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1. History, Development Growth of IBM2. SWOT Analysis3. External Environment Surrounding IBM
6. Recommendation7. Conclusion
IBM4. Corporate Level Strategy5. Business Level Strategy
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1980- 1990Emergence of DEC
Apple, Dell
Minicomputer market developed
IBM share in minicomputer 24% in 1984
16% in 1988
28% in 1992
Personal Computer marketdeveloped
IBM market share in PC 37% in 1985
24% in 1988
16.5% in 1990
12% in 1992
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1990- onwardsDEC, Sun, Apollo,
HP
Intel, Microsoft
EDS, Andersen
Work stations
1992: growth 27% annually ascompared to 5% for thecomputer industry
Software and Services 1992: Software and services
accounted for 40% of IBMrevenue
Systems integration &Outsourcing: IBM share only 6% as
compared to 50% of EDS
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1990- onwards
1988 Restructuring
1990: IBM profit share indifferent segments
Mainframe hardware- 50% minicomputers- 6% PCs 18.5% Software & services- 12.4%
Akers reorganized IBM into 7Divisions based on Product
market segments Managers of each division
given autonomy andresponsibility
Single sale force continued
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1991 Restructuring
Reorganization to dilutecontention system of IBM
Downsizing of organizationstarted
PC business was placed inseparate operating unit andseparate Sales for PCs
Decentralization of decisionmaking authority
Reduced role of IBM corporateHQ
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Effect of 1991reorganization
Akers divided IBM into 13separate divisions
9 for main product lines
4 for marketing and serviceoperations
Each unit to work independentof each other
Single sale force continued
1991: loss of $2.8b ( first timein IBM history)
1992: loss of $ 5b
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1993:New Management
& New Plans
Louis Gerstner took over asCEO
He was an outsider to IBM
He hired outsiders for toppost like CFO, VP, VP ofcorporate marketing etc
Thrust on reengineering
11 person corporate executivecommittee
11 task forces to analyze IBMsmain processes
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Restructuring of relationshipsbetween corporate centre and thedivisions: No decentralization
Traditional strategy of providingfull line of hardware and softwarefollowed
Reduced workforce heavily from
4.05 lac to 2.5 lac
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26 Sept 1993
Gerstners 4 goals
To get the company to right size
To spend more time with customers
To determine the strategic issues byprocess reengineering
To build employee morale in the faceof huge layoffs
IBM announced a loss of $ 46mfor third quarter compared to $40m loss in 1992
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Domination of the global market in computers
Highly successful System360 and System370mainframe series
The mainframe became the industry standardthat competitors tried to match
High-priced lease strategy, backed by excellent
customer service
Strong bonding with customers
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Successful alliances and joint ventures withcomputer & software companies such as Inteland Microsoft to achieve product innovationand differentiation and enter new markets
Contention system (Project teams &committees to develop and debate the costs
and benefits of each project: successfulprojects)
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Steady cash flow
Focus on service, combined with a successfulsales force
Focus on Research & Development: High budget
Successful Product group structure (restructuringduring 1992): Divisions organized aroundproducts instead of functions, each group havingcontrol over its manufacturing and marketing
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No clear vision and mission statement
The IBM culture was relaxed and supremely confident ofits abilities and resources
Culture was slow and blinkered
Under estimated its competitors greatly
mainframes were king corporate mindset Too much focus mainframe market
big machines meant big revenues The bigger the better
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High cost and high-priced products
Used to high profit margins led to choking when low-cost competitors appeared
Unable to recognize importance of patents
Easy cloning At lower cost Sometimes, with even better quality
massive organization size
High costs in the value chain
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Blind to threats emerging from the emergence ofnew kinds of computer technology
Overly bureaucratic and centralized approach in
decision-making
Complexity of Contention system
Inordinate delays in Decision Making
Slow response to developing market segments
Laggard in launching new products
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Changes in technology
Emergence of new kinds of computers
Minicomputers PCs Workstations Software and services Systems integration & Outsourcing
Cheaper and faster technological breakthroughsas compared to mainframe computers
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Software design and providing customerservice, specifically for the design of generaloperating language and software applications
Data outsourcing and systems integrationalso had revenue-generating potential
Indirect control of software market bypurchasing large chunk of Microsoft stock atlow price:
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Countless opportunities to differentiate andinnovate products
If we try to look back, IBMs success was itselfthe result of moving quickly and decisively to
exploit the opportunities of new technology: thepunch card machine, the transistor, and theintegrated circuit.
