Global Strategy Plan of IBM Company - Essay Example

Global Strategy Plan Table of Contents Introduction………………………………………………..………………………. …4 Firm Analysis…………………………………………………………….…………….4 Industry Analysis (Domestic and Global) …………………………………………….10 Industry Growth, Trends, and Characteristics…………………………………..…….11 Competitive Analysis……………………………………………………………..…...12 SWOT Analysis……………………………………………………………………….13 Recommendations/Suggestions……………………………………………………….14 References……………………………………………………………………………..17       Introduction: IBM founded in 1890 in United States. In the beginning, the company has started their work only in New York. It started its journey in New York as the computer tabulating record company in 1911. However, within a short period, they expanded their business to different parts of New York, Washington DC, Michigan, Ohio and Toronto in Canada. In that time, IBM had produced and sold products like tabulator, punch cards, and industrial time recorder. Mr. Watson has developed the business and operation of the company to Europe, South America, Asian countries and in Australia within ten years. Because of worldwide business expansion, the recognition of IBM-International Business Machines Corporation extended throughout the world. In the era of innovation, IBM product line has increased significantly. IBM first introduced LAN-Local Area of Networks and became the pioneer of LAN. This process allows PC users to exchange data, information, files etc. and to share printers within an office complex. In the twenty first century, IBM has become a renowned name in IT service management, consulting business and computer software-hardware industry. Samuel J. Palmisano is the president and CEO of IBM since 2002. (History of IBM, 27 March 2010, pp. 1-13)  Firm Analysis: Brief History- This article creates a complete dynamic model of global strategic planning for IBM. This dynamic model shows many aspects of strategic planning system of IBM. Within this dynamic model of framework, some issues like competitive assessment, focusing on strategic issues, portfolio planning, threat or opportunity analysis, business intelligence and performance management will be emphasized and analyzed. Over the years, IBM has refined their strategic planning process. This strategic planning process works as a structure for decision-making. Like many other multinational business giants, IBM management team emphasizes on global business development. Staring with IT services, IBM is now diversifying themselves into different business solution providers like IT infrastructure, enterprise solutions, business consulting, outsourcing services and business intelligence etc. At IBM, Information Technology means achieving high and real business performance that is reflected in the business objective and venerable business commitment. IBM provides high-class business solutions with greater efficiency and accessibility to their clients. The management of IBM wants to anticipate and adapt to future changes and uncertainties rather than the victim of them. The IT, IT enabled service and outsourcing service industries is now growth engine for the economy. A complete strategic planning system is a cyclic process where the objectives, strategies and action plans of an organization in reply to the dynamic and vibrant market environments of strong rivalry and technological changes are included. In this function, the strategic planning system has to be an adaptive organism, reactive to variations in management style and responsive to the lessons of prior experience.  Product and Service Offering- IBM has broad array of products and services. They also have customized softwares. Cognos, DB2, ECM, Informix, Lotus, Web sphere, Rational, Tivoli, System z Software are their main products in software and information management. IBM also provides different services to their clients in business consulting and business analysis. Business analytics and optimization, customer relationship management, financial management, human capital management, supply chain management and strategic management etc. These are the different types of services offered by IBM. UNIX, Linux, Mainframe, Blade center, power system and OEM system as the main servers and systems of IBM. IBM also provides server oriented architecture. IBM provides cloud computing, asset revival and dynamic infrastructure solution to their business partners. IBM works in different types of industries like aerospace, defense, automotive, banking, chemical construction, petroleum, education, electronics, energy, cover, healthcare, trade, ICT, travel etc. Enterprise resource planning and product life cycle management are the two new business areas for IBM. IBM also invests in the research work in different technologies. Green energy and environment sustainability are the two important areas where IBM research work is going on. Making a smarter and innovative planet is the mission of every IBMer. (IBM a smarter planet, 27 March 2010, p.1) Financial Condition- According to market capitalization, IBM holds second the largest and the second most profitable position in the IT and IT-ES industries. With more than four lacs employees in the worldwide, IBM has generated $95.8 billion revenue where net income is $13.4 billion. IBM is now very strong in their financial condition. In the initial stage of this decade, it has high strength in cash flow yield and profit margin. However, the ratio of debt to equity of IBM is still much higher which puts it in a high risk. One of the vital drivers of IBM’s good performance and business expansion is their asset turnover. In 2009, IBM total asset turnover was $109.023 billion though it has reduced with compared