Introduction
In the past two decades, International Business Machines (IBM) recorded a remarkable growth driven by broad-based software and hardware services. Faced with a looming failure in the early 1990s, IBM formulated and adopted market management strategies centered on customer needs and economic value that turned it around into a profitable company with over $91 billion in sales (Harreld, O’Reilly, and Tushman 3). The successful identification and execution of customer-centric strategic processes was not only transformative, but also created dynamic capabilities (core competencies), allowing the company to diversify into profitable sectors like healthcare, digital media, and automotive. This paper examines the evolution of IBM’s turnaround market strategy and its impact on resource allocation and revenues over the past two decades.
IBM’s Market Strategies
The central objective of any firm is to create a sustainable competitive advantage in its industry. It requires a firm to identify a proper strategy and execute it well to achieve identified goals. In recent years, dynamic capabilities, which are the key competencies and skills required for long-term success, have dominated strategic thinking (Harreld, O’Reilly, and Tushman 21). IBM entered the IT services industry in 1989 with the launch of the business recovery solution. In the early 1990s, two strategies dominated IBM’s business model. In 1993, the CEO, Louis Gerstner founded the IBM global business services to integrate software, hardware, and computing services with customer business models (Harreld, O’Reilly, and Tushman 5). The second strategy, termed IBM global network, was unveiled in 1994 to strengthen the firm’s internet resources.
IBM’s initial marketing strategy focused on selling and comprised of a few delivery channels. The firm specialized in the provision of hardware and software services to different client types. A new strategy built around client needs with a segmented delivery system was adopted, allowing IBM to diversify into new sectors. In 1995, IBM founded the global services unit to develop client-centric services. Since its launch, the unit has developed over 100 business solutions for its customers. Garrett and Wilson state that the global services (IGS) unit focuses on “developing global processes, centralization, redesigning the metrics, and creating a market-centric culture” (65). This approach has allowed the firm to identify and respond quickly to market changes and provide tailor-made solutions that meet client needs.
To accommodate its wide array of products and services, many distributors, and multiple delivery channels, IBM identified seven key routes to market (RTMs) in 1993. Each RTM comprised of various intermediaries, including vendors and developers, with a vital role of extending IBM’s market coverage. Each RTM involved six stages, namely, “relationship management, opportunity identification, ownership, fulfillment and administration, implementation, and post sales support” that represented the buying cycle (Garrett and Wilson 69). This revolutionized the management of IBM’s services and products.
The development of IBM’s routes to the market (RTMs) involved two processes. First, IBM analyzed each customer group to determine client profitability. This allowed IBM to re-allocate its resources appropriately and benchmark its channel models based on industry standards. Second, the firm evaluated the capabilities of each route to determine channels likely to be successful in the future. This resulted in a market management approach that is client-focused.
The need to identify and respond to market changes quickly led to the emergence of the IBM business leadership model in 2002 for sensing and seizing opportunities (Harreld, O’Reilly, and Tushman 6). The model was built around dynamic capabilities aimed at improving execution through the realignment of the business to reflect important strategic insights. Line managers spearheaded the strategic process. This led to the emergence of ‘on-demand business’ that transformed IBM from a provider of hardware and software to a firm giving multiple computing solutions that reflect diverse client needs.
To ensure smooth collaboration across all the channels and develop a single sales management system, IBM initiated Project eLiza in 2001 with an aim of tracking market opportunities based on customer types and regions and formalize the channels (Helfat and Raubitschek 964). Since its adoption, the global business unit has helped the firm to enter into new markets by identifying investment opportunities across different industries and emerge as a multinational company. This has resulted in increased investment in non-traditional industries, including automotive and healthcare. Additionally, by creating dynamic capabilities, IBM has been able to diversify into new sectors and markets outside its traditional hardware and software segments.
