IBM India Facts and History - Assignment Example

Report on IBM: 1) Introduction……………………………………………………………………………….. 2) Business Model of IBM…………………………………………………………………… 3) External Forces Faced by IBM…………………………………………………………... 4) Problems and Challenges encountered by IBM over the last decade…………………. 5) IBM’s evolution in this millennium……………………………………………………… 6) Identification of the current strategy of IBM…………………………………………… 7) Suggestions………………………………………………………………………………... IBM Flourishes in India: Introduction: In 1992 IBM was launched in India. In 1992 when the business for IBM began, it faced with an interruption for more than a decade due to the political pressure. Many of the multinational organizations had shifted away from the country during that period. But the new millennium saw the total transformation of the company as it grew by leaps and bounds since then. (Gibson, 2006) As in the report of 2005 the employees of IBM are placed in 14 cities. Total business partners are located in 40 cities of the nation. As of report on 2005, the company became the overall leader in the overall server and storage market in India. The report in 2005 also recognized ‘IBM Daksh’ as the best managed outsourcing vendor in the world. It was determined from the report of 2005 that IBM was the market leader and it was the holder of 5.5% market share of the Indian domestic IT market. IBM is the largest software exporter in India. IBM has helped over 15 Indian state governments to concentrate on e-governance related projects as found in the report provided of 2005. (IBM India: Facts and History, n.d.). Business Model of the IBM Company: The business model of IBM is mainly based on three particular components. The components are ‘industry model’, ‘revenue model’, and ‘enterprise model’. In case of ‘industry model’ the value chain is determined by the innovation of the products. By innovation of products, it means the introduction of the company into new verticals. An example can be cited in relation to this. Virgin who was into the retail business shifted their business towards ‘airlines’, ‘railways’, ‘beverages’, and ‘financial services’. The biggest path breaking move in case of the industry model is to develop an entirely untapped industry or a few untapped segments of the industry. In case of ‘revenue model’ the approach is mainly focused on the generation of revenues by introducing new pricing methodologies. New products and services are also offered to the consumers. ‘Revenue model’ is influenced by the preferences, choices and experiences of the consumers. This also creates a scope for innovation in the field of technology. An example can be cited in this regard where ‘Gillette’ had done price innovation by under pricing the razors to sell razor blades. In case of ‘enterprise model’ the approach is mainly based on the innovation of the structure of the organization and the role it plays in creating existing value chains. Through the help of this model the company is able to redefine its organizational boundaries. The model also focuses on the innovation side through the help of ‘specialization’ and ‘network channels’. (Giesen, 2007; Berman, 2007; Bell, 2007; Blitz, 2007, pp. 5-6) A diagram can be provided in relation to the above said business model. External forces faced by the IBM Company: The external forces of the organization have to be discussed based on the theory of Porter’s five forces. When we speak about the strength of ‘IBM’ as a buyer we will find that their position in the personal computer markets has been deteriorated. Since the question of buyers’ strength is directly correlated to the supplier’s strength then we need to analyze that how both the buyers and the suppliers are faring in this market. IBM went for an outsourcing of an input from ‘Intel’ and ‘Microsoft’ and this helped its suppliers. The outsourcing allowed its suppliers to develop clones of its hardware’s. IBM also could have gone for an ‘open architecture policy’ which could have prevented this sourcing. But this policy was grabbed with both hands by Intel and Microsoft and hence they have become the monopoly suppliers of the input required for the personal computers. This has certainly curtailed the strength of IBM as a buyer. IBM could have influxed the strength of its bargaining power by signing a future license agreement with the ‘Intel’. (Katz, 1996) In case of systems products there are certain barriers to it. IBM carries huge entry barriers as it carries a system instead of a single product. We need to understand and evaluate the difference of single products and system products. A single product is an individual product while the system product is an integration of many individual products. All the input components such as ‘transistors’, ‘micro processors’, ‘semi conductors’, ‘personal computers’ are combined together with the hardware and an operating system is formed. That’s why IBM requires so much of capital to build up its empire as this is a highly capital extensive industry. There are other reasons also which shows that the market has high entry barriers. Captive consumers (as they believe in the loyalty of a particular system), price discrimination prospects, lack of proper transparency in the market, leasing of hardware instead of