EXTERNAL OPPORTUNITIES AND THREATS

Opportunities
1. Globalization in order to balance the fluctuations in different economies
2. Create products appealing to a younger generation, e.g. iPod
3. Use patents to generate revenue
4. Focus more on OEM (17.9% revenue increase)
5. Hire and use international expertise

Threats
1. Over reliance on developing economies like India (38% growth)
2. Unstable electronics market
3. Change in technology (iPad)
4. Customers have low switching costs
5. Rapid product development from competitors
6. Fierce competition from Microsoft & HP

7.

EFE MATRIX

OPPORTUNITIES
KEY
EXTERNAL
FACTORS
WEIGHT
RATING
WEIGHTED
The EFE
matrix shows
various opportunities
to be availed
by IBM and
the threats it faces. After
SCORE
listing them, weights were assigned according to their importance and
the degree to which they
Globalization in order to balance
0.05
3
0.15
affect the company. The weights are industry specific and assess the importance of each factor in
the fluctuations in different
terms of surviving in the industry. The ratings were given as the following:
economies
Create products appealing to a
0.16
1
0.16
1. Is the response is poor.
younger generation, e.g. iPod
Use2.patents
generate revenue
2
0.08
Is thetoresponse
is average. 0.04
Focus more on OEM
0.1
2
0.2
3.
Hire and use international
0.16
3
0.48
3.

expertise
Over reliance on developing

THREATS
0.06

0.06

economies like India (38%

3.
3.

growth)
Unstable electronics market
Change in technology (iPad)
Customers have low switching

0.06
0.1
0.07

2
3
2

0.12
0.3
0.14

costs
Rapid product development from

0.1

0.3

competitors
Fierce competition from

0.1

0.3

Microsoft & HP
TOTAL

3.

3.
3.
3.
3.
3.
3.
3.

1.00

2.29

3.

Is response is above average

4. Is response is excellent.
The weighted score calculated by multiplying the weights with the rates assigned. The sum of the
total weighted score for opportunities and threats is called the total weighted score, which for
IBM are 2.29. This tells us that the business is performing below average and is not capitalizing
on its opportunities neither is reducing or avoiding threats.

INTERNAL STRENGTHS AND WEAKNESSES

Strengths
1. Brand name
2. Rising revenue to 91 billion and rising net income to $9.4 billion
3. Diversification (Software, hardware, financing)
4. Acquisition of Watchfire Company in 2007
5. InnovationJam capability
6. Ranks second in market capitalization, net income, and long-term growth behind
Microsoft
7. Widespread operations in 170 countries
8. Rising earnings per share (23% in 2006)

Weaknesses
1.
2.
3.
4.

Lack of synergy resulting from a series of acquisitions and divestitures

Difficult to coordinate over four geographical segments
Too many employees (around 400,000)
Concentration or focus on three major divisions or segments puts the company at a

vulnerable position if revenues from them decline

5. Declining profit margins from hardware (-7.6%)

KEY INTERNAL FACTORS

WEIGHT RATING

STRENGTHS
Brand name
0.09
Rising revenue to 91 billion and rising net
0.1
income by 9% to $9.4 billion
Diversification (Software, hardware,
0.05
financing)
Known to have more patents than any other
0.03
American technology company
Acquisition of Watchfire Company in 2007
0.03
InnovationJam capability
0.15
Ranks second in market capitalization, net
0.05
income, and long-term growth behind
Microsoft
Widespread operations in 104 countries
0.05
Rising earnings per share (23% in 2006)

0.1

WEIGHTED
SCORE

4
4

0.36
0.4

0.15

0.09

3
4
3

0.09
0.6
0.15

0.15

0.4

IFE MATRIX
WEAKNESSES
Lack of synergy resulting from a series of
0.05
1
0.05
acquisitions and divestitures
Difficult to coordinate over four geographical 0.07
1
0.07
segments
Too many employees (around 400,000)
0.03
2
0.06
Concentration or focus on three major
0.08
1
0.08
divisions or segments puts the company at a
vulnerable position if revenues from them
decline
Declining profit margins from hardware (0.12
2
0.24
7.6%)
TOTAL
1.00
2.89
The internal factor evaluation matrix shows that IBMs internal position is above average. They
can come up with more planned and innovative techniques in order to improve their position as
there is room for improvement. IFE value is above 2.50 which means that IBM is taking
advantage of its strengths and minimizing weaknesses. The IFE matrix lists the weights of each
internal factor, both strengths and weaknesses and assigns them ratings and then finds total
weighed scores to assess the internal position of IBM. The weights are industry specific and
assess the importance of each factor in terms of surviving in the industry. Coming to the ratings,

they indicate how effectively the firms current strategies respond to the factor. The total
weighted score is found by multiplying the weights with the ratings to find the weighted score.

CPM MATRIX

Critical Success
Factors
Diversification
Financial

Weights
0.1
0.15

IBM
Microsoft
Rate Score Rate Score
3
4

0.3
0.6

4
2

0.4
0.3

HP
EDS
Rate Score Rate Score
1
2

0.1
0.3

4
1

0.3
0.15

position
Market share
0.2
2
0.4
4
0.8
2
0.4
3
0.6
Advertisement
0.2
1
0.2
2
0.4
4
0.6
1
0.2
Customer relation
0.1
4
0.4
2
0.2
3
0.3
1
0.1
Management
0.05
2
0.1
4
0.2
3
0.15
3
0.15
R&D
0.2
4
0.8
4
0.8
2
0.4
2
0.4
TOTAL
1
2.8
3.1
2.25
1.9
The CPM shows the critical success factors for companies, which would be same for all in a
given economy. Seven factors were tested among competitors of IBM (i.e. Microsoft, HP, EDS).
Microsoft holds a strong competitive position among its competitors followed by IBM, HP &
EDS.