Case Study Analysis: The Rise of IBM

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Abstract

IBM is a company that is working globally and has laid its foundation more than one hundred years ago. In this Case, ‘The Rise of IBM’ has thoroughly examined using various analytical tools. Firstly, the internal strength and weakness of the company has discussed and then the environmental conditions have identified through Porters five forces analysis. Moreover, the SWOT analysis has initiated to identify the strength, weakness, opportunities, and threats of the IBM. Finally, this study has kept its efforts to explore the corporate strategies, business strategies, and its effect on the operation of the company and identified some specific recommendation that has provided to increasing the performances of the company.

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Background of IBM

International Business Machine shortly known as IBM is a multinational company that mainly deals with the computer hardware and software products and one of the popular names in the world of information technology. IBM is the oldest organization, which started its business even before the invention of computer and primarily named as Tabulating Machine Company initiated by Herman Hollerith in 1896. They worked on punched card data processing equipment. In 1911, Tabulating Machine Company has sold to Charles Flint for 2.3 million dollars and Flint invested 1.2 million dollar to develop a company name Computing Tabulating Recording Corporation or CRT. It incorporated on June 16, 1911 in Endicott, New York and merged with other two companies named the Computing Scale Corporation, and the Time Recording Company while the charge of the merger remains on the Charles Flint and he was the key financer of the merge. In 1914, Thomas J. Watson held the position of the General Manager of CRT and in 1917. CRT entered into the Canadian market through the name of International Business Machine Company Limited or IBM. In 1950, IBM got the chance to work on developing computer system for United States Air Force to automate the defense system. IBM’s computer business actually started in 1985 when they started working on large mainframe computer and the world saw the first commercial dealing of computer in the market through the model of ESA/390 and the S/390. In the decade of 80’s IBM earned revenues from the selling of mainframe computer beyond the expectations and it was the starting point of the rising of IBM as symbol brand computer.

IBM’s internal Strength and Weakness

In this section, the internal strengths and weakness of IBM have explored for better understanding about the company.

Strength

  • IBM is the worlds largest as well as the oldest manufacturer of computer hardware and software;
  • It introduced open source initiative supported by Linux, which enables the customers to use the software without payment;
  • It has a strong brand image in the market through Big Blue (which means the loyalty of the customer and of the employees ) ;
  • IBM has a worldwide operation and it serves every corner of the world with their products and technologies.
  • IBM has a wide range of product line, which touch every sphere of the computer and IT infrastructure.
  • IBM acquires approximately hundreds of organizations through out the world for their business purposes;
  • It has developed unique processor for gaming console, which has used by most of the play station producers in the world;
  • It has Unified Communication and Collaboration or the UC2 program that creates the platform for the latent programmer and computer experts to work in a sound environment.
  • It has another program named Extreme Blue, which has developed to link the employees and engineers to construct high value product for IBM;
  • IBM has adroit employees and currently the company consists 398,455 employees in the organization;
  • It has separate corporate policy on environmental issues, which reduce the use of carbon to produce their products;
  • IBM has a great investment in R & D as it is investing six billion dollar in this field.

Weakness

  • Being unparallel in producing mainframe computer, IBM failed achieving an skyscraping success in recent PC market
  • IBM’s annual report shows the decreasing rate of revenues from the year 2007 to 2008;
  • IBM is quite belated to hasten with the changed modern PC market than the other competitors.
  • IBM uses the operating system of Microsoft, which annihilates its unique identity of brand PC producers;
  • IBM has licensed most of its product to other producers in the world, which lowers the quality of its offering;
  • Client-server network system opposes to IBM’s network system, which descend the market share of IBM.

Environmental Analysis of IBM

IBM is a multinational organization that works on global basis, thus, its environmental scrutiny includes a global prospective. With five forces analysis of Porter the environmental issues of IBM will be much clear.

