Assessment of International Business Machine - Case Study Example

A report on the assessment of international business machine (IBM) [Name] [Unit] [Date] Table of contents 1. Introduction 3 1.1 International business machine (IBM) 3 2.1 Strategic analysis 4 A strategic view of IBM 5 2.2 Swot analysis 5 2.3 Porter’s five forces analysis 8 3.1 Challenges in IBM 9 3.2 Management of information technology 10 3.3 IT strategy 11 4. Conclusion 12 5.0 Recommendations 12 References 13 1. Introduction The role of information technology (IT) in different firms is evolving. Traditionally, IT was part of the backroom activities in various firms but due to rapidly changing in technology, IT is has been playing a significant role in delivering business transformations as well as top line value. Weill & Aral (2006) found out that the responsibilities of the role of IT are critical and it is clear that business strategy cannot be assumed to drive the IT strategy naturally as it was traditionally. The strategies on IT are very essential to the business because they deliver effective operations of the business as well as competitive products and services that can be differentiated from other competing firms. The main challenge in many firms is the alignment of IT with the business strategies. Currently, with the increase in globalization, more companies are becoming more interrelated in respect to their products and services. Thus, innovation, speed and flexibility are becoming very essential factors in competing firms and therefore, these factors need to be fully incorporated into the firms through IT. Planning, development and implementation of strategies is based on the vision, mission and goals of the business (Smith, McKeen & Singh 2007). 1.1 International business machine (IBM) IBM is one of the leading companies in the IT industry in relation to computing. The company has spread its wings in all technological dimensions. IBM is a provider of IT hardware, services and rental and financing. Its hardware includes storage devices, servers, intellectual property licensing, desktops, notebooks and related peripherals. Software devices include Lotus, Web-sphere, DB2, Rational and Tivoli. The company conducts business in more than 170 countries worldwide with more than 300,000 employees. It provides a variety of devices for data storage and servers as well as a massive storage and a secure database. Its aim is consolidation, animation that is focused on saving physical assets. In research, the IBM has also a significant contribution such as IBM ThinkPad 750 with establishment of software for environmental management and monitoring. The company also established blend silicon and germanium instead of the pure silicon chip for a technology that is cost effective. In terms of revenue, IBM is among the top largest software companies. The company’s profit earning is more but it spends much in the research and development (IBM 2008). 2.1 Strategic analysis The IBM’s vision is striving towards development; invention and manufacturing of most advance IT for the industry with inclusion of software, computer systems, and microelectronics and storage systems. The main activity of IBM is finding solutions to a variety of clients using advanced of information technology. The company’s main strategy is delivering the services of the company with high added value to the customers through server product. The main strategy is achieved in four sections. First section involves the allocation of resources in order to reduce the costs of operation. Second part involves pursuing an agenda on innovation with partners, clients for achievement of higher values. Third section involves acquiring businesses in order to strategically contribute to IBM’s portfolio. The fourth section involves maintaining its rapidly changing leadership by laying focus on solutions and services of high-value and based on innovation in consideration of stakeholders. The company consists of four competencies or strategies. These include technology strategy, operations strategy, business strategy and organisational strategy (IBM 2004). A strategic view of IBM 2.2 Swot analysis This analysis is commonly used for company’s quick overview of strategic situation by the managers. It is on the grounds of the assumption that a strategy that is effective is derived from a sound fit between the internal resources of the firm in terms of strengths and weaknesses as well as the company’s external situation in terms of threats and opportunities. The strengths of the company include brand name, advanced management of business performance, good cultural organisation, strategic outsourcing, acquisitions and mergers, fulfilment centre with high efficiency, diversification, and flexible management of marketing as well as creative services. IBM brand name has made it easier to market its products because of its popularity of its products in computer industry since 1911. IBM consists of one of the world’s fastest mainframe and many technologies such as software for speech recognition, a supercomputer known as blue gene that works very fast and has a capability of operation of more than one quadrillion per second. These IBM’s outperforming technologies gives it the capability to provide back hand facilities that are best. In addition, IBM has engaged itself in a variety of fields which include services on IT strategy and architecture, integrated services on communication among others. IBM also introduced the ‘Green Technology’ in the market which saves about 40% of the cost of its energy through consultancy, animation and consolidation (IBM 2004). The weaknesses of IBM include declining sales system in the company as well as service segment, steady decrease in total assets, high chain value costs and issues on possible acquisition. The rapid increase in technology means that the company has to do away with the facilities that it had been using. Changing of existing facilities to conform to new technologies in IBM is more difficult than establishing a new business as seen in the case of companies such as Apple among others. Although acquisition is the best way to prevent costs of establishment of the company in new locations, it also accompanied with some risks in relation to