IBM Report Dah Siap

8/2/2019 IBM Report Dah Siap

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BBM 303 STRATEGIC MANAGEMENT

Table of Content

No. Description Page

1 Acknowledgement 2

2 IBM Company Overview 3

3 IBM existing strategies 4

4 IBM Existing Mission Statement 4

5 IBM External Opportunities and Threats 7

6 IBM Competitive Profile Matrix (CPM) 8

7 IBM External Factor Evaluation

(EFE Matrix)

9

8 IBM Internal Strengths and Weaknesses 10

9 IBM Internal Factor Evaluation (IFE Matrix) 11

10 IBM SWOT Matrix 12-13

11 IBM SPACE Matrix 14

12 Advantage and Disadvantage of SWOT Matrix 15-17

13 Recommend Specific Strategies for IBM 17-18

14 Recommend Long Term Objectives 19-22

15 Recommendation Can Be Implemented and Expected Result 23-24

16 IBM Financial Ratio Analysis (2006) 25-26

17 Timetable and Agenda for action 27

18 Recommend Specific annual objectives and policies 28

19 Strategy Evaluation Framework 29

20 References 30

21 Appendix 31

22 Appendix 33

Acknowledgement

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First and foremost, our heartiest gratitude goes to all who have contributed towards

the completion of this case study. I especially, grateful to Madam KAMALJEET KAUR

for her advice, supervision and guidance that lead to pursuit of this case study. Her

comments and encouragement are greatly appreciated.

I would like to thanks to the lecturers for their help and advice and to our group

member who contributed and supported in completing this case study. Thank you.

Company Overview

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International Business Machines Corporation (IBM) develops and manufactures

information technologies, including computer systems, software, networking systems,

storage devices, and microelectronics worldwide. Its Global Technology Services segment

offers IT infrastructure and business process services, such as strategic outsourcing,

business transformation outsourcing, integrated technology, and maintenance. The

company Global Business Services segment provides professional services and application

outsourcing services, including consulting and systems integration and application

management. Its Systems and Technology segment offers computing and storage solutions,

including servers, disk and tape storage systems and software, semiconductor technology

and products, packaging solutions, engineering and technology services, and retail store

solutions. IBM Software segment primarily offers middleware and operating systems

software comprising information management software for database, content management,

and information integration; lotus software for collaboration, messaging, and social

networking; rational software, a process automation tool; Tivoli software for infrastructure

management, including security and storage management; Websphere software for Web-

enabled applications; and product lifecycle management software. The company was

founded in 1910 as Computing-Tabulating-Recording Company and changed its name to

International Business Machines Corporation in 1924. IBM is based in Armonk, New

York.

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IBM Existing Strategies

Product Development

IBMs product and technology portfolio today is built around networked, modularized and

embedded technologies, including service oriented architecture(SOA), information on

demand, virtualization and open, modular system for businesses of all sizes. Major IBM

product launches which is their next generation system z mainframe, system p servers,

which bring POWER6 innovation to the entry level and POWER based virtualization

offerings, which improve energy and space efficiency for UNIX customers. They also

introducing a new BladeCenter offering and a highly innovative storage architecture.

Market Development

IBMs global operations are accelerating their companys growth. IBM today does business

in 170 countries and enjoys an increasingly broad-based geographic distribution of

revenue. In 2007, 63 percent of our revenue came from outside the United States. Many

people think of emerging markets as the so-called BRIC countries of Brazil, Russia,

India and China and last year their revenue increased 26 percent in those markets. But their

global footprint extends much farther. Consider more than 50 countries including Czech

Republic, Poland, Malaysia, Singapore, South Africa, Venezuela and Mexico in each of

which grew more than 10 percent in local currency in 2007. In aggregate, IBMs business

in this group grew at a rate of more than 20 percent in local currency last year and

comprised 15 percent of geographic revenues.

