and the information that can be derived from data. UK highlighted the importance of workplace equality Establishment of gay-friendliness index for company Smartphone apps further growth Increase in development of IT infrastructure by other business companies Social media revolution Not mentioned in the case. Not mentioned in the case. Threats Europe debt crisis Costly labour force for software industry. Reduction of price due to high standardisation of computer products Increase demand in tablet and smartphone Low entry barrier of the industry Slow growth between 2015 and 2017 for IT consulting, IT outsourcing and IT hardware support Privacy concerns from the public Legal issues against big data usage Privacy risk threat Piracy or copyright risk Not mentioned in the case. New super-computer technology innovation by HP Not mentioned in the case. Not mentioned in the case.  Justification on general environment external analysis Opportunities Demographic Asia has best growth rate in IT As per IT growth by geographic region, Asia has experienced the best growth rates of late, with China up 7.7 percent, Indonesia up 6.2 percent, Vietnam up 5.0 percent, and India up 3.2 percent in 2012. (Page 8, paragraph 3, line 1) Potential market growth on emerging market countries Accenture has seen the U.S. market grow at an annualized rate of 13 percent in revenues from 2011 to 2013, but continues to focus on emerging markets, especially Brazil. (Page 7, paragraph 7, line 7) IT and management consulting high growth in US Increase in growth for project-based of IT (Page 8, exhibit 6) Economic Growth in business of data The business of data analytics, data storage, and security are growing. (Page 9, paragraph 2, line 1) Worldwide growth of software business Software is a growing business worldwide, and....(Page 7, paragraph 5, line 3) Cloud computing high growth percentage Cloud computing clearly dominates future expectations. Some analysts in fact predict over 80 percent of all IT growth between 2012 and 2017 will be cloud related. (Page 8, paragraph 1, line 6) High-end server business is less prone to commoditization For example, IBM acquired SPSS and Cognos (data analytics software) in 2009 for $1.2 billion. IBM plans to keep its high-end server business, which is less prone to commoditization by other firms’ products. (Page 1, paragraph 7, line 6) Political/legal Fast growth of use of data and the information that can be derived from data The use of data, and more specifically the information that can be derived from data, has grown faster than our legal systems can keep up. (Page 3, paragraph 2, line 3) Sociocultural UK highlighted the importance of workplace equality In recent years, IBM UK has ranked first in Stonewall’s annual Workplace Equality Index for United Kingdom (UK) employers. (Page 3, paragraph 2, line 4) Establishment of gay-friendliness index for company IBM provides same-sex partners of its employees with health benefits and provides an anti-discrimination clause. The Human Rights Campaign for 10 consecutive years has rated IBM 100 percent on its index of gay-friendliness. (Page 3, paragraph 2, line 2) Technological Smartphone apps further growth Smartphone apps represent about 2 percent of this industry, but further growth is expected. (Page 9, paragraph 2, line 3) Increase in development of IT infrastructure by other business companies Global Technology Services (GTS) consists of delivering outsourcing services to help improve clients’ existing IT infrastructures to aid in risk management, flexibility, and financial value....... GTS is IBM’s largest division with respect to revenues, with the cloud-computing portion of the division being the fastest-growing and having the largest expected demand moving forward. (Page 5, paragraph 1) Social media revolution IBM expects firms to double its expenses in this area by 2016. IBM’s purchase of Skype and Facebook’s purchase of WhatsApp are two examples of companies trying to profit off the social media revolution. (Page 3, paragraph 8, line 2) Threats Demographic Europe debt crisis Europe, still recovering from its economic debt crisis, reported the smallest growth rates, with the United Kingdom up only 0.2 percent and Germany up 0.9 percent. (Page 8, paragraph 3, line 3) Costly labour force for software industry. But this industry requires large R&D expenses to stay current, as well as an expensive labor force, protection of patents and piracy risks, and substantial marketing. (Page 9, paragraph 2, line 5) Economic Reduction of price due to high standardisation of computer products High standardization of products makes differentiating product lines difficult, resulting in reduced prices for manufacturers. (Page 9, paragraph 1, line 1) Increase demand in tablet and smartphone Increases in tablet and smartphone demand also erode into PC sales, but..... (Page 9, paragraph 1, line 4) Low entry barrier of the industry Compounding problems, new competitors are able to enter the industry fairly easily, creating downward pressure on prices. (Page 9, paragraph 1, line 2) Slow growth between 2012 and 2017 for IT consulting, IT outsourcing and IT hardware support Areas of slower growth between 2012 and 2017 are expected to come from IT outsourcing, IT consulting, and IT hardware support at projected annualized growth rates of 1.3, 4.1, and 2.9 percent, respectively. (Page 8, paragraph 2, line 1) Political/legal Privacy concerns from the public In the last 5 years, the general public has become especially aware and suspicious of data usage. Privacy concerns have arisen and even rights to who owns the data presents a problem moving forward for corporations in the data business. (Page 9, paragraph 3, line 1) Legal issues against big data usage The threat of legal issues against firms using big data is increasing daily. (Page 9, paragraph 4, line 7) Privacy risk threat But this industry requires large R&D expenses to stay current, as well as an expensive labor force, protection of patents and piracy risks, and substantial marketing. (Page 9, paragraph 2, line 5) Piracy or copyright risk But this industry requires large R&D expenses to stay current, as well as an expensive labor force, protection of patents and piracy risks, and substantial marketing. (Page 9, paragraph 2, line 5) Technological New super-computer technology innovation by HP Hewlett Packard’s new Apollo 8000 system is the first super-computer to be 100 percent liquid cooled and offers direct competition to IBM’s high-end server market. (Page 7, paragraph 6, line 1) Industry Environment Analysis: Porter 5 Forces