the nature of existing facilities and the reputation of the acquired business. As the company spends more of its earnings on research and development, it has limited supplier market. With such a sensitive place in IT market and the massive size of the organisation, it finds it impossible to make immediate changes (IBM 2008). IBM opportunities include more growth of markets in information and technology, stable and strong economic market context, high consumption power for individual, a service market that is sophisticated, and an internet market that has already matured. As there is a rapid growth in internet application, IBM has an open opportunity as it produces huge facilities for data storage. With wireless solutions, the customers are able to reach their suppliers, employees and clients with the use of the emerging and wireless technologies. Threats faced by the company include short life cycle in technology, low switching costs for customers, high cost of switching on core hardware, high substitutes threats, and intense competition. IBM is one of oldest players in this industry and customers may opt to look for a change. Also the current market is so flexible which may lead to more competition from other companies such as Apple as they seem to rapidly change with environment of the customers. Also, more spending on research and development as compared to the company’s earning serves as a loophole. With limited number of suppliers in the process of value chain, it becomes difficult for this company to afford a substitute (YouSigma 2011) Swot analysis of IBM STRENGTHS WEAKNESSSES Brand name advanced management of business performance, good cultural organisation, strategic outsourcing, acquisitions and mergers, fulfilment centre with high efficiency, diversification, and flexible management of marketing declining sale system declining service segment, steady decrease in total assets, high chain value costs Issues on possible acquisition. OPPRTUNITIES THREATS more growth of markets in information and technology, stable and strong economic market context, high consumption power for individual, sophisticated service market, Matured internet market wireless applications. intense competition short life cycle in technology, low switching costs for customers, high cost of switching on core hardware, high substitutes threats 2.3 Porter’s five forces analysis The new entrants’ threat is strong as with new technology, there are emerging companies that are easily getting into the market by learning from the challenges faced by IBM. This gives them a chance to focus on rapidly changing technology without investing much on research and development as compared to IBM. Since the customers have been in IBM for a long time, they prefer the related upcoming companies with a belief that new companies come with new technology. Such companies include Apple and Microsoft among others. In relation to the power of suppliers, some of the major processor providers such as Intel and AMD have a strong power in the supply of chips. Although currently there may be a decrease in suppliers’ power due to competition, variety of customers and high switching costs decreases the power for buyers to bargain with the giant suppliers. On the other hand, the suppliers’ power in low technical parts and materials is weaker as compared to the providers of core hardware. The buyers’ power is high for the server products because the switching costs for buyers are low as well as reduced buyers concentration on the firm. There are also many choices of products for buyers which include IBM, Apple, and HP among others (IBM 2004). The rivalry competition in the market is becoming intense worldwide. Rapid increase in technology has created more interest in this industry. This has led to increased number of competitors. These competitors include Apple, Dell and others because computers are one of the leading server vendors worldwide. A business for web hosting is the biggest substitute threat in the world for server products. Web hosting advantages include tech-support, low cost, easy to manage and low costs of switching (Pettigrew 2002). 3.1 Challenges in IBM From SWOT and Porter’s five analysis, most challenges in IBM can be attributed to technology. It is clear that IBM spend a lot of its revenues on research and development. The efforts made on research and development in any firm must also be proportional to the income generated from the results of research and development. In contrary, research and development in IBM is not reflected in the revenues. As a result of this, its competitors learn from them and make necessary adjustments immediately in their products and market them to customers long before IBM develops. Thus, its rivals end up gaining a competitive advantage. The problem in IBM can also be related to lack of proper connections between the business strategy and information technology strategy. IBM has been experiencing a decline in its sales. This can be seen to be inversely proportional to the rapid increase in technology as well as the number of customers in this industry. This means that decline in sales in IBM is associated with loss of customers to its competitors. The reason behind the loss of customers to other firms is that, IBM competitors are doing more to gain a competitive advantage than what IBM is doing. Thus, decline in sales in IBM can be related to lack of adequate technology as compared to its competitors (Gottschalk &Chew 2009). The Size of IBM and acquisition of other firms focuses on extension and reduces its focus to a production that satisfies the changing needs of the customers. With rapid increase in technology, most firms are focusing on technological changes in order to be competitive. IBM finds it challenging as it tries to balance expansion of the already large company with improvements in technology. However, other smaller firms such as Compaq venture into the flexible technology market easily through improved technology and greatly reduce the market share for IBM. This is reflected in declined sales in IBM (Piccoli & Ives 2005). IBM is also faced by the challenge of conforming to the current process of business management. The origin of this challenge is due to the nature of the management of the company when it was established back in 1911. During that period, the main focus was on business strategy while IT strategies were not given enough consideration. This means that the strategies on IT were not important enough to be addressed in boardrooms because they were considered as part of backdoor activities. As the business has been there during the traditional and current management, there are still characteristics of traditional management when business strategy was given priority. This has lead to development of a gap between business and IT strategies. This gap in the business management hinders the opportunities for improvement of technology. Due to this, its competitors gain a competitive advantage over IBM (Awad 2004). 