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IBM Existing Mission Statement

Vision

IBM currently does not seem to have a formally stated vision. No Publicly stated

vision statement is available.

New Vision StatementTo Become the Premier Globally Integrated Enterprise

Mission

IBM currently does not have a formally mission statement. No publicly stated

mission statement is available

New Mission Statement

The company business model is built to support two principal goals: helping

clients succeed in delivering business value by becoming more innovative, efficient and

competitive through the use of business insight and information technology (IT) solutions

and providing long term value to shareholders.

IBM Criteria/ Component

Customers

Products / Services

Markets

Concern For Survival, Growth,Profitability

Technology

Philosophy

Self - Concept

Concern For Public Image

Concern For Employee

To Become World Globally Integrated Enterprise in Order to Participate in The

Worlds Growth Markets and Improve IBM Productivity

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IBM External Opportunities and Threats

Opportunities

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1. Huge markets of IT industry2. Increase role of the IT and technology advancements3. Growth of IT industry in Asia Pacific, Asia and American region4. Strong presence in the IT industry5. Increase in new markets in terms of telecommunication, utilities, transportation,

banking etc.

6. Growth of IT industry in Asian Region7. High consumer using IT products for the office or for themselves.

Threats

1. Market risk in terms of outstanding debt and non U.S

dollar denominated assets and liabilities

2. High competitive environment in IT industry3. Debt crisis, rising of unemployment

4. Increasing new products in the market time by time.5. IT competition with Microsoft, HP and others6. Foreign currency exchange rate risk 7. Currency rate fluctuation in terms of non U.S currencies

to the U.S

IBM Competitive Profile Matrix (CPM)

IBM MICROSOFT HEWLETT

PACKARD(HP)

ELECTRONIC

DATA

SYSTEM(EDS)

Critical

Success

Factors

Weight Rating Score Rating Score Rating Score Rating Score

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Advertising 0.10 2 0.20 2 0.20 2 0.20 2 0.20

Market Share 0.08 4 0.32 3 0.24 3 0.24 3 0.24

Gross Profit

Margin

0.09 4 0.36 3 0.27 2 0.18 3 0.27

Management 0.09 2 0.18 4 0.36 2 0.18 3 0.27

Financial

Position

0.15 4 0.60 3 0.45 3 0.45 3 0.45

Customer

Loyalty

0.10 3 0.30 3 0.30 3 0.30 3 0.30

Global

Expansion

0.08 1 0.08 3 0.24 2 0.16 2 0.16

Customer

Service

0.11 2 0.22 3 0.33 3 0.33 3 0.33

Organization

Structure

0.08 2 0.16 3 0.24 2 0.16 3 0.24

Operation

Effectiveness

0.12 3 0.36 4 0.48 4 0.48 2 0.24

Total 1.00 2.78 3.11 2.68 2.70

IBM External Factor Evaluation (EFE) Matrix

Opportunities

Weight Rating Weighted

Scores1. Huge markets of IT industry 0.10 4 0.40

2. Growth of IT industry in Asia Pacific, Asia andAmerican region.

0.08 3 0.24

3. Increase role of the IT and technology advancements 0.10 3 0.30

4. Strong presence in the IT industry 0.07 3 0.21

5. Increase in new markets in terms oftelecommunication, utilities, transportation etc.

0.08 3 0.24

6. Growth of IT industry in Asian Region 0.08 3 0.24

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7. High consumer using IT products for the office andthemselves.