Forces High/Low Justification Threat of new entrants High New competitors are able to enter the industry fairly easily which has created arising problem of creating downward pressure on price. Besides that, with the reduced price for manufacturer, the product lines differentiation has become less vivid. (Page 9, paragraph 1, line 1) Power of suppliers Low IBM has shift the weight of its business from manufacturing to R&D of “big data” and focus on business consulting and analytical services. Moreover, IBM is a big customer to the suppliers that buy goods in bulk. (Page 3, paragraph 4, line 1) Power of buyers High IBM business model involved business-to-business model which supply IT products and/or services in large quantity or in large size. This enables the buyer to negotiate for cheaper price for the large/many products or services they request. (Page 3, paragraph 5, line 2) Threat of product substitutes Low Many of IBM products or services are unique and its features can be differentiated from other products or services. For example, the IBM SPSS and Cognos are differentiated products which are hard to be substituted by other software. (Page 1, paragraph 7, line 6) IBM also has Z13 which is the most sophisticated computer and is hard to be substituted. (Page 2, paragraph 4, line 4) Intensity of rivalry among competitors High IBM competing alongside HP and Accenture which both are doing great in IT research and development of products and services. Although they are small compare to IBM in terms of revenue, they have created many advanced technologies. For example, when HP launched the super-computer Apollo 8000, it shows that HP can come up with more advanced technology in super-computer segment which IBM is lagging behind. (Page 7, paragraph 6, line 1 and exhibit 5) Competitor Environment Analysis Competitor Analysis Competitors HP Accenture Future Objectives HP wants to pride itself on key areas of converged cloud, big data, and security and risk management. (Page 7, paragraph 3, line 1) Accenture will continue strengthen its position in the US market as its revenue increased annually in the US. (Page 7, paragraph 7, line 7) Accenture will continue to focus on emerging markets especially Brazil. (Page 7, paragraph 7, line 8) Accenture plans on strengthen its marketing consulting businesses through its made acquisitions. (Page 7, paragraph 7, line 5) Current Strategy HP provides technologies, software, PCs, workstations, tables, calculators, and many other products and services to individuals and corporations. (Page 7, paragraph 2, line 1) HP’s Enterprise Group and Enterprise Services focus on technology infrastructure, IT services, consulting, and business outsourcing. (Page 7, paragraph 5, line 1) Accenture focuses on management consulting and technology. (Page 7, paragraph 7, line 1) Made many acquisitions on notable companies such as Acquity Group, Fjord and AvVenta. (Page 7, paragraph 7, line 3) Made a joint venture with GE called Taleris that focuses on airplanes maintenance issues. (Page 7, paragraph 7, line 5) Assumptions Software business is growing worldwide. (Page 7, paragraph 5, line 3) HP will be competing with IBM, CA Technologies, BMC Software and other competitors in the software business. (Page 7, paragraph 5, line 3) Accenture foresee the continuing growth in the US market. (Page 7, paragraph 7, line 7) Accenture predicts increase growth in the emerging markets especially Brazil. (Page 7, paragraph 7, line 8) Marketing consulting business will flourish; thus, Accenture has made early preparation by acquiring other companies to a total of $800M in 2013. (Page 7, paragraph 7, line 3) Capabilities HP is the world leader in private cloud market with highest ranking measured for 8 categories out of 15. (Page 7, paragraph 3, line 2) HP has strong presence in personal systems market which IBM is not its main competitor. (Page 7, paragraph 4, line 1) HP has strong presence in printing segment which IBM is not its main competitor. (Page 7, paragraph 4, line 3) HP has its Apollo 8000 system which is the first super-computer with liquid cooled technology and operates 28% more efficiently than other product in the market. (Page 7, paragraph 6) Able to increase their revenues from 2011 to 2014 which HP and IBM have failed to do so when they had decreasing revenues. (Page 7, paragraph 7, line 3; page 7, paragraph 2, line 3; page 5, exhibit 2) Increasing growth in the US market annually from 2011 to 2013 by 13%. (Page 7, paragraph 7, line 3) Accenture has tapped into aircraft system segment by a joint venture with Taleris. (Page 7, paragraph 7, line 5)  External Factor Evaluation (EFE) Matrix for IBM Opportunities Weight Rating Weighted Score 1 Social media revolution 0.04 4 0.16 2 Increase in development of IT infrastructure by other business companies 0.08 2 0.16 3 Cloud computing high growth percentage 0.07 4 0.28 4 High-end server business is less prone to commoditization 0.03 3 0.09 5 Growth in business of data 0.06 4 0.24 6 Smartphone apps further growth 0.03 3 0.09 7 Business consulting and outsourcing are going to be prime areas of interest in the future. 0.07 2 0.14 8 Potential market growth on emerging market countries 0.05 2 0.10 9 Asia has best growth rate in IT 0.03 2 0.06 10 Worldwide growth of software business 0.08 3 0.24 Threats Weight Rating Weighted Score 1 New super-computer technology innovation by HP 0.07 1 0.07 2 Slow growth in 2015 for IT consulting, IT outsourcing and IT hardware support 0.08 2 0.16 3 Low entry barrier of the industry 0.05 4 0.20 5 Increase demand in tablet and smartphone 0.04 4 0.16 6 Europe debt crisis 0.02 2 0.04 7 Privacy concerns from the public 0.05 3 0.15 8 Piracy or copyright risk 0.05 4 0.20 9 Legal issues against big data usage 0.08 3 0.24 10 Reduction of price due to high standardisation of computer products 0.02 3 0.06   Total EFE Score 1.00   2.84 The EFE score of 2.84 shows that IBM performed above average in its effort to pursue strategies to capitalise the opportunities and avoid threats. IBM has engaged into cloud computing and big data, putting a lot of investment into the industry. IBM is the leader in cloud computing industry. Although IBM is facing a decrease in revenue, its operating profit margin is still more than 20% and gross profit margin of more than 45% in both 2014 and 2015. Moreover, IBM optimised opportunity 1,6 and threat 5 by partnering with Apple and Twitter, and IBM also purchased Skype.  