In an increasingly volatile financial world, and where competition in the traditional markets of the pioneer companies becomes very stiff; various firms are forced to reinvent themselves or face imminent extinction. Many of these firms are being seen to employ tactics that are more or less non-conventional to guarantee their survival and growth.
IBM has been one of these companies. The acquisition of PriceWaterHouseCoopers Consulting (PWHCC) in October of 2002 marked a radical shift from the traditional products that the company usually offered to the market. The deal, involving the transfer of USD 3.9 billion, sought to bring a turn around to slowdown in revenue growth that the firm had been experiencing for a long run. The introduction of the art of business was touted to improve the slump in sales through the employment of the skills of the 300 business consultants that came with the deal to IBM.
The effects of the acquisition however, were not immediately felt, the company experienced a lag phase where IBM’s business consulting services showed a drop in revenues by 2% as opposed to the expected growth of 3%. However the long-term outlook of the venture looks good for the company as appreciation for their unique services is spreading into the business world; and other similar players are already struggling to catch up.
Business consultation as a transformation strategy
The shift from the traditionally technological fields of business consultation was deliberate and extensive. So much so that IBM announced the sale of its PC unit to Lenovo group, a giant Chinese manufacturing group. The company, largely viewed as a technological production firm is slowly shifting focus into the areas of business consultation and business facilitation.
One of the issues that have been attributed to this huge change of focus has been the increasingly tough competition in the computer production sector with other players especially in Asia showing an immense ability to produce the same capacity and quality of technology but at a much lower cost of production. This competition together with the economic upheavals affecting the general market adversely affected the company’s abilities to maintain high sales volumes and constant growth; a new strategy to circumvent these obstacles was thus necessary.
With a business that is not primarily geared toward production of consumer goods, the company hopes to transform into an entity that will be a one stop shop for all the businesses that are seeking any financial and technological consultation services; the firm will therefore be shielded from direct, hard hitting competition characteristic of consumer goods dealers. Additionally, since their entry in this market; and in the form that they have entered as, many other firms seeking to engage in similar ventures will be hard pressed to carve a niche for themselves in the future in an environment that already will be dominated by IBM business consultancy services. The firm already has a massive head start in this race for survival; all the other companies belatedly entering the market will be accosted by a confident and domineering IBM.
The company read the mood right and went ahead to implement an unprecedented program that will go a long way in ensuring their economic survival.
IBM on the cutting edge of Business consultancy
The marriage of the personnel who have shown exemplary qualities of success in their respective field of business and technology has resulted in the creation of a formidable consultation force.
With each side well versed in their areas of specialization, and with hard earned and invaluable experience, they have gone ahead to offer services that are completely novel to the market and which no other company at the time has the capacity or the expertise to offer them.
When they entered into the venture, IBM sought to develop products in the areas of finance and accounting; procurement, customer care and human resources. In all these areas, the company was looking for an anchor client to start off and sustain the program before spreading out to other clients in the market.
The unique and comprehensive services offered by the company have ensured that they readily land clients in almost all of these fields within a short period; and have enabled it to start its expansion campaign.
For example, IBM negotiated a deal worth USD 400million with Procter and Gamble spanning a period of 10 years where IBM will take over the administration of the personnel payroll, travel expenses and other tasks. Both of these companies stand to gain from this deal; while IBM will be earning money from services rendered, the client will be making huge savings for not doing the work themselves; and will achieve better service delivery in this sector.
However, IBM is not your everyday business outsourcing company; thus every product will come with a touch of technological advancement that only IBM can offer; for example, in the same deal, IBM picked up the technology assets; the new system allowed the Procter and Gamble personnel to manage their expenses and benefits. Such innovative products are the ones making the company attractive as a business consultation partner.
Lessons to be learned from the IBM transformation
In the view of a more shifty market outlook, where nothing is what it seems, the best protection is to prepare to cushion the period of an economic downturn. There are several lessons to be learned from the IBM move:
- Overcome skepticism with accurate analysis; before entering into the business consultation market, the company thoroughly examined the market and saw a gap that they could fill if they package their products in a certain way. When they finally announced their acquisition, eyebrows were raised and continued to stay up during the teething problems of the venture. However, due to an accurate prediction of the venture outcome, the future is now looking brighter for the venture.
- The ‘tried-and –tested’ is not always the correct choice; the fear of many companies of straying from the well beaten venture path has been the death of them. Where economic conditions arise that render whole sections of a market unfavorable, then those that stuck on that one maxim tend to suffer the most. By exploring new business possibilities, discoveries can be made into untapped revenue sources thus lessening the burden of competition for the company.