0.05 3 0.15

Threats

1. Market risk in terms of outstanding debt and non U.Sdollar denominated assets and liabilities

0.05 3 0.15

2. High competitive environment in IT industry 0.08 3 0.24

3. Debt crisis, rising of unemployment 0.05 2 0.104. Increasing new products in the market time by time 0.05 2 0.10

5. IT competition with Microsoft, HP and others 0.10 4 0.40

6. Foreign currency exchange rate risk 0.06 2 0.18

7. Currency rate fluctuation in terms of non U.Scurrencies to the U.S

0.05 2 0.10

Total 1.00 3.05

IBM Internal Strengths and Weaknesses

Strengths

1. Aggressive growths strategies2. Solid financial statements with net revenue for 2007 increase 7% compare to

year 20063. The management is willingness to co-operate in order to develop future

projects4. Solid record cash performance was 17.4 billion in 2007, and increase of 2.1

billion last year

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5. Future development of business towards banking, transportation etc6. The effective tax rate is declined in 2006 compared to 2005Weaknesses

1. Largest workforce 150,000 employees.2. High maintenance cost to overlook due to managing many operations3. Total expense and other income increased 2.8 percent. Increase was primarily

due to R&D and engineering expense.4. High long-term debt5. Advertising and promotion expenses decrease

IBM Internal Factor Evaluation (IFE) Matrix

Strengths

Weight Rating Weighted

Scores

1. Aggressive growths strategies 0.10 4 0.40

2. Solid financial statements 0.10 4 0.40

3. Profitable joint ventures 0.10 4 0.40

4. Solid record cash performance 0.09 3 0.275. Future development of business towards banking,transportation etc

0.10 4 0.40

6. Effective tax rate is declined in 2006 compared to2005

0.07 3 0.21

Weaknesses

1. Largest workforce 150,000 employees. 0.08 2 0.16

2. High maintenance cost to overlook due to managingmany operations

0.10 1 0.10

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3. Total expense and other income increased 2.8 percent.Increase primarily due to R&D and engineeringexpense

0.08 2 0.16

4. High long-term debt5. Advertising and promotion expense decrease

0.100.08

12

0.100.16

Total 1.00 2.76

IBM Strengths Weaknesses Opportunities Threats (SWOT)

Matrix

STRENGTHS S

1. Aggressive growthsstrategies

2. Solid financial statements3. Management willingness to

co-operate in order todevelop future projects4. Solid record cash

performance5. Future development of

business towards banking,transportation etc

6. Effective tax rate declinedin 2006 compared to 2005

WEAKNESSES W

1. Largest workforce150,000 employees.2. High maintenancecost to overlook due to

managing manyoperations3. High long-term debt4. Advertising andpromotion expensesdecrease.5. Total expense andother income increased2.8 percent. Increase was

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primarily due to R&Dand engineering expense.

OPPORTUNITIES O

1. Huge markets of ITindustry

2. Increase role of the IT and

technology advancements3. Growth of IT industry inAsia Pacific, Asia andAmerican region

4. Strong presence in ITindustry

5. Increase in new markets interms oftelecommunication,utilities, transportation etc

6. Growth of IT industry inAsian region

7. High consumer using ITproduction for the office orfor themselves.

SO STRATEGIES

1. Outsourcing theindustry towardsglobalization (S3,S5

O3,O6)2. More involve in otherindustry or environmentlike banking etc.(S1-02,05

WO STRATEGIES

1. More refinance onadvertising andpromotion(W4-O3,O6)

THREATS T

1. Market risk in terms ofoutstanding debt and nonU.S dollar denominatedassets and liabilities.

ST STRATEGIES

1. Create morenew products to competewith other competitors(S3-T2,T5)

WT STRATEGIES

1. Create Non Unionenvironment to reduceturn over (W1 T3)

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2. High competitiveenvironment in ITindustry

3. Debt crisis, rising ofunemployment

4. Increasing new productsin the market time bytime

5. IT competition withMicrosoft, HP and others

6. Foreign currencyexchange rate risk

7. Currency rate fluctuationin terms of non U.Scurrencies to the U.S

IBM Strategic Position and Evaluation (SPACE) Matrix

Financial Strength (FS)

1. High profitability ratios: Gross Profit Margin 41.9%2. Profitable from Asian, Asia Pacific region

3. IBM, companies stronger in high value-added businesses

Financial Strength (FS) Average

+6+6+6+18+6.0

Environment Stability (ES)

