INTERNATIONAL BUSINESS SCHOOL

Strategic Management
(MBSA 1213)

FINAL EXAMINATION:
IBM STRATEGIC PLANNING

NUR SYAZANA (MBS 1001)

Lecturer
Dr. Shathees Baskaran
Table of content
Vision and mission statement of IBM........................................................................................2
External Analysis: General Environment...................................................................................4
Justification on General Environment External Analysis..........................................................6
Industry Environment Analysis: Porter 5 Forces.....................................................................10
Competitor Environment Analysis...........................................................................................11
External Factor Evaluation (EFE) Matrix for IBM..................................................................13
Strategic Group Map................................................................................................................14
Competitive Profile Matrix (CPM)..........................................................................................15
Capabilities, Core Competency and Competitive Advantage of IBM.....................................16

Internal Analysis: Strengths and Weaknesses..........................................................................17

Justification on Strengths and Weaknesses..............................................................................18
Internal Factor Evaluation (IFE) Matrix of IBM......................................................................23
Value Chain of IBM.................................................................................................................24
TOWS Matrix...........................................................................................................................27
SPACE Matrix..........................................................................................................................30
The Boston Consulting Group (BCG) Matrix..........................................................................32
Internal External (IE) Matrix....................................................................................................33
Grand Strategy Matrix..............................................................................................................34
Summary on Strategies.............................................................................................................34
Quantitative Strategic Planning Matrix (QSPM).....................................................................35
Long-term Objectives...............................................................................................................37
Annual Objectives....................................................................................................................38
Corporate Level Strategies Formulation for IBM....................................................................39
Porter's Five Generic Strategies...............................................................................................43

1
Vision and Mission statement of IBM
According to the case study, as in 2015, there are no official vision and mission statement of
IBM on its website. Nevertheless, based on my findings on IBM website
(https://www.ibm.com/ibm/ke/en/examples.html) on 15 December 2017, there is a statement
found that seemed to be its abandoned mission during the 2003 statement which is “at IBM,
we strive to lead in the creation, development and manufacture of the industry's most advanced
information technologies, including computer systems, software, networking systems, storage
devices and microelectronics. And our worldwide network of IBM solutions and services
professionals translates these advanced technologies into business value for our customers. We
translate these advanced technologies into value for our customers through our professional
solutions, services and consulting businesses worldwide.”. However, there is no vision
statement of some sorts to be found in its website. Vision and mission statements both serve
purposes of putting the company in clear direction as the statements provide clear company’s
goals to all its employees, which later act as important key priorities for them to construct
effective strategic planning.

For vision statement, there are 3 elements should be considered which are:

1. What the company wants to become in the future?

2. The type of business the company is in.
3. Constructed in one sentence, preferably.

Thus, the proposed new vision statement for IBM is, “to be the world leader in information
technologies manufacturer and developer”.

For mission statement, which officially IBM does not have, there are 9 components to be
considered in creating a good mission statement which are:

1. Customers 4. Technology 7. Self-concept

2. Product or services 5. Survival, growth & 8. Public image
profitability
3. Market 6. Philosophy 9. Employees

Apart of that, it should be inspiring, broad in scope without any numbers included and is fewer
than 150 words.

2
If I were to consider the unofficial mission statement of IBM mentioned which is “at IBM, we
strive to lead in the creation, development and manufacture of the industry's most advanced
information technologies, including computer systems, software, networking systems, storage
devices and microelectronics. And our worldwide network of IBM solutions and services
professionals translates these advanced technologies into business value for our customers. We
translate these advanced technologies into value for our customers through our professional
solutions, services and consulting businesses worldwide”, and compare it to the mission
statement elements, the elements analysis results are as following:

1. Customers 4. Technology 7. Self-concept

No No Yes

2. Product/services 5. Survival & growth 8. Concern for public image

Yes No No

3. Markets 6. Philosophy 9. Concern for employees

Yes No No

The proposed new mission statement for IBM is:

“We strive to create the most advanced information technologies (IT) devices, systems and
software [2] to IT users [1] from all around the globe [3] through our broad network of IBM
professional solutions, services and consulting businesses [7]. By using advanced technology
in our creation [4], we prioritise our business growth and sustainability [5] to further forge our
philosophy of “Innovation that matters—for our company and for the world” [6] that helps
making the world better for the community [8] and as a way to appreciate our employees [9].
(90 words)

3
External Analysis : General Environment

Element

Extrnal
Demographic Economic Political/legal Sociocultural Technological Global Physical
Analysis

1. Asia has 1. Growth in 1. Fast 1. UK 1. Smartphone Not Not

best growth business of data growth of highlighted apps further mentioned mentioned
rate in IT 2. Worldwide use of data the growth in the case. in the case.
2. Potential growth of and the importance of 2. Increase in
market software information workplace development
growth on business that can be equality of IT
emerging 3. Cloud derived 2. Establishment infrastructure
Opportunities
market computing high from data. of gay- by other
countries growth friendliness business
3. IT and percentage index for companies
management 4. High-end server company 3. Social media
consulting business is less revolution
high growth prone to
in US commoditization

4
 1. Europe debt 1. Reduction of 1. Privacy Not mentioned in 1. New super- Not Not
crisis price due to high concerns the case. computer mentioned mentioned
2. Costly standardisation from the technology in the case. in the case.
labour force of computer public innovation
for software products 2. Legal by HP
industry. 2. Increase demand issues
in tablet and against big
smartphone data usage
3. Low entry 3. Privacy
Threats
barrier of the risk threat
industry 4. Piracy or
4. Slow growth copyright
between 2015 risk
and 2017 for IT
consulting, IT
outsourcing and
IT hardware
support

