Running head: MANAGING STRATEGICALLY

Managing Strategically at IBM Charles L. Hines MBA690 Strategic Management January 10, 2012 Dr. Craig Cleveland

MANAGING STATEGICALLY Managing Strategically at IBM As part of the global technological market, IBM strives to strategically make decisions that will gain market share. In fact, by prudent strategic planning, IBM has been one of the leaders in the computers industry for many decades. With products like: Dos, Lotus, Personal Computers, Mainframes, and other products on the market, IBMs future looks bright on the horizon of the technological landscape. Lynch (1997) observes that despite the volatility of the information technology (IT) industry over the past decade, IBM has consistently delivered superior performance, with a steady track record of sustained earnings per share growth (p. 234). Alternately: The company has shifted its business mix, exiting commoditized segments while increasing its presence in highervalue areas such as services, software and integrated solutions (p. 234). In addition, Lynch states that as part of this shift, the company has acquired 116 companies this past decade, complementing and scaling its portfolio of products and offerings. IBMs clear strategy has enabled steady results in core business areas, while expanding its offerings and addressable markets (1997, p. 234). As a result, managing strategically at IBM is the driving force that has allowed its customers like: China and the U.S. government, and others who consistently request its technological services. Introduction The New York Times (2012) reports that I.B.M. is the largest single supplier of information technology to corporations worldwide, selling more than $100 billion a year in services, software and hardware to businesses and governments. Profits, more than sales growth, have been the big technology companys focus in recent years (p. 1). The company delivered a steady performance in the fourth quarter of 2011, reporting profits

MANAGING STATEGICALLY that easily surpassed Wall Street forecasts. Sales were just below analysts estimates, weighed down by a slowdown in mainframe sales, compared with the previous year when new models were introduced. The company reported that its net income rose 4 percent, to $5.5 billion. (The New York Times, p. 1). Alternately: But its operating earnings per share rose 11 percent to $4.71 a share. There were far fewer outstanding shares than a year earlier after I.B.M. spent billions to buy back shares in 2011 (The New York Times, p. 1). The quarterly result was well above the $4.62-a-share average estimate of Wall Street analysts, as compiled by Thomson Reuters. I.B.M.s revenue rose 2 percent to $29.5 billion, but it fell short of analysts forecast of $29.7 billion (The New York Times, p. 1). Virginia M. Rometty, I.B.M.s chief executive, called the quarterly performance a strong finish to a year of record earnings per share, revenue and profit. In recent years, I.B.M. has shed more cyclical hardware businesses like personal computer and disk drives, while stepping up its investment in more stable services and software businesses (The New York Times, p. 1). Alternately: It has been aggressive in tapping fast-growing markets abroad, while developing new businesses, like analytics software that helps companies sift through data for insights about how to cut costs and help sales (The New York Times, p. 1). According to Bellis (2011) IBM or International Business Machines is a wellknown American computer manufacturer, founded by Thomas J. Watson (born 1874-0217). IBM is also known as "Big Blue" after the color of its logo. The company has made everything from mainframes to personal computers and has been immensely successful selling business computers (p. 1). Alternately: The roots of the IBM company spans over a century beginning in early 1900. From modest annual revenue of a few hundred

MANAGING STATEGICALLY thousand dollars to billions annually making IBM one of the most successful companies in the world (Bellis, p. 1). Similarly, Madrigal (2011), On this day in 1911, IBM began operation as the Computing-Tabulating-Recording Company. Since then, IBM's institutional career has mirrored both the rise of computing and modern corporations, two hallmarks of our age (p. 1). Alternately: The following timeline traces Big Blue's adventures from its start as a company with $950,000 in revenue to its current state. Today, the multinational rakes in almost $100 billion a year and employs 450,000 (Madrigal, p. 1). Below is a picture of one of the first inventions of CTR.

Timeline: 1911 Bellis (2011) states that on June 16, 1911, three successful 19th century companies decided to merge, marking the beginnings of IBM history. The Tabulating Machine Company, the International Time Recording Company, and the Computing Scale Company of America joined together to incorporate and form one company, the Computing Tabulating Recording Company(2011). Alternately: In 1914, Thomas J. Watson Senior joined CTR as CEO and held that title for the next twenty years, turning the company into the multi-national entity (Bellis, p. 1). In addition, Madrigal (2011) notes that IBM's precursor, the Computing-Tabulating-Recording Company (CTR), was

MANAGING STATEGICALLY created by the merger of The International Time Recording Company Computing Scale Company, and the Tabulating Machine Company. The companies combined revenue for the fiscal year 1910 was "excess of $950,000." A bulletin ran in United States Investor in July of that year (p. 1). The merger was the catalyst for the formation of the IBM enterprise.