selling, and high overhead costs are some of the other reasons of such high entry barriers. (Faulhaber, 1991; Tamburini, 1991, p.112). In case of system products there are several possible substitutes in the industry. Software piracy is one of the biggest substitutes of technology nowadays. Another form of substitutes is house software developed by the company’s own development team. This is mainly done by the companies to strengthen their internal development system for the purpose of back end operations. Open source is also considered as another form of substitute as it helps in developing the software industry. (Eight Annual BSA Global Software Piracy Study: Trends in Software Piracy 1994-2002, 2003) In case of rivalry the intensity is fair. IBM’s biggest rival is Microsoft. IBM’s central strategy is to counter the monopoly ‘windows’ businesses of ‘Microsoft’. In relation to this it can be said that IBM has come out with an ‘open source software project’ for which it has taken 500 patents at a cost of over $10 million. The business strategy is also very fantastic as it counters the rivals’ business by allowing the consumers to use the software for free. IBM wants to see a lead in the software sales system through the promotion of open source programs. (Hamm, 2005) Problems and Challenges encountered by IBM over the last decade: Political pressure is one of the biggest problem as well as a big challenge for the organization. Along with this the wage inflation is an issue for IBM in India. Due to the downslide of credit quality, the ‘global financial receivables’ will incur a battering. This is because the ‘provision for bad debts’ will increase. This is a grave problem for the organization as the overall ‘global portfolio’ has to be maintained properly. In addition to the above mentioned problem market risk is an integral problem for the organization. This is because over the last decade the organization has suffered various losses in the form of interest rate fluctuations and the volatile movements of the exchange rates. The debt maintenance of the organization is also a problematic area for the concern as it contains an element of market risk. The company has also faced financing risk due to the company’s total worldwide offerings. As in report of 2001 the primary challenge of the company was to counter the economic softness created in the United States. This is because it could worsen and blown off into the non-US markets. The other main challenge was to counter the increasing aggressiveness in the price competition. As in report of 2002 there were three areas that were given the basic focus to counter the challenge of business faced by the organization. The first area of challenge was to have a continuous growth in the key market segments. It included ‘service offerings’, ‘software’, ‘servers’, and ‘storage subsystem’. The second challenge was to observe the improvement in the performance of ‘personal computers’, ‘HDD’, and ‘microelectronic businesses’. The third challenge involved the continuous execution of the company’s productivity initiatives. Another key area that is challenging for the organization is the overall demand of the IT hardware, software and services, and the participation rates of the consumers. As in report of 2003 there are a few areas which the organization must consider to improve their business prospects. The first challenge is to make the consumers accept the new open standards also defined as ‘Linux’. The second challenge is to convert the company’s ‘leadership technology’ into ‘product and services leadership’. The third challenge is to transform IBM’s business into an ‘on demand business’. Finally ‘IBM’ would look for streamlining and cost reducing initiatives which would blend the organizations ‘supply chain’. (Management discussion, 2000, p.4; Management discussion, 2001, p.4; Management Discussion, 2002, p.6; Management discussion, 2004, pp 26-27) IBM’s evolution in this millennium: The main reasons for which IBM has come up with great evolution in this millennium is because of the investment patterns. They have not only made investment in the IT sector but they have focused on newer verticals like healthcare and automotive sector too. In case of speaking about the utility of investment we need to access the areas where IBM have invested their impact on consumers and the reason for which they have risen like a big giant: IBM has established the new breed of service delivery centers in Bangalore. New process and technology have been deployed which will greatly boost the IT service delivery. By doing this the company has reduced its cost and offered the clients great flexibility in terms of greater access to the worldwide system of its service offerings. By creating the IBM system & technology group the focus of IBM is fixed on the development on the infrastructure solutions, technologies and innovations. There are other reasons too for setting up the group and they are providing ‘performance benchmarking’, ‘testing’, and ‘data migration’. Telecommunications Research & Innovation centers are located at its India Research Lab. The main reason behind choosing such location is it serves as a key resource to IBM’s telecommunications clients around the world. Both the employees and their