5
Justification on general environment external analysis
Demographic
1. Asia has best growth rate in IT
2. Potential market growth on
emerging market countries
3. IT and management consulting
high growth in US
Opportunities
Economic
1. Growth in business of data
2. Worldwide growth of software
business
3. Cloud computing high growth
percentage
4. High-end server business is less
prone to commoditization
As per IT growth by geographic region, Asia has experienced the best growth rates of late, with
China up 7.7 percent, Indonesia up 6.2 percent, Vietnam up 5.0 percent, and India up 3.2 percent
in 2012. (Page 8, paragraph 3, line 1)
Accenture has seen the U.S. market grow at an annualized rate of 13 percent in revenues from
2011 to 2013, but continues to focus on emerging markets, especially Brazil. (Page 7, paragraph
7, line 7)
Increase in growth for project-based of IT (Page 8, exhibit 6)
The business of data analytics, data storage, and security are growing. (Page 9, paragraph 2, line
1)
Software is a growing business worldwide, and....(Page 7, paragraph 5, line 3)
Cloud computing clearly dominates future expectations. Some analysts in fact predict over 80
percent
of all IT growth between 2012 and 2017 will be cloud related. (Page 8, paragraph 1, line 6)
For example, IBM acquired SPSS and Cognos (data analytics software) in 2009 for $1.2 billion.
IBM plans to keep its high-end server business, which is less prone to commoditization by other
firms’ products. (Page 1, paragraph 7, line 6)
6
Political/legal
1. Fast growth of use of data and the The use of data, and more specifically the information that can be derived from data, has grown
information that can be derived faster than our legal systems can keep up. (Page 3, paragraph 2, line 3)
from data
Sociocultural
1. UK highlighted the importance of In recent years, IBM UK has ranked first in Stonewall’s annual Workplace Equality Index for
workplace equality United Kingdom (UK) employers. (Page 3, paragraph 2, line 4)
2. Establishment of gay-friendliness IBM provides same-sex partners of its employees with health benefits and provides an anti-
index for company discrimination clause. The Human Rights Campaign for 10 consecutive years has rated IBM 100
percent on its index of gay-friendliness. (Page 3, paragraph 2, line 2)
Technological
1. Smartphone apps further growth Smartphone apps represent about 2 percent of this industry, but further growth is expected. (Page
9, paragraph 2, line 3)
2. Increase in development of IT Global Technology Services (GTS) consists of delivering outsourcing services to help improve
infrastructure by other business clients’ existing IT infrastructures to aid in risk management, flexibility, and financial value.......
companies GTS is IBM’s largest division with respect to revenues, with the cloud-computing portion of the
division being the fastest-growing and having the largest expected demand moving forward.
(Page 5, paragraph 1)
3. Social media revolution IBM expects firms to double its expenses in this area by 2016. IBM’s purchase of Skype and
Facebook’s purchase of WhatsApp are two examples of companies trying to profit off the social
media revolution. (Page 3, paragraph 8, line 2)

7
 Demographic
Europe debt crisis
Costly labour force for software
industry.
Economic
Reduction of price due to high
standardisation of computer products
Increase demand in tablet and
smartphone
Low entry barrier of the industry
Slow growth between 2012 and 2017 Areas of slower growth between 2012 and 2017 are expected to come from IT outsourcing, IT
for IT consulting, IT outsourcing and
Threats
Europe, still recovering from its economic debt crisis, reported the smallest growth rates, with
the United Kingdom up only 0.2 percent and Germany up 0.9 percent. (Page 8, paragraph 3, line
3)
But this industry requires large R&D expenses to stay current, as well as an expensive labor
force, protection of patents and piracy risks, and substantial marketing. (Page 9, paragraph 2,
line 5)
High standardization of products makes differentiating product lines difficult, resulting in
reduced prices for manufacturers. (Page 9, paragraph 1, line 1)
Increases in tablet and smartphone demand also erode into PC sales, but..... (Page 9, paragraph
1, line 4)
Compounding problems, new competitors are able to enter the industry fairly easily, creating
downward pressure on prices. (Page 9, paragraph 1, line 2)
consulting, and IT hardware support at projected annualized growth rates of 1.3, 4.1, and 2.9

IT hardware support percent, respectively. (Page 8, paragraph 2, line 1)

Political/legal

8
Privacy concerns from the public
Legal issues against big data usage
Privacy risk threat
Piracy or copyright risk
Technological
New super-computer technology
innovation by HP
In the last 5 years, the general public has become especially aware and suspicious of data usage.
Privacy concerns have arisen and even rights to who owns the data presents a problem moving
forward for corporations in the data business. (Page 9, paragraph 3, line 1)
The threat of legal issues against firms using big data is increasing daily. (Page 9, paragraph 4,
line 7)
But this industry requires large R&D expenses to stay current, as well as an expensive labor
force, protection of patents and piracy risks, and substantial marketing. (Page 9, paragraph 2,
line 5)
But this industry requires large R&D expenses to stay current, as well as an expensive labor
force, protection of patents and piracy risks, and substantial marketing. (Page 9, paragraph 2,
line 5)
Hewlett Packard’s new Apollo 8000 system is the first super-computer to be 100 percent liquid
cooled and offers direct competition to IBM’s high-end server market. (Page 7, paragraph 6,
line 1)
9
Industry Environment Analysis: Porter 5 Forces
Forces High/Low Justification
Threat of new High New competitors are able to enter the industry fairly easily which has created arising problem of creating
entrants
downward pressure on price. Besides that, with the reduced price for manufacturer, the product lines
differentiation has become less vivid. (Page 9, paragraph 1, line 1)

Power of Low IBM has shift the weight of its business from manufacturing to R&D of “big data” and focus on business
suppliers
consulting and analytical services. Moreover, IBM is a big customer to the suppliers that buy goods in bulk.
(Page 3, paragraph 4, line 1)

Power of buyers High IBM business model involved business-to-business model which supply IT products and/or services in large
quantity or in large size. This enables the buyer to negotiate for cheaper price for the large/many products or
services they request. (Page 3, paragraph 5, line 2)
Threat of product Low Many of IBM products or services are unique and its features can be differentiated from other products or
substitutes
services. For example, the IBM SPSS and Cognos are differentiated products which are hard to be substituted
by other software. (Page 1, paragraph 7, line 6) IBM also has Z13 which is the most sophisticated computer and
is hard to be substituted. (Page 2, paragraph 4, line 4)
Intensity of High IBM competing alongside HP and Accenture which both are doing great in IT research and development of
rivalry among
products and services. Although they are small compare to IBM in terms of revenue, they have created many
competitors
advanced technologies. For example, when HP launched the super-computer Apollo 8000, it shows that HP can
come up with more advanced technology in super-computer segment which IBM is lagging behind. (Page 7,
paragraph 6, line 1 and exhibit 5)