- Diversification is key to survival; if the technology market were to crash right now then IBM would not be left completely devastated like other companies that have placed all their bets on that one market. By diversifying their portfolio, the company is seeking to enlarge its base that will be immensely important in case of a financial crisis. The adage ‘don’t put all your eggs in one basket’ works best here.
As seen from the American financial crisis, the occurrence of a financial event in the future is not completely remote. In the view of this, the application of the above maxims to any business willing to remain a relevant authority in the future is a prudent action.
The IBM Supply Chain Risk Paper
The traditional industry of IBM involves the production or on-demand goods; these goods need to be readily available fro the point of distribution at a consumers request. Any delay in the delivery of these goods leads to massive losses in sales and in redundant stock. In order to avoid any of these inconveniences, a company must have a structure to maintain a constant supply of raw materials and parts to their factories to ensure that they run optimally.
The purpose of IBM writing this white paper is therefore to address some of the issues that would affect production due to a disruption of the supply chain.
The paper explores some of the situations; such as extreme weather, natural disasters and teamsters’ strikes that would render the delivery of essential supplies to the factories. Additionally, the paper also explores the changing geography of supply; where goods can move farther and faster; and from many different destinations at the same time.
The paper goes ahead to discuss the method and processes of analyzing the risk of disruption of supply so as to put in place the path of response in case of a future disruption.
The company is however in the process of diversifying from the goods production sector to the services sector. This is in the light of the announcement of the acquisition of the PC unit by a Chinese group Levono. This offers two opportunities of consultancy on supply risk management.
With the orientation of the company’s business into the services sector, the biggest supply that the company gets is that of labor. In order to manage the risks of disruption of supply of labor, the company has come up with programs to map the workforce; so that the qualifications and abilities of each of the IBMs employees will be easily visible for cross referencing with the need at hand.
Surprisingly, many other companies in the US do not have a standard taxonomy of classifying their employees; consequently, in case of a shortage of supply of labor during such a crisis, the management will have no idea on how to redeploy the staff to cover the deficit. Herein lies the opportunity for IBM; the management can approach various companies with the idea of creating a map of their employees; this is done by the creation of portals where each of the employee is required to fill in his or her qualifications and abilities; as such, in case a person with certain qualities is required, it would be easier for the management to locate such person within the organization. This would be very useful for industries that traditionally and primarily deal with the sale of services; for example those of the hospitality industry including hotels, restaurants, airline companies; travel and tourism agencies and entertainment ventures. The program will be aimed at improving their response in case of a worker shortage for example during a workers strike.
Many companies in the market are however still working with on-demand goods of various forms; and are still exposed to the risks of disruption of supplies. IBM can take the initiative of recruiting these companies into business consultation into the analysis and management of the supply chain disruption.
In case of my own consulting practice, I would use this paper as a guide in the practice of supply chain disruption. The paper is very thorough in the analysis of the various aspects that would pose a risk to the supply and thus output of the IBM production sector. The supply chains have, like other sectors of the world, been affected by the increased globalization and the increased ease of doing business. The IBM paper offers good insight into these changes since its market spans all the continents of the globe; and so does their supply chains.
Additionally, in the future, the consultancy will be faced with more and more companies which have supply interests spanning more that just one continent; the ability to deal with such kind s of challenges will be guided by the already documented experiences of IBM.
In addition to this, due to the ever shifting focus of the various businesses, the products to be supplied have with time become more complex and require a greater knowledge of the intricacies of the business and the process of harmonizing the process to result in a steady and uninterrupted supply. Also, with the steady growth of outsourcing, of supply, the end-to-end chain of supply has grown longer-and-longer. The IBM paper also documents methods of assessment and management to mitigate the supply disruption that may be caused by this long chain. The company has had to endure an increasingly complex supply system which has strengthened their ability to react effectively to any disruptions that may harm their business.
On the other hand, however, the paper cannot be implemented in its raw form on any company that may be interested in getting business consultation in this area. The new client’s business will have to be examined thoroughly so that analysis of the risks of disruption of supply to the company can be assessed and quantified. From here, the company can then be advised on what measures can be implemented so as to lower their risk of disrupted supply.
Some of the steps that the paper suggests for IBM to reduce their risks include the diversification of their list of suppliers so that in case one fails, the other ones will fill the gap. Another step is the constant analysis of all the suppliers for signs of weakness that may precipitate future collapse; and the sourcing of a new supplier when such signs are detected. Another suggestion is the diversification of the materials or parts which may be used for the construction of a certain object; consequently, when one material lacks, the products are produced using the alternative.
All the companies that are dealing with on-demand goods need to be acutely aware of the danger posed on profit by the interruption of supply to their factories; and should have contingency measures to dull the effects of such interruptions. To have it any other way is to have the company always on the brink of a disastrous collapse.