Strategic Group Map IBM The strategic group map above is plotted by using market capitalisation value on Y-axis and revenue value on the X-axis. IBM has the highest value of market capitalisation of $155 Billion, followed by $55.4 Billion and smallest value is HP with only $7.3 Billion. IBM also has the highest revenue amongst which is $92.8 Billion, followed by Accenture and lastly HP with the value of $31.8 Billion and $3.7 Billion respectively. As IBM is the largest among the three, even with the two rival companies combined, IBM has the biggest circle. Accenture is the second biggest circle representing the bigger competitor to IBM in comparison to HP and HP is represented with the smallest yellow circle indicating the rival company as the smallest among the three. Competitive Profile Matrix (CPM)     IBM HP Accenture Critical Success Factors Weight Rating Score Rating Score Rating Score Skilled workforce 0.08 4 0.32 2 0.16 3 0.24 Product Quality 0.10 4 0.40 3 0.30 3 0.30 Brand reputation 0.08 4 0.32 3 0.24 3 0.24 Customer satisfaction 0.08 3 0.24 3 0.24 4 0.32 Financial position 0.10 3 0.30 3 0.30 4 0.40 Innovation in products and services 0.15 4 0.60 3 0.45 3 0.45 Superior marketing capabilities 0.08 3 0.24 3 0.24 4 0.32 Superior IT capabilities 0.15 4 0.60 3 0.45 3 0.45 R&D spending 0.10 4 0.40 3 0.30 3 0.30 Strong patent portfolio 0.08 4 0.32 3 0.24 3 0.24 Totals 1.00   3.74   2.92   3.26 IBM scored the highest point in the CPM matrix compared to HP and Accenture. HP scored the lowest. IBM is bigger than these two rival companies combined. IBM has larger revenue and has made huge acquisitions activities besides partnerships with Apple, Twitter and universities. However, with decreasing sales in 2012 to 2014 consecutively, IBM is losing its profit and Accenture is the only company among them to increase in revenue. Currently, IBM is the market leader in cloud computing and it is predicted the industry will see more than 80% growth in 2012 to 2017. IBM might be lacking in customer satisfaction part and marketing capabilities in some of its product or service segments because of the decline sales comparative to Accenture where the company saw an increase in revenue from 2011 to 2014. Capabilities, core competency and competitive advantage of IBM Capabilities Core competency Competitive advantage IBM has numerous data centre which total up to 40 data centres. (Page 2, paragraph 1, line 6) Huge capital investment of a total of $24 billion, to increase core competency. (Page 3, paragraph 5, line 3) Active acquisition activities to a total of 30 acquisitions to date. (Page 3, paragraph 5, line 3) Created many partnerships with other businesses and universities. (Page 3, paragraph 5, line 3) Heavy R&D in cloud computing and ‘big data’ field. (Page 5, paragraph 1, line 7; Page 3, paragraph 7, line 4) By having numerous data centres, the ‘big data’ and cloud computing are easier to developed with increase in infrastructure. Through acquisition activities, IBM has access to acquired company’s technology, patent and copyright which later helps in competing with rival companies. Partnership with Apple and Twitter open doors to IBM to strengthen its position in mobile IT industry. Development in cloud computing segment through R&D and investment activities. IBM has become the market leader in the cloud computing industry. IBM is larger than HP and Accenture combined. For 22 consecutive years, IBM has held the record for most patents generated by a company. Most sophisticated mainframe computer, Z13 created by IBM which generates about 20% of IBM revenue. IBM’s cloud service is used by roughly 80% of all Fortune 500 companies.  Internal analysis: Strengths and Weaknesses Internal Analysis Organization Culture Management Marketing Financial and Accounting Production / Operation Research and Development Management Information Systems Strengths 1. Gender equality is a practice among its employees 2. Gay-friendliness company culture 1. Top managements able to manage many acquisitions activities successfully. 2. Successfully manage its 6,000 partners and made 1,000 university partnerships. 1. Excellent marketing campaign in cloud computing segment. 2. IBM’s cloud service is used by roughly 80% of all Fortune 500 companies. Huge capital investment activities. IBM is larger than both HP and Accenture combined. A leader in the cloud computing services operations. Over 60 percent of IBM employees in the R&D are working in fields of operation such as “big data,” cloud computing, and other key growth initiatives Heavy R&D activities in cloud computing IBM has broad system software for companies to manage their businesses. Weaknesses Not mentioned in the case study. 1. Structure of the organisation is not well described 2. Company’s official mission and vision are not constructed by the management 1. Many segments of IBM services/products are declining. 1. Declining sales from year 2012 to 2014 2. Worst performer among the 30 stocks in Dow Jones industrial average for 2014 3. Lower revenue per employee compared to HP 4. No bonuses given to company Executives in 2014 Weak presence in personal IT devices production segment. Lagging behind in the private cloud market Not yet create a better super-computer than the HP Apollo 8000. Not mentioned in the case. Justification on strengths and weaknesses Strengths Organisation Culture Gender equality is a practice among its employees IBM is exemplary regarding workplace equality. It is no accident that IBM’s CEO is a woman, Virginia Rometty. In recent years, IBM UK has ranked first in Stonewall’s annual Workplace Equality Index for United Kingdom (UK) employers. (Page 3, paragraph 2, line 1) Gay-friendliness company culture IBM provides same-sex partners of its employees with health benefits and provides an anti-discrimination clause. The Human Rights Campaign for 10 consecutive years has rated IBM 100 percent on its index of gay-friendliness. (Page 3, paragraph 2, line 4) Management Top managements able to manage many acquisitions activities successfully. IBM has invested over $24 billion to date, made 30 acquisitions, and has 15,000 consultants and 400 mathematicians in this area. (Page 3, paragraph 5, line 3) Successfully manage its 6,000 partners and made 1,000 university partnerships. With 6,000 partners and 1,000 university partnerships, IBM is committed to evolving into a big data company. (Page 3, paragraph 5, line 5) Marketing Excellent marketing campaign in cloud computing segment. Currently, IBM is considered the industry leader in cloud computing through heavy R&D and marketing campaigns. (Page 5, paragraph 1, line 7) IBM’s cloud service is used by roughly 80% of all Fortune 500 companies. Roughly 80 percent