10
Competitor Environment Analysis
Competitor Competitors
Analysis HP Accenture
Future Objectives - HP wants to pride itself on key areas of converged cloud, - Accenture will continue strengthen its position in the US
big data, and security and risk management. (Page 7, market as its revenue increased annually in the US.
paragraph 3, line 1) (Page 7, paragraph 7, line 7)
- Accenture will continue to focus on emerging markets
especially Brazil. (Page 7, paragraph 7, line 8)
- Accenture plans on strengthen its marketing consulting
businesses through its made acquisitions. (Page 7,
paragraph 7, line 5)
Current Strategy - HP provides technologies, software, PCs, workstations, - Accenture focuses on management consulting and
tables, calculators, and many other products and services technology. (Page 7, paragraph 7, line 1)
to individuals and corporations. (Page 7, paragraph 2, line - Made many acquisitions on notable companies such as
1) Acquity Group, Fjord and AvVenta. (Page 7, paragraph
- HP’s Enterprise Group and Enterprise Services focus on 7, line 3)
technology infrastructure, IT services, consulting, and - Made a joint venture with GE called Taleris that focuses
business outsourcing. (Page 7, paragraph 5, line 1) on airplanes maintenance issues. (Page 7, paragraph 7,
line 5)

11
Assumptions - Software business is growing worldwide. (Page 7, -
paragraph 5, line 3)
- HP will be competing with IBM, CA Technologies, BMC -
Software and other competitors in the software business.
(Page 7, paragraph 5, line 3)
Capabilities - HP is the world leader in private cloud market with highest -
ranking measured for 8 categories out of 15. (Page 7,
paragraph 3, line 2)
- HP has strong presence in personal systems market which
IBM is not its main competitor. (Page 7, paragraph 4, line -
1)
- HP has strong presence in printing segment which IBM is -
not its main competitor. (Page 7, paragraph 4, line 3)
- HP has its Apollo 8000 system which is the first super-
computer with liquid cooled technology and operates 28%
more efficiently than other product in the market. (Page 7,
paragraph 6)
Accenture foresee the continuing growth in the US
market. (Page 7, paragraph 7, line 7)
Accenture predicts increase growth in the emerging
markets especially Brazil. (Page 7, paragraph 7, line 8)
- Marketing consulting business will flourish; thus,
Accenture has made early preparation by acquiring
other companies to a total of $800M in 2013. (Page 7,
paragraph 7, line 3)
Able to increase their revenues from 2011 to 2014 which
HP and IBM have failed to do so when they had
decreasing revenues. (Page 7, paragraph 7, line 3; page
7, paragraph 2, line 3; page 5, exhibit 2)
Increasing growth in the US market annually from 2011
to 2013 by 13%. (Page 7, paragraph 7, line 3)
Accenture has tapped into aircraft system segment by a
joint venture with Taleris. (Page 7, paragraph 7, line 5)
12
External Factor Evaluation (EFE) Matrix for IBM

Opportunities Weight Rating Weighted Score

1 Social media revolution 0.04 4 0.16
2 Increase in development of IT infrastructure by other business
0.08 2 0.16
companies
3 Cloud computing high growth percentage 0.07 4 0.28
4 High-end server business is less prone to commoditization 0.03 3 0.09
5 Growth in business of data 0.06 4 0.24
6 Smartphone apps further growth 0.03 3 0.09
7 Business consulting and outsourcing are going to be prime areas
0.07 2 0.14
of interest in the future.
8 Potential market growth on emerging market countries 0.05 2 0.10
9 Asia has best growth rate in IT 0.03 2 0.06
10 Worldwide growth of software business 0.08 3 0.24

Threats Weight Rating Weighted Score

1 New super-computer technology innovation by HP 0.07 1 0.07
2 Slow growth in 2015 for IT consulting, IT outsourcing and IT
hardware support 0.08 2 0.16
3 Low entry barrier of the industry 0.05 4 0.20
5 Increase demand in tablet and smartphone 0.04 4 0.16
6 Europe debt crisis 0.02 2 0.04
7 Privacy concerns from the public 0.05 3 0.15
8 Piracy or copyright risk 0.05 4 0.20
9 Legal issues against big data usage 0.08 3 0.24
10 Reduction of price due to high standardisation of computer
products 0.02 3 0.06

Total EFE Score 1.00 2.84

The EFE score of 2.84 shows that IBM performed above average in its effort to pursue
strategies to capitalise the opportunities and avoid threats. IBM has engaged into cloud
computing and big data, putting a lot of investment into the industry. IBM is the leader in cloud
computing industry. Although IBM is facing a decrease in revenue, its operating profit margin
is still more than 20% and gross profit margin of more than 45% in both 2014 and 2015.
Moreover, IBM optimised opportunity 1,6 and threat 5 by partnering with Apple and Twitter,
and IBM also purchased Skype.

13
Strategic Group Map

Strategic Group Map

High

IBM
Market Capitalisation

Accenture
Low

HP

Low Revenue High

The strategic group map above is plotted by using market capitalisation value on Y-axis and
revenue value on the X-axis. IBM has the highest value of market capitalisation of $155 Billion,
followed by $55.4 Billion and smallest value is HP with only $7.3 Billion. IBM also has the
highest revenue amongst which is $92.8 Billion, followed by Accenture and lastly HP with the
value of $31.8 Billion and $3.7 Billion respectively. As IBM is the largest among the three,
even with the two rival companies combined, IBM has the biggest circle. Accenture is the
second biggest circle representing the bigger competitor to IBM in comparison to HP and HP
is represented with the smallest yellow circle indicating the rival company as the smallest
among the three.

14
Competitive Profile Matrix (CPM)

IBM HP Accenture

Critical Success Factors Weight Rating Score Rating Score Rating Score
Skilled workforce 0.08 4 0.32 2 0.16 3 0.24
Product Quality 0.10 4 0.40 3 0.30 3 0.30
Brand reputation 0.08 4 0.32 3 0.24 3 0.24
Customer satisfaction 0.08 3 0.24 3 0.24 4 0.32
Financial position 0.10 3 0.30 3 0.30 4 0.40
Innovation in products and
0.15 4 0.60 3 0.45 3 0.45
services
Superior marketing
0.08 3 0.24 3 0.24 4 0.32
capabilities
Superior IT capabilities 0.15 4 0.60 3 0.45 3 0.45
R&D spending 0.10 4 0.40 3 0.30 3 0.30
Strong patent portfolio 0.08 4 0.32 3 0.24 3 0.24
Totals 1.00 3.74 2.92 3.26

IBM scored the highest point in the CPM matrix compared to HP and Accenture. HP scored
the lowest. IBM is bigger than these two rival companies combined. IBM has larger revenue
and has made huge acquisitions activities besides partnerships with Apple, Twitter and
universities. However, with decreasing sales in 2012 to 2014 consecutively, IBM is losing its
profit and Accenture is the only company among them to increase in revenue. Currently, IBM
is the market leader in cloud computing and it is predicted the industry will see more than 80%
growth in 2012 to 2017. IBM might be lacking in customer satisfaction part and marketing
capabilities in some of its product or service segments because of the decline sales comparative
to Accenture where the company saw an increase in revenue from 2011 to 2014.