capabilities are increased in Demand solutions lab in Bangalore. It is done to create high performance from their staffs. Specialized software is created in the Demand solution lab which serves the organizations to serve the complex IT infrastructures. They have also designed solutions for the Indian students so that when these students work in IBM they can improve and develop their skills. Moreover it is also done to face the business of today. (“IBM Chairman and CEO Announces Plans to Triple Investment in India over Next Three Years”, 2006). Identification of the current strategy of IBM: Whenever we speak about the current strategies ‘IBM’ has undertaken to improve the overall business strength of its organization then we need to access the newer verticals it has explored into. We will be trying to give an overview of the current verticals the organizations has intervened into: ‘IBM’ has intervened into the ‘automated meter management projects’. In fact they are now leading world’s top seven ‘automated meter management projects’. The basic utility of such projects is to sense and operate the power electrical grids. Along with this the other utilities that it will provide are ‘connection and disconnection of services’, ‘fewer and shorter outages’, ‘improvement in the consumer services’, ‘blending of the environmental power resources’. The organization has also intervened into the health care system. The strategy that the management has undertaken in terms of cost reduction is fabulous. The cost of therapy has been reduced by 90%. Also in addition to this the organization has used its technology to observe the delivery of ‘injections’, and ‘vaccines’ to more than 2 million patients in 38 states. ‘IBM’ has also built a new system for the ‘Norway’s largest food supplier. They are using ‘RFID’ technology so that they can find the appropriate usage of a particular product in the value chain. An e.g. can be given in favour of this where it is seen that ‘meat’ and ‘poultry’ are traced from the farm through the supply chain all the way to the supermarket shelves. World’s largest single market is foreign currency exchange. IBM has made a strategy to develop technology which would settle the intraday risk. It has been determined that around $2trillion in volume and around 60% of the world’s foreign exchange transactions have been carried out through the usage of the technology of IBM. IBM has also given a helping hand to the ‘telecom service providers’, ‘mobile and broad brand operators’ and ‘broadcasters’ to convert their networks and services. 50%of the market of mobile services has dynamically responded to the service solutions provided by IBM. (Chairman’s Report, 2008) IBM is also trying to tap the local talents present in India. This will only help them to improve their overall outsourcing services and reduce costs in terms of paying salary to their employees. (Movements, 2000) Suggestions: Whenever we speak about organizational values we must consider the certain elements which have direct impact on the value system. The elements are society, shareholders and the employees. (Barrett, n.d. p.1). Now days the companies have started giving more importance to the corporate social responsibility as it improves in managing the business in a proper way. Moreover it gives an overall positive impact on society through ‘economic’, ‘environmental’ and ‘social’ actions. We all must remember that the growth and profitability of an organization is wholly dependent on the information and the relationship it maintains with the consumers. Moreover it has been determined that IBM should focus more on CSR activities as it creates new revenue streams for the organization. CSR in general is a strategic tool which in case of IBM amalgamates company skills, market needs and humanitarianism. An e.g. can be cited in relation to this where IBM works with general public to make the world community grid available to the ‘volunteer force’. More than 210000 people bestow the idle processing power of their own computers to create a ‘virtual supercomputer’ that serves solely humanitarian research. This not only benefits the society but also passes on the feedback which gives more chances to the organization to improve their revenue streams. (Attaining sustainable growth through corporate social responsibility, 2008, pp 1-4). Regarding the treatment given to the employees of the organization IBM has designed global web based survey for their employees. The basic function of this tool is to help all the employees of IBM across the globe. Moreover the employees can receive e-mail, and can seek participation through invitations. The managers of IBM can receive consolidated report with no break up as per locations. The technology has also served the employees in a big way as they can provide essential insights about the manager’s ‘effectiveness’, ‘constructivity’, and ‘confidentiality’. (Employee Surveys, 2009, p.2). Regarding maximization of the wealth of the shareholders the operating margin and the leverage of the organization has to be immaculate. It should be kept in mind that in going for more profits the organization should not take unnecessary risk which ultimately backfire their own decision. 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