to the preceding year. This company heavily re-invested in its potentials. This model had a big impact on debt to equity ratio. IBM could also be a defaulter on its credit; but due to its brand image and position these chances are low and it can borrow big amounts for its research and development activities. In 2004, IBM’s total revenue increased by 8% to 96.3 billion from 2003. The return on investment was 36.48% that was second in the IT industry after DELL computer. The performance of IBM is good in the context of finance ratios and assets in use. It requires a shorter financing period for settling the accounts. In the earlier days of this decade, IBM did well in profit- growth and decreasing financing period. Let us come to the last half of this decade. We see that the revenue of the company in 2008 is $103.6 billion, pre-tax profit is $16.7 billion, earning per share (EPS) is $8.93 and free cash flow is $14.3 billion. In 2009, the EPS is $9.20 and total equity is $22.637 billion. In the period of last economic crisis, the income of IBM in fourth quarter has increased by 12% but total revenue fall by 6%. This number and statistical figure suggests a strong financial condition of IBM. SAP, CISCO, AMD, INTEL are the business partners of IBM. (IBM Financial Information, 27 March 2010, p.1) Management Philosophy- IBM is now spending on time thinking and determining fundamentals of the company. All the IBMers have clear idea of their business strategies and purpose. Therefore, it is easy for them to accomplish that goal. IBM management philosophy tells that every IBMers should have the values like commitment to each customer’s achievement, technological innovation, conviction, and personal accountability in all associations. These values give IBMers much confidence among them. Since its beginning, the values of the company have remained the same in the twenty first century. In this decade, the changes are unavoidable and adaptable. The management philosophy of IBM is very simple. When any important issue occurs the management gives chances to every IBMer to give their important feedback. The values of IBM also build up the liaison between investors and business partners. The values of mutual trust and personal responsibilities have been incorporated seriously in IBM. Performance measurement and rewards also support to every equip IBMer. IBM management has taken some important decisions regarding their employees and investors. The management of IBM has increased the stock price. They also ensured the investors about their returns. Top executives of IBM put their money in IBM stocks. Stock price has increased by ten percent. The market value of IBM has increased $17 billion. In this period of rapid change of world business, the values of IBM are incomparable. The global businesses have been unified and dependent on each other. Therefore, innovation and personal responsibilities towards the relationship with clients, business associates, shareholders, coworkers and public are the main weapons to get the success in today’s business world. (Samuel J. Palmisano- Chairman of the Board and CEO of IBM Corporation, 27 March 2010, p.1) Global Positioning /Strategy- Most of the big technical giants are gradually posting themselves to claim considerable shares from the developing market for their smarter network of technology. IBM is the second most revenue earner in information technology and business solution employer in this world. The IBM business model has been made to maintain two principal goals. One is to helping clients to thrive in delivering business value by becoming more creative, proficient, effective, and aggressive with business imminent, information technology solutions, and the other is to providing long-term values to shareholders. The business models have sustained over the time through strategic and purposeful investments in capabilities and technologies that have the greatest long-term development and profitability prospects based on the significance they deliver to clients. The companys strategy is to maintain its attention on the high-expansion, high-value segments of the IT industry. The combination of many businesses and business capabilities provides business imminent and solutions for the company’s clients. The business model of IBM is flexible. So, it allows for intermittent modification and rebalancing. IBM has now given the focus on strategic investments; merger and acquisition in rising greater value segments like business on demand and service-oriented architecture rather than doing business in personal computers and hard disk drives. IBM has now transformed into worldwide-integrated enterprise. The productivity and total investment of the company has also increased. In this fastest growing competitive market, it is very much necessary. As a result the enterprise is performing very highly than it did quite a few years ago. This business model supported by the company’s values and its long-standing financial model enables IBM to deliver persistently good earnings, cash flows, and returns of invested funds in this changing economic environment. (IBM –Our Strategy, 27 March 2010, p.1) Industry Analysis (Domestic and Global): The Information Technology and service industry permits professionals, producers and suppliers, business analysts and business consultants to assess and better deal with the risks and develop business opportunities in the global information technology markets. At the end of the last century, many of the business analysts predicted that the information and communication technology and services will be counted as the best profitable industry. However, the economic crisis took a great levy on the IT