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1. IT industry will remain stronger in the future2. IBM compete with other competitors like Microsoft, HP and others

3. Currency rate fluctuation in terms of non U.S currencies to the US.

Environment Stability (ES) Average

-3-6-3-12-4.0

Competitive Advantage (CA)

1. IBM is a key player in the hypercompetitive Diversified ComputerSystem industry.

2. More stronger in US presence by acquired local IT companies3. Strong focus on customer service and satisfaction

Competitive Advantage (CA) Average

-2

-4-3-9-3.00

Industry Strength (IS)

1. Companies strong presence in the IT industry2. Future development of business towards other industry3. Increased use of technology and the IT industry

Industry Strength (IS)Average

+5+5+5+15+5.00

Directional Vector Coordinates:

X Axis: -4.00 + 6.00 = 2.00

Y Axis: -3.00 + 5.00 = 2.00

Advantages and Disadvantages

Strengths Weaknesses Opportunities Threats(SWOT) Matrix

Advantages

The SWOT analysis can serve as an interpretative filter to reduce the information

to a manageable quantity of key issues. The SWOT analysis classifies the internal aspects

of the company as strengths or weaknesses and the external situational factors as

14

1 2 3 4 5

1

2

3

4

5

-1

-2

-3

-4

-5

-2-3-4-5

Aggressive

Competitive

Conservative

Defensive

ES

ISCA

FS

(+2.00, +2.00)


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opportunities or threats. Strengths can serve as a foundation for building a competitive

advantage, and weaknesses may hinder it. By understanding these four aspects of its

situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on

golden opportunities, and deter potentially devastating threats.

Disadvantages

While useful for reducing a large quantity of situational factor into a more

manageable profile, the SWOT framework has a tendency to oversimplify the situation by

classifying the forms environment factors into categories in which they may not always fit.

The classification of some factors as strengths or weaknesses, or as opportunities or threats

is somewhat arbitrary. A technological change can be a either a threat or an opportunity.

Perhaps, it is more important than the superficial classification of these factors is the firms

awareness of them and its development of a strategic plan to use them to its advantage.

Solution and ideas in an improvement

We believe that economic conditions in the global financing, including the

downturn in the housing market and credit concerns, during the latter half of 2007 and into

2008 have had, and could continue to have, a negative impact on our operating results. Theimpact is currently most noticeable at our global operation, particularly those outside of

United States.

Global Financing is a reportable segment that is measured as if it were a standalone entity.

Accordingly, the information presented in this section is consistent with this separate

company view. The mission of Global Financing is to generate a strong return on equity

and to facilitate clients acquisition of IBM hardware, software and services. Global

Financing invests in financing assets, manages the associated risks, and leverages with

debt, all with the objective of generating consistently strong returns on equity.

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The primary focus on IBM products and IBM clients mitigates the risks normally

associated with a financing company. Global Financing has the benefit of both a deep

knowledge of its client base and a clear insight into the products that are being leased. This

combination allows Global Financing to effectively manage two of the major risks (credit

and residual value) that are normally associated with financing.

Global Financing comprises three lines of business:

Client financing provides lease and loan financing to end users and internal clients

for terms generally between two and seven years. Internal financing is

predominantly in support of Global Services long-term client service contracts.

Global financing also factors a selected portion of the companys accounts

receivable, primarily for cash management purposes. All internal financing

arrangements are at arms-length rates and are based upon market conditions.

Commercial financing provides primarily short-term inventory and accounts

receivable financing to dealers and remarketers of IT products.

Remarketing sells and leases used equipment to new or existing clients both

externally and internally. This equipment is primarily sourced from the conclusion

of lease transactions. Externally-remarketed equipment revenue represents sales or

leases to clients and resellers. Internally-remarketed equipment revenue primarily

represents used equipment that is sold or leased internally to the System and

Technology and Global Services segments. The System and Technology segment

may also sell the equipment that it purchases from Global Financing to external

clients.

