Significance of IBM's Seizure of Hardware Production to the Customers - Research Paper Example

Significance of IBMs Seizure of Hardware Production to the s Significance of IBMs Seizure of Hardware Production to the Customers Table of Contents Table of Contents 2 Abstract 3 Objectives 4 Hypothesis 4 Null 4 Alternative 4 Chapter 1 5 Introduction 5 Chapter 2 6 Literature Review 6 Chapter 3 11 Methodology 11 Chapter 4 12 Results 12 Chapter 5 15 Discussion 16 Conclusion 17 Recommendations 18 Chapter 6 19 References 19  Myers, M. 2013. Qualitative Research in Business and Management. New York: SAGE publishers. 20  Paul, O. 2010. The Student’s Guide to Research Ethics. New York: McGraw-Hill international copyright. 20  Ravid, R. 2011. Practical Statistics for Educators. New York: Rowman & Littlefield publishers. 20  Frei, F. and Morris, A. 2012. Uncommon Service: How to Win by Putting Customers at the Core of Your Business. Massachusetts: Harvard University. 20  Griffiths, A. 2006. 101 Ways to Really Satisfy Your Customers. New York: Allen & Unwin Copyright. 20 Appendices 21 Questionnaires 21 Significance of IBMs Seizure of Hardware Production to the Customers Abstract IBM is selling their HW business slowly and walking out of the Hardware business and shifting into services and software. This seems to affect the customers who had IBM hardware and now that the firm has shifted, chances of spare parts for repair are minimal. The shift is associated with the explosion of the internet era. Currently, most of the firms are trending onwards towards making better decisions using data not only from the websites but corporate databases, radio frequency identification tags and sensors (Lohr, 2010, p. 1). Moreover, most firms wish to use software as a service a scenario known as cloud computing. Through cloud computing, services can be provided over the internet distanced from the data centers into their smart phones and personal computers. Initially, the firm spent huge funds in running its projects of mainframe computer manufacturing. The projects were expensive in that the firm was developing computers powered by low-cost microprocessors that were expensive to produce (Lohr, 2010, p. 1). Therefore, the project will determine how the shift will affect the customers and the firm in general. Our hypothesis statement claims that shifting of IBM from hardware production to software and services production will affect its loyal customers who had purchased their products. Data was collected using online questionnaires from organizations such as schools, banks and other institutions that are major users of hardware and mainly of IBM Corporation. Presentation is in tables and graphs form with the relevant percentages. ANOVA was used to test our hypothesis at a significance level of 95% (Ravid, 2011, p. 158). From our analysis, 90% of our respondents claimed that they are IBM hardware product users and the firm’s decision will have some adverse effects to them with an 80% support. The p-value of ANOVA test was 0.25. The value was larger than the standard value of 0.05. Therefore, our null hypothesis was adopted, and the alternative hypothesis rejected. 40% agreed to continue partnering and using IBM products. 80% said that IBM hardware products are very efficient in their performance. Objectives 1. To determine the effects of IBMs seizure of hardware production to their customers. 2. To determine how worthy was the IBMs decision of hardware closure is. Hypothesis Null HO1: IBMs seizure of hardware production has no significance effects to their customers. Alternative HA1: IBMs seizure of hardware production has significance effects to their customers. Chapter 1 Introduction International business Machine Corporation, also regarded as IBM is an American multinational firm that deals with production of computer hardware, computer software, IT services and consulting ranging from mainframes to nanotechnology. It was founded and established in 1911, with its headquarters in New York, United States. IBMs systems and technology hardware segment comprises of storage, microelectronics and systems businesses. Systems section provides with integrated and general purpose systems specifically meant for scientific, business and public activities. The storage sections provide data storage products that can handle the large increasing data records. Finally, the microelectronics section provides the semiconductors design for the IBMs systems and products. In 2012, the Fortune Magazine ranked the firm 4th in terms of market capitalization. Moreover, it was ranked the 9th most profitable firm and the 19th largest in terms of revenue as per Forbes 2011 report. The firm had over 12 research laboratories with several patents as of 2013. Since 2012, the