1.

History, Development & Growth of IBM

2. SWOT Analysis
3. External Environment Surrounding IBM
6. Recommendation
7. Conclusion
IBM
4. Corporate Level Strategy
5. Business Level Strategy
1971








1970- 1980
Amdahl, Honeywell,
Burroughs, Univac, NCR
Leading Market leader in
Mainframe Computers: 75%
of the world market

370 series became industry
standard that IBMs
competitors tried to match
a& excel




Low cost competitors
emerged; IBM also thought
on these lines.
1980- 1990
Emergence of DEC




Apple, Dell
Minicomputer market developed

IBM share in minicomputer
24% in 1984
16% in 1988
28% in 1992

Personal Computer market
developed

IBM market share in PC
37% in 1985
24% in 1988
16.5% in 1990
12% in 1992

1990- onwards
DEC, Sun, Apollo,
HP


Intel, Microsoft


EDS, Andersen
Work stations

1992: growth 27% annually as
compared to 5% for the
computer industry

Software and Services
1992: Software and services
accounted for 40% of IBM
revenue

Systems integration &
Outsourcing:
IBM share only 6% as
compared to 50% of EDS

1990- onwards





1988 Restructuring
1990: IBM profit share in
different segments

Mainframe hardware- 50%
minicomputers- 6%
PCs 18.5%
Software & services- 12.4%


Akers reorganized IBM into 7
Divisions based on Product
market segments

Managers of each division
given autonomy and
responsibility

Single sale force continued







1991 Restructuring
Reorganization to dilute
contention system of IBM

Downsizing of organization
started

PC business was placed in
separate operating unit and
separate Sales for PCs

Decentralization of decision
making authority

Reduced role of IBM corporate
HQ









Effect of 1991
reorganization
Akers divided IBM into 13
separate divisions

9 for main product lines
4 for marketing and service
operations

Each unit to work independent
of each other

Single sale force continued

1991: loss of $2.8b ( first time
in IBM history)

1992: loss of $ 5b
1993:
New Management
& New Plans

Louis Gerstner took over as
CEO

He was an outsider to IBM

He hired outsiders for top
post like CFO, VP, VP of
corporate marketing etc

Thrust on reengineering

11 person corporate executive
committee
11 task forces to analyze IBMs
main processes
Restructuring of relationships
between corporate centre and the
divisions: No decentralization

Traditional strategy of providing
full line of hardware and software
followed

Reduced workforce heavily from
4.05 lac to 2.5 lac









26 Sept 1993
Gerstners 4 goals

To get the company to right size
To spend more time with customers
To determine the strategic issues by
process reengineering
To build employee morale in the face
of huge layoffs


IBM announced a loss of $ 46m
for third quarter compared to $
40m loss in 1992
Domination of the global market in computers

Highly successful System360 and System370
mainframe series

The mainframe became the industry standard
that competitors tried to match

High-priced lease strategy, backed by excellent
customer service

Strong bonding with customers
Successful alliances and joint ventures with
computer & software companies such as Intel
and Microsoft to achieve product innovation
and differentiation and enter new markets

Contention system (Project teams &
committees to develop and debate the costs
and benefits of each project: successful
projects)

Steady cash flow

Focus on service, combined with a successful
sales force

Focus on Research & Development: High budget

Successful Product group structure (restructuring
during 1992): Divisions organized around
products instead of functions, each group having
control over its manufacturing and marketing
No clear vision and mission statement

The IBM culture was relaxed and supremely confident of
its abilities and resources

Culture was slow and blinkered

Under estimated its competitors greatly

mainframes were king corporate mindset

Too much focus mainframe market

big machines meant big revenues
The bigger the better



High cost and high-priced products

Used to high profit margins led to choking when low-
cost competitors appeared

Unable to recognize importance of patents

Easy cloning
At lower cost
Sometimes, with even better quality

massive organization size

High costs in the value chain



Blind to threats emerging from the emergence of
new kinds of computer technology

Overly bureaucratic and centralized approach in
decision-making

Complexity of Contention system

Inordinate delays in Decision Making
Slow response to developing market segments
Laggard in launching new products
Changes in technology