of all Fortune 500 companies today use IBM’s cloud services and IBM remains a leader in this area. (Page 3, paragraph 7, line 2) Strengths Financial & Accounting Huge capital investment activities. IBM has invested over $24 billion to date, made 30 acquisitions, and has 15,000 consultants and 400 mathematicians in this area. (Page 3, paragraph 5, line 3) IBM is larger than both HP and Accenture combined. Exhibit 5 provides a comparison of IBM with HP and Accenture. Note that IBM is larger than both rival firms put together. (Page 7, paragraph 1, line 1 and exhibit 5) Production & Operation A leader in the cloud computing services operations. Currently, IBM is considered the industry leader in cloud computing through heavy R&D and marketing campaigns. (Page 5, paragraph 1, line 7) Over 60 percent of IBM employees in the R&D are working in fields of operation such as “big data,” cloud computing, and other key growth initiatives Over 60 percent of IBM employees in R&D are working in fields such as “big data,” cloud computing, and other key growth initiatives. (Page 3, paragraph 4, line 1) Research & Development Heavy R&D activities in cloud computing Currently, IBM is considered the industry leader in cloud computing through heavy R&D and marketing campaigns. (Page 5, paragraph 1, line 7) Management Information Systems IBM has broad system software for companies to manage their businesses. Software is limited primarily to middleware and operating system software. Middleware software is designed to help clients diagnose business problems, improve efficiency, and identify new target markets. IBM provides a broad list of “capabilities” that serve more as broad category descriptions of these middleware products. (Page 5, paragraph 3, line 1) Weaknesses Management Structure of the organisation is not well described Many analysts do not consider IBM’s organizational structure to be exemplary. There is no chief operating officer or chief administrative office, the divisions are named in somewhat obscure ways, and the CEO is also the chairperson and president. No actual chart could be obtained, but a depiction of IBM’s probable structure is given in Exhibit 1. (Page 3, paragraph 3, line 1) Company’s official mission and vision are not constructed by the management At the 2003 meeting, IBM abandoned its existing more formal mission statement. As of 2015, there is still no formal mission or vision statement provided on any literature published on IBM’s website. (Page 2, paragraph 8, line 1) Marketing Many segments of IBM services/products are declining Based on IBM’s Revenues by Segment (Page 5, exhibit 2) Financial & Accounting Declining sales from year 2012 to 2014 In October 2014, after 10 quarters of flat or declining sales, IBM’s CEO Virginia Rometty said, “Our results this quarter are disappointing; we’ve got to reinvent ourselves.” (Page 1, paragraph 2, line 3) Worst performer among the 30 stocks in Dow Jones industrial average for 2014 Disappointing Wall Street has become the trend for IBM, whose stock was the worst performer among the 30 in the Dow Jones industrial average in both 2014 and 2013 an ominous, dubious distinction for a company historically known as Big Blue. (Page 1, paragraph 2, line 1) Lower revenue per employee compared to HP Based on IBM versus Rival Firms data (Page 7, exhibit 5) No bonuses given to company Executives in 2014 IBM executives accepted no bonuses in 2014 for fiscal year 2013, because the firm reported a 5 percent drop in sales and a 1 percent decline in net profit for 2013. (Page 2, paragraph 1, line 4) Production/ Operation Weak presence in personal IT devices production segment. In the personal systems market, HP has revenues of about $30 billion annually. Personal systems consist of notebooks, desktops, and workstations. Primarily, HP competes with Lenovo, Dell, Apple, Lenovo, and Toshiba in this segment. (Page 7, paragraph 4, line 1) Research and development Lagging behind in the private cloud market Forrester’s Wave for Private Cloud recently declared HP to be the world leader in the private cloud market, earning the highest rankings for 8 of 15 categories measured. (Page 7, paragraph 3, line 2) Not yet create a better super-computer than the HP Apollo 8000. Hewlett Packard’s new Apollo 8000 system is the first super-computer to be 100 percent liquid cooled and offers direct competition to IBM’s high-end server market. The Apollo 8000 is priced from $500,000 to several million dollars. In addition to being liquid cooled, the new product operates 28 percent more efficiently than any other product on the market. (Page 7, paragraph 6)  Internal Factor Evaluation (IFE) Matrix of IBM Strengths Weight Rating Weighted Score 1 Industry leader in cloud computing through heavy R&D and marketing campaigns. 0.09 4 0.36 2 Most patents generated by a company for 22 consecutive years. 0.08 4 0.32 3 Huge partnership with Apple company and cooperative agreement with Twitter Inc. 0.07 4 0.28 4 Most sophisticated mainframe computer, Z13 created by IBM which generates about 20% of IBM revenue. 0.05 4 0.20 5 Over 60 percent of IBM employees in the R&D are working in fields of operation such as “big data,” cloud computing, and other key growth initiatives 0.05 4 0.20 6 Numerous acquisition and investment activities. 0.08 4 0.32 7 IBM is larger than both HP and Accenture combined. 0.08 4 0.32 8 IBM’s cloud service is used by roughly 80% of all Fortune 500 companies. 0.05 4 0.20 9 More than 430,000 employees worldwide. 0.04 4 0.16 10 More than a dozen of research lab worldwide. 0.04 4 0.16 Weaknesses Weight Rating Weighted Score 1 No company official vision and mission statements. 0.03 2 0.06 2 Sales decline from 2012 to 2014 0.08 1 0.08 3 No bonuses given to company Executives in 2014 0.05 1 0.05 4 Lower revenue per employee compared to HP 0.05 1 0.05 5 Lagging behind in the private cloud market 0.06 1 0.06 6 Weak presence in personal IT devices operation segment 0.02 2 0.04 7 Worst performer among the 30 in Dow Jones Stocks Industrial average for 2014 0.06 1 0.06 8 Organisational structure is not well constructed. 