Economics for Managers - How Economic Ideas Can Improve Performance of IBM - Case Study Example

HOW economic ideas can improve performance of ibm al Affiliation) Key words: Economics, Business, IBM Introduction An increasingly large number of managers and top business executives are adopting ideas from economists in order to improve the performances of their businesses. This has been necessitated in the current times by the volatile markets coupled with the global financial crisis and increased competition from other firms on a global scale (Manek 2014). The first ten years of the 21st Century have been plagued by transformations and changes relating to commerce which have been pushed by technology, natural phenomena and an improved averageness of the environment. The internet has also been increasingly used as a tool of not only sharing information but as a tool for pursuing business globally through platforms like e-commerce. For any competent manager to succeed in the present financial times, they must adhere to a number of economic ideas relating to global demand, supply and product differentiation (Michel 2013). Any good manager should learn how to thrive in a highly volatile market characterizes by the growing linkage of customers, markets, suppliers and regulators (Michel Barnier 2013). They should be able to predict unexpected shocks in the economy and be able to differentiate their products from the other competitors in order to gain a competitive advantage over the other firms in the market and be ruthless in exploiting opportunities to attract customers. Performance management will be key because the traditional methods that included the use of annual budgets, quarterly reports and five year period strategies appears to be redundant in the present fiscal climate due to their unflexibility and lack of visibility that managers require to navigate their companies to financial success (Sloman J., Hinde K. and Garratt D. 2013). Indeed, ideas of economists when they are right or wrong are very influential than understood by people. Economic ideas to improve IBM A number of strategies must be adopted in order to be able to survive in markets characterizes by very high fluctuations. The management practices should be focused on increasing a firm’s flexibility, targeting highly talented personnel, using the best technology, collaborating with other firms in the market and making decisive decisions (Shiller 2013). IBM was able to successfully increase its revenue base from $ 72 billion to close to $100milliion between 1995 and 2004 but experienced a reduction in the margins of gross profit because a portion of its business became commoditized. The company was, made to look for more expense reduction for the purpose of growing its business. The revenue pool as of 2007 was only slightly higher than it was in 2004 and during the credit crunch experienced globally in 2010.In order for the company to grow even further it needs to reposition the company by getting rid of businesses like Pcs and hard drives that do not yield a higher profit margin like the other parts of the organization and concentrate on those sectors through specialization and division of labor geared for the improved profitability of the company. Other sectors of the company that should be eliminated are Cognos and PWC which are software busineses.BY doing so, the firm will be positioning itself in such a way that it is able to anticipate major financial shocks in the market and still be profitable. The managers should not wait until they are economically threatened and are unable to absorb the shocks (Kelly Grainger Giles Hutchins 2012).This should be coupled by changing their operations to be able to be competitive and adjusting expenditure plans of capital, inventory levels and production levels to cope with a reduction in the demand of a number of its products. To maintain its flexibility, the company should not rely on a single nationwide ERP system but should invest in building a reliable foundation of data that is of high quality which will enable the smaller businesses of IBM to use the best available answers to specific problems just like Qualcomm did. This is using division of labor and specialization in computer systems where small development teams are given a degree of freedom to use rapid response criteria to tackle their distinct business needs. Flexibility in the company can also be maintained by not outsourcing core functions entirely to assist the company to be able to regulate capacity in timely fashion (Kelly Grainger Giles Hutchins 2012). Other flexibility ideas include retaining core activities in the company which will assist the company to regulate service levels and simultaneously adjust size capacity in order to meet the current needs (Michel Barnier 2013). In times of financial crisis a lot of the companies prefer to navigate the hard times on their own but it should not be the case. In challenging times, companies require to consolidate their actives (Sloman J., Hinde K. and Garratt D. 2013). With effective management performance systems and processes it can assist in communication and collaboration. Early this year, IBM and Apple developed a partnership to increase their sales revenue. The IBM Tech30 and AAPL, Tech 30 were partnered for the purpose of increasing the sale of their iPads and iPhones in order to stifle Blackberry out of the market. When the announcement was made shares of BBRY Tech30 fell by more than 10%.Such partnerships are essential but it still needs to invest in long lasting relationships especially with the principal suppliers of technology through collaborating in matters relating to product development and participating in customer advisory boards . It is essential that the technical personnel and partners connect on a face to face platform. This because effective communication increases decision making and overall efficiency of personnel output (Sloman J., Hinde K. and Garratt D. 2013). IBM should invest in tools of social networking as a means of aiding the major business systems .Collaboration not only improves execution but it can also be used to develop fresh innovative ideas that can aid IBM to emerge above other companies like Apple when the economy become more stable. IBM has in recent years been yielding revenue through audits and increasing the prices of its software. The company’s economic policy has been to audit customers, discovering