15
Capabilities, core competency and competitive advantage of IBM

Capabilities Core competency Competitive advantage

1. IBM has numerous data 1. By having numerous 1. IBM has become the
centre which total up to 40 data centres, the ‘big market leader in the
data centres. (Page 2, data’ and cloud cloud computing
paragraph 1, line 6) computing are easier to industry.
2. Huge capital investment of developed with increase 2. IBM is larger than HP
a total of $24 billion, to in infrastructure. and Accenture
increase core competency. 2. Through acquisition combined.
(Page 3, paragraph 5, line 3) activities, IBM has 3. For 22 consecutive
3. Active acquisition activities access to acquired years, IBM has held
to a total of 30 acquisitions company’s technology, the record for most
to date. (Page 3, paragraph patent and copyright patents generated by a
5, line 3) which later helps in company.
4. Created many partnerships competing with rival 4. Most sophisticated
with other businesses and companies. mainframe computer,
universities. (Page 3, 3. Partnership with Apple Z13 created by IBM
paragraph 5, line 3) and Twitter open doors which generates about
5. Heavy R&D in cloud to IBM to strengthen its 20% of IBM revenue.
computing and ‘big data’ position in mobile IT 5. IBM’s cloud service is
field. (Page 5, paragraph 1, industry. used by roughly 80%
line 7; Page 3, paragraph 7, 4. Development in cloud of all Fortune 500
line 4) computing segment companies.
through R&D and
investment activities.

16
Internal analysis: Strengths and Weaknesses
Internal Organization Management Marketing Financial and Production / Research and Management
Analysis Culture Accounting Operation Development Information
Systems
Strengths 1. Gender 1. Top 1. Excellent 1. Huge 1. A leader in the 1. Heavy R&D 1. IBM has
equality is a managements marketing capital cloud activities in broad
practice among able to manage campaign in investment computing cloud system
its employees many cloud activities. services computing software for
2. Gay- acquisitions computing 2. IBM is operations. companies
friendliness activities segment. larger than 2. Over 60 percent to manage
company successfully. 2. IBM’s cloud both HP of IBM their
culture 2. Successfully service is used and employees in businesses.
manage its by roughly Accenture the R&D are
6,000 partners 80% of all combined. working in
fields of
and made 1,000 Fortune 500 operation such
university companies. as “big data,”
partnerships. cloud
computing, and
other key
growth
initiatives
Weaknesses Not mentioned 1. Structure of 1. Many 1. Declining 1. Weak 1. Lagging behind Not mentioned
in the case the segments of sales from year presence in in the private in the case.
study. organisation is IBM 2012 to 2014 personal IT cloud market
not well services/produ 2. Worst devices 2. Not yet create a
described cts are performer production better super-
2. Company’s declining. among the 30 segment. computer than
official mission stocks in Dow the HP Apollo
and vision are Jones industrial 8000.
not constructed average for
2014

17
 by the 3. Lower
management revenue per
employee
compared to
HP
4. No bonuses
given to
company
Executives in
2014

Justification on strengths and weaknesses

Organisation Culture
1. Gender equality is a practice among its IBM is exemplary regarding workplace equality. It is no accident that IBM’s CEO is a
employees woman, Virginia Rometty. In recent years, IBM UK has ranked first in Stonewall’s annual
Workplace Equality Index for United Kingdom (UK) employers. (Page 3, paragraph 2, line
1)
Strengths

2. Gay-friendliness company culture IBM provides same-sex partners of its employees with health benefits and provides an anti-
discrimination clause. The Human Rights Campaign for 10 consecutive years has rated IBM
100 percent on its index of gay-friendliness. (Page 3, paragraph 2, line 4)
Management
1. Top managements able to manage many IBM has invested over $24 billion to date, made 30 acquisitions, and has 15,000 consultants
acquisitions activities successfully. and 400 mathematicians in this area. (Page 3, paragraph 5, line 3)