Timeline: 1924 Bellis (2011) notes that in 1924, Watson changed the companys name to International Business Machines Corporation or IBM. From the beginning, IBM defined itself not by selling products, which ranged from commercial scales to punch card tabulators, but, by its research and development (p.1). Likewise, Madrigal (2011) observes that CTR becomes International Business Machines aka IBM. Here's a look at the history of the IBM logo from its birth through the CTR days until today (p. 1). IBM changed its logo over the years to reflect its corporate image. However, the change has been very slight over the last sixty years.

1911---------------1924 24-46

47-56

57-72 72-Present

Now

The current logo features stripes with a light blue color. This design is to incorporate the name: big blue for IBM. It is the only logo that is not black and white.

MANAGING STATEGICALLY Timeline: 1942 Madrigal (2011) observes that IBM becomes involved in the war effort, helping keep track of vital statistics. Below, we see an IBM tabulating machine below used in keeping track of freight traffic in the country (p. 1). The tabulating machine was revolutionary during this time period. It made freight tracking easier and more efficient due to IBMs efforts.

Timeline: 1944 Madrigal (2011) states that IBM co-develops its first computer, the Automated Sequence Controlled Calculator aka Mark I, with Harvard University. It was used by the Navy to calculate gun trajectories (p. 1). Below is the computer prototype.

Timeline: 1956 According to Madrigal (2011), During this period, IBM made a number of important electronic advancements. Below, you can see the first commercial hard disk drive, the 350 RAMAC Disk Storage Unit, which was a major component of the groundbreaking 305 RAMAC computer (p. 1). One can see that this hard drive is

MANAGING STATEGICALLY massive. However. It paved the way for computer data storage, and the smaller hard drive with huge capacity capabilities in computers today.

Timeline: 1981 Bellis (2011) states that in July 1980, Microsoft's Bill Gates agreed to create an operating system for IBM's new computer for the home consumer, which IBM released on August 12 1981. The first IBM PC ran on a 4.77 MHz Intel 8088 microprocessor (p. 1). Alternately: IBM had now stepped into the home consumer market, sparking the computer revolution (Bellis, p. 1). In addition, Madrigal (2011) states that The IBM Personal Computer 5150 debuts, a landmark in the transition of computing from the province of the military and big government to everyday people (p. 1). Below is the fact sheet and specifications on the IBM personal computer.

Timeline: 1997 This year turned out to be a good one because it gave IBM a chance to show off

MANAGING STATEGICALLY Its ingenuity. In fact, Madrigal (2011) notes that IBM Deep Blue beats Garry Kasparaov; marking the first time a computer had defeated a reigning world champion in a traditional match. Kasparov resigned after 19 moves (p. 1). IBMs Deep Blue was one of the first of its kind in the world.

Timeline: 2005 Because of the way the personal computer industry was going, IBM decided to sale its personal computer interest and place more focus on mainframe computing. In fact, Madrigal (2011) states that Lenovo purchases IBM's personal computing division, completing IBM's transition into a services company and away from selling directly to consumers. The company makes tens of billions of dollars selling services -- not machines -- to businesses (p. 1). However, IBM still has a controlling interest in Lenovo. Timeline: 2011 The year of 2011 marked the culmination of a great history of innovation, strategy, and engineering at IBM. Madrigal (2011) notes that IBM turned 100. The company celebrates by passing Microsoft's market value for the first time in 15 years and watching the Watson computing platform destroy the human competition in Jeopardy. (Even Kasparov had to laud IBM's team for the win.) (p. 1). Of course the Watson computing platform was named after IBMs founder: namely, Thomas J. Watson.

MANAGING STATEGICALLY Vision Statement David (2011) states that many organizations today develop a vision statement that answers the question What do we want to become? Developing a vision statement is often considered the first step in strategic planning, preceding even the development of a mission statement (p. 43). In addition, IBMs web site (2011) notes the IBM vision statement as follows: At IBM, we strive to lead in the invention, development and manufacture of the industrys most advanced information technologies, including computer systems, software, storage systems and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide (p. 1). That is, our goal at IBM is to be the pacesetter in the computing industry in innovation and design. Subsequently, with our smarter planet motto, IBM desires to lead the way in communication, hardware, and software advancing technologies that will benefit companies domestically and globally. In fact, with a confident staff of managers, engineers, and employees, IBM is hard-set and committed to provide the most professional services to its customers in various markets worldwide. Mission Statement According to David (2011), Mission statements are enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firms operations in product and market terms: (p. 43). Alternately: It addresses the basic question that faces all strategists: What is our business? A clear mission statement describes the values and priorities of an organization (43). In addition, IBM web site (2011) states the following as its mission:

MANAGING STATEGICALLY At IBM, our goal is to produce the finest quality global technology products and to offer the most reliable business service provision. Our reason for existence is to ensure that our customers receive the highest quality products and services, outstanding customer support and dependable products and services that can be depended upon in their enterprise (p. 1). Our main focus is to assist them by any means available in order that their organization operates as efficiently and effectively as possible (IBM web site, p. 1). In addition, Linch, (1991) notes that IBM main strategy is to find solutions to its wide range of clients using advanced information technology. Its clients are individual users, specialized businesses, and institutions such as government, science, defense, spatial and educational organizations (p. 23). Alternately: To meet and respond to its customers needs, IBM creates, develops and manufactures many of the worlds most advanced technologies, ranging from computer systems and software to networking systems, storage devices and microelectronics (p. 23). The mission of IBM is based on four strategies: 1. Reallocating resources to enhance their server product business and reduce operation costs and optimize the efficiency. 2. To pursue an innovation agenda with its clients, partners and in other relationships, and to continue refining its portfolio to achieve higher value. 3. Acquiring businesses that contribute strategically to its portfolio. 4. To maintain its leadership of this rapidly changing business by focusing on high-value innovation-based solutions and services while consistently generating high returns on invested capital for its shareholders. (Linch, p. 23) Consequently, at IBM, our name stands for quality of technological products and

10

MANAGING STATEGICALLY services. Because our name reveals the character of IBM, our goal is to provide this IBM brand to our customers. In fact, we provide 24/7 customer support by our highly trained support personnel for the many products that we offer. Similarly, we offer various communication channels so that we may assist: companies, organizations, governments and consumers by any means necessary. In fact, we take pride in servicing our clients, and coming up innovative ideas that meets our partners business objectives. Similarly, our face-to-face meetings with our clients sets the stage for long lasting relationships. That is, we tailor our business to meet their needs. Samuel Palmisano, the outgoing CEO of IBM sums up the mission of IBM in a letter to fellow IBMers in 2011. Palmisano states, To me its just common sense. In todays world, where everyone is so interconnected and interdependent, it is simply essential that we work for each others success (IBM web site, 2011, p.1). If we are going to solve the biggest, thorniest and most widespread problems in business and society, we have to innovate in ways that truly matter (IBM web site, p. 1). Alternately: And we have to do all this be taking personal responsibility for all our relationships with clients, colleagues, partners, investors and the public at large. This is IBMs mission as an enterprise, and a goal toward which we hope to work with many others, in our industry and beyond (IBM web site, p. 1). However, there are external forces that can hinder ones strategic goals from coming to fruition. External Environment/ Steep Davis (2011) states that external forces can be divided into five broad categories: (1) economic forces; (2) social, cultural, demographic, and natural environment forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive

11

MANAGING STATEGICALLY forces (p. 93). These five external forces will be explored as they relate to IBM business operations. The first one deals with the social and cultural aspect of the business environment. Socio-Cultural Environment Davis (2011) states that social, cultural, demographic, and environmental changes have a major impact on virtually all products, services, markets, and customers (p. 98). Alternately: Small, large, for-profit, and nonprofit organizations in all industries are being staggered and challenged by the opportunities and threats arising from changes in social, cultural, demographic, and environmental variables ( Davis, p. 98). In fact, social networking is the new phenomenon for technological interaction. Comscore (2007) observes that such widespread use has bred familiarity and comfort with the mediumfor both individuals and business. Social networking has expanded rapidly worldwide. For example, the number of users at Facebook.com grew by 270 percent in just one year, from June 2006 to June 2007 (p. 3). In addition, Gareiss (2007) notes that the number of MySpace.com users also grew by 72 percent in that same time frame. According to a recent study of businesses, use of Web conferencing also has more than doubled in a year (p. 7). Alternately: Its increase from a 32 percent to 79 percent adoption rate makes it, according to the study, the top IP-based real-time collaborative application in use at companies (Gareiss, p. 7). Moreover, Gartner (2008) states that the growth of tools such as social networking Web sites and Web conferencing are clear indicators not only of the growth but also of the changing nature of collaboration. Gartner predicts that by 2010, the average salaried worker will actively participate in at least five different ad hoc teams simultaneously (p. 20). Alternately: Gartner further states that

12

MANAGING STATEGICALLY by 2011, social networking and social interaction will be more popular than team collaboration among enterprise users (p. 20). Also, the external environment is causing technological changes at IBM. Technological Environment According to Davis (2011), Revolutionary technological changes and discoveries are having a dramatic impact on organizations (p. 101). At IBM, there are four ways that we plan to deal with changes in the technological environment. IBM PartnerWorld (2011) explains: 1. Plan: Start planning new infrastructure solutions with your clients now. Make sure that the technology will match their business needs as they start developing budget criteria and a timetable for implementation. 2. Acquire: IBM Global Financing can offer competitive rates and help extract cash from existing technology assets that can be applied to new equipment. 3. Manage: Once installed, your technology financier can help clients manage the equipment right down to the serial number. Additionally, financiers like IBM Global Financing are flexible enough throughout the leasing cycle to facilitate mid-lease upgrades to the latest technology so your equipment never falls behind the curve. 4. Retire: As infrastructure equipment approaches the end of its lease, IBM Global Financing's Asset Recovery Services can help take-back equipment, make sure it is disposed of in compliance with environmental law and manage the proper cleansing of data off the storage devices. (1) Environmental Factors

