Analysis of the Rebirth of IBM

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Background of IBM

IBM is the pioneer of IT industry that has a chronological evolution of more than a century, but as per the given case, this study will address the history of the company within the era of fall to Rebirth. In 1971, Learson became the CEO of IBM and under his leadership, the company acquired 75% global market of mainframe computers with IBM 360 & 370 models. After Learson’s retirement in 1973, Frank Cary became CEO who turned the company with market value of US$ 26 billion. In 1980s, the competitors threaten the market with low priced of IBM comparable computers in the market.

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John Opel became the CEO in 1981 and he upheld the low price strategy of previous CEO Cary and spent US$ 32 billion to produce low cost computers. Within this era, more manufacturers like Amdahl Hitachi came in the market with colon computers and data storage products that drive IBM to leasing computers rather than selling through IBM generated a business of US$ 14 billion from microprocessor. Being a diversified company, the gross profit in 1990 achieved 50% from mainframe, software, and maintenance, 6% from microprocessors, when 18.5% came from PCs, and 12.4% from other software.

John F. Akers chaired CEO in 1985 and engaged bulk investment in research, gained little advancement in memory storage products, telecommunications, LAN exchanges, and information shared printers, but he generated a numerous dilemmas in operation and threatened the company to fall. The most dangerous step of Akers was to break down the company into thirteen parts, which was prevented and rescued by the further CEO Louis Gerstner in 1993, who gave a rebirth to IBM.

Internal strength and weaknesses

Strength of IBM

  • Human resource and strong administrative control were the main strengths of IBM, for example, Gerstner had changed the business model to save the company from severe crisis and he decided that IBM should remain as one single united company;
  • Invention and decision making processes;
  • IBM offers global services to provide clients an outsourcing and business consultancy service based on assessing a customer’s current legacy system;
  • Good organisational culture;
  • Its e-business initiatives, HRM software, supply chain and operations solutions,
  • IBM concentrated on new product development for its future success such as middleware software, which provides customers with a “seamless” solution.

Weaknesses of IBM

  • High costs in the value chain;
  • IBM had little to offer clients in ERP software applications areas;

The nature of the external environment surrounding the company

Porter’s Five-Force Analysis

  • The threat of new entrants: The threat of new entrepreneurs is diminutive in industry for immense operating costs on research, production, and distribution; for instance, IBM spent a huge amount on server product on 2005. In 2003, it selected a manager for repairing its broad supply-chain, which required inputs costing $44 billion annually. Apart from operating expenses, technical and distributional obstacles also prevent the entries.
  • Bargaining power of suppliers: Being the largest processor suppliers of the globe, Intel and AMD are dominant on delivering chips. The rivalry between them cannot diminish their powers because of the presence of a variety firms in market and their high switching costs. Nevertheless, the influence of other providers of low mechanical equipments is lesser than that of the central hardware providers.
  • Bargaining power of buyers: The bargaining power of the customers for the server products at the UK is large as their switching costs are comparably less; the presence of diversified product options for the consumers from companies such as HP, Accenture etc. leads to this problem.
  • The degree of competitive rivalry: Within 2003, the global server industry carried on demonstrating promising signals; the aggressive antagonism in the industry became severe – the competitors were HP, Sun Microsystems, etc.
  • The threat of substitutes: The advanced personal computers might be a leading hazard to the server products of IBM; beside of this, the some producers like Dell are cloning IBM’s products, which are easily accessible in the market.

SWOT Analysis

Strength

  • IBM is running its business at more than 150 nations throughout the world
  • The company retains over 319000 competent HR globally
  • IBM’s R&D institutes concentrate on modifying industry-specific solutions, and most importantly on emerging technologies like autonomic computing and nanotechnologies
  • It possesses an extensively diversified product line
  • It has competitive advantages over rivals
  • The reconstruction of the operating structure of IBM reinsured its efficiency
  • It has comprehensively assorted market segments

Weakness

  • Since 1991 to 1993, 80,000 workers were made redundant
  • it has approximately 260000 expensive staffs
  • the costs of the value chain and the operational expenses of the company are relatively high
  • It intensely relies on suppliers and associates.