Their brand image is synonymous with big and
old they need to create products appealing to ayounger generation and reposition theircompany.
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IBM needs to maintain a competitive edge inthe marketplace and innovation is key andworking with IT-related companies to createnew products in the ever changing market;
use patents to generate revenue.
High individual consumption power
Increased globalization .
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Potential competitors
New Computer systems and allied products
Many market segments but common sales force
Rapid reduction in hardware due to technologicalchanges
Mainframe market saturation
Customers have low switching costs
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Clone manufacturers
local or foreign aggressive strategies for cost leadership product differentiation
low-price alternatives to the IBM mainframe quality support low-cost service
High turn over rate of technology
Mainframes becoming obsolete and the productlife cycle shortening, as new technologicalinventions are making their way
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External analysis stages
Macro-environment Broad trends shaping the national and
international environment
political, economic, social and technologicaltrends (i.e. PESTEL factors, key drivers )
Micro-environment operating environment or industry sector in
which the firm competes
range of issues such as suppliers, customers,competitive intensity, threat of new entryand of substitute products arising (i.e. thefive-forces analysis)
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Competitor analysis To understand the rival offers from other firms
seeking to serve the same customers
To out manoeuvre rivals with innovation andcompetitive moves.
Market analysis To evaluate the current needs of todays
customers
To understand the emerging needs of
tomorrows customers so new products can beanticipated
To have different strategy in different marketsegments.
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IBM
Socialolitical
Technological
Environmental
Economic
Legal
PESTEL Analysis for Macro environment factors
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Political factors:
There were no significant/strict regulationsgoverning the activities within the computerindustry.
Companies in the computer industry should alsovalue the protection of their patents. Patent rights
can help eliminate threat from clone manufacturersand similar kinds of competitors and thus protect acompanysmarket share and position.
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Economic factors Since 1970, several US industries have declined due to
the entry of low-cost Japanese competitors. TheseJapanese companies had great technical capabilities that
can match or even exceed US products, thus posing amajor threat to IBMsdomination of the global market
Steadily falling price of integrated circuits is shorteningthe lifespan of every computer technology, especially the
mainframes. This plunging of costs is making computertechnology innovation more feasible for the computerindustry players.
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Social factors:
A great number of employees were laid off. This may haveproduced a bad image of IBM to the workers who were
promised a stable employment.
IBM lost quite a great number of customers, especiallywhen it decided to end its leasing system. This evidentlyproduced a negative effect to the company on the form ofsignificant revenue declines
IBMscustomers were becoming price conscious. Since IBMlagged behind technological breakthroughs, old and newcustomers were starting to look away from them.
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Technological factors:
The technological breakthroughs as manifested by theminicomputers, PCs, workstations, microprocessors, and
software brought numerous opportunities and only asingle significant threat: the fast rate of obsolescence.
IBM required to create a mindset that in order to grabthese opportunities, gain competitive advantage andthus be successful, speed is required. A company mustact quickly and decisively to exploit the opportunitiesbrought about by technological change.
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Environmental factors:
The rapid obsolescence of computer technologyposed a threat to the environment as technological
wastes in the form of obsolete/useless/brokencomputers and component parts making their wayto disposal areas.
Harmful chemicals were used to make these techproducts and if these were not disposed ofproperly, it may harm not only nature but also thepeople.
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Legal Factors:
Laws and regulations for cross-country operationsand labour laws are some of the laws that IBM mayhave to comply with.