13

MANAGING STATEGICALLY To guard against potential environmental threats from known unknown sources, IBM has put in to place specific safety measures that will prevent serious fallouts. IBM (2012), states that IBM operations could potentially impact the environment in a number of ways. Chemicals needed for research, development, manufacturing processes and services must be properly managed, from purchase through storage, use and disposal. Certain processes are energy and/or water-intensive (p. 1). In addition, IBM notes that IBM products should be designed so that they can be reused, recycled or disposed of properly at the end of their useful lives (2012, p. 1). Furthermore, to identify and effectively manage the potential environmental impact of IBM's operations, IBM established and has maintained a strong worldwide environmental management system (EMS) for decades. It is a vital element in the company's efforts to achieve results consistent with environmental leadership (IBM, p. 1). In addition, IBM's environmental affairs policy provides the strategic framework for the company's environmental management system and environmental affairs objectives (IBM, p.1). Alternately: These objectives address areas such as workplace safety, the conservation of energy and other natural resources, environmental protection, and the development and manufacture of environmentally conscious products (IBM, p. 1). There are also economic factors that affect business strategy. Economic Environment It is not surprising that increasing numbers of two-income households is an economic trend in the United States. Individuals place a premium on time. Improved customer service, immediate availability, trouble-free operation of products, and dependable maintenance and repair services are becoming important (Davis, 2011, p.

14

MANAGING STATEGICALLY 95). Because of the economic down-turn, many companies are taking drastic measures to cope with downswings in the economy. In fact, IBM (2011) suggests that as part of its talent assessment, an organization should review those work processes that are core to its current and future strategy and examine the potential for outsourcing non-core activities (p. 6). By outsourcing activities not central to the organizations strategy, such as HR administration, IT desktop support and accounts payable administration, Companies can shift these functions from a fixed to a variable cost model, making it easier to adjust costs with changes in the overall workforce size (IBM, p. 6). For example, organizations needing fewer employee call center representatives or recruiters during a downswing in their business cycle can more easily adjust their staffing levels using an outsourcer, rather than continually letting go and rehiring their own employees (IBM, p. 6). In addition, outsourcers can also provide specialty services, such as merger and acquisition integration assistance, that would be too costly for organizations to maintain on staff. This can enable the firm to act more quickly, as well as reduce the transition time and costs associated with one-time events (IBM, p. 6). Actually, according to IBM Today (2011), the annual reports for 2010 states a historic economic expansion is underway in the emerging markets of the world as their populations join the middle class and their economies join the global marketplace (p. 5). These markets are expected to achieve average GDP growth of 5 percent through 2015, more than double the projected growth rate of the developed world (IBM Today, p. 5). In the largest of these emerging markets, such as China, India and Brazil, IBM is broadening its well-established base of skills and capabilities, nearly doubling our number of branch locations (IBM Today, p. 5). Alternately: In less developed markets, such as Africa,

15

MANAGING STATEGICALLY we are leveraging anchor clients in sectors like communications and banking. Our recent partnership with Bharti Airtel to provide 21st century wireless telecommunications across 16 countries of Sub-Saharan Africa is one example IBM Today, p. 5). Our Growth Markets Unit accounted for 21 percent of IBMs geographic revenue in 2010. We are aiming to approach 30 percent by 2015 (IBM Today, p. 5). In addition, the political and legal arena is a major factor in the importing and exporting goods and services globally. Political/Legal Environment According to Davis (2011), governments are taking control of more and more companies as the global economic recession cripples firms considered vital to the nations financial stability (p. 100). Similarly, as a major importer around the world, IBM must comply with all import laws, regulations and requirements when engaging in international trade. This includes compliance with obligations made to government agencies when participating in supply chain security and other trusted partnership programs (IBM, 2011, p. 22). Alternately: Because of the continued globalization of IBMs business, there are many situations, some of them very subtle, in which your role or work may have import implications (IBM, p. 22). Moreover, in our globally integrated enterprise, regardless of your work assignment or location, your actions may have export compliance implications. As a U.S. company, IBMs hardware and software products, services, and technology (i.e., technical data for the design, development, production or use of those products and source code) are subject to both U.S. and nonU.S. export laws and regulation (IBM, 2011, p. 23). In addition, before IBM products, services and technology can be exported, re-exported, or delivered anywhere, IBM must validate that it has the authorization to export under U.S. export regulations and any