Emergence of new kinds of computers

Minicomputers
PCs
Workstations
Software and services
Systems integration & Outsourcing

Cheaper and faster technological breakthroughs
as compared to mainframe computers

Software design and providing customer
service, specifically for the design of general
operating language and software applications

Data outsourcing and systems integration
also had revenue-generating potential

Indirect control of software market by
purchasing large chunk of Microsoft stock at
low price:

Countless opportunities to differentiate and
innovate products

If we try to look back, IBMs success was itself
the result of moving quickly and decisively to
exploit the opportunities of new technology: the
punch card machine, the transistor, and the
integrated circuit.

Their brand image is synonymous with big and
old they need to create products appealing to a
younger generation and reposition their
company.

IBM needs to maintain a competitive edge in
the marketplace and innovation is key and
working with IT-related companies to create
new products in the ever changing market;
use patents to generate revenue.

High individual consumption power

Increased globalization .


Potential competitors

New Computer systems and allied products

Many market segments but common sales force

Rapid reduction in hardware due to technological
changes

Mainframe market saturation

Customers have low switching costs





Clone manufacturers

local or foreign
aggressive strategies for cost leadership
product differentiation
low-price alternatives to the IBM mainframe
quality support
low-cost service

High turn over rate of technology

Mainframes becoming obsolete and the product
life cycle shortening, as new technological
inventions are making their way


2-27
The
Organisation


External analysis stages
Macro-environment
Broad trends shaping the national and
international environment
political, economic, social and technological
trends (i.e. PESTEL factors, key drivers )
Micro-environment
operating environment or industry sector in
which the firm competes
range of issues such as suppliers, customers,
competitive intensity, threat of new entry
and of substitute products arising (i.e. the
five-forces analysis)
Competitor analysis
To understand the rival offers from other firms
seeking to serve the same customers
To out manoeuvre rivals with innovation and
competitive moves.
Market analysis
To evaluate the current needs of todays
customers
To understand the emerging needs of
tomorrows customers so new products can be
anticipated
To have different strategy in different market
segments.


IBM
Social Political
Technological
Environmental
Economic
Legal
PESTEL Analysis for Macro environment factors
Political factors:

There were no significant/strict regulations
governing the activities within the computer
industry.

Companies in the computer industry should also
value the protection of their patents. Patent rights
can help eliminate threat from clone manufacturers
and similar kinds of competitors and thus protect a
companys market share and position.


Economic factors
Since 1970, several US industries have declined due to
the entry of low-cost Japanese competitors. These
Japanese companies had great technical capabilities that
can match or even exceed US products, thus posing a
major threat to IBMs domination of the global market

Steadily falling price of integrated circuits is shortening
the lifespan of every computer technology, especially the
mainframes. This plunging of costs is making computer
technology innovation more feasible for the computer
industry players.

Social factors:

A great number of employees were laid off. This may have
produced a bad image of IBM to the workers who were
promised a stable employment.

IBM lost quite a great number of customers, especially
when it decided to end its leasing system. This evidently
produced a negative effect to the company on the form of
significant revenue declines

IBMs customers were becoming price conscious. Since IBM
lagged behind technological breakthroughs, old and new
customers were starting to look away from them.

Technological factors:

The technological breakthroughs as manifested by the
minicomputers, PCs, workstations, microprocessors, and
software brought numerous opportunities and only a
single significant threat: the fast rate of obsolescence.

IBM required to create a mindset that in order to grab
these opportunities, gain competitive advantage and
thus be successful, speed is required. A company must
act quickly and decisively to exploit the opportunities
brought about by technological change.

Environmental factors:

The rapid obsolescence of computer technology
posed a threat to the environment as technological
wastes in the form of obsolete/useless/broken
computers and component parts making their way
to disposal areas.

Harmful chemicals were used to make these tech
products and if these were not disposed of
properly, it may harm not only nature but also the
people.



Legal Factors:

Laws and regulations for cross-country operations
and labour laws are some of the laws that IBM may
have to comply with.