firm has undergone several organizational changes such acquiring of the Kenexa and SPSS and letting away companies like Lexmark and ThinkPad to Lenovo. On February 27th, 2014, IBM said that it will slash off about 25% of its hardware division and venture in IT and software services (Krakow, 2014, p. 1). The 2013 fiscal year ended up the firm having incurred loses in that it had a 5% drop in sales and 1% decline in net profit. This has led to its executives from forgoing bonuses for the 2013 fiscal year. Its common products are ATM, hard disk drive, magnetic strip card, floppy disk among others. Chapter 2 Literature Review IBM firm has announced to shift from hardware to software products a decision which seems to be a form of product differentiation (Lohr, 2010, p. 1). That is a very big hit to its loyal customers who had purchased their hardware products. It would be so unrealistic to purchase their old hardware products in the future in that there would be neither innovations nor spare parts for repair as feared by many. Imagine parties that had bought IBMs hardware will have to dispose of their damaged or old products no matter how useful or minor they are damaged simply because there are no spare parts. This simply means that the hardware that had been sold earlier will be disposed of off completely on damage since the firm is not willing to continue with their manufacture. The shifting to software does not only have detrimental effects to the customers but to the firm too. The revenue that the firm was generating from the hardware will be lost completely in that they will have no products manufacture in that line. In 2000, the services and software business accounted for only 0.5% of IBM, but currently, the rate has rose up to 80%. During the era, the firm sold printers, personal computers, disk drives and flat panel displays (Lohr, 2010, p. 1). Lenovo reported that it is going to buy one of IBMs x86 server business at a cost of $2.3 billion after IBM indulged in a low margin business that led to decline of the revenues by 16% in the last year. IBM is competing with other firms within the software and hardware industries such as Microsoft, Sony and Apple among others. The decline in the company’s revenue means that it competitors had won the market share leaving a narrow range for the firm. Reduction of the hardware production was not the solution in that it could have been solved in other ways (Krakow, 2014, p. 1). Customers who had found IBM hardware suitable for them are so unlucky in that they have to find alternative sources. This may lead to such customers to buying software and other services from the firms that have provided them with the hardware. Moreover, the fact that most of the hardware is compatible with certain software may lead to IBMs software products lacking market if they are not compatible with other hardware. Initially, when IBM was manufacturing hardware and software for their devices, things were very simple for the customers in that they would buy products that have been fully tested, and their efficiencies determined. In fact, they would buy a full set of product from the firm. Now that they will buy it in parts makes things hard. Business institutions may opt to buy products that are set and complete (Griffiths, 2006, p. 1). A firm that produces diverse form of products has a diverse source of income especially during market instabilities (Investopedia, 2014, p. 1). Poor market in one sector can be recovered from the good sales in the other products. Now that IBM is planning to close one of its sources of income, and then it means that the revenue will be less as compared to when the hardware sector was operational. Hardware production was another line of revenue generation for the firm. Now that the firm has plans to seize the production, then that revenue is going to diminish. Moreover, the staff who had occupied the hardware software production will have to be retrenched leading to loss of their income. However, it is claimed that the Lenovo firm that is purchasing the IBM hardware section will have to move with the already employed workers a decision that seems tricky. Since the acquired plant will be under new management, the Lenovo firm may decide to dissolve all the former workers and adopt new ones. Such scenarios are very harmful in building of the countrys economy and, therefore; it will have a bad reputation to its customers. They will perceive the social corporate responsibility as being poor in that the firm will seem not to care about its people (Griffiths, 2006, p. 1). Diversification is a business term that is very effective in wise businessmen. It involves the allocation of various investments under different financial instruments. The method aims at