  • Threat of substitute product or services: The substitutes of mainframe computer and servers are already in the market. Computer market is so dynamic that almost every day new product comes into the market. IBM’s main product in the market is their brand PC that has substituted by Laptop or notebook computer and the PDA computer, which are real menace for IBM.
  • The threat of the entry of new competitors: Computer industry is now exceptionally colossal which mainly has operated on a global basis, creating the chances for new entrance to pierce into the market more easily. IBM has a brand image and loyalty to the old customers and special attention from the corporate world but in the consumer levels this brand is not that much trendy. On the other hand, the competitors have the brand image to the mass consumers.
  • The intensity of competitive rivalry: IBM faces a strong competition in the market because of the dynamics of the market and the presence of a big number of competitors. HP is the main competitor in the industry as it already detains the major share of the market. Its other competitors like ASUS, Acer, Dell, etc also compete there strappingly.
  • The bargaining power of customers (buyers): In the global market of computers, the competition has largely based on the price of the products. The competitors here continues to reduce the prices and the buyers are edified about it. IBM is also investing a huge amount in R & D increasing the costs, which adversely affect the price of the product. The buyers of IBM are also limited in number as it sells its product at supplier levels.
  • The bargaining power of suppliers: IBM is a company that largely depends on the suppliers and its most of products go through the supply chain, which terminate in the supplier levels. As a result, the bargaining power of the suppliers is high and IBM tries to leverage the suppliers bargaining power through an acquisition.

SWOT Analysis

Strength

  • IBM has a strong brand image in the market;
  • It has a strong market position in the corporate level segment;
  • It has a large number of expert employees with their expertise.
  • It has a wide variety of product line;
  • It has a number of research institutes working with research and development;
  • Their four researchers got novel prize for research.
  • IBM has global business and strong customer base;
  • It has large support system for their customer and collaborator.

Weakness

  • The main weakness of IBM is its current market share, which lag behind the other competitors;
  • IBM concentrates on only one market segment.
  • It is losing revenues in the recent years;
  • It concentrates more on services rather than the product development;
  • It heavily relies on suppliers and collaborators.

Opportunity

  • The current dynamism of the industry creates the chance for new product development of IBM;
  • IBM has the opportunity to flourish server-based-network system for their clients.
  • IBM has the opportunity to enter into the new market of Asia and Africa;
  • IBM can develop end user notebook, as the market of this product is very competent.

Threats

  • Currently HP and other competitors are showing strong subsistence in the market;
  • Chinese companies are entering into the market with their low priced products.
  • Competition in the market largely depends on price than that of quality, as quality is the brand mark for IBM;
  • Some big producers are merging to gain the competitive advantages in the market.

Corporate-Level Strategy of IBM

The mission of IBM is

  • IBM’s works are dedicating and they hope to contribute for the success of their clients.
  • Innovating new products or services that requires for both the company and the customers;
  • Maintaining all kind of relationships, trust, and responsibility;

The corporate strategy of IBM falls in four categories. These are:

  • Business: IBM’s major business includes producing the computer servers, other computer hardware, and software equipments. It has some strategies regarding these issues.
    • Promote business in a way that will maximize the interest of the stockholders;
    • Gain smart profit over sales to maximize the use of capital and other resources.
  • Markets:
    • Interact positively in the market;
    • Compete in the market through ethical standard.
    • Select suppliers who have quality products and services.
  • Products: New product development through innovation is the main strategy concerning the products. These strategies have shown below:
    • IBM must be pioneer in new product development as it hopes to introduce new products in the market and others will follow it.
    • It is cautious about the advancements or new product developments and it would try to advance them all the time in accordance with their futuristic technology;
    • Produce high quality product at lower the costs so that it can offer best products in the market at low price.
  • Services: IBM is always conscious about the services, which it provides to the customers, and it has some strategies regarding these concerns:
    • Know exactly the need of the customers and helps them not only for the current needs but also for the needs, which may arise in future.
    • It helps customers to use its product in the best possible ways, so that, they can maximize the value;
    • It provides customers with finest services for maintenance and support.