There may be laws specific to the manufacture and
distribution of computer technology; which requirescompliance
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Intensity
of RivalryBargainingPower of
SuppliersBargainingPower of
Buyers
Threat of
SubstitutesThe Threatof Entry
Five Forces Analysis for Micro environment factors
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Technology plays a big role in the computer industrythat IBM belongs
Because of the rapid growth of technology, costsaccompanying such growth are continually increasing
The threat of new entrants is low because of severalfactors
One factor is the cost of research and development which isenormous
Adapting to the latest technology to survive the industry isalso costly
Building and maintenance of plants
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IBM outsourced and bought the inputs from othercompanies to make its PC
Intel supplied the microchip that was the heart of personalcomputers
Microsoft delivered the programming language and
software applications for the new IBM machine
Thus, power of suppliers is assessed to be high onmajor suppliers
Thus, the overall power of both major and minorsupplier is assessed to be medium.
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Customer demand drove the prices of IBMsproducts down to cope with the existing andunavoidable price competition
Switching costs of buyers are also becoming low,
as there are many product choices for the buyers
Consumers began to feel more comfortableabout buying clones from companies thatpromised quality support and service at low costs
Thus, bargaining power of buyers is assessed tobe high.
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Competition was increasing from companies thatwere trying to find ways to attract IBMs customers
Competitors began selling cheaper and highperforming IBM compatible central processing units
that posed a threat to the company
The end of the leasing program also led to increasedcompetition from independent computer leasingcompanies that would buy older mainframes and thensell the older processors at a price that wasfrequently only 10% of the cost of IBMs newestmachine
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These companies were also said to dismantlemainframes to make smaller computers
Entry of Japanese competitors posed a threat to
IBM because they had the technical
capability to build a powerful computer thatmatched IBMs mainframe system
Customers began buying clones from competingcompanies who promised quality similar to IBM.
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IBM was also experiencing an increase on low-costcompetitions on its outsourcing services business.
In the 1990s, IBM faced tough competition fromToshiba and Apple regarding personal computers
It was also in 1990s that severe competition existedin terms of workstations. Major competitors at thattime were DEC, Apollo, Sun, and HP
Clearly, in all developed and developing segments ofthe computer market, IBM was facing stiffcompetition.
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There are already new products that are much
more attractive to the consumers aside fromthe mainframes and other products that IBM
produces
There was a threat on new technologiesbeing developed to outperform the products
of IBM. An example was the introduction ofMinicomputers which acted as a substitute tosome IBM mainframe applications
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Even though IBM was successful with its PCdivision, clones were being made whichreduced IBMs sales. New and much improvedproducts are also emerging in the market that
has considerably being welcomed with openarms by the consumers posing a high threatof substitute to IBMs products.
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1. Determine each competitors probable reaction tothe industry & environmental changes
2. Anticipate the response of each competitor to thelikely strategic moves by the firm
3. Develop a profile of the nature & success of the
possible strategic changes each competitor mightundertake
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1. Future goals of competitors
2. Its current strategy
3. The key assumptions it makes about itself &about the industry
4. Its capacity in terms of Strengths &Weaknessess
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STRATEGIC ADVANTAGE
ORGANISATIONAL CAPABILITIES
COMPETENCIES
SYNERGISTIC EFFECTS
STRENGTHS & WEAKNESS
ORGANISATIONAL ORGANISATIONALRESOURCES BEHAVIOUR
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FINANCIAL CAPABILITY FACTORS
MARKETING CAPABILITY FACTORS
OPERTAIONS CAPABILITY FACTORS PERSONNEL CAPABILITY FACTORS
INFORMATION CAPABILITY FACTORS
GENERAL MANAGENT CAPABILTY FACTORS
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Well established giant organization
Market leader in mainframe computers
Well integrated and hierarchical HR structure