reducing risks and maximizing return by investing in different areas. However, the method does not guarantee against loss but it offers long range financial goals with minimal risks. In contrast, statisticians would argue that there is a strong correlation between hardware and software in that none can perform without the other. Therefore, the more correlated a stock or product is with another, the higher the chances of risks (Investopedia, 2011, p. 1). This simply means that if the sales of hardware are poor, chances are that the software demand will be low in that the two products accompany each other for their functionality. According to Clawson (2013, p. 1), business firms should diversify by adding new products and services besides starting new companies. However, every company should pursue an idea and strategy that suits it. Most of the firms apply the diversification as a means of survival. A firm that focuses on a narrow range of products has a finite number of customers. Provided that the market share is large, competition is dealt with well. However, in our case of IBM is under competition from other firm that produces the same products. Therefore, it has to apply all means to win the market (Clawson, 2013, p. 1). According to IBM CFO Report, Rometry claimed that the firms cloud revenue rose by 69% to $4.4 billion. Revenues from the hardware business fell by 26% up to 4.26 billion in the last quarter of the year 2013. In the same year 2013, Hardware had revenue of $4.6 billion in the last quarter. According to Feinseth who is the chief investment officer of Tigress Financial Partners, IBM should engage in different products and services to win the market share rather than closing some of its sections (Barinka, 2014, p. 1). According to Darrell (2014, p. 1), IBMs revenues have missed the expected values with 1.83% this was after the first quarter of the fiscal year 2014 that were released. The report showed that the hardware sector still faced trouble in that it went down. The software sector was increasing in that it passed the estimated ranges with a 2% and net revenue of $5.7 billion. The company’s global technology service performed poorly on analysis of the year-over-year basis (Darrell, 2014, p. 1). The company reported a $ 22.5 billion for the quarter results with a 4% decrease in year-over-year. The decline is associated with the systems and technology segment that gave total revenues of $2.4 billion with a 23% YoY. China and developing countries had little demand for the hardware products that led to their decrease (Darrell, 2014, p. 1). China had a 20% decrease in the hardware revenues with the developing countries recording 11% YoY decrease in revenue. It shows that the hardware segment is performing poorer and poorer supporting our point that the company is in the right track of closing all no-performing sections and venture in those that are performing. That is the reason that is why it sold it to Lenovo group (Darrell, 2014, p. 1). The hardware segment had a gross profit margin of 27% with a 5.5% YoY DOWN. Selling the segment to Lenovo means that the company will be able to get rid of low margin profits and focus on high margin areas (Darrell, 2014, p. 1). Enron Corporation was an energy company and one of the companies that closed after being pronounced bankrupt. In fact it was recorded as the only company in the American history that had ever incurred such a huge bankruptcy due to the biggest auditing failure (Bratton, W. (2002, p. 1). According to Daily Finance (2014, p. 1), some companies such as RCA, General Foods, Hutton and E.F were household names that they never exist nowadays. Poor performance can lead to closure of firms as proved by the above firms. Therefore, IBM is applying all the measures it can to avoid such falls; therefore, seizure of the hardware production seems to be a healthy step. Chapter 3 Methodology To determine the effects of IBMs shift from hardware to software Data collection was done on 50 samples from banks, schools and other organizations that utilize a large number of IBM products. Closed ended questionnaire with simple structured questions were administered online to the various sample respondents through their respective heads who were to fill them on behalf of the firms (Myers, 2013, p. 1). Hardware finances of the IBMs hardware sector were collected to determine the trend in terms of sales and revenue collected for the past fiscal years. Chapter 4 Results Table 1 below shows the questionnaires respondents Item Response Yes % No % IBM hardware user 45 90 5 10 Does the IBMs production seizure have chances of affecting your firm? 40 80 10 20 Was the IBM shift worth? 