In addition to the strength of the economy and its impact on corporate IT budgets, key

drivers of Global Financings results are interest rates and originations. Interest rates

directly impact Global Financings business by increasing or decreasing both financing

revenue and the associated borrowing costs. Originations, which determine the asset base

of Global Financings annuity-like business, are impacted by IBMs non-Global Financing

sales volumes and Global Financings participation rates. Participation rates are the

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propensity of IBMs clients to finance their purchases through Global Financing in lieu of

paying IBM up-front cash or financing through a third party.

Recommend Specific Strategies for IBM

Based on the calculation on the space matrix, I believe that IBM should pursue the

integration strategy and diversification strategy. I choose the integration strategy and

diversification strategy industries because International Business Machine (IBM) can be

even more successful if they fulfilled the horizontal strategy (integration) and unrelated

diversification strategy (diversification strategy)

Horizontal Integration

In July 2007, IBM acquired Watchfire Corporation. A privately held security and

compliance testing Software Company based in Waltham, Massachusetts. In August 2007,

In August 2007, IBM acquired WebDialogs, Inc.., and then a month later completed the

acquisition of DataMirrorCorp.

But if IBM want to be more stronger competitor it should be merging, joint venture or

acquired the Electronic Data System(EDS) because it would help it stand out from other

computer hardware in an increasingly difficult business. A purchase would be a smart way

for IBM to take on its rival like Hewlett Packard (HP) which, while known as a

hardware maker has derived the bulk of its sales and profit from software and services for

years.

In addition, International Business Machines (IBM) and SAP the local software companies

in the US can join team up to create new technology that the two companies will launch

their first joint software product in the fourth quarter of 2008. The product, codenamed

"Atlantic," will integrate IBM's Lotus Notes software with SAP's Business Suite, according

to a statement released by IBM.

The two companies have dodged rumors of a merger, though they noted that their mutual

customers have requested the specific functions that the "Atlantic" software will provide.

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IBM's Lotus Notes, currently used by more than 135 million people around the globe, is a

system of accessing business email, calendars and instant messages. SAP's contribution

will include programs that help companies to back office work such as payroll, inventory

management and accounting.

Unrelated Diversification

In Defense Industry

Some industries in the United States, such as defense companies like BOEING, Lockheed

Martin, and Northrop Grumman are the companies that using full of latest technology on

computer systems. This is the opportunities for IBM to involve in new industry on defense

industry. It should provide IBM industry bigger than other competitors. In addition, it gives

IBM more getting profit than ever before not just in IT industry profit but it also profit

comes from other industry which is defense industry.

In Other Industry

In addition, IBM can see multiple areas of investment growth within particular industries.

For example, telecommunications companies continue to upgrade their infrastructure tobroadband. Also, utilities face outdated systems, the transformation from analog to digital

and new regulatory requirements. Across the world, businesses and institutions are

continuing to make investments that save them money, preserve capital and address issues

they simply may not defer.

Recommend long term objectives

Based on research on IBM annual report of previous year (2005, 2006 and 2007), we

have computed for the following figure for year 2006 according to different category.

Underlying both the measurement of benefit obligations and net periodic cost are

actuarial valuations. These valuations use participant- specific information such as salary,

age and years of service, as well as certain assumptions, the most significant of which

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include estimates of discount rates, expected return on plan assets, rate of compensation

increases, interest crediting rates and mortality rates. The company evaluates these

assumptions, at a minimum, annually, and makes changes as necessary.

Discount Rate

The discount rate assumptions used for the retirement-related benefit plans accounting

reflect the yields available on high-quality, fixed income debt instruments. For the U.S.

discount rate assumptions, a portfolio of corporate bonds is constructed with maturities that

match the expected timing of the benefit obligation payments. In the non-U.S., where

markets for high-quality long-term bonds are not generally as well developed, long-term

government bonds are used as a base, to which a credit spread is added to simulate

corporate bond yields at these maturities in the jurisdiction of each plan, as the benchmark

for developing the respective discount rates.