0.02 2 0.04   Total IFE Score 1.00   2.96 IBM scored 2.96 in the IFE matrix which shows the company is performing above average in construct company’s strategies by capitalising its strengths and weaknesses and IBM is stronger than the 2 rival companies. However, IBM is lacking in composing its official mission and vision statements which are vital to shaping the path to achieve company’s objectives and goals. Declining sales also shows that IBM needs to investigate the cause of the pattern and take immediate and sustainable actions. If the declining pattern continue to prolong, IBM might suffer tremendous backlash in its financial position. Value Chain of IBM Support Activities Firm Infrastructure Excellent relationship with 6.000 partners and also partnership with 1,000 universities. (Page 3, paragraph 5, line 5) Effective planning system in attaining goal to design a neural chip that mimics the human by investing $3 billion between 2014 and 2019 on computer functionality. (Page 2, paragraph 2, line 2) Excellent relationship with Apple company and Twitter Co. (Page 3, paragraph 9, line 1; Page 2, paragraph 3, line 1) Top managements able to manage many acquisitions activities successfully. (Page 3, paragraph 5, line 3) Human Resource Management Quality environment for worker as IBM anticipate the trend on human rights, workplace equality, and gay-friendliness workplace by providing health benefits and anti-discrimination clause for same-sex partner of its employee. (Page 3, paragraph 2, line 2) Shifting of R&D workers from material and hardware to “big data” field. (Page 3, paragraph 4, line 1) Manage 430,000 employees worldwide from headquarter in Armonk, New York. (Page 1, paragraph 1, line 1) Technology Effective R&D activities through huge investment such as in computer functionality which cost $3Billion and other huge investment and acquisitions for big data industry. (Page 2, paragraph 2, line 2; Page 3, paragraph 5, line 3) Positive collaboration with Apple and Twitter for mobile app development and analytical software development respectively. (Page 3, paragraph 9, line 1; Page 2, paragraph 3, line 1) Have access to many qualified personnel such as consultants and mathematicians. (Page 3, paragraph 5, line 4) Expanded its facilities for R&D purposes by building more data centres. (Page 2, paragraph 1, line 6) Procument IBM able to reduce the cost of goods sold (COGS) from year 2014 to 2015 when the ratio of COGS to sales decreased from 0.505 to 0.499. This leads to increase in both gross profit margin and operating profit margin by 1% each. (Calculations are made from data on page 6, exhibit 3) IBM has divested its costly chip division to Globalfoundries which later the company becomes exclusive server processor semiconductor technology provider/supplier. (Page 1, paragraph 3, line 8) Primary Activities Inbound Logistics IBM received supplies of server processor semiconductor from Globalfoundries. (Page 1, paragraph 3, line 8) Operations About 2/3 of R&D operations of IBM focus on big data. (Page 3, paragraph 5, line 4) The balance of R&D operations that are not devoted to big data are focused on cloud computing. (Page 3, paragraph 7, line 4) IBM operation strategy has shifted from manufacturing to service. (Page 1, paragraph 7, line 5) Manufacturing operations include the refrigerator-sized mainframe computer, Z13 which generates about 20% of IBM’s revenues. (Page 2, paragraph 4, line 4) IBM also manufactures several semiconductor products used in IBM systems and storage products. (Page 5, paragraph 4, line 5) Outbound Logistics Not mentioned in the case study. Marketing & Sales Run heavy marketing campaign in the cloud computing to be the market leader in the industry. (Page 5, paragraph 1, line 7) Identify the business model for cloud service which is business-to-business as about 80% of all Fortune 500 companies use IBM’s cloud service. (Page 3, paragraph 7, line 2) Able to market to Apple by installing its business app to Apple technology products and launched a new service that will help other corporations make the same leap from Windows to the MacBook and iPad. (Page 3, paragraph 9, line 1; Page 1, paragraph 5, line 1) Many of IBM’s main segment are targeting business-to-business model such as GTS, GBS, software, systems technology, and global finance are all targeting business organisations. (Page 5) Service IBM introduced the IBM Verse that compliments with IBM Notes software suites to address the complaints that customers have with gmail, Yahoo! Mail and AOL email services such as spam and filter problems. (Page 2, paragraph 4, line 2)  Strategy formulation process TOWS Matrix Strengths (S) Industry leader in cloud computing through heavy R&D and marketing campaigns. Most patents generated by a company for 22 consecutive years. Huge partnership with Apple company and cooperative agreement with Twitter Inc. Most sophisticated mainframe computer, Z13 created by IBM which generates about 20% of IBM revenue. IBM UK has ranked first in Stonewall’s annual Workplace Equality Index for United Kingdom employers. Numerous acquisition and investment activities. IBM is larger than both HP and Accenture combined. The Human Rights Campaign rated IBM as 100 gay-friendliness for 10 consecutive years. More than 430,000 employees worldwide. More than a dozen of research lab worldwide. IBM initiated the technological social interaction products and services through Skype purchasing. Over 60 percent of IBM employees in the R&D are working in fields of operation such as “big data,” cloud computing, and other key growth initiatives. Successfully manage its 6,000 partners and made 1,000 university partnerships. IBM’s cloud service is used by roughly 80% of all Fortune 500 companies. Opportunities (O) Social media revolution Increase in development of IT infrastructure by other business companies Cloud computing high growth percentage High-end server business is less prone to commoditization Growth in business of data Smartphone apps further growth Business consulting and outsourcing are going to be prime areas of interest in the future. Potential market growth on emerging market countries Asia has best growth rate in IT Worldwide growth of software business Fast growth of use of data and the information that can be derived from data S-O Tapping into potential market segments around the globe that highly demanded on cloud computing (S1, O3; S1, O8) Heighten marketing activities of cloud computing to business companies. (S1, O2) Developed advanced mainframe computer or super-computer to further strengthen position in the high-end server business. (S4, O4) Ensure good customer satisfaction feedback and maintain good after-service to business companies that use IBM’s product/service. (S14, O2; S14, O5) Focus on investment and acquisition activities that can spur IBM’s growth on business consulting and outsourcing. (S6, O7) Increase innovation on apps development through R&D, especially on business mobile app and mobile software. (S10, O6; S3, O1) Conduct a market research on demand on IT in