16

MANAGING STATEGICALLY applicable non-U.S. laws and regulations (IBM, p. 23). Likewise, export laws and regulations affect many IBM transactions, including: (a) intercompany transactions; (b) in-country transfers of technology to recipients who are not citizens or permanent residents (e.g., where the recipient is a non-U.S. person located in the U.S.); and (c) transactions with third parties, including clients, suppliers, and original equipment manufacturers. (IBM, p. 23). The EFE matrix will help gauge some of the external factors will affect the IBMs domestic and global strategy. That is, opportunities and threats. The External Factor Evaluation (EFE) Matrix Davis (2011) notes that an External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information (p. 112). Below is an EFE matrix for IBM. EFE Matrix for IBM
Key External Factors OPPORTUNITIES Chinese Market Healthcare Industry Retail Industry Consumer Products Cloud Computing Weight 0.0 to 1.0 0.1 0.1 0.1 0.1 0.1 Rating 1 to 4 4 2 3 3 3 Weighted Score

17

0.4 0.2 0.3 0.3 0.3

THREATS Siemens IT Weak Economy Decline in the dollar Global Competition Client Loyalty TOTAL

0.1 0.1 0.1 0.1 0.1 1.0

3 2 2 3 2

0.3 0.2 0.2 0.3 0.2 2.9

MANAGING STATEGICALLY The EFE matrix is an External strategic management tool that shows the strengths and weaknesses of a firm. A rating of 1 to 4 is given to each entry depending on significance. That is, opportunities: (a) I rated IBM a 4 in the Chinese market because of market share in the Chinas technology industry; (b) Healthcare was rated a 2 because Dell computing systems seem to be more attractive in this industry because of their low pricing; (c) IBM computing systems is well established in the retail (point-of-sale) industry so I rated them a 3; (d) IBM and Lenovo are partners in laptop and desktop consumer products so I rated them a 3; and (d) Cloud computing is IBMs newest computing software platform so I it a 3. Threats: (a) I rated Siemens a 3 because they are under bidding or out-bidding IBM on a number of service contractsI was on one such contract; (b) I rated a weak economy and decline in the dollar a 2 because while consumers spend less during these times, IBM has been resourceful enough to make adjustments to make up the difference in other products and services; (c) global competition is big threat to IBM -- there is major competition from all over the world; therefore, I gave it a 3; and (d) I rated client loyalty a 2, IBM s brand and quality of its products will keep customers coming back again and again. Then, a weigh of 0.0 to 1.0 is given to each entry. The weigh is then multiplied by the rating to get a weighted score for each entry, and then totaled. A total weighted score less than 2.5 is considered low. However, IBM's score is 2.9 which is very good. Likewise, the CPM matrix that measures ones strategic position against ones competitors. The Competitive Profile Matrix (CPM)

18

MANAGING STATEGICALLY According to Davis (2011), The Competitive Profile Matrix (CPM) identifies a firms major competitors and its particular strengths and weaknesses in relation to a sample firms strategic position (p. 113). Below is a CPM matrix for IBM. CPM Matrix for IBM
IBM Critical Success Factors Weight Rating Weighted Score 0.63 0.76 0.8 0.8 0.6 3.59 HP Rating Weighted Score 0.63 0.57 0.60 0.60 0.60 3.00 MS Rating

19

Weighted Score 0.84 0.57 0.60 0.60 0.60 3.21

Global Expansion Market Share Customer Loyalty Financial Position Management Total

0.21 0.19 0.2 0.2 0.2 1.00

3 4 4 4 3

3 3 3 3 3

4 3 3 3 3

The CPM matrix measures the strengths and weaknesses of its competitors (Hewlett Packard and Microsoft) against IBMs. A rating of 1 to 4 is given to each external or internal item. That is, (a) IBM: I rated IBM a 3 for Global expansion because they are ever increasing their presence in the global market. In fact, the removal of trade barriers and access to the internet has increased work flow. I rated them a 3 in market share because of the potentiality of the computing business. In fact, everything from cars, phones, appliances, and cameras are being computerized. Customer loyalty has always been good for IBM so I rated that category a 4. IBM has made substantial profits over the last several years, therefore I rated its financial position a 4. IBM has had three CEOs in the last twenty years so I rated its overall management position a 3. (b) I gave HP a 3 in all of the categories because of their balanced portfolio. (c) Since Microsoft leads the world in computer operating system software, I rated them a 4 in this area. However, they are more or less balance in the other categories so I rated them a 3. Then

MANAGING STATEGICALLY the rate is multiplied by the weight for each company to get a weighted score. Finally, the weighted score for each company is totaled. Our company (IBM) has the highest and best score at 3.59. Next, the IFE matrix for IBM will examined. The Internal Factor Evaluation (IFE) Matrix Davis (2011) states that a summary step in conducting an internal strategicmanagement audit is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy-formation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas (p. 154). Below is the IFE matrix for IBM. IFE Matrix for IBM
Key Internal Factors INTERNAL STRENGTHS Management Strategic Planning Employee Loyalty Company Values Global Market Share Weight 0.0 to 1.0 0.10 0.13 0.10 0.09 0.10 Rating 1 to 4 3 4 2 2 3 Weighted Scores 0.30 0.52 0.20 0.18 0.30

20

INTERNAL WEAKNESSES Diversity Aging Workforce Employee Overtime Issues Decrease in Revenues in China Innovation Total