For the PPP, the changes in discount rate assumptions impacted both net periodic cost and

the PBO. For purposes of measuring the net periodic cost for the years ended December 31,

2007, 2006 and 2005, the changes in discount rate assumptions resulted in a decrease in the

2007 net periodic cost of $92 million and an increase in the 2006 and 2005 net periodic

cost of $94 million and $90 million, respectively. For purposes of measuring the PBO, thechanges in discount rate assumptions resulted in a decrease in the PBO of $1,185 million

and $1,240 million at December 31, 2007 and 2006, respectively.

For the significant non-U.S. defined benefit pension plans, the changes in discount rate

resulted in an increase in the 2007 and 2006 net periodic cost of $30 million and $274

million, respectively. Changes in discount rate assumptions had no material impact on the

2005 net periodic cost. For the U.S. nonpension postretirement benefit plan, the changes in

discount rate assumptions had no material impact on net periodic cost for the years ended

December 31, 2007, 2006 and 2005 and on the APBO at December 31, 2007 and 2006.

Expected Long-Term Returns on Plan Assets

The expected long-term return on plan assets assumption takes into account long-term

expectations for future returns, investment strategy and the market-related value of plan

assets. The market-related value of plan assets is a calculated value, in accordance with

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accounting guidance that recognizes changes in the fair value of plan assets in a systematic

manner over five years. The rates of expected return are developed by the company in

conjunction with external advisors, are calculated using an arithmetic average and are

tested for reasonableness against the historical return average by asset category, usually

over a 10-year period. The use of expected long-term returns on plan assets may result in

recognized pension income that is greater or less than the actual returns of those plan assets

in any given year. Over time, however, the expected long-term returns are designed to

approximate the actual long-term returns and therefore result in a pattern of income and

expense recognition that more closely matches the pattern of the services provided by the

employees. Differences between actual and expected returns are recognized over five years

in the expected return on plan assets line in net periodic cost and also as a component of net

loss or gain in the Accumulated gains and (losses) not affecting retained earnings, which is

recognized over the service lives of the employees in the plan, provided such amounts

exceed thresholds which are based upon the obligation or the value of plan assets, as

provided by accounting standards.

For the PPP, the expected long-term return on plan assets of 8.00 percent remained

constant for the years ended December 31, 2007, 2006 and 2005 and, consequently, had no

incremental impact on net periodic cost. For the material non-U.S. defined benefit pension

plans, the changes in the expected long-term return on plan assets resulted in an increase inthe 2007, 2006 and 2005 net periodic cost of $50 million, $18 million and $140 million,

respectively. For the U.S. nonpension postretirement benefit plan, the company maintains a

nominal, highly liquid trust fund balance to ensure payments are made timely. As a result,

for the years ended December 31, 2007, 2006 and 2005, the expected long-term return on

plan assets and the actual return on those assets were not material.

Rate of Compensation Increases and Mortality Rate

The rate of compensation increases is determined by the company, based upon its long-

term plans for such increases. Mortality rate assumptions are based on life expectancy and

death rates for different types of participants. Mortality rates are periodically updated based

on actual experience. Changes to defined benefit pension plans mortality rate assumptions

increased the 2007 and 2006 net periodic cost approximately $80 million and $55 million,

respectively, and increased the 2007 benefit obligation approximately $790 million.

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Changes to the rate of compensation increases had no material impact on the 2007 net

periodic cost and reduced the 2006 net periodic cost approximately $32 million. Changes to

the rate of compensation increases or to mortality rate assumptions had no material impact

on the 2005 net periodic cost and on benefit obligations at December 31, 2006.