5 10 45 90 Hardware Purchase from other firms 48 96 2 4 Continuation of business partnership with IBM 20 40 30 60 Table 2 below shows the IBMs product usage results Duration of IBM products usage Number % Less than 1 year 3 6 1 to 3 6 12 4 to 6 years 9 18 7 to 9 years 12 24 10 years and above 20 40 Table 3 below shows the IBMs hardware product performance results Hardware performance Number % Worse 5 10 Satisfactory 5 10 Efficient 40 80 Table 4 below shows the hypothesis test using ANOVAs Hypothesis Tests t-Test 1-sample Test Mean 40 Confidence Level 0.95 N 2 Average 25 Test SD p 1-sample SD SD 21.2132 21.2132 0.635 SE Mean 15 T 1.000 TINV 6.313752 p - One sided 0.25 p - two sided 0.5 Figure 1 below represents the percentage responses of the questionnaire Figure 2 below represents the percentages of IBM products usage with time Figure 3 below represents the IBMs’ hardware performance in percentage Chapter 5 Discussion ANOVA test gave a p value of 0.25 values which is larger than the standard value of 0.05 (Paul, 2010, p. 1). Therefore, our F-test led to the adoption of the null hypothesis that IBMs seizure of production of hardware does not have significance effects to the customers. Therefore, the alternative hypothesis was rejected. This can be supported by the fact that IBM has transferred its hardware manufacturing duties to Lenovo Company. Therefore, the new company will continue producing products that IBM was manufacturing earlier. In addition, customers may shift to other hardware manufacturers provided that the products meet their standards besides satisfying them. Moreover, since most of the hardware is compatible with products from other firms, that would not be an enough reason to claim that IBM mode of business will affect them. What the customers seem not to understand is that in business it is a matter of increasing profits while fulfilling customers needs and satisfaction (Frei and Morris, 2012, p. 1). There is no need of a firm continuing in production of products that are leading to it incurring loses. It is advisable for a firm to venture in profitable operations. Analysis from our figure 1 showed that 90% of our respondents claimed that they are IBM hardware product users and the decision made by the company will affect them with an 80% support. This can be supported by the fact that the customers are afraid that the firm that will continue with the production will not maintain the standards with IBM had set. Similarly, they may be afraid that their already purchased hardware will miss their counter component that complements their efficiency. 90% of them responded by claiming that IBMs decision was not worth an idea that as a business analyst would seem insensible. All what IBM was doing was to perfect its operations and venture in high paying operations especially in this competitive global time. What the firm could have done was to inform its esteemed customers in advance before making and 8mplementing its decision (Frei and Morris, 2012, p. 1). All in all, changes moves with time and a business that is not time conscious will lag behind only to discover that it competitors are miles ahead. 96% claimed to purchase their products from other hardware manufacturers. All in all, 40% of them agreed to continue their business using IBM products such as software and services although 60% claimed that they will not. In order to determine how detrimental the effects would be, IBMs hardware performance efficiency was determined. According to our figure 3, 80% of the respondents’ claimed that the products are very efficient in their performance. 10% claimed that the product are satisfactory with the rest group claiming that the products are worse in their performance a claim supported with 10% too. The group that claimed that the IBM products are worse seems to be among the category that uses alternative products from other firms other than IBM. Their use may be supported by the fact that IBMs products were not satisfying them after discovering that they are not tailored towards their operations hence they shifted to other manufactures (Frei and Morris, 2012, p. 1). Their decision can be derived from personal point of view in that some may have found the IBM pricing was not suitable for them and the products design among other reasons. Conclusion IBMs decision of shifting from hardware production was worth in that it was incurring loses. The shift will affect many but from the statistical analysis; the shift will not have significance effects to its customers. This has been shown by the fact that IBM has sold its hardware mandate manufacturing to another firm therefore, production will continue but under the hands of another management. All what could arise is that there would be indirect effects such as loss of employment and firms being forced to purchase products from other firms