Capability of innovation and diversification
Strong financial position
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Advantage of worldwide clientele
Strong bonding with clientele
Economies of scale
Unified and gigantic sales force
Belief in Prestige and quality product
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1. PERSISTENT NEGATIVE CASH FLOW
2. NEGATIVE PROFITS
3. DECLINING MARKET SHARE4. OVERMANNING, HIGH TURNOVER, & LOW
MORALE
5. UNCOMPETITIVE PRODUCTS OR SERVICES6. MISMANAGEMENT
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1. CHANGES IN TOP MANAGEMENT2. INITIAL CREDIBILITY BUILDING ACTIONS
3. NEUTRALIZING EXTERNAL PRESSURES
4. INITIAL CONTROL
5. INDENTIFYING QUICK PAY OFF ACTIVITIES6. QUICK COST REDUCTION
7. REVENUE GENERATION
8. DOWNSIZING OF WORKFORCE
9. MOBILISATION OF THE ORGANISATION
10. BETTER INTERNAL COORDINATION
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1. EXPANSION STRATEGIES
a) Expansion through integration
b) Expansion through diversification
c) Expansion through cooperation
d) Expansion through internationalization
2. RETRENCHMENT STRATEGIES
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a) Expansion through Integrationa) BETTER CONTROL OVER VALUE CHAIN
MITIGATING BUYERS & SUPPLIERSPOWER
b) BETTER AND EFFICIENT UTILIZATION OFRESOURCES
c) REDUCTION IN MUTUAL CONFLICTS
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a) TO MINIMISE RISKS
b) TO CAPITALISE ON ORGANISATIONAL
STRENGTHS
c) TO GROW IF GROWTH IN EXISTING BUSINESS
IS BLOCKED
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3- GENERIC STRATEGYOVERALL COST LEADERSHIP
PRICE OF THE PRODUCT IS A VITAL FACTOR
BRANDED PRODUCTS VERY COSTLY
DIFFERENTIATION MARKET TOO LARGE TO BE CATERED TO BY A FEW
FIRMS MAKING/ OFFERING A STANDARDISED PRODUCT
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CUSTOMER NEEDS TOO DIVERSIFIED TO BE SATISFIED
BY A STANDARDISED PRODUCT
BRAND LOYALTY POSSIBLE TO GENERATE & SUSTAIN
AMPLE SCOPE FOR INCREASING SALES ON THE BASIS OF
DIFFERENTIATED FEATURES & PREMIUM PRICING
FOCUS EXPENSIVE FOR COMPETITORS TO FOCUS ON TARGET
CUSTOMERS OF THE ORGANIZATION
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Gerstners Reengineering the corporation
Identify and analyze each of the core businessprocesses Manufacturing
Marketing R&D etc
Constitution of 11- member corporate executivecommittee to spearhead reengineering efforts
11- task forces formed to analyze IBMs mainprocesses
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Vertical integration between corporate center and thedivisions
Core traditional strategy of providing customers witha full line of hardware and software products andservices
Downsizing the workforce
Setting of goals To get the company to right size To spend more time with customers To determine the strategic issues by process reengineering To build employee morale in the face of huge layoffs
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IBM, should keep its position in the market asworld's largest information technology company
IBM should expand into new markets with
promising growth.
IBM has the advantage of being top brand byrapidly expanding into world markets all the
while developing new products, services, andsolutions to better help its wide variety ofcustomers from small to large
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To improve and maintain its corporate image,IBM needs to find new and better ways to bephilanthropic company worldwide
Improving job satisfaction, communities, and livingstandards
IBM can also offer scholarships, educationalassistance, and internships to improve educational
system, which enable them to have quality staff,partners,customer, and suppliers.
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Invest heavily on research and development
Researching on how to incorporate the internet to IBMsproduct would be a worthwhile investment
Partner with suppliers
Collaboration with suppliers will increase businessflexibility and executive level business decision support
IBM should even have good relations to its supplierssince parts supplied by them are essential for IBMsproducts
Keep consistent tracking of market changes andadapt promptly and efficiently
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Analysis of macro and micro level environmental factors
on IBM strategy concludes that IBM has strongcompetitors in hardware industry like Dell or Hp but IBMcan work more powerful in software industry with fewstrong competitors like Microsoft
IBM accuracy of understanding the demand forsoftware and services skills worldwide is growing.Therefore, the computer technology industry still hashigh market growth rate.
Although the external factors have impacted on
computer technology industry, IBM still exit on themarket as they have strong financial capacity,knowledgeable and competent management andexperience.
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