service industry. By the end of 2009, sales trends were starting to look stronger, as many of the IT firms are beginning to substitute old equipments and procure modernized and advanced technologies. Business analysts in technology research organizations estimated that worldwide IT spending rejected by 4.5 percentages in 2009, to about $1.43 trillion, which is losing from 2008 $1.5 trillion. However, the business analysts are able to forecast that the figure will grow by 3 percent in 2010 and reach to $1.48 trillion as spending picks up. However, the sales of semiconductors decreased by 2.8 percent, the sales have decreased from $248.6 billion in 2009 comparing to $255.6 billion in 2008. However, the information technology industry is running into globalization at a very speedy rate. In the Asian countries, the research and development work of information technology and producing system components are going faster now a day. (InfoTech Industry Overview, Plunkett research Ltd., 27 March 2010, p.1)  Industry Growth Trends and Characteristics: Competitive Analysis: The competitive analysis is a declaration of the business strategy and is related with the competition in the market. The main aim of the competitive analysis is to find out the strengths and weakness of the contenders within the market. There are two ways to recognize competitors, first is to take the viewpoint of the customer and second thing is to group all the competitive strategies and understand what motivates them. If competitors’ strategies can be analyzed then it is easy to understand that which area they are susceptible. According to strategic theory, the performance of an organization within a market is directly related with the control of key assets and skills. Therefore, a business analysis report of strong competitors should expose the causes behind the success record. The primary opponent of IBM is Microsoft and Apple. Both Microsoft and Apple contain their individual operating systems. Competitive analysis is usually falling in five areas like product, pricing, promotion, distribution, and advertising. Comparatively IBM OS/2 operating system is less popular than Microsoft Windows or Apple Macintosh. Most of the business functions do not run in the IBM OS/2 operating system. IBM has a broad array of product line. Distribution of the products has been done quite well for IBM. IBM also invests so much money in promotional activities and advertisement. Through competitive analysis, one company can also generate a marketing policy that will produce an asset. Through this marketing strategy, companies get a different and permanent competitive advantage. Since competitive advantages expanded from key assets and talents, every company should focus on their respective competitive strengths. (Technology Markets, Global Insight, 27 March 2010, p. 6)  Competitive Analysis: Political- United States is the biggest democratic country. Political structure of US is stable. US government has proclaimed that US organizations that outsource IT job to other place other than US will not get the advantage of tax benefit. IBM has positive advantage of this law with respect to other IT companies in outside US. Government owned organizations have decided to give more IT projects to their domestic IT service provider companies. Perhaps, it is also positive for IBM. However, recent terrorist attack and different terrorist activity in US is a setback for the companies like IBM in US. Economical- The global IT spending has increased. It is good for IT companies like IBM. The computer industry predicts an expansion of about ten percent over the coming five years. However, the recent economic slowdown results a low attrition rate in IT companies like IBM. Job cuts and layoffs were the common scenario in that time. Decline in real estate prices has led to the reduction of the rental costs. However, due to cost advantage factor there is also an economic attractiveness. Social- A number of technical institutes and universities are available in US which can offer IT education. The population growth and density is much lower so as to giving employment is not a problem. IBM also hires IT professionals from Asian countries in comparatively low package of remuneration. In those Asian countries English is widely spoken, so language is not also a problem for IT companies like IBM. Technological-   IBM invented new technologies like SOA, Websphere, cloud computing, DB2, Cognos etc. Internet and telecommunication are the two backbones of the technological era. IBM uses lotus intranet for communication. Environment- IBM should focus on the trimming the carbon footprint, energy and water use etc. IBM also adopts green energy environment within their office complex. Legal- under SEZ contacts, IBM does not have any problem to build new offices. From this perspective IBM also enjoys tax benefits and fiscal benefits. However, due to brand image IBM does not face any entry barriers to different countries. (Pestel Analysis-Marketing Plan, 27 March 2010, p.1). SWOT Analysis: Strengths-The main strengths of IBM are their business performance management. IBM also has excellent organizational culture, value, and work ethics. In business outsourcing, IBM also maintained a strategic planning. The business partners of IBM are also excellent market names like CISCO, SAP, and ORACLE. Weakness- In IBM, the cost of value chain is much higher. IBM also spends money in research and development work but the generation of revenues from this development work is much lesser and is time consuming. Opportunities- Strong brand name with stable economic market is the opportunities of IBM. In US, individual consumption power is much