clients who have under licensed software and then they make fast sales to lure clients with a fully licensed software package coupled with heavy layoffs which is a bad recipe for growth. One way that a company can gain a competitive edge of its competitors is through avoiding layoffs because by avoiding to do so, a company is able to upgrade the talent of the personnel as it is able to attract more qualified personnel due to the sense of job security. One of the major requirements of any major corporation or business is its ability to retain and focus talent coupled with providing the appropriate tools, focus and leadership. Invention and innovation are key economic concepts for the growth of any economic activity (Post-Crash Economics Society 2013). IBM should therefore promote its growth and performance by retaining and employing highly skilled personnel and providing them with incentives for innovation and invention and adopting management practices that do not inhibit their employees’ creativity. A major reason why Apple has been able to stay ahead of IBM is due to its innovation capabilities such as the iPhone and iPod products that made Apple in 2011, the most profitable company in America. Any successful economic venture is reliant on the principle of sound and decisive leadership in order to attain development goals and target yields (Kelly Grainger Giles Hutchins 2012). . In times of market volatility like the one experienced today, it is necessary that any business has strong leadership guided by other mechanisms (Chakrabortty 2013). Confident decision making is vital and the decline of the automotive and property values has been blamed among other factors to poor indecisive leadership. The current CEO of IBM, Ginni Rometty is going to be the downfall of the company due to his insistence on maintaining an ineffective sales culture that has been the core reason for the inability of IBM to meet its quarterly sales targets. Additionally, IBM is rumored to be close to selling to Lenovo its server business. The managers at IBM need to equip themselves with decision support tools that will enable them to make more confident decagons. By using efficient performance management processes certainties relating to matters of management can be reduced. The ability to boost staff morale is essential for any business that is based on a bureaucratic system of governance. Bureaucracy coupled with low staff morale hampers the growth of a company and IBM is characterized by its insistence on a steep layer of hierarchy which has 13 levels of management. By combining with the policy of the company to cost cut and outsourcing cheaper labor from India the company is headed for disasters. The company should adopt a policy that is less bureaucratic such as Google that makes use of openness and transparency between employees and employers and its informal work setting. IBM should adopt the performance management processes in order to acquire visibility relating to core expense and revenue drivers, be able to ensure that there is a wide collaboration that will provide the best information before making crucial decisions, simulate alternative events that is based on a variety of market assumptions, plan, communicate, predict changes to relevant stakeholders automatically, improve confidence levels of personnel and be able to always monitor core business metrics that will give alerts in advance to avoid disasters (CHETTY 2014). IBM should integrate performance management with data sets in order to enable managers have insight and give advanced identification of potentially lucrative opportunities and disasters. Using the appropriate technology is an important factor that is used to determine the growth and development of any economic endeavor (Kelly Grainger Giles Hutchins 2012). A good example of how vital the right technology influences the direction and performance of a company is the introduction of spread sheets in the 80s in the finance department. Companies that used spread sheet were able to save on time, reduce errors and generally increase the efficiency of not only the finance department but also the whole company (Dwinell 1986). However in our present day, the use of the spread sheet is not appropriate for use as a tool for customization and collaboration for individual markets. Using the most suitable tool is an essential part of businesses todays and is highly correlated to its general performance (Bartleby 2014).  IBM was initially faced with the challenge of using an inappropriate tool in the 1980s due to its complex organization that was supported by many contrasting systems. Apple has been able to defeat IBM in the sale of its personal computers especially to the arts industry due to its use of an operating system that does not provide a good user inter face. If IBM can be able to use a system such as Macintosh they may be able to increase their performance in markets flooded with graphic designers and music producers. References Dwinell, R (1986). The Use of Spreadsheet Software to Teach Business and Economic Concepts. Computers in the Schools, 79-86. Bartleby.com, (2014). Eliot, T. S. 1922. The Waste Land. Retrieved 30 November 2014, from http://www.bartleby.com/201/1.html Chakrabortty, A. (2013). Mainstream economics is in denial: the world has changed | Aditya Chakrabortty. the Guardian. Retrieved 30 November 2014, from http://www.theguardian.com/commentisfree/2013/oct/28/mainstream-economics-denial-world-changed CHETTY, R. (2014). Yes, Economics Is a Science. Nytimes.com. Retrieved 30 November 2014, from http://www.nytimes.com/2013/10/21/opinion/yes-economics-is-a-science.html?_r=3& Manek, V., & Manek, V. (2014). Is Economics Actually A Science? | NER. Neronline.co.uk. Retrieved 30 November 2014, from http://neronline.co.uk/2012/06/19/is-economics-a-science/ Post-Crash Economics Society,. (2013). Blog. Retrieved 30 November 2014, from http://www.post-crasheconomics.com/blog/ Shiller, R. (2013). Is Economics a Science?. Project Syndicate. Retrieved 30 November 2014, from http://www.project-syndicate.org/commentary/robert-j--shilleron-whether-he-is-a-scientist/ Sloman J., Hinde K. and Garratt D. (2013). Economics for Business (Sixth edition) Pearson, Harlow.  Michel Barnier (2013). The UK in the EU Single Market: What Next? Opportunities and challenges. Kelly Grainger Giles Hutchins (2012). LSE Public Lecture: The Nature of Business. Read More