0.08 0.12 0.07 0.10 0.11 1.0

4 2 2 3 3

0.32 0.24 0.21 0.30 0.33 2.9

The IFE matrix is an internal management tool design to show a firms strengths and weaknesses. A rating of 1 to 4 is given to each entry in matter of significance. For example: (a) internal strengths-- strategic planning is rated a 4 because of IBMs R&D department is very strategic. I gave employee loyalty and company 2 ratings because of a

MANAGING STATEGICALLY shift in company ideology. That is, years ago, IBM had a philosophy of respect for the individual. In other words, each individual employee was importantyou had a job for life when you worked for IBM. However, IBM like many other companies are downsizing, laying-off workers, sending jobs overseas, and giving out early retirement packages which has decreased moral and company loyalty. (b) internal weaknesses IBM has worked hard in the area of diversity, however there is still a lot of work to be done in hiring minorities for key upper management positions. In addition, like most companies, IBM has an aging workforce. Because of the economy, many employees are working longer on the job instead of retiring. As well, IBM do not allow overtime accept by management approval. Then the rating is multiplied by the weight for each item and given a weighted score. Finally, the weighted scores for each item are totaled. A weighted score less than 2.5 is considered low. However, IBMs weighted score is 2.9 which is extraordinary. Next, the Porters Five Model of competitive analysis will be explored. Competitive Analysis: Porters Five-Forces Model According to Learn Marketing (2011), Porter's fives forces model is an excellent model to use to analyze a particular environment of an industry (p. 1). Alternately: if we were entering the PC industry, we would use Porter's model to help us find out about: 1) Competitive rivalry 2) Power of suppliers 3) Power of buyers 4) Threats of substitutes 5) Threat of new entrants.

21

MANAGING STATEGICALLY The above five main factors are key factors that influence industry performance. (Learn Marketing, p. 1). In addition, the Porters five forces model help strategists build a strategic management plan against the rivals and competition. Rivalry among Competing Firms According to Davis (2011), rivalry among competing firms is usually the most powerful of the five forces. The strategies pursued by one form can be successful only to the extent that they provide competitive advantage over the strategies pursued by the rival firms (pp. 107-108). Changes in strategy by one firm may be met with retaliatory countermoves, such as lowering prices, enhancing quality, adding features, providing services, extending warranties, and increasing advertising (Davis, p. 108). At IBM, we have a competitive advantage in cloud computing, green technologies, of which rivals are very low. However, the computer industry is a very competitive business with software and hardware companies coming into the technological landscape every week; therefore the rivalry is high. Companies like Microsoft, which is a formidable foe in the software area, and Hewlett Packard who is a hardware rival are very high. Nevertheless, the IBM brand has been around for over a hundred years producing quality computer and software products. Therefore, our R&D department is working hard to a competitive advantage. Potential Entry of New Competitors Davis (2011) states that whenever firms can easily enter a particular industry, the intensity of competitiveness among firms increases (p. 108). Barriers to entry, however, can include the need to gain economics of scale, the need to gain technology and specialized know-how, lack of experience, strong customer loyalty, strong brand preferences, large capital requirements, lack of distribution channels, and government

22

MANAGING STATEGICALLY regulatory policies. (Davis, pp. 108-109). IBM has one of the top-notch research and development departments in the world designing innovative products for the future. In fact, three years ago, we began describing the Smarter Planet that we saw emerging (IBM web site, 2012, p1). It was a world in which the primary industries transportation, healthcare, energywere becoming more instrumented and interconnected, and intelligent, producing data that could be used to improve the quality of our lives and our work across a variety of industries IBM Web site, p. 1). Therefore, the high dollar amount to produce the Smarter Planet technologies is a barrier to entry. In addition, based on the first mover theory, the new entrants may face a difficulty in order to meet economies of scale and experience curve when there are already many well-establish brands in the market (Hill, 2005, 223). Potential Development of Substitutes Products Davis (2011) notes that in many industries, firms are in close competition with producers of substitute products in other industries. Examples are plastic container products competing with glass, paperboard, and aluminum can producers, and acetaminophen manufacturers competing with other manufactures of pain and headache remedies (p. 109). In addition, the presence of substitute products puts a ceiling on the price that can be charged before consumers will switch to the substitute product. Price ceilings equate to profit ceilings and more intense competition among rivals (Davis, p. 109). Furthermore, competitive pressures arising from substitute products increase as the relative price of substitute products declines and as consumers switching costs decrease (Davis, 2011, p. 109). As well, The competitive strength of substitute