18
 2. Successfully manage its 6,000 partners
and made 1,000 university partnerships.
Marketing
1. Excellent marketing campaign in cloud
computing segment.
2. IBM’s cloud service is used by roughly
80% of all Fortune 500 companies.
Financial & Accounting
1. Huge capital investment activities.
2. IBM is larger than both HP and
Accenture combined.
Strengths
Production & Operation
1. A leader in the cloud computing
services operations.
2. Over 60 percent of IBM employees in
the R&D are working in fields of
operation such as “big data,” cloud
computing, and other key growth
initiatives
With 6,000 partners and 1,000 university partnerships, IBM is committed to evolving into
a big data company. (Page 3, paragraph 5, line 5)
Currently, IBM is considered the industry leader in cloud computing through heavy R&D
and marketing campaigns. (Page 5, paragraph 1, line 7)
Roughly 80 percent of all Fortune 500 companies today use IBM’s cloud services and IBM
remains a leader in this area. (Page 3, paragraph 7, line 2)
IBM has invested over $24 billion to date, made 30 acquisitions, and has 15,000 consultants
and 400 mathematicians in this area. (Page 3, paragraph 5, line 3)
Exhibit 5 provides a comparison of IBM with HP and Accenture. Note that IBM is larger
than
both rival firms put together. (Page 7, paragraph 1, line 1 and exhibit 5)
Currently, IBM is considered the industry leader in cloud computing through heavy R&D
and marketing campaigns. (Page 5, paragraph 1, line 7)
Over 60 percent of IBM employees in R&D are working in fields such as “big data,” cloud
computing, and other key growth initiatives. (Page 3, paragraph 4, line 1)
19
 Research & Development
1. Heavy R&D activities in cloud
computing
Management Information Systems
1. IBM has broad system software for
companies to manage their businesses.
Management
1. Structure of the organisation is not well
described
Weaknesses
2. Company’s official mission and vision
are not constructed by the management
Marketing
1. Many segments of IBM
services/products are declining
Currently, IBM is considered the industry leader in cloud computing through heavy R&D
and marketing campaigns. (Page 5, paragraph 1, line 7)
Software is limited primarily to middleware and operating system software. Middleware
software is designed to help clients diagnose business problems, improve efficiency, and
identify new target markets. IBM provides a broad list of “capabilities” that serve more as
broad category descriptions of these middleware products. (Page 5, paragraph 3, line 1)
Many analysts do not consider IBM’s organizational structure to be exemplary. There is no
chief operating officer or chief administrative office, the divisions are named in somewhat
obscure ways, and the CEO is also the chairperson and president. No actual chart could be
obtained, but a depiction of IBM’s probable structure is given in Exhibit 1. (Page 3,
paragraph 3, line 1)
At the 2003 meeting, IBM abandoned its existing more formal mission statement. As of
2015, there is still no formal mission or vision statement provided on any literature
published on IBM’s website. (Page 2, paragraph 8, line 1)
Based on IBM’s Revenues by Segment (Page 5, exhibit 2)
20
Financial & Accounting
1. Declining sales from year 2012 to 2014
2. Worst performer among the 30 stocks in Disappointing Wall Street has become the trend for IBM, whose stock was the worst
Dow Jones industrial average for 2014
3. Lower revenue per employee compared
to HP
4. No bonuses given to company
Executives in 2014
Production/ Operation
1. Weak presence in personal IT devices
production segment.
Research and development
1. Lagging behind in the private cloud
market
In October 2014, after 10 quarters of flat or declining sales, IBM’s CEO Virginia Rometty
said, “Our results this quarter are disappointing; we’ve got to reinvent ourselves.” (Page 1,
paragraph 2, line 3)
performer among the 30 in the Dow Jones industrial average in both 2014 and 2013 an
ominous, dubious distinction for a company historically known as Big Blue. (Page 1,
paragraph 2, line 1)
Based on IBM versus Rival Firms data (Page 7, exhibit 5)
IBM executives accepted no bonuses in 2014 for fiscal year 2013, because the firm reported
a 5 percent drop in sales and a 1 percent decline in net profit for 2013. (Page 2, paragraph 1,
line 4)
In the personal systems market, HP has revenues of about $30 billion annually. Personal
systems consist of notebooks, desktops, and workstations. Primarily, HP competes with
Lenovo, Dell, Apple, Lenovo, and Toshiba in this segment. (Page 7, paragraph 4, line 1)
Forrester’s Wave for Private Cloud recently declared HP to be the world leader in the private
cloud market, earning the highest rankings for 8 of 15 categories measured. (Page 7,
paragraph 3, line 2)
21
2. Not yet create a better super-computer
than the HP Apollo 8000.
Hewlett Packard’s new Apollo 8000 system is the first super-computer to be 100 percent
liquid cooled and offers direct competition to IBM’s high-end server market. The Apollo
8000 is priced from $500,000 to several million dollars. In addition to being liquid cooled,
the new product operates 28 percent more efficiently than any other product on the market.
(Page 7, paragraph 6)
22
Internal Factor Evaluation (IFE) Matrix of IBM

Strengths Weight Rating Weighted Score

1 Industry leader in cloud computing through heavy R&D and
0.09 4 0.36
marketing campaigns.
2 Most patents generated by a company for 22 consecutive years. 0.08 4 0.32
3 Huge partnership with Apple company and cooperative
0.07 4 0.28
agreement with Twitter Inc.
4 Most sophisticated mainframe computer, Z13 created by IBM
0.05 4 0.20
which generates about 20% of IBM revenue.
5 Over 60 percent of IBM employees in the R&D are working in
fields of operation such as “big data,” cloud computing, and 0.05 4 0.20
other key growth initiatives
6 Numerous acquisition and investment activities. 0.08 4 0.32
7 IBM is larger than both HP and Accenture combined. 0.08 4 0.32
8 IBM’s cloud service is used by roughly 80% of all Fortune 500
0.05 4 0.20
companies.
9 More than 430,000 employees worldwide. 0.04 4 0.16
10 More than a dozen of research lab worldwide. 0.04 4 0.16

Weaknesses Weight Rating Weighted Score

1 No company official vision and mission statements. 0.03 2 0.06
2 Sales decline from 2012 to 2014 0.08 1 0.08
3 No bonuses given to company Executives in 2014 0.05 1 0.05
4 Lower revenue per employee compared to HP 0.05 1 0.05
5 Lagging behind in the private cloud market 0.06 1 0.06
6 Weak presence in personal IT devices operation segment 0.02 2 0.04
7 Worst performer among the 30 in Dow Jones Stocks Industrial
average for 2014 0.06 1 0.06
8 Organisational structure is not well constructed. 0.02 2 0.04
Total IFE Score 1.00 2.96

IBM scored 2.96 in the IFE matrix which shows the company is performing above average in
construct company’s strategies by capitalising its strengths and weaknesses and IBM is
stronger than the 2 rival companies. However, IBM is lacking in composing its official mission
and vision statements which are vital to shaping the path to achieve company’s objectives and
goals. Declining sales also shows that IBM needs to investigate the cause of the pattern and
take immediate and sustainable actions. If the declining pattern continue to prolong, IBM might
suffer tremendous backlash in its financial position.

23
Value Chain of IBM

Firm 1. Excellent relationship with 6.000 partners and also partnership with
Infrastructure 1,000 universities. (Page 3, paragraph 5, line 5)
2. Effective planning system in attaining goal to design a neural chip
that mimics the human by investing $3 billion between 2014 and
2019 on computer functionality. (Page 2, paragraph 2, line 2)
3. Excellent relationship with Apple company and Twitter Co. (Page
3, paragraph 9, line 1; Page 2, paragraph 3, line 1)
4. Top managements able to manage many acquisitions activities
successfully. (Page 3, paragraph 5, line 3)
Human 1. Quality environment for worker as IBM anticipate the trend on
Support Activities