There may be laws specific to the manufacture and
distribution of computer technology; which requires
compliance





Intensity
of Rivalry
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Threat of
Substitutes
The Threat
of Entry
Five Forces Analysis for Micro environment factors
Technology plays a big role in the computer industry
that IBM belongs

Because of the rapid growth of technology, costs
accompanying such growth are continually increasing

The threat of new entrants is low because of several
factors

One factor is the cost of research and development which is
enormous
Adapting to the latest technology to survive the industry is
also costly
Building and maintenance of plants
IBM outsourced and bought the inputs from other
companies to make its PC

Intel supplied the microchip that was the heart of personal
computers
Microsoft delivered the programming language and
software applications for the new IBM machine

Thus, power of suppliers is assessed to be high on
major suppliers


Thus, the overall power of both major and minor
supplier is assessed to be medium.

Customer demand drove the prices of IBMs
products down to cope with the existing and
unavoidable price competition

Switching costs of buyers are also becoming low,
as there are many product choices for the buyers

Consumers began to feel more comfortable
about buying clones from companies that
promised quality support and service at low costs

Thus, bargaining power of buyers is assessed to
be high.

Competition was increasing from companies that
were trying to find ways to attract IBMs customers

Competitors began selling cheaper and high
performing IBM compatible central processing units
that posed a threat to the company

The end of the leasing program also led to increased
competition from independent computer leasing
companies that would buy older mainframes and then
sell the older processors at a price that was
frequently only 10% of the cost of IBMs newest
machine

These companies were also said to dismantle
mainframes to make smaller computers

Entry of Japanese competitors posed a threat to
IBM because they had the technical

capability to build a powerful computer that
matched IBMs mainframe system

Customers began buying clones from competing
companies who promised quality similar to IBM.

IBM was also experiencing an increase on low-cost
competitions on its outsourcing services business.

In the 1990s, IBM faced tough competition from
Toshiba and Apple regarding personal computers

It was also in 1990s that severe competition existed
in terms of workstations. Major competitors at that
time were DEC, Apollo, Sun, and HP

Clearly, in all developed and developing segments of
the computer market, IBM was facing stiff
competition.

There are already new products that are much
more attractive to the consumers aside from
the mainframes and other products that IBM
produces

There was a threat on new technologies
being developed to outperform the products
of IBM. An example was the introduction of
Minicomputers which acted as a substitute to
some IBM mainframe applications


Even though IBM was successful with its PC
division, clones were being made which
reduced IBMs sales. New and much improved
products are also emerging in the market that
has considerably being welcomed with open
arms by the consumers posing a high threat
of substitute to IBMs products.
1. Determine each competitors probable reaction to
the industry & environmental changes

2. Anticipate the response of each competitor to the
likely strategic moves by the firm

3. Develop a profile of the nature & success of the
possible strategic changes each competitor might
undertake
1. Future goals of competitors

2. Its current strategy

3. The key assumptions it makes about itself &
about the industry

4. Its capacity in terms of Strengths &
Weaknessess
STRATEGIC ADVANTAGE

ORGANISATIONAL CAPABILITIES

COMPETENCIES

SYNERGISTIC EFFECTS

STRENGTHS & WEAKNESS

ORGANISATIONAL ORGANISATIONAL
RESOURCES BEHAVIOUR
FINANCIAL CAPABILITY FACTORS
MARKETING CAPABILITY FACTORS
OPERTAIONS CAPABILITY FACTORS
PERSONNEL CAPABILITY FACTORS
INFORMATION CAPABILITY FACTORS
GENERAL MANAGENT CAPABILTY FACTORS
Well established giant organization

Market leader in mainframe computers

Well integrated and hierarchical HR structure

Capability of innovation and diversification

Strong financial position

Advantage of worldwide clientele

Strong bonding with clientele

Economies of scale

Unified and gigantic sales force

Belief in Prestige and quality product


1. PERSISTENT NEGATIVE CASH FLOW
2. NEGATIVE PROFITS
3. DECLINING MARKET SHARE
4. OVERMANNING, HIGH TURNOVER, & LOW
MORALE
5. UNCOMPETITIVE PRODUCTS OR SERVICES
6. MISMANAGEMENT