higher. Therefore, there is a good opportunity for IBM in this sophisticated service market. IBM deals with mainframe server and in US, there are an entry barrier for server market. Therefore, doing server business in US from other country is not possible. Threats- Intense competition with Microsoft, Apple, and Dell Computers are the main threats for the IBM. IBM also has lofty hardware switch cost. Clients are now experienced in the IT market and so they have low switching cost. (SWOT analysis: Lesson, 27 March 2010, p.1)     Recommendations/Suggestions: The primary recommendation for IBM is to change its vision statement. In humble opinion, the vision line is lack of futuristic concept and strategies. IBM requires a vision that will demonstrate its leadership character and long-term thoughts. Their vision statement also fails to identify future technology. In all likelihood, the economy will deteriorate before it picks up again in late 2009. In last couple of years ago, we have observed an economic crisis throughout the world. It affects US economy very hardly. Job cuts and layoffs were the common features in the IT companies in that time in US. The globe has not yet completely become freed from the fear of recession. Every client now seeks to cost cut and focus on fewer provider relationships as the economy deteriorates. IBM should take this opportunity using their brand image. IBM should take care of their investors and stakeholders. In the crisis time, marketing can work as differentiator. As a service provider, IBM needs to generate specific value for their stakeholders. In the new tech ecosystem, IBM needs business executives rather than IT personnel. “Do not put all the money in a basket,” means diversification is need in the crunch time. IBM also provides high-end services in the value chain. It requires application development and proper maintenance to value added services. IBM should focus on high quality of services rather than low cost services. Strategic acquisition is essential for future development and high growth of revenues. However, in the recession period, IBM holds second best brand name in US after Coca-Cola. It quickly adopted the new ecosystem to get the customer confidence. Small and medium businesses are very much useful in this market. They will work as different strategic units. IBM should focus on business consulting. Intellectual property is an asset for a company. IBM should focus on to increase their intellectual property also.   As a final comment we can say that standing today we cannot say anything about the future. One can only postulate the future environment. If our postulation becomes correct then we can take decisions about the future prospects. This is also true for IBM. It has to understand and take proper estimation techniques to percept the future business environment so as to modify and renovate their business ventures according to the future expected demand. If IBM can do it properly then it not only experiences a higher return on their capital investment but also will be a step ahead to its competitors regarding the future business issues.  In our above discussion regarding the global strategy plan of IBM we have analyzed the past scenarios, developmental strategies, gradual modification, business dynamism, present position and finally the future prospects of the company. In the complete and overall analysis of IBM we have also discussed the present and well as the future business opportunities of IBM. We have raised some issues that may create some barriers in the way of IBM’s progress and suggests some remedial measures that may help the IBM to over throw those obstacles, if applies in a rational and proper way. Therefore we can come into the conclusion that stating from a low level IBM has gradually emerged as a well established giant with the help of proper thought processes and sophisticated management system. The company has already stretched its hands in many countries of the world. The company is well conversant with the latest technologies and methods in achieving not only the higher returns but also maintaining a healthy and prosperous work culture and, therefore, we can expect that the company will keep its momentum of success in the future like what it did throughout its past periods till the present.       References 1. A Smarter Planet, Retrieved on 27 March 2010, From http://www.ibm.com/smarterplanet/us/en/?cm_re=masthead-_-solutions-_-asmarterplanet 2. History of IBM 1880, Retrieved on 27 March, 2010, From IBM website : http://www-03.ibm.com/ibm/history/history/decade_1880.html 3. IBM Financial Information, Retrieved on 27 March , 2010, From http://www.ibm.com/investor/financials/ and http://www.ibm.com/annualreport/2009/2009_ibm_annual.pdf 4. IBM –Our Strategy-Our Business Model, Retrieved on 27 March, 2010, from  http://www.ibm.com/investor/strategy/ 5. InfoTech Industry Overview, Plunkett Research Ltd., Retrieved on 27 March, 2010, from http://www.plunkettresearch.com/Industries/InfoTechComputersSoftware/InfoTechComputersSoftwareTrends/tabid/173/Default.aspx 6. Pestel Analysis-marketing Plan, Marketing Minefield, Retrieved on 27 March 2010, from http://www.marketingminefield.co.uk/marketing-plan/pestle-analysis.html 7. Samuel J.Palmisano-Chairman of the Board and CEO of IBM Corporation, Retrieved on 27 March 2010, from http://www.ibm.com/ibm/sjp/ 8. SWOT analysis:Lesson, Marketing Teacher, Retrieved on 27 March 2010, from http://marketingteacher.com/Lessons/lesson_swot.htm 9. Technology Markets-Customized information and tools for Technology Markets industry planners, Global Insight, Retrieved on 27 March 2010, from http://www.ihsglobalinsight.com/techmarkets Read More