IBM: Strategic Management

Introduction

The International Business Machines Corporation, commonly known as IBM, is an American technology company that has its headquarters in Armonk, New York (Rothaermel et al. 2). It started its operation by producing electric tabulating machine before moving to the mainframe computers. The company registered impressive growth during its initial years of operation. During the First and Second World Wars, the firm experienced a boom in its growth as the American army and many other large corporations needed large computers to enhance efficiency in their operations. As shown in the case study, the firm no longer enjoys the impressive growth that it exhibited about 50 years ago. The decline in demand and relevance of the mainframe computer in the modern society is partly one of the reasons why it has experienced slowed growth. As Virginia Rometty took over as the chief executive officer of this company in 2012, she promised to spur company’s growth despite the challenges that the firm has been facing. On January 1, 2015, three years after taking the top leadership position at the company, Rometty is finding herself in serious problems as IBM is at the crossroads. The case proposes the use of SWOT and BCG models to solve the challenges that the firm is facing.

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Discussion

Identification of the Problem

The case study identifies a number of challenges limiting the company’s growth that it is facing in the market, as was desired by its chief executive officer. It is evident from case study that declining sales is one of the issues that the company is facing. The company came up with an ambitious plan of acquiring various companies to increase its product portfolio and improve growth. It acquired PricewaterhouseCoopers Consulting and Rational Software. However, it is evident that the acquisition has not led to the level of growth that the company expected. As Coyne et al. observe, mergers and acquisition is one of the popular ways of achieving growth in the market (88). Although it may be a costly approach, it assures a firm of a rapid growth within a short time. At IBM, the strategy seems to have worked in the initial years, but after several years, the growth is stalling once again. It is an indication that the firm needs to redefine its strategies to realize the growth that Virginia promised the shareholders.

The case identifies a major strategic issue that is a major threat to the success and sustainability of this large multinational company. It is evident that IBM is slow response to change. According to the case presented, the company always takes long to redefine its operational strategies and product offerings in the market. A report by Haug et al. shows that the company once dominated the global computer market before the emergence of personal computers (PCs) (102). When Apple Inc, HP, and other companies started producing personal computers, IBM did not consider it a viable market segment worth giving proper attention. By the time IMB realized the significance of this market segment, other companies had already developed loyal customer bases, and it was not easy competing against them in the market. According to Coyne et al., one of the most dangerous factors that can bring down a business entity is the inability to adapt to the changing environmental forces (78). Despite the size and market dominance of a firm, ignoring the changing forces in the market can be dangerous. The case study shows that IBM always responds to these changes, but it takes time to do so. It means that it cannot enjoy the benefits of the new concept as the innovators and early adopters do.

Competition is another challenge that the company has to deal with in the market. The company currently focuses on three main initiatives in the global market. Cloud computing initiative remains the primary area of the company. Some of the products offered in this platform include on-demand network access to shared networks, applications, storage, and serves (Rothaermel et al. 3). In this segment, this firm faces stiff competition from Microsoft, Alphabet Inc., and Apple Inc which offer similar products. The next initiative is the Big Data Analytics. In this segment, the focus is to provide data services at high volume, variety, and velocity. These services are often offered to government departments and large organizations that handle large data and needs efficient management of their databases to ensure there is access to these services whenever they are needed. These applications are also common in medicine, finance, and many other professional fields (Haug et al. 54). The third initiative is the systems of engagement that focuses on the social media platforms. The problem that this firm faces is that in each of these initiatives, the firm has to deal with the problem of competition.

Issues Underlying the Problem and Stakeholders Involved

It is important to understand issues underlying the problem and the stakeholders involved before determining ways of addressing the problem. The first problem identified above is slowed market growth. The slowed growth may be attributed to numerous factors, top of which include changing tastes and preferences and increasing competition in the market. As explained in the case study, the mainframe computer was the principal product that IBM focused on in the global market. As the demand for the product continue to decline, it has become challenging to maintain market growth. The firm is now exploring new products and markets to ensure that it remains sustainable. Competition is an external factor that is beyond the firm’s control.

As new firms continue to emerge offering similar products, this company finds itself in a situation where it has to use various strategies to acquire and retain market share. The chief executive officer and the market director are directly affected by this problem. When taking over the top leadership position at this firm, she promised shareholders improved earnings per share. However, that can only be realized if the firm experiences significant growth in the market. It means that she will have to explain to the shareholders why it is not possible to deliver on her promise. The marketing department is involved in the sales growth of the company. Its department is underperforming, and something must be done to ensure that the forecasted market growth is realized.

The slow pace at which this firm responds to change is a major problem and the underlying cause may partly be due its size. IBM is one of the largest companies in terms of number of employees it hires, products it delivers in the market, and revenues it generates per year (Rothaermel et al. 6). It is relatively easy for a small firm to embrace change compared with a large company. It took time for this company to move from majorly focusing on mainframe computers to a variety of products because of its size. The fact that the company operates in the global market also limits the speed with which it can embrace new concepts. The top management unit at Armonk, New York, has to consult regional managers in Europe and Asia before making a radical operational change that will be universally accepted. The chief executive officer and her entire team of top managers at the company’s headquarters are affected by this issue. When the firm is too slow to adopt change, it may be unable to overcome some challenges in the market, and these top executives will have to be responsible.

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Competition in the market is an issue that is completely out of control of this firm. As more companies continue to identify market gaps in the industries where IBM operates, they are likely to come up with their unique products. According to Haug et al., competition may not necessarily be a bad thing for a firm (87). Sometimes it may spur creativity and growth within an industry. The marketing manager is directly responsible for coming up with ways and strategies of dealing with stiff market competition. Inability to manage market competition is a sign of limited creativity within the firm.