1. CHANGES IN TOP MANAGEMENT
2. INITIAL CREDIBILITY BUILDING ACTIONS
3. NEUTRALIZING EXTERNAL PRESSURES
4. INITIAL CONTROL
5. INDENTIFYING QUICK PAY OFF ACTIVITIES
6. QUICK COST REDUCTION
7. REVENUE GENERATION
8. DOWNSIZING OF WORKFORCE
9. MOBILISATION OF THE ORGANISATION
10. BETTER INTERNAL COORDINATION


1. EXPANSION STRATEGIES

a) Expansion through integration
b) Expansion through diversification
c) Expansion through cooperation
d) Expansion through internationalization

2. RETRENCHMENT STRATEGIES

a) Expansion through Integration

a) BETTER CONTROL OVER VALUE CHAIN
MITIGATING BUYERS & SUPPLIERS
POWER

b) BETTER AND EFFICIENT UTILIZATION OF
RESOURCES

c) REDUCTION IN MUTUAL CONFLICTS






a) TO MINIMISE RISKS

b) TO CAPITALISE ON ORGANISATIONAL
STRENGTHS

c) TO GROW IF GROWTH IN EXISTING BUSINESS
IS BLOCKED
3- GENERIC STRATEGY

OVERALL COST LEADERSHIP

PRICE OF THE PRODUCT IS A VITAL FACTOR
BRANDED PRODUCTS VERY COSTLY

DIFFERENTIATION

MARKET TOO LARGE TO BE CATERED TO BY A FEW
FIRMS MAKING/ OFFERING A STANDARDISED PRODUCT




CUSTOMER NEEDS TOO DIVERSIFIED TO BE SATISFIED
BY A STANDARDISED PRODUCT
BRAND LOYALTY POSSIBLE TO GENERATE & SUSTAIN
AMPLE SCOPE FOR INCREASING SALES ON THE BASIS OF
DIFFERENTIATED FEATURES & PREMIUM PRICING

FOCUS

EXPENSIVE FOR COMPETITORS TO FOCUS ON TARGET
CUSTOMERS OF THE ORGANIZATION

Gerstners Reengineering the corporation

Identify and analyze each of the core business
processes
Manufacturing
Marketing
R&D etc

Constitution of 11- member corporate executive
committee to spearhead reengineering efforts

11- task forces formed to analyze IBMs main
processes


Vertical integration between corporate center and the
divisions

Core traditional strategy of providing customers with
a full line of hardware and software products and
services

Downsizing the workforce

Setting of goals
To get the company to right size
To spend more time with customers
To determine the strategic issues by process reengineering
To build employee morale in the face of huge layoffs


IBM, should keep its position in the market as
world's largest information technology company

IBM should expand into new markets with
promising growth.

IBM has the advantage of being top brand by
rapidly expanding into world markets all the
while developing new products, services, and
solutions to better help its wide variety of
customers from small to large


To improve and maintain its corporate image,
IBM needs to find new and better ways to be
philanthropic company worldwide

Improving job satisfaction, communities, and living
standards
IBM can also offer scholarships, educational
assistance, and internships to improve educational
system, which enable them to have quality staff,
partners, customer, and suppliers.
Invest heavily on research and development

Researching on how to incorporate the internet to IBMs
product would be a worthwhile investment

Partner with suppliers

Collaboration with suppliers will increase business
flexibility and executive level business decision support
IBM should even have good relations to its suppliers
since parts supplied by them are essential for IBMs
products

Keep consistent tracking of market changes and
adapt promptly and efficiently


Analysis of macro and micro level environmental factors
on IBM strategy concludes that IBM has strong
competitors in hardware industry like Dell or Hp but IBM
can work more powerful in software industry with few
strong competitors like Microsoft

IBM accuracy of understanding the demand for
software and services skills worldwide is growing.
Therefore, the computer technology industry still has
high market growth rate.

Although the external factors have impacted on
computer technology industry, IBM still exit on the
market as they have strong financial capacity,
knowledgeable and competent management and
experience.