Interest Crediting Rate

Benefits for certain participants in the PPP are calculated using a cash balance formula. An

assumption underlying this formula is an interest crediting rate, which impacts both net

periodic cost and the PBO. This assumption provides a basis for projecting the expected

interest rate those participants will earn on the benefits that they are expected to receive in

the following year and is based on the average from August to October of the one-year U.S.

Treasury Constant Maturity yield plus one percent. For the PPP, the change in the interest

crediting rate to 6.0 percent for the year ended December 31, 2007 from 5.0 percent for the

year ended December 31, 2006 resulted in an increase in the 2007 net periodic cost of $125

million. The change in the interest crediting rate to 5.0 percent for the year ended

December 31, 2006 from 3.1 percent for the year ended December 31, 2005 resulted in an

increase in the 2006 net periodic cost of $170 million. The change in the interest crediting

rate to 3.1 percent for the year ended December 31, 2005 from 2.3 percent for the year

ended December 31, 2004 resulted in an increase in the 2005 net periodic cost of $55

million.

Healthcare Cost Trend Rate

For nonpension postretirement benefit plan accounting, the company reviews external data

and its own historical trends for healthcare costs to determine the healthcare cost trend

rates. However, the healthcare cost trend rate has an insignificant effect on plan costs and

obligations as a result of the terms of the plan which limit the companys obligation to the

participants. The company assumes that the healthcare cost trend rate for 2008 will be 8

percent. In addition, the company assumes that the same trend rate will decrease to 5

percent over the next six years. A one percentage point increase or decrease in the assumed

healthcare cost trend rate would not have a material effect on the 2007, 2006 and 2005 net

periodic cost or the benefit obligations as of December 31, 2007 and 2006.

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Recommendation Can Be Implemented and Expected Result

After I have carefully analyzed IBM and the industry in which it operates. I have

used the companys strengths and the industrys opportunities to develop strategic

recommendations to overcome IBM weaknesses.

Management1. Develop a vision and mission statement

I recommend development of a vision and mission statement. Definition of a

companys purpose allows all employees a means to focus on goals and methods of

obtaining goals. Upper management can develop these statements by identifying where

IBM can be in the future and prioritize company goals.

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2. Diversify of Top managements workforce

I recommend moving toward a more diversify in higher management workforce.

IBM needs to actively recruit a younger professional group into top management

executives position. These will generate more new innovative idea in managing IBM

corporation.

Marketing

1.Conduct Market Research

In order to expand markets and efficiently meet its customers or clients, IBM needs

to conduct a market research. This markets research will allow IBM to identify and study a

perfect way to customer main preferences in terms new high tech technology in IT industry

to improve every aspect of companys business division.

2. Expand to different markets

IBM high growth strategy has proven to be extremely successful, but we

recommend expanding into different markets.. I suggest that the company could benefit by

putting more effort into opening new markets. Defense industry and other industry in

telecommunication, utilities is a perfect way for IBM businesses more bigger and I feel this

market is a potential or more giving a profit to IBM.

Operations

Financial

Reduce long-term debt

I recommend that IBM reduce its long-term debt. On top of investing in new

projects with IBM available cash flow, the company should also use a portion of their

profits to reduce its debt. Reducing debt will decrease the interest payments and in turn,

can use this portion of what would have previously been paid to interest to continually pay

off more of the debt.

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International Business Machine (IBM) Financial Ratio Analysis (2006)

International Business Machine (IBM) Financial ratios

Liquidity Ratio

Liquidity ratios measure a firms ability to meet maturing short term obligations.

Current Ratio = Current Assets / Current Liabilities= 44,660,000 / 40,090,000= 1.114

Quick Ratio = Current Assets- Inventory / Current Liabilities= 44,660,000- 2,810,000 / 40,090,000=1.044

Leverage Rations

Leverage ratios measure the extent to which a firm has been financed by debt.