Effects of the Market Strategy
The new market strategy has contributed significantly to IBM’s success in terms of “profitability and customer satisfaction” (Teece, Pisano, and Shuen 511). Currently, IBM’s revenues stand at $91 billion, with software services contributing 70% of the sales up from 58% in 2001 (Harreld, O’Reilly, and Tushman 9). The RTM strategy has transformed IBM in many ways. First, marketing efforts are directed towards understanding customer needs as opposed to market expansion. This has allowed the company to seize new opportunities through an organizational realignment based on dynamic capabilities. In this way, IBM has been able to develop a sustainable competitive advantage over rivals like Dell and HP.
The seven RTMs have clearly defined transaction channels and thus easier to manage compared to the earlier model. Moreover, the strategy outlines the resources required in each buying cycle. This means that it can be adapted to solve unique challenges. IBM has used this strategy to reduce the cost of managing the channels and reap benefits from its investments. According to Garrett and Wilson, the cost of marketing has declined by up to 50% because of the RTM strategy (34). The alignment of the support services with the RTM strategy has also led to a decline in cost of service delivery.
The use of standardized reporting mechanisms has allowed IBM to improve the quality of its services and products to reflect changing customer needs. The previous business model focused on invention rather than on providing on-demand solutions to customers. The current business leadership model enables IBM to realign its competencies appropriately to address customer needs. The RTM strategy apportions resources to both customers and business partners. The multi-channel strategy is flexible with regard to channel utilization and resource allocation (Garrett and Wilson 38). This means that it can be realigned to reflect the changing market circumstances. In this view, the strategy has enabled IBM to address client problems resulting in improved profitability and client satisfaction. Additionally, the opportunity identification channel has enabled IBM to increase its client coverage.
The Relevance of the Marketing Strategy Theory
Market management strategies have theoretical underpinnings that define the goals, actions, and the execution process. The complexity of markets requires senior managers to recognize opportunities and threats and respond appropriately. Gorchels, outlines the growth strategies of the Ansoff matrix that a firm can adopt, namely, market penetration, market development, product development, and diversification (56). Most IT firms employ product development strategy in developing new software and computing services. IBM used the diversification strategy in developing solutions for new markets in the automotive, healthcare, and banking sectors.
Before pursuing a growth strategy, managers have to balance between the risks and benefits associated with new product development (NPD). Changing consumer needs require firms to develop and release new products regularly. The NPD strategy entails analyzing the market to generate an idea before developing a prototype for implementation (Gorchels 71). Companies often model their product development process according to the eight stages of NPD. A SWOT analysis helps reveal consumer and market trends and define internal strengths, weakness, and opportunities in the market (Gorchels 73). It also yields an idea, which the company develops into a prototype for implementation and eventual commercialization.
Firms also use product lifecycle models to manage product design and production. Product lifecycle extends from the idea generation stage to design, production, and sale of the item. Firms use product lifecycle management to increase sales, hasten production, reduce waste, and improve market forecasting, among others (Gorchels 68). Product lifecycle management has a big impact on the marketing mix decisions, including pricing, promotion, product, and place.
Conclusion
IBM’s transformation into a competitive firm can be attributed to its market management strategies. In particular, the global services (IGS) strategy has enabled the firm to identify and seize opportunities and diversify into new markets. In addition, through its business leadership model, IBM has been able to create dynamic capabilities and allocate its resources strategically to gain competitive advantage in the industry. The strategies are grounded in classical theories on product development, lifecycle management, and Ansoff’s growth models.
Works Cited
Garrett, Alex and Hugh Wilson. IBM’s Route to Market Strategy. Bedford: Cranfield School of Management, 2005. Print.
Gorchels, Londa. The Product Manager’s Handbook: The Complete Product Management Resource. New York: McGraw Hill, 2011. Print.
Harreld, Bruce, Charles O’Reilly, and Michael Tushman. “Dynamic Capabilities at IBM: Driving Strategy into Action”. White Paper Draft 1.1 (2006): 1-35. Print.
Helfat, Constance and Ruth Raubitschek. “Product Sequencing: Co-evolution of Knowledge, Capabilities and Products”. Strategic Management Journal 21.10 (2000): 961-981. Print.
Teece, David, Gary Pisano, and Amy Shuen. “Dynamic Capabilities and Strategic Management”. Strategic Management Journal 18.7. (1997): 509-533. Print.