23

MANAGING STATEGICALLY products is best measured by the inroads into the market share those products obtain, as well as those firms for increased capacity and market penetration (Davis, p. 109). At IBM, our biggest threat to our consumer computer products is pricing. For instance, Dell pc computers are priced at a lower price than IBM (Lenovo) personal computers, servers and other web software, even though the brand and quality is not as good. In addition, Siemens IT servicing competes directly with IBM servicing and consulting. However, Siemens pricing and quality of contractual service is much lower. Therefore, the threat of substitute is low to moderate. Bargaining Power of Supplies According to Davis (2011) the bargaining power of suppliers affects the intensity of competition in an industry, especially when there is a large number of suppliers, when there are only a few good substitute raw materials, or when the cost of switching raw materials is especially costly (p. 109). Alternately: It is often in the best interest of both suppliers and producers to assist each other with reasonable prices, improved quality, and development of new services, just-in-time deliveries, and reduced inventory costs, thus enhancing long-term profitability for all concerned (Davis, p. 109). At IBM, we produce a variety of computer products which require various parts and materials to make and produce. We look for the best price for these materials. Since we are a global company, we look for, and bargain for the best prices globally. The computer industry is very competitive; therefore we seek suppliers who will give us the best bang for our buck. Of course, we could always switch suppliers if need be to make this happen. Bargaining Power of Consumers

24

MANAGING STATEGICALLY Davis (2011) states that when customers are concentrated or large or buy in volume, their bargaining power represents a major force affecting the intensity of competition in an industry (p. 109). In addition, Rival firms may offer extended warranties or special services to gain customer loyalty whenever the bargaining power of consumers is substantial. Bargaining power of consumers also is higher when the products being purchased are standard or undifferentiated (Davis, pp. 109-110). Moreover, When this is the case, consumers often can negotiate selling price, warranty coverage, and accessory packages to a greater extent (Davis, p. 110). Because there are many competitors in the computer industry, consumers can shop around for the best prices. Consumers can negotiate with IBM for a lower price, or switch to one of its competitors: HP, Dell, Siemens, and Microsoft, for more price effective products. In addition, the business-to-business (B2B) online servicing, which IBM is a part of, is a highly competitive market. However, the SWOT matrix shows some additional strengths, weaknesses, opportunities, and treats to IBM. The Strengths-Weaknesses-Opportunities-Treats (SWOT) Matrix According to Yousigma (2012), SWOT is an acronym for the internal Strengths and Weaknesses of a firm and the environmental Opportunities and Threats facing that firm. SWOT analysis is a widely used technique through which managers create a quick overview of a companys strategic situation (p. 1). Besides, The technique is based on the assumption that an effective strategy derives from a sound fit between a firms internal resources (strengths and weaknesses) and its external situation (opportunities and threats) (Yousigma, p. 1). Alternately: A good fit maximizes a firms strengths and opportunities and minimizes its weaknesses and threats. Accurately applied, this simple

25

MANAGING STATEGICALLY assumption has powerful implications for the design of a successful strategy (Yousigma, p. 1). In addition, a Maxi-Pedia (2012) state that SWOT analysis, method, or model is a way to analyze competitive position of your company. SWOT analysis uses so-called SWOT matrix to assess both internal and external aspects of doing your business (p. 1). Additionally, The SWOT framework is a tool for auditing an organization and its environment. SWOT is the first stage of planning and helps decision makers to focus on key issues. SWOT method is a key tool for company top officials to formulate strategic plans (Maxi-Pedia, p. 1). Alternately: Each letter in the word SWOT represents one strong word: S = strengths, W = weaknesses, O = opportunities, T = threats. SWOT model analyzes factors that are internal to your business and also factors that affect your company from outside (Maxi-Pedia, p. 1). However, IBM possesses many internal strengths. Strengths: IBM Novak (2012) notes that IBM leads the world in technological success with patents in the United States for 17 straight years. In 2008 IBM earned 4186 patents and in 2009 they increased that amount to 4,914. (p.1). In addition, It published almost 4,000 technical inventions and products without patent protection in 2009; this is a valuable intellectual property (Novak, p. 1). Alternately: They are the company handling 95% of all business in the 1000 most profitable companies in the US. In 2009 they were recognized as the 4th most recognized brand name in the world and they have been consistently in the top 10 for 20 years (Novak, p. 1). As well, IBM is one of the largest and most profitable companies in the world, with a value of $66 billion. They have over 400,000 employees worldwide (Novak, p. 1). It is an old, established company,

26

MANAGING STATEGICALLY founded in 1896 as the Tabulating Machine Company by Herman Hollerith, in Broome County, New York (Novak, p. 1).. Alternately: In 1945 they were the first company to establish dedicated research labs for the creation of technological innovation, which lead to the creation of computers, voice recognition software and products that assist those working in medicine and radiology (Novak, p. 1). Nevertheless, IBM has various types of internal weaknesses. Weaknesses: IBM According to Novak (2012), IBMs size is also its weakness. IBMs goliath size can make it slower to react to customers needs and wants as well as to the industrys fluctuations (p. 1). And its more than 400,000 employees can make it difficult to find the support and services needed. Enormous operating costs and competitors eating into their market share forced them in 2010 to buy back $8 billion in stock (Novak, p. 1). Moreover, transferring jobs oversees has been an option IBM is using more and more. At the end of 2009, IBM USA had a workforce of 105,000 down 30,000 in just a few years (Novak, p. 1). Alternately: In 2009, there were rumors that IBM wants to get the US workforce down to 70,000. This is not a weakness for other countries that are absorbing many of these US jobs. Communication across these different countries can be very challenging (Novak, p. 1). For example, having the helpdesks in India creates language barriers in the US. Also, India has exported many engineers to the US because they are cheaper to pay but also Indian Engineers do not have both the educational and experiential accolades of their US counterparts (Novak, p. 1). Many of them come over to the states and the few US employees left in the department have to re-train them, wasting countless hours that could be used in supporting their customers (Novak, p. 1).