Resource human rights, workplace equality, and gay-friendliness workplace

Management by providing health benefits and anti-discrimination clause for
same-sex partner of its employee. (Page 3, paragraph 2, line 2)
2. Shifting of R&D workers from material and hardware to “big data”
field. (Page 3, paragraph 4, line 1)
3. Manage 430,000 employees worldwide from headquarter in
Armonk, New York. (Page 1, paragraph 1, line 1)
Technology 1. Effective R&D activities through huge investment such as in
computer functionality which cost $3Billion and other huge
investment and acquisitions for big data industry. (Page 2,
paragraph 2, line 2; Page 3, paragraph 5, line 3)
2. Positive collaboration with Apple and Twitter for mobile app
development and analytical software development respectively.
(Page 3, paragraph 9, line 1; Page 2, paragraph 3, line 1)

24
 3. Have access to many qualified personnel such as consultants and
mathematicians. (Page 3, paragraph 5, line 4)
4. Expanded its facilities for R&D purposes by building more data
centres. (Page 2, paragraph 1, line 6)
Procument 1. IBM able to reduce the cost of goods sold (COGS) from year 2014
to 2015 when the ratio of COGS to sales decreased from 0.505 to
0.499. This leads to increase in both gross profit margin and
operating profit margin by 1% each. (Calculations are made from
data on page 6, exhibit 3)
2. IBM has divested its costly chip division to Globalfoundries which
later the company becomes exclusive server processor
semiconductor technology provider/supplier. (Page 1, paragraph 3,
line 8)

Inbound 1. IBM received supplies of server processor semiconductor from

Logistics Globalfoundries. (Page 1, paragraph 3, line 8)
Operations 1. About 2/3 of R&D operations of IBM focus on big data. (Page 3,
paragraph 5, line 4)
2. The balance of R&D operations that are not devoted to big data are
focused on cloud computing. (Page 3, paragraph 7, line 4)
3. IBM operation strategy has shifted from manufacturing to service.
(Page 1, paragraph 7, line 5)
4. Manufacturing operations include the refrigerator-sized mainframe
computer, Z13 which generates about 20% of IBM’s revenues. (Page
2, paragraph 4, line 4)
5. IBM also manufactures several semiconductor products used in IBM
systems and storage products. (Page 5, paragraph 4, line 5)
Outbound Not mentioned in the case study.
Logistics
Marketing 1. Run heavy marketing campaign in the cloud computing to be the
& Sales market leader in the industry. (Page 5, paragraph 1, line 7)
2. Identify the business model for cloud service which is business-to-
Primary Activities

business as about 80% of all Fortune 500 companies use IBM’s

cloud service. (Page 3, paragraph 7, line 2)
3. Able to market to Apple by installing its business app to Apple
technology products and launched a new service that will help other

25
 corporations make the same leap from Windows to the MacBook and
iPad. (Page 3, paragraph 9, line 1; Page 1, paragraph 5, line 1)
4. Many of IBM’s main segment are targeting business-to-business
model such as GTS, GBS, software, systems technology, and global
finance are all targeting business organisations. (Page 5)
Service 1. IBM introduced the IBM Verse that compliments with IBM Notes
software suites to address the complaints that customers have with
gmail, Yahoo! Mail and AOL email services such as spam and filter
problems. (Page 2, paragraph 4, line 2)

26
Strategy formulation process
TOWS Matrix
Strengths (S)
1. Industry leader in cloud computing through heavy
R&D and marketing campaigns.
2. Most patents generated by a company for 22
consecutive years.
3. Huge partnership with Apple company and cooperative
agreement with Twitter Inc.
4. Most sophisticated mainframe computer, Z13 created
by IBM which generates about 20% of IBM revenue.
5. IBM UK has ranked first in Stonewall’s annual
Workplace Equality Index for United Kingdom
employers.
6. Numerous acquisition and investment activities.
7. IBM is larger than both HP and Accenture combined.
8. The Human Rights Campaign rated IBM as 100 gay-
friendliness for 10 consecutive years.
9. More than 430,000 employees worldwide.
10. More than a dozen of research lab worldwide.
11. IBM initiated the technological social interaction
products and services through Skype purchasing.
12. Over 60 percent of IBM employees in the R&D are
working in fields of operation such as “big data,” cloud
computing, and other key growth initiatives.
13. Successfully manage its 6,000 partners and made 1,000
university partnerships.
14. IBM’s cloud service is used by roughly 80% of all
Fortune 500 companies.
Opportunities (O)
1. Social media revolution
2. Increase in development of IT
infrastructure by other business
companies
3. Cloud computing high growth
percentage
4. High-end server business is
less prone to commoditization
5. Growth in business of data
6. Smartphone apps further
growth
7. Business consulting and
outsourcing are going to be
prime areas of interest in the
future.
8. Potential market growth on
emerging market countries
9. Asia has best growth rate in IT
10. Worldwide growth of software
business
11. Fast growth of use of data and
the information that can be
derived from data
S-O
1. Tapping into potential market segments
around the globe that highly demanded on
cloud computing (S1, O3; S1, O8)
2. Heighten marketing activities of cloud
computing to business companies. (S1, O2)
3. Developed advanced mainframe computer
or super-computer to further strengthen
position in the high-end server business.
(S4, O4)
4. Ensure good customer satisfaction
feedback and maintain good after-service
to business companies that use IBM’s
product/service. (S14, O2; S14, O5)
5. Focus on investment and acquisition
activities that can spur IBM’s growth on
business consulting and outsourcing. (S6,
O7)
6. Increase innovation on apps development
through R&D, especially on business
mobile app and mobile software. (S10, O6;
S3, O1)
7. Conduct a market research on demand on
IT in Asia and focus on highly profitable
and highly demanded product/service
segment. (S10, O9)
27
 Strengths (S) Threats (T) S-T
1. Industry leader in cloud computing through 1. New super-computer technology 1. Forge partnership with Apple to
heavy R&D and marketing campaigns. innovation by HP further provide system and business
2. Most patents generated by a company for 22 2. Slow growth in 2015 for IT consulting, app to the company. (S3, T4)
consecutive years. IT outsourcing and IT hardware 2. Strictly follow legal procedures when
3. Huge partnership with Apple company and support receiving big data from Twitter
cooperative agreement with Twitter Inc. 3. Low entry barrier of the industry through the cooperative agreement.
4. Most sophisticated mainframe computer, Z13 4. Increase demand in tablet and (S3, O6; S3, O8)
created by IBM which generates about 20% of smartphone 3. Issue a warranty period for high-end
IBM revenue. 5. Europe debt crisis system or product service to client to
5. IBM UK has ranked first in Stonewall’s annual 6. Privacy concerns from the public strengthen brand image and secure
Workplace Equality Index for United Kingdom 7. Piracy or copyright risk industry position. (S1, O3; S14, O3)
employers. 8. Legal issues against big data usage
6. Numerous acquisition and investment activities. 9. Reduction of price due to high
7. IBM is larger than both HP and Accenture standardisation of computer products
combined.
8. The Human Rights Campaign rated IBM as 100
gay-friendliness for 10 consecutive years.
9. More than 430,000 employees worldwide.
10. More than a dozen of research lab worldwide.
11. IBM initiated the technological social
interaction products and services through Skype
purchasing.
12. Over 60 percent of IBM employees in the R&D are
working in fields of operation such as “big data,”
cloud computing, and other key growth initiatives.
13. Successfully manage its 6,000 partners and
made 1,000 university partnerships.
14. IBM’s cloud service is used by roughly 80% of
all Fortune 500 companies.