once their former IBM products damage, wear or tear. More than 40% of the IBM loyal customers claimed that they will continue partnering with IBM in purchase of their products such as software and services in that business is business due to globalization. However, it was noted that if IBM had continued with its hardware production under good management, the market share would increase and the firm would get more revenue. Now that the hardware sector is out of sight, the firm will have lost the little that was being generated from the hardware sector. Recommendations The firm should have employed product differentiation to increase the market share and reduce competition (Investopedia, 2014, p. 1). Successful product differentiation creates a competitive advantage that puts the firm ahead of other in that the customers will view the products as unique and superior (Frei and Morris, 2012, p. 1). Sometimes differentiation does not involve changing the whole product but creating new advertising campaigns and sales promotions. The hardware could have other features that are customer-relevant incorporated besides a new design to win customers. An indicator of a companys future success is its potential and strength to succeed in areas where other firms fail. Closure of IBMs hardware production due to failure is an indication that the company is not fully successful. Therefore, it needs proper mechanisms to be applied in that in future things may be hard. For example, if the software market reduces does it mean that the firm will have to close down? If so, the firm will find itself having collapsed in that it will be unable to adopt its failures and developing efficient mechanisms of identifying and applying appropriate mechanisms in solving them. Chapter 6 References Barinka, A. 2014. IBM sales slump prompts top executives to forgo bonuses. Accessed on 2014 April from http://www.bloomberg.com/news/2014-01-21/ibm-s-earnings-top-estimates-even-as-revenue-falls-short.html Bratton, W. (2002). "Does Corporate Law Protect the Interests of Shareholders and Other Stakeholders?: Enron and the Dark Side of Shareholder Value" (PDF). Tulane Law Review (New Orleans: Tulane University Law School) (1275): 61. Retrieved 2014 April from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=301475 Clawson, T. 2013. The benefits of diversification. Accessed on 2014 April from http://www.santanderbreakthrough.co.uk/advice/strategy/benefits-diversification Daily finance. (2014). Memorable companies that have vanished. Retrieved on 2014 April from http://www.dailyfinance.com/photos/companies-that-have-vanished/#!fullscreen&slide=984638 Darrell, L. (2014). IBM posts lowest quarterly revenues in five years but remains committed to meeting earnings per share targets. Retrieved on 2014 April from http://www.bidnessetc.com/21541-international-business-machines-nyse-ibm-news-analysis-continues-revenue-miss-streak/ Investopedia Staff. 2014. The importance of diversification. Accessed on 2014 April from http://www.investopedia.com/articles/02/111502.asp Investopedia.com. 2014. Product differentiation. Accessed on 20134 April from http://www.investopedia.com/terms/p/product_differentiation.asp Krakow, G. 2014. IBM plans hardware division layoffs: report. Accessed on 2014 April from http://finance.yahoo.com/news/ibm-plans-hardware-division-layoffs-142600417.html Lohr, S. 2010. Huge Pay off for IBM. After a shift. Accessed on 2014 April from http://www.nytimes.com/2010/01/20/technology/companies/20blueweb.html?_r=3&  Myers, M. 2013. Qualitative Research in Business and Management. New York: SAGE publishers.  Paul, O. 2010. The Student’s Guide to Research Ethics. New York: McGraw-Hill international copyright.  Ravid, R. 2011. Practical Statistics for Educators. New York: Rowman & Littlefield publishers.  Frei, F. and Morris, A. 2012. Uncommon Service: How to Win by Putting Customers at the Core of Your Business. Massachusetts: Harvard University.  Griffiths, A. 2006. 101 Ways to Really Satisfy Your Customers. New York: Allen & Unwin Copyright. Appendices Questionnaires 1. Are you a user of IBM Hardware products? Yes [……] no […….] 2. For how long have you used the IBM hardware products? Less than 1 year [….] 1 to 3 years [……] 4 to 6 years [….] 7 to 9 years [….] 10 years above […..] 3. Have the products been efficient in their performances? Worse [….] satisfactory [….] efficient [….] 4. Now that the firm has seized its hardware production, has that affected your firm? Yes […] no [……] 5. Was the IBMs decision of shifting from hardware to software worth? Yes [….] no [...…] 6. Are you willing to shift your hardware purchase to other firms? Yes [….] no [….] 7. Will you partner with IBM in purchase of software and services? Yes [...…] no [….] Read More