Alternative Solutions and Implementation Plan

Virginia Rometty and her team of top executives at IBM, especially those who were identified as having issues in their respective departments, should find a way of improving the performance of the company. Using various models and based on personal experience, I proposes ways in which this company can deal with the issues identified. Two alternative solutions have been proposed, which include SWOT and BCG models.

SWOT Analysis

SWOT analysis makes it possible to identify strengths, weaknesses, opportunities, and threats that the firm has to deal with in the market. Using SOWOSTWT matrix, it is possible to analyze how a firm can use its strength to take advantage of market opportunities and deal with market threats. The matrix also explains how a firm can overcome weaknesses in the market. Table 1 below is summarizes these factors.

Table 1. SWOT Matrix.

Strengths- S
  • Strong market brand
  • Strong financial resource
  • A large talented team of employees
  • Global market coverage
Weaknesses- W
  • Slow pace of embracing change
  • The inability to find a perfect replacement for its mainframe computer
Opportunities- O
  • Growing market size
  • Advanced technologies in IT
  • Improved transport network
SO
IBM should use its strong brand and financial muscle to promote market growth by promoting its current products to take advantage of the growing market.
It should use its team of talented employees to make use of advancements in IT to develop new products.
The improved transport network will enhance efficiency in its global operations.
WO
IMB should overcome its slow pace of embracing change by taking advantage of the emerging technologies to define its operations in the market.
The inability to find a perfect replacement for its mainframe computers can also be addressed using advanced technologies in IT.
Threats- T
  • Stiff market competition
  • Emergence of substitute products
  • Restrictive laws and regulations in the foreign markets
  • The changing legal environment and ethical concerns in foreign markets
ST
IBM should counter stiff market competition by taking advantage of its strong brand in the market to develop a pool of loyal customers.
To address the problem of substitute products in the market, this firm should use its talented employees and financial power to develop superior products that outperform customers’ expectations.
As a firm that operates in the global market, IBM should be able to overcome restrictive laws in the foreign market by aligning its internal policies with that of the local markets.
WT
When this company finds a proper replacement for its lead product (mainframe computers), it will be able to manage stiff market competition and the problem of substitute products.
Dealing with restrictive laws in the foreign markets will require this firm to address the weakness of being slow to embrace change. The management should ensure that the firm is flexible enough to adjust to changing environmental forces, including legal and regulatory forces.

This is the most recommended model that should be implemented by the management of IBM. It focuses on specific challenges and weaknesses of this company such as slow pace in implementing change and stiff market competition then identifies specific solutions that can be embraced to address the problems. It also proposes ways in which the firm can use what it has to achieve what it desires.

Boston Consulting Group Framework

Boston Consulting group is the other alternative strategy that IBM can use to address challenges that it is facing in its operations. This model classifies products that a firm offers into four different classes then defines what a firm needs to do to enhance its competitiveness in the market. The least desirable products are in the fourth quadrant and are classified as dogs. They are slow-moving products whose market growth rate and market share is dropping. The mainframe computer of IBM falls into this category perfectly. The advancement in technology makes this product almost irrelevant in the market. Unfortunately, it was the primary product for this company. Coyne et al. advise that when a product falls into this last quadrant, it is necessary to eliminate it or reinvent it based on the market needs (56). It means that IBM will need to come up with a perfect replacement for this product to ensure that its survival in the market is not compromised.

The third quadrant is a question mark, and it also has less desirable products. Although these products are performing better than dogs because of their high market growth rate, their low market share is a concern. The management is left wondering what the future holds for such products. Haug et al. advise that such products needs massive promotion to help increase their market share (87). Customers should be informed about their existence and superiority in the value they offer. In case the market share does not increase, the product should be eliminated from the portfolio. The second quadrant has the cash cows. These are products have high market share but low market growth. These are products which are already popular and may not require massive advertisement. Coyne et al. advise that these products should be maintained to help increase revenue flow for the firm (23). The last category has the stars. They have high market share and high market growth. They may require more investment to ensure that they continue expanding their market share. Figure 1 below shows the four quadrants in a BCG model.

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BCG Model
Figure 1. BCG Model (Haug et al. 32).

Conclusion and Recommendations

The International Business Machines Corporation is large technology company that offers a wide range of products. When Virginia Rometty took over the leadership of the company, she promised rapid growth in sales and revenue, but three years later, it is evident that the company is stagnating in growth. The slow pace of embracing change and the inability to find a prefect replacement for its mainframe computers, which was its primary product for decades, are the main weaknesses identified in this case. The firm is also facing competition in the market. These are issues that the management must address to ensure that it continues to register growth. The management unit can embrace various models to ensure that these challenges are dealt with effectively. Boston Consulting Group Matrix and SWOT model have been applied as alternative solutions to this problem. My role was to analyze the case and propose solutions to the identified issues. The management should consider taking the following recommendations into consideration:

  • The top management unit should its investment in new product development. The industry is very competitive and volatile and the only way of remaining relevant is to embrace innovation.
  • The firm will need to reinvent its mainframe computer to a product that is affordable and popular among large and mid-sized companies to increase its sales.
  • The management of this company should not ignore the legal requirements and ethical expectations both in the local and foreign markets.
  • The firm should consider acquiring new firms within the technology industry that operate in the rapidly expanding markets such mobile phone industry. The industry has a huge potential and it may hold the key to the growth rates desired by the top management unit.

Works Cited

Coyne, Larry, et al. IBM Private, Public, and Hybrid Cloud Storage Solutions. IBM Corp, 2018.

Haug, Volker, et al. IBM Power System E850: Technical Overview and Introduction. IBM Corp, 2015.

Rothaermel, Frank, et al. “IBM at the Crossroads.” 2015. PDF file.

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