Business-Level Strategy of IBM

  • Identifying Customer: IBM is a customer driven company. The customer base of the company has built on corporate level and the target customer is business organizations. IBM constructs the PCs focusing on the business functions while producing the computers.
  • Assessing current and future demand: IBM always tries to identify the current demand of the customers as well as the future demand. To do this, the company interacts with the customers and develops a large software system for interaction of the customer with the company.
  • Satisfying the demand: IBM satisfy the demand of the customer needs through a wide range of product both hardware and software. They acquire many companies and collaborate with other businesses to bring new product in the market to gratify the customers.

IBM’s business strategies focus on a number of areas, which includes:

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  • Cost Leadership: IBM’s main effort is producing high quality product with low cost because competition largely depends on the price. As one of the low cost producer, it already captures the corporate customers of large volume in USA. To minimize the supply cost and production cost IBM uses the acquisition strategy in the market. IBM concentrates to cut the cost of overhead but they still expend a large sum of money in research and development.
  • Differentiation: IBM differentiates products in the market and their strategies regarding the differentiation are providing deep blue product to their valued customers, which is unique in every way from their competitors. IBM always tries to be a leader in the innovation of new technology (Hill & Jones 350).
  • Focus Differentiation: IBM produces PCs and other products related to the demand of a specific level of customers. Their target market for their customized products is the business organization and IBM provides high value product and service to the corporate customers and less focus on general customers or end users.

IBM’s structure and control systems

IBM’s structure includes four marketing and sales units, and nine manufacturing units and these thirteen units have acknowledged as baby blues. The nine manufacturing units of IBM have largely based on the technology or product development and the four marketing and sales unit work on marketing the product or technology of those units. In this structure, every division manager has adequate power and it would balance the power of technologist over the other executives.

Structure of IBM
Figure: Structure of IBM. Source: Self generated from (Hill & Jones 350)

In case of supply chain structure, IBM initially uses vertical integration due to scarcity of suppliers in the market. However, in course of time when the magnitude of suppliers increases the model would change and appear as more horizontal.

Control system

To control the activities of IBM, the company has established a well set of guideline, which serves as a basic controlling tools of the organization.

  • Every employee of IBM would develop and suggest both long and short-term goals according to his position;
  • They must understand the corporate policy and procedures and would comply with it. The members may also suggest the change in the organization’s policies if requires;
  • The member should present realistic budget for the income and expenses, and work with the approved budget efficiently.
  • They must aware of the fact that if their any modification requires to up-to-date the operation;
  • The superior person must teach the subordinates and appraise their performance time to time;
  • The superiors must clearly the responsibility of the subordinates and give them proper support to achieve the goal.
  • Employees of IBM must develop an atmosphere where everyone support each other and praise the achievement for anyone;
  • They must inform about the development, which would affect the products and services of IBM.

For the implementation of the corporate strategy of IBM, the company has developed above-mentioned guidelines and these will clearly fit with the strategies of IBM.

Recommendation

  • IBM should plan to establish more plants by their own initiative rather than merger and acquisition;
  • It should produce computer processor and motherboard for their own branded PCs rather than using the Intel processor and motherboard;
  • IBM may think to develop its own operating system rather using the operating system of Microsoft or Linux.
  • It should explore new market for their product and services especially concentrate on third world country;
  • IBM should emphasis on the end user segment of the market beside the business or corporate segment;
  • IBM has to reduce their cost of products and services to gain the market edge over the competitors.
  • IBM ought to engage its efforts to developing new products and services as well modification of the current product lines to keep updated;
  • It should create new investment portfolio for the investors and try to raise stock price in the market;
  • It ought to focus on the research and experiment work for creating new product with more values;
  • IBM supposed to concentrate on more value addition in their current operating procedure and stepped to an extensive production and marketing.

Works Cited

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

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