3.2 Management of information technology Currently, as IT has change from the back office into customers’ hands, it has become a complex issue to manage. It is worth noting that IBM needs to consider IT as a more critical asset that affect the bottom line of the business. Proper coordination of strategies on IT with business strategy will lead to gaining of a competitive advantage as well as delivery of new service levels in a way that will increase IBM’s operating efficiency. Effective IT strategies will enable creation of new markets as well as new product opportunities. For IBM to differentiate itself from other competitors, it requires a successful management of IT (Rapp 2002). 3.3 IT strategy IT strategy is one of the competencies that need to be improved in IBM. This will be achieved by closing the gap between the business strategy and IT strategy. The recommended IT strategy for IBM will be based on the following factors; Enhancement of competitiveness Creation of new sources of economic value Deriving the growth of revenue Increase the company’s productivity A lead to implementation of a substantive change In order to enhance competitiveness, IBM has to use IT as a differentiator of the business. This can be achieved through aligning the business strategy with IT strategy. For instance, they need to assess the new and emerging technologies in order to come up with products that are more satisfying to the customers without compromising its revenues. For increment of the company productivity, IBM needs to look on ways of reducing acquisitions and perfect the available products by focusing more on gaining a competitive advantage rather that expansion. This will increase the number of sales as well as the growth of revenue. The aim of this would be to overcome threats from other firms that aggressively compete with IBM irrespective of their small sizes. The implementation of a substantive change will be based on production of synergy from IBM’s software, hardware and services in order to make it a world leader. This is achieved by picking various sectors of the firm and focusing on them while ensuring use of research and development in an economical way to prevent large consumption of revenues. The strategy will ensure better alignment of investments, IT resources and business strategies, improved effectiveness and efficiency of utilization of IT resources and reduction of the costs of operation (Cegielski et al. 2005). 4. Conclusion Effective development of strategy has currently become a vital role in organisations. With increased impact of growth of IT, the issue of IT strategy has got the deserved business attention. Most organisations has realized the gap between the IT and business strategies and are learning about the ways of developing and synchronizing IT strategy in the overall strategy of the business. Balancing between IT strategy and business strategy has been a challenge in IBM. This is reflected through decline in sales, issues on acquisitions, loss of its competitive advantage to its rivals among other factors. This is attributed to the size of the company, overspending in research and development, characteristics of traditional thinking in the management among others that have led to creation of a gap between business strategy and IT strategy. Closing this gap will provide solution to today’s business environment that is rapidly evolving. 5.0 Recommendations IBM needs to incorporate both long term view of their practices in resourcing and an opportunity to frequently react to changes. This will enable the firm to adopt technological changes in a way that will maintain or increase its competitive advantage. There are characteristics of traditional business thinking in IBM. This may lead to short term profitability. Thus, leaders must ensure that IT work which includes new opportunities in business and infrastructure will not be underfunded while other works such as business improvement and utility are overfunded. This is a continual challenge that business and IT leaders need to address (Rapp 2002). References Awad, E. M. & Ghaziri, H. M 2004, Knowledge Management, Pearson Education Inc., New Jersey Cegielski, C.G., Reithel, B.J. & Rebman, C.M 2005, Emerging information technologies: Developing a timely IT strategy, Communications of the ACM, Vo. 48, No. 8, pp. 113-118 Gottschalk , P &Chew, E.K 2009, Information Technology Strategy and Management: Best Practices. Idea Group Inc (IGI). IBM 2008 ’UnderstandingIBM’.pp:3–5. Accessed on 13 May 2012, http://w3.webahead.ibm.org/w3ki/display/ibmpedia/Understanding+IBM+Organziationally. IBM 2004, IBM strategy and change services: technology strategy. IBM business consulting services.p. 1-3 Piccoli, G., & Ives, B. 2005, IT-dependent strategic initiatives and sustained competitive advantage: A review and synthesis of the literature. MIS Quarterly, Vol. 29, No.4, pp. 747-776. Rapp, W. V 2002, Information Technology Strategies – How Leading Firms Use IT to Gain an Advantage, Oxford University Press, New York Weill, P., & Aral, S 2006, Generating premium returns on your IT investments, Sloan Management Review, Vol. 47, No. 2, pp. 39-51. Smith H. A , McKeen, J. D, & Singh, S 2007, Developing Information Technology Strategy for Business Value, Journal of Information Technology Management, Vol. 18, No.1, pp. 49-58. YouSigma 2011, International Business Machines (IBM) (SWOT Analysis). Accessed on 13 May 2012, http://www.yousigma.com/comparativeanalysis/internationalbusinessmachines.html Read More