27

MANAGING STATEGICALLY Novak observes that The current recession has hurt everyone and IBM is not exempt. Financial services, which accounts for 30% of IBM revenue, has declined (p. 1). Alternately: Its riddled with subprime mortgages forcing to mark down their portfolios to ridiculously low market prices on packaged securities that are trading at a fraction of their theoretical value (Novak, p. 1). Besides, this, in turn, is affecting the equity of banks, and therefore their ability to lend. Servers and Storage which account for about 20% of IBMs revenue has declined to 16% and a 6% decline in margins (Novak, p 1). In addition, the year 2000 has brought great prospects to the domestic and global technological markets. Therefore, it is imperative that IBM keeps up with global trends. Opportunities: IBM Novak, (2012) observe that increased globalization is an important opportunity that can be exploited by IBM in order to balance the fluctuations in different economies. Their brand image is synonymous with big and old they need to create products appealing to a younger generation and reposition their company (p. 2). In addition, 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 (Novak, p. 2). Alternately: IBMs love of open source operating systems, specifically Linux, benefits IBM in both the short and long term. IBM can sell its i-series platforms with Linux to respond to the growing demands of the operating systems (OS) (Novak, p. 2). Novak states that IBM can also use Linux on its Z-series mainframe line and even its p-series machines which mostly use IBMs own AIX which usually competes against the UNIX operating system. Open architecture is key to creating and maintaining market share (p. 2). Similarly, IBMs small-medium

28

MANAGING STATEGICALLY business (SMB) has improved over the years but there is definitely a need to increase its market share to have an overall competitive edge Novak, p. 2). However, since IBM has been around for over a century, there are many threats from companies looking to cut into its profitability. Threats: IBM Novak (2012) notes that the fact that they are completely dependent on Microsoft (in their computer services division) could be a huge problem if anything ever happened to them.

29

Hackers and sensitive information can be exposed and exploited by individuals and IBM needs to be innovative with regards to firewalls and protective software (p. 2). The supply chain has very few suppliers, leaving IBM very little to negotiate with or switch to. HP, Sun Microsystems are all competitors and are all threats to IBMs bottom line (Novak, p. 2). In addition, their competitors are able to create cheaper products and make more a considerable profit (Novak, p. 2). Alternately: Smaller companies that can move faster and provide less expensive products and services than IBM can become very costly to IBMs more lucrative bundles focusing more on larger companies with big budgets Novak, p. 2). The SWOT matrix below summarizes IBMs position. SWOT Analysis Matrix: IBM Strengths Lead world in technology Fourth recognized brand name Profitability Weaknesses Company size Outsourcing jobs overseas Downsizing

MANAGING STATEGICALLY

30

Strong in research and development Sound leader in innovation Opportunities Globalization Generational appeal Create new products: first mover advantage Market share in mid-range products Maintain competitive advantage in mainframe technology

Large operating budget Recession: economic downturn Threats Firewall protection Reliance on Microsoft Dell, HP, Siemens Cheaper products from competitors IBM prices are too high

The SWOT analysis matrix data was derived from reference materials detailing IBMs current place in todays technology market. Just to reiterate a few points: (1) strengths IBM leads the world in the technology domain. Its research and development department is extraordinary in producing new products and innovative ideas for future technological advances. (2) weaknessescompany size definitely a weakness at IBM. In fact, IBM has over 400,000 employees worldwide. As a result, benefits and salaries takes away some on its profit margin. On the hand, Facebook also makes several billion dollars a year in profit; however, it only has about 3,000 employees. (3) opportunitiessince China has opened its doors to outside businesses, IBM has found a niche in the Chinese technology market because of globalization. In fact, at this time IBM does a great deal of business with the Chinese government. In addition, IBM has found success in other Asian and European markets as well. (4) threatsIBM is under constant threats from

MANAGING STATEGICALLY outside competition. Primarily, high products and services prices has given its competitors access to IBMs customers. HP, Dell, and Siemens has taken away many contracts from IBM by under biding, and offering lower prices for services rendered. However, the SPACE tool is another matrix by which company strategies can be defined. The Strategic Position and Action Evaluation (SPACE) Matrix

31

IBM SPACE MATRIX