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Debt to Total Assets Ratio = Total Debt / Total Assets= 74,727,000 / 103,233,000= 0.724

Debt to Equity Ratio = Total Debt / Total Stockholders Equity= 74,727,000 / 28,506,000= 2.621

Long Term Debt to Equity Ratio = Long Term debt / Total stockholders equity= 13,780,000/ 28,506,000= 0.483

Times Interest Earned Ratio = Profits before interest and taxes / Total interest charges= 38,295,000 / 278,000= 137.8

Activity Ratios

Activity ratios measure how effectively a firm measure is using its resources.

Inventory Turnover = Sales / Inventory of finished goods= 8,022,000 / 2,810,000= 2.855

Fixed Assets Turnover = Sales / Fixed Assets= 8,022,000 / 17,430,293= 0.41

Total Assets Turnover = Sales / Total Assets= 8,022,000 / 103,233,000= 0.077

Profitability Ratios

Profitability ratios measure managements overall effectiveness as shown by the returnsgenerated on sales and investment.

Gross Profit margin = Sales-cost of goods sold / Sales= 8,022,000-2,810,000 / 8,022,000= 0.65

Operating Profit Margin = Earning before interest and taxes (EBIT) / sales= 13,595,000 / 8,022,000= 1.695

Net Profit Margin = Net Income / Sales= 9,492,000 / 8,022,000

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= 1.183

Return on Total Assets (ROA) = Net Income / Total Assets= 9,492,000 / 103,233,000= 0.092

Return on Stockholders Equity (ROE) = Net Income / Total Stockholders Equity= 9,492,000 / 28,506,000= 0.333

Earning per Share (EPS) = Net Income / Number of share of common stockOutstanding

= 9,492,000 / 31,271,000= 0.304

Price Earnings Ratio = Market price per share / Earning per share= 16.81/ 6.262= 2.684

Growth Ratios

Growth ratios measure the firms ability to maintain its economic position in the growth ofthe economy and industry.

Net Income = Annual % growth in total sales= 1.2% increase compare to year 2005

Net Income = Annual % growth in profits= 1.05% increase compare to year 2005

Timetable and Agenda for action

Strategy Time

Horizontal Integration strategy

Merge or acquired local IT

companies

August 2007 August 2008

Unrelated Diversification strategy

Enter new market into Defense

industry and other industry like

telecommunication etc

January 2007-January 2009

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Recommend Specific annual objectives and policies

IBM Companys Long Term Objectives

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DIVISION IT

Increase divisionalrevenues by 30%next year (currentrevenue $ 7million.

LONG TERM COMPANY OBJECTIVE

Achieve 42.33% annual improvements in gross margin and to reinvest this

growth in acquire latest technology and investment expenditures, so as to

maintain a relatively steady operating margin.


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Strategy Evaluation Framework

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Marketing annual

objective

Increase Marketing

in Areas of newdevelopmentpromoting job andeconomic growth -increase 25% of newdevelopment annualmarketing budget

Finance annual

objective

Increase Gross Revenues

10%/year whilemaintaining grossmargins throughAcquisitions, New futuredevelopment.


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References:

ACTIVITY ONE: REVIEW UNDERLYING BASES OF

STRATEGIES

Prepare revised InternalFactor Evaluation (IFE) MatrixPrepare revised ExternalFactor Evaluation (EFE) MatrixCompare Revised to existing InternalFactor

Evaluation (IFE) MatrixCompare revised to existing External FactorEvaluation (EFE) Matrix

Do significantdifferences occur?

NO

YE

S

ACTIVITY TWO: MEASURE ORGANIZATIONAL

PERFORMANCE

Compare planned to actual progress toward meeting stated objectives

Do significantdifferences occur?

NO

Continue present course

YE

S

ACTIVITY THREE:

TAKE

CORRECTIVE

ACTIONS

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1. Fred R.david, Strategic Management 12th edition, Pearson International

Edition.

2. International Business Machine (IBM): www.ibm.com

3. www.forbes.com

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IBM Report Dah Siap

Documents

Transcript of IBM Report Dah Siap