28
Weaknesses
1. No company official vision and
mission statements.
2. Sales decline from 2012 to 2014
3. No bonuses given to company
Executives in 2014
4. Lower revenue per employee
compared to HP
5. Lagging behind in the private cloud
market
6. Weak presence in personal IT devices
production segment
7. Worst performer among the 30 in
Dow Jones Stocks Industrial average
for 2014
8. Organisational structure is not well
constructed
Opportunities (O)
1. Social media revolution
2. Increase in development of IT infrastructure by other
business companies
3. Cloud computing high growth percentage
4. High-end server business is less prone to
commoditization
5. Growth in business of data
6. Smartphone apps further growth
7. Business consulting and outsourcing are going to be
prime areas of interest in the future.
8. Potential market growth on emerging market
countries
9. Asia has best growth rate in IT
10. Worldwide growth of software business
11. Fast growth of use of data and the information that
can be derived from data
W-O
1. Construct official IBM vision and
mission statement to provide
clearer path for the company’s
future undertakings. (W1, O5;
W1, O3; W1, O7; W1, O10)
2. Construct enhanced business
model for focused segments by
identify the customer needs in
order to avoid declining sales and
increase profit. (W2, O2; W2, O5;
W2, O10)
3. Invest more on private cloud
market to get higher market share
compare to HP. (W5, O1; W5,
O6)

Weaknesses Threats (T) W-T

1. No company official vision and mission
statements.
2. Sales decline from 2012 to 2014
3. No bonuses given to company Executives in 2014
4. Lower revenue per employee compared to HP
5. Lagging behind in the private cloud market
6. Weak presence in personal IT devices production
segment
7. Worst performer among the 30 in Dow Jones
Stocks Industrial average for 2014
8. Organisational structure is not well constructed
1. New super-computer technology innovation by
HP
2. Slow growth in 2015 for IT consulting, IT
outsourcing and IT hardware support
3. Low entry barrier of the industry
4. Increase demand in tablet and smartphone
5. Europe debt crisis
6. Privacy concerns from the public
7. Piracy or copyright risk
8. Legal issues against big data usage
9. Reduction of price due to high standardisation
of computer products
1. Control marketing and sales
activities in Europe region
and focus on other higher
profitable geographic region
until Europe has stabilised
from the debt crisis. (W2,
T5)
2. Acquire company that has
strong position in personal
IT devices at affordable
price. (W6, T4)

29
SPACE Matrix

Internal Analysis: External Analysis:

Financial Position (FP) Stability Position (SP)
Return on Investment (ROI) 7 Demand Variability -2
Inventory Turnover 7 Technological Changes -2
Liquidity 5 Risk Involved in Business -2
Working Capital 6 Competitive Pressure -1
Cash Flow 4 Barriers to Entry into Market -1
Financial Position (FP) Average 5.8 Stability Position (SP) Average -1.6

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -1 Growth Potential 7
Product Quality -1 Financial Stability 5
Customer Loyalty -1 Ease of Entry into Market 7
Technological know-how -1 Resource Utilization 7
Capacity Utilisation -1 Profit Potential 5
Competitive Position (CP) Average -1.0 Industry Position (IP) Average 6.2

Y-axis: 4.2
X-axis: 5.2

FP
Conservative Aggressive
7.0

5.0

3.0

1.0
CP IP
-7.0 -5.0 -3.0 -1.0
-1.0 1.0 3.0 5.0 7.0

-3.0

-5.0

-7.0
Defensive Competitive
SP

30
The SPACE matrix shows that IBM falls on the aggressive quadrant. The plotting indicates
that IBM is a financially strong firm that has achieved competitive advantages in a growing
and stable industry. Although IBM has decreasing sales from 2012 to 2014, the company is
still considered financially strong as it has big revenue, made huge investment and acquisition
with its large investment capital budget and the gross margin ratio and operating profit margin
are still in good percentage of higher than 40% and 20% respectively. As it falls in the
aggressive quadrant, the suggested strategy would be integration (forward, backward and
horizontal), market penetration, market development, product development and diversification
(related or unrelated).

31
The Boston Consulting Group (BCG) Matrix

Relative Market Share Position

High 1.0 Low 0.0
Stars Question Marks
High 0.20
Industry Sales Growth Rate

GTS

Low -0.20
Cash Cows Dogs

Red circle – GBS Green circle – Software

Purple circle – System Technology Blue circle – Global Financing

These 5 circles represent IBM 5 main business segments. Based on the revenue by segments
(Page 5, exhibit 2), GTS has the highest revenue percentage followed by software, GBS, system
technology and lastly is global financing with the smallest revenue among the segments. Based
on the plotting in the BCG matrix, all of the segments fall on “Star” quadrant which suggest
strategies on integration (forward, backward, horizontal), market penetration, market
development and product development. Since IBM is the biggest company compared to HP
and Accenture combined, IBM has relatively high market share amongst. The only stated
market that IBM is not a leader in, is the private cloud market which goes to HP. However,
private cloud segment is not IBM’s main segment. IBM main segment in the cloud computing
which currently IBM is the market leader.