Opportunity

  • The current collaborative innovations would bring about effective operation
  • The increasing market share would convey economic expansion
  • The products of the rivals are fairly expensive
  • the recent adroitness of the industry constructs the likelihood for further advancements of IBM
  • Steady & robust economic conditions would reduce market risks.
  • The industry has high-level of entry barrier

Threats

  • New entrants of the industry like Dell and Accenture intend to clone the products of IBM
  • The rivalry of the industry is quite strong
  • The company has high switching costs in central hardware
  • A few giant manufacturers aim to amalgamate to achieve competitive advantages

Corporate level strategy

  • Mission: the mission of IBM is to find solution to its wide range of customers (general users, science, defence, spatial and educational organisations) using advanced information technology and to meet its customer’s needs, IBM makes, expands, and manufactures many of the world’s advanced equipments, ranging from computer systems as well as software to networking systems.
  • Diversification: The case of IBM demonstrates that most of the products and services were unrelated and it has generated less than 50% of the sales revenue from global services (48% was in 2003) and it has generated 32% revenue from Hardware, 16% from Software and 4% from other sectors. Therefore, IBM has maintained high-levels of diversification multi-product strategy and this strategy fits with SWOT analysis of the company because IBM recovered its situation by applying this strategy.
Changes in Percentage Revenues by Operating Group.
Figure 1: Changes in Percentage Revenues by Operating Group.

Business level strategy of IBM

  1. Differentiation: From 1980, IBM began to face competition from 370 clone manufactures, so, Gerstner the CEO of IBM decided to maintain differentiation strategy, and it provides the solutions of customer’s need, such as, hardware, software, services, consultancy etc.
  2. Low cost: Under the cost leadership strategy, the company can deliver highly sophisticated products, such as, it can offer Enterprise Resource Planning (ERP) software, PCs, networking system, new software, and hardware at lower costs relative to Dell, Oracle, SAP, Gateway, Apple, Acer, Sony, Fujitsu-Slemens, Legend, Sun-Micro-systems, Enterasys, Nortel, EDS, Paim, Lexmark, Canon, Epson, NCR, Accenture and other major competitors.
  3. Focus: By introducing the focus strategy, IBM has to design its items (e-business solutions, server and PC division, chips, new inventories etc) for serving the needs of particular segmented customers such as national defense, space exploration, business organisations, government, and non-government organisations.

Structure and Control system of IBM

Organisational Structure

From 1993 to 2002, Louis Gerstner had the CEO of IBM and from 2002, Sam Palamisano became Gerstner’s handpicked successor. According to the case study, organizational structure of IBM consists of global services, hardware, software, global financing, R&D, global sales, and distribution and figure 2 shows the organizational structure of IBM –

Organisational structure of IBM.
Figure 2: Organisational structure of IBM.

As IBM enjoyed increasing success with its e-business initiatives, customers in different businesses faced different sets of e-business problems and that increasingly industry-customized solutions were necessary, so, in 2002 Gerstner and Palmisano decided that a major overhaul of IBM’s operating structure was necessary to support its new service-driven business model.

Control system

Gerstner had changed the control system by introducing new business model and providing new rules and regulation to recover the company from economic crisis. Gerstner had tried to meet IBM’s future need and his goal was to invest IBM’s remaining resources in business where they could create the most value and his business model was that IBM should provide a complete package of state-of-the-art computing solutions. The company had followed high-levels of diversification multi-product strategy and differentiation strategy, but it could increase its sales by following cost leadership and focus strategy as Gerstner’s efforts were to make IBM a customer-driven company.

Recommendation

  • Between 1991 and 1993, IBM had cut job of 80,000 employees, but it should not do so to reduce the cost and It should decrease the salary of the expensive employees;
  • As they began to build their own IT departments, it should maintain good relationship with its clients;
  • It should follow the policy of Gerstner, such as, he distributed a short report (with the outline of the strategy) to the senior managers to inform about the major issues of the meeting;
  • It should follow the new strategies to protect the company from new competitors and clone manufactures;
  • To hold its existing position, it should increase its budget for the advancement of research and development departments because it will help to develop innovations that support customized industry-specific solutions;
  • It should spend more money for marketing and distributing of Hardware and Software;
  • It also focuses on emerging technologies like nanotechnologies and autonomic computing that may pay off decades in the future.
  • It should develop cost effective solutions to increase profit, for example, IBM’s research and software engineers worked together to develop new e-business software and this product allows computer operators at some remote location to monitor hundreds of different computers at the same time;
  • As ERP software has become the backbone of most large companies’ IT system, IBM should develop in this sector.

Works Cited

Abdullah, Salem. Strategic Management. 2009. Web.

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Hill, Charles. & Jones, Gareth. Strategic Management: An Integrated Approach, 8th edition. 2007. Print.

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