Asia and focus on highly profitable and highly demanded product/service segment. (S10, O9) Strengths (S) Industry leader in cloud computing through heavy R&D and marketing campaigns. Most patents generated by a company for 22 consecutive years. Huge partnership with Apple company and cooperative agreement with Twitter Inc. Most sophisticated mainframe computer, Z13 created by IBM which generates about 20% of IBM revenue. IBM UK has ranked first in Stonewall’s annual Workplace Equality Index for United Kingdom employers. Numerous acquisition and investment activities. IBM is larger than both HP and Accenture combined. The Human Rights Campaign rated IBM as 100 gay-friendliness for 10 consecutive years. More than 430,000 employees worldwide. More than a dozen of research lab worldwide. IBM initiated the technological social interaction products and services through Skype purchasing. Over 60 percent of IBM employees in the R&D are working in fields of operation such as “big data,” cloud computing, and other key growth initiatives. Successfully manage its 6,000 partners and made 1,000 university partnerships. IBM’s cloud service is used by roughly 80% of all Fortune 500 companies. Threats (T) New super-computer technology innovation by HP Slow growth in 2015 for IT consulting, IT outsourcing and IT hardware support Low entry barrier of the industry Increase demand in tablet and smartphone Europe debt crisis Privacy concerns from the public Piracy or copyright risk Legal issues against big data usage Reduction of price due to high standardisation of computer products S-T Forge partnership with Apple to further provide system and business app to the company. (S3, T4) Strictly follow legal procedures when receiving big data from Twitter through the cooperative agreement. (S3, O6; S3, O8) Issue a warranty period for high-end system or product service to client to strengthen brand image and secure industry position. (S1, O3; S14, O3) Weaknesses No company official vision and mission statements. Sales decline from 2012 to 2014 No bonuses given to company Executives in 2014 Lower revenue per employee compared to HP Lagging behind in the private cloud market Weak presence in personal IT devices production segment Worst performer among the 30 in Dow Jones Stocks Industrial average for 2014 Organisational structure is not well constructed Opportunities (O) Social media revolution Increase in development of IT infrastructure by other business companies Cloud computing high growth percentage High-end server business is less prone to commoditization Growth in business of data Smartphone apps further growth Business consulting and outsourcing are going to be prime areas of interest in the future. Potential market growth on emerging market countries Asia has best growth rate in IT Worldwide growth of software business Fast growth of use of data and the information that can be derived from data W-O Construct official IBM vision and mission statement to provide clearer path for the company’s future undertakings. (W1, O5; W1, O3; W1, O7; W1, O10) Construct enhanced business model for focused segments by identify the customer needs in order to avoid declining sales and increase profit. (W2, O2; W2, O5; W2, O10) Invest more on private cloud market to get higher market share compare to HP. (W5, O1; W5, O6) Weaknesses No company official vision and mission statements. Sales decline from 2012 to 2014 No bonuses given to company Executives in 2014 Lower revenue per employee compared to HP Lagging behind in the private cloud market Weak presence in personal IT devices production segment Worst performer among the 30 in Dow Jones Stocks Industrial average for 2014 Organisational structure is not well constructed Threats (T) New super-computer technology innovation by HP Slow growth in 2015 for IT consulting, IT outsourcing and IT hardware support Low entry barrier of the industry Increase demand in tablet and smartphone Europe debt crisis Privacy concerns from the public Piracy or copyright risk Legal issues against big data usage Reduction of price due to high standardisation of computer products W-T Control marketing and sales activities in Europe region and focus on other higher profitable geographic region until Europe has stabilised from the debt crisis. (W2, T5) Acquire company that has strong position in personal IT devices at affordable price. (W6, T4)  SPACE Matrix Y-axis: 4.2 X-axis: 5.2  The SPACE matrix shows that IBM falls on the aggressive quadrant. The plotting indicates that IBM is a financially strong firm that has achieved competitive advantages in a growing and stable industry. Although IBM has decreasing sales from 2012 to 2014, the company is still considered financially strong as it has big revenue, made huge investment and acquisition with its large investment capital budget and the gross margin ratio and operating profit margin are still in good percentage of higher than 40% and 20% respectively. As it falls in the aggressive quadrant, the suggested strategy would be integration (forward, backward and horizontal), market penetration, market development, product development and diversification (related or unrelated).  The Boston Consulting Group (BCG) Matrix Red circle – GBS Green circle – Software Purple circle – System Technology Blue circle – Global Financing These 5 circles represent IBM 5 main business segments. Based on the revenue by segments (Page 5, exhibit 2), GTS has the highest revenue percentage followed by software, GBS, system technology and lastly is global financing with the smallest revenue among the segments. Based on the plotting in the BCG matrix, all of the segments fall on “Star” quadrant which suggest strategies on integration (forward, backward, horizontal), market penetration, market development and product development. Since IBM is the biggest company compared to HP and Accenture combined, IBM has relatively high market share amongst. The only stated market that IBM is not a leader in, is the private cloud market which goes to HP. However, private cloud segment is not IBM’s main segment. IBM main segment in the cloud computing which currently IBM is the market leader. Internal External (IE) Matrix IX VIII VII VI III II IV V I Based on the IFE and EFE score of IBM which are 2.96 and 2.84 respectively, the position of IBM on the IE matrix is on the quadrant “V” which indicates the strategy of ‘hold and maintain’. This strategy suggests for market penetration and product development. ‘Hold and maintain’ does not indicate passive strategy. It still requires expansion. In ‘hold and maintain’, IBM needs to protect its current percentage market share against competitors. As IBM is a giant company which has been operated for more than 200 years, the company was greatly established and has excellent presence in the technology industry. Thus, IBM need to capitalise its strength and explore its opportunities to keep its grand image and stay current in the market share. This strategy also might require large investment to be done in order to avoid competitors to capture IBM’s market share. Grand Strategy Matrix Based on the GRAND matrix, IBM is positioned in the quadrant 1 which suggest strategies of integration (backward, forward, and horizontal), market penetration, market development, product development and related diversification. Based on the plotting, it shows that IBM has an excellent strategic position, take risk when necessary and concentrates on current market (market penetration and market development) and on products/services (product development). Summary on strategies Strategy SPACE BCG IE GRAND Total Backward Integration / / / 3 Forward Integration / / / 3 Horizontal Integration / / / 3 Market Penetration / / / / 4 Market Development / / / 3 Product Development / / / / 4 Unrelated diversification / 1 Related Diversification / / 2 Retrenchment Divestiture Liquidation Quantitative Strategic Planning Matrix (QSPM) Based on the summary on strategies, the strategies with highest total of 4 are market penetration and product development. The proposed strategies on QSPM is made after taking account the summary on strategies. Proposed strategy 1 which is based on market penetration score higher than strategy 2 which is based on product development. With the score of 3.72, it is vital for IBM to pursue in market penetration strategy by strengthening presence in for Asia region by revising marketing mix for the regions. As IBM faced declining sales, IBM has to act fast to secure the market share in the industry and aim for sustainable growth. According to the case study, Asia has the best growth rate in the industry geographically (Page 8, paragraph 3, line 1). IBM must also capitalise on application management, cloud computing, business consulting, network consulting and integration, and hosted application management on embarking the initiation of strategy 1 as these key areas are predicted to grow (Page 8, paragraph 1, line 3). Proposal on objectives Long-term Objectives Financial Strategic (Non-Financial) Financial growth: to achieve revenue of $112 Billion by end of financial year 2018. Efficiency growth: to increase the operating profit margin to 25% by 2018. Efficiency growth: to increase gross profit margin to 54% by 2018. Financial growth: to obtain a net income of $19 Billion by end of financial year 2018. Retain the current market share in the cloud computing industry as the market leader in the next five years. Achieve the goal to design a neural chip that mimics the human brain, with 10 billion neurons and 100 trillion synapses, but that uses just 1 kilowatt of power by 2019. Construct a comprehensive mission and vision statements of the company by year 2017. Preserve the workplace equality and gay-friendliness culture to retain employees and attract new talent. Strengthen partnership with universities and other companies that can contribute to IBM R&D progress. To come up with new technological breakthrough every 3 years. Annual Objectives Financial Strategic (Non-Financial) Financial growth: to increase revenue by roughly 5% annually. Efficiency growth: to increase the operating profit margin by 1% annually. Efficiency growth: to grow the gross profit margin by 1% annually. Financial growth: to obtain a 5% annual growth on net income. To increase the return on assets (ROA) by 1% every year. Seek for consultant advice or view on the 5 main segments to identify any market changes that required immediate response. Make proper planning on investment capital especially on acquisition activities to avoid over-spending on acquisitions. Continue to conduct heavy R&D activities with proper financial planning. Gather as many inputs and feedbacks on IT from partnership programmes and strategic alliances such as with Apple and Twitter. Developed new and innovate existing software to grow parallelly with the annual growth prediction on software industry. Provide excellent customer relationship with existing customer base and new customers by getting feedback and entertain issues faced by them related to provided services/products, in order to retain good sales. Corporate level strategies formulation for IBM Integration Strategies Successful/ Profitability Forward Integration This strategy is useful if the distributors are especially expensive. However, in the case study, there is no mentioning on the distributors of IBM. IBM’s business model is to be seen as direct contact with clients without distributor. There is no mentioning on outbound logistics that emphasise on the role of distributor. Since IBM is focusing on providing services, most of the operation require direct contact with clients. Backward Integration Backward integration is appropriate when the present supplier is expensive or unreliable. In this case study, Globalfoundries was paid by IBM in the purpose to divest its costly chip division. So, currently Globalfoundries is the exclusive supplier of server processor semiconductor for IBM. Pursuing the backward integration strategy would not be a smart action because it brings back the costly chip division to IBM and IBM will have to incur hefty operating cost for the chip manufacturing. Horizontal Integration Horizontal integration strategy is when a company is seeking ownership of or increased control over a firm's competitors. This strategy has been optimised by IBM as IBM has managed to acquire a large sum of other companies or competitors with a total of 30 acquisitions to date. This strategy fits well with IBM as it is a big company with huge capital investment expenditures. By horizontal integration through acquisition, IBM can gain excess to the acquired company’s patents, copyrights and technology which can help IBM to move forward in the industry and obtain bigger market share. Intensive Strategies Successful/ Profitability Market Penetration Market penetration is suitable strategy in seeking to increase market share for present products or services in present markets through greater marketing efforts. There are many market that has been tapped by IBM such as the US and Europe market. However, these 2 markets are already concentrated with competitors, as HP and Accenture originated from US and Europe respectively and these markets are slow in growth. Asia marked highest growth geographically and growth is expected to increase in emerging market. IBM should consider the strategy of penetrating emerging market and Asia regional market as it is less concentrated and the total industry sales has been increasing. Market Development Market development is suitable when there are new untapped or unsaturated markets exist. In this case, Accenture is focusing on emerging market. Emerging market is the unsaturated market where IBM can tap and positioned itself in the industry. Usually, emerging market is described together with developing countries like Malaysia, Indonesia and other third-world countries which is currently developing. Developing countries’ IT industry is less concentrated compared to developed country like the US. IBM who has access to large resources and has many skilled professional employees can undergo market development strategy. Product Development Product development is suitable for an organization who has successful products that are in the maturity stage of the product life cycle. This strategy is also appropriate because IBM has strong research and development capabilities and is competing in an industry characterized by rapid technological developments. Currently, for the super-computer technology, HP has offer a better-quality product of the first technology of liquid-cooling. In addition to being liquid cooled, the new product operates 28 percent more efficiently than any other product on the market. Thus, IBM can execute product development on super-computer segment to stay competitive in the industry segment. Diversification Strategies Successful/ Profitability Related Diversification IBM has diverse service offerings from outsourcing to software and many other. With the opportunity of increasing development of mobile app and existing alliance with Apple, IBM can further divest its business app for mobile device to personal app or even family-sharing app segmented for family use. Increasing social media and demand for tablet and smartphone would likely create high demand for these products if it is successfully introduced and offered at a reasonable price to the user. Unrelated diversification To this point, IBM has not made any unrelated diversification as there is no unrelated diversification mentioned in the case study. Unrelated diversification might jeopardise IBM’s financial position as it is highly equipped in IT industry only and unrelated diversification might require outside skilled professional to run the business unit. This strategy will be sort of a gamble for IBM to ventured into. However, with the help of reliable consultant, if sufficient market research is made, together with proper understanding on the selected type of business, and proper selection on type of unrelated diversification is formulated, the business might be a success. Unrelated diversification should be classified as Special Business Unit (SBU) and to be put under close supervision during trial or provision period. Can be either Or depending on the strategic planning. Defensive Strategies Successful/ Profitability Retrenchment Retrenchment is proper when the company is the weak competitor in the industry and the company has low efficiency, low profitability and low employee’s morale. However, considering IBM is a strong competitor in the market and still efficient in running business with operating profit margin of more than 20% and with about 50% gross profit margin, retrenchment is not required. Divestiture Divestiture happens when an organization has pursued a retrenchment strategy and failed to accomplish improvements and a division is responsible for an organization's overall poor performance. IBM latest divestiture is selling its costly chip division to Globalfoundries. Currently, IBM does not need to make another divestiture as its operating expenses is still under control with maintain operating profit margin and although the Global Finance segment is not a major contributor to IBM’s overall business portfolio, the leasing agreements for IBM products does not incur high operating expenses. Liquidation Liquidation occurs when an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful. This strategy fits with the defensive strategy which does not suit IBM current strategy of aggressive. This liquidation strategy does not fit with IBM’s current financial, competitive, industry and stability positions. Porter's Five Generic Strategies Based on the case study, the business strategy for IBM according to Porter’s Five Generic Strategies is focused differentiation strategy. Justification on IBM focused differentiation strategy: Characteristic Justification Narrow segment Services offered by IBM is mainly for business-to-business model which includes the mainframe computer which caters for large organisation that required mass data processing and large computing power. Small business organisation is highly likely not require the ‘big data’ services by IBM. Cloud computing system which is offered by IBM is only used in the narrow segment. Big companies such as the Fortune 500 companies that require cloud computing system normally has its existing IT infrastructure but needed outsourcing services by IBM to aid in risk management, flexibility, and financial value improvement. Software developed by IBM are normally used by certain people and not for broad segment. For example, data analytical system of SPSS and Cognos are used by researcher or people who wanted a system to process a group of collected data. Uniqueness IBM product and services has its own uniqueness. That what makes IBM a market leader in cloud computing and is a strong competitor in the IT technology. Another example is Z13, IBM’s mainframe computer which is rated as the most sophisticated computer ever built and the refrigerator-sized machine is able to process 2.5 billion transactions a day. IBM software has its own uniqueness offered to clients. For example, SPSS software analytical data is different from Microsoft Excel. SPSS has better features to process and present input data for better understanding. IBM even developed system for Apple product which differentiate itself from Microsoft and Android system. Based on the mentioned justification, the strategy for IBM is focused differentiation strategy which caters to niche or narrow segment and IBM is able to differentiate its product/services from other competitors which helps IBM to become stronger and bigger company compared to HP and Accenture combined. 6