32
Internal External (IE) Matrix
THE IFE TOTAL WEIGHTED SCORES
Strong Weak
4.0 1.0

High
4.0
THE EFE WEIGHTED SCORES

I II III

IV V VI

VII VII IX
I
Low
1.0

Based on the IFE and EFE score of IBM which are 2.96 and 2.84 respectively, the position of
IBM on the IE matrix is on the quadrant “V” which indicates the strategy of ‘hold and
maintain’. This strategy suggests for market penetration and product development. ‘Hold and
maintain’ does not indicate passive strategy. It still requires expansion. In ‘hold and maintain’,
IBM needs to protect its current percentage market share against competitors. As IBM is a giant
company which has been operated for more than 200 years, the company was greatly
established and has excellent presence in the technology industry. Thus, IBM need to capitalise
its strength and explore its opportunities to keep its grand image and stay current in the market
share. This strategy also might require large investment to be done in order to avoid competitors
to capture IBM’s market share.

33
Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

IBM

Weak Competitive Strong Competitive

Position Position

Quadrant III Quadrant IV

Slow Market Growth

Based on the GRAND matrix, IBM is positioned in the quadrant 1 which suggest strategies of
integration (backward, forward, and horizontal), market penetration, market development,
product development and related diversification. Based on the plotting, it shows that IBM has
an excellent strategic position, take risk when necessary and concentrates on current market
(market penetration and market development) and on products/services (product development).

Summary on strategies
Strategy SPACE BCG IE GRAND Total
Backward Integration / / / 3
Forward Integration / / / 3
Horizontal Integration / / / 3
Market Penetration / / / / 4
Market Development / / / 3
Product Development / / / / 4
Unrelated diversification / 1
Related Diversification / / 2
Retrenchment
Divestiture
Liquidation

34
Quantitative Strategic Planning Matrix (QSPM)
Based on the summary on strategies, the strategies with highest total of 4 are market penetration
and product development. The proposed strategies on QSPM is made after taking account the
summary on strategies.

Innovate the cloud

computing service to
Strengthen presence in
be more differentiated
for Asia region by
service with higher
revising marketing mix
sustainability and
(4Ps) for the regions
distinctive new
features.
Strengths Weight AS TAS AS TAS
Industry leader in cloud computing through heavy R&D and
0.09 3 0.27 4 0.36
1 marketing campaigns.
2 Most patents generated by a company for 22 consecutive years. 0.08 0 0.00 3 0.24
Huge partnership with Apple company and cooperative
0.07 0 0.00 0 0.00
3 agreement with Twitter Inc.
Most sophisticated mainframe computer, Z13 created by IBM
0.05 4 0.20 0 0.00
4 which generates about 20% of IBM revenue.
Over 60 percent of IBM employees in the R&D are working in
fields of operation such as “big data,” cloud computing, and 0.05 0 0.00 0 0.00
5 other key growth initiatives
6 Numerous acquisition and investment activites. 0.08 2 0.16 3 0.24
7 IBM is larger than both HP and Accenture combined. 0.08 2 0.16 3 0.24
IBM’s cloud service is used by roughly 80% of all Fortune 500
0.05 2 0.10 3 0.15
8 companies.
9 More than 430,000 employees worldwide. 0.04 0 0.00 0 0.00
10 More than a dozen of research lab worldwide. 0.04 0 0.00 3 0.12

Innovate the cloud

computing service to
Strengthen presence in
be more differentiated
for Asia region by
service with higher
revising marketing mix
sustainability and
(4Ps) for the regions
distinctive new
features.
Weaknesses Weight AS TAS AS TAS
1 No company official vision and mission statements. 0.03 0 0.00 0 0.00
2 Sales decline from 2012 to 2014 0.08 4 0.32 3 0.24
3 No bonuses given to company Executves in 2014 0.05 0 0.00 0 0.00
4 Lower revenue per employee compared to HP 0.05 0 0.00 0 0.00
5 Lagging behind in the private cloud market 0.06 2 0.12 4 0.24
6 Weak presence in personal IT devices production segment 0.02 4 0.08 0 0.00
Worst performer among the 30 in Dow Jones Stocks Industrial
0.06 1 0.06 2 0.12
7 average for 2014
8 Organisational structure is not well constructed. 0.02 0 0.00 0 0.00

35
 Innovate the cloud
computing service to
Strengthen presence in
be more differentiated
for Asia region by
service with higher
revising marketing mix
sustainability and
(4Ps) for the regions
distinctive new
features.
Opportunities Weight AS TAS AS TAS
1 Social media revolution 0.04 0 0.00 2 0.08
2 Increase in development of IT infrastructure by other business
0.08 3 0.24 4 0.32
companies
3 Cloud computing high growth percentage 0.07 3 0.21 4 0.28
4 High-end server business is less prone to commoditization 0.03 4 0.12 0 0.00
5 Growth in business of data 0.06 0 0.00 3 0.18
6 Smartphone apps further growth 0.03 4 0.12 0 0.00
7 Business consulting and outsourcing are going to be prime areas
0.07 3 0.21 2 0.14
of interest in the future.
8 Potential market growth on emerging market countries 0.05 4 0.20 1 0.05
9 Asia has best growth rate in IT 0.03 4 0.12 2 0.06
10 Worldwide growth of software business 0.08 3 0.24 0 0.00

Innovate the cloud

computing service to
Strengthen presence in
be more differentiated
for Asia region by
service with higher
revising marketing mix
sustainability and
(4Ps) for the regions
distinctive new
features.
Threats Weight AS TAS AS TAS
1 New super-computer technology innovation by HP 0.07 2 0.14 3 0.21
Slow growth in 2015 for IT consulting, IT outsourcing and IT
0.08 1 0.08 0 0.00
2 hardware support
3 Low entry barrier of the industry 0.05 2 0.10 3 0.15
4 Increase demand in tablet and smartphone 0.04 4 0.16 3 0.12
5 Europe debt crisis 0.02 4 0.08 2 0.04
6 Privacy concerns from the public 0.05 0 0.00 4 0.20
7 Piracy or copyright risk 0.05 3 0.15 2 0.10
8 Legal issues against big data usage 0.08 0 0.00 4 0.32
Reduction of price due to high standardisation of computer
products 0.02 4 0.08 0 0.00
9
STAS 3.72 3.17

Proposed strategy 1 which is based on market penetration score higher than strategy 2 which
is based on product development. With the score of 3.72, it is vital for IBM to pursue in market
penetration strategy by strengthening presence in for Asia region by revising marketing mix
for the regions. As IBM faced declining sales, IBM has to act fast to secure the market share

36
in the industry and aim for sustainable growth. According to the case study, Asia has the best
growth rate in the industry geographically (Page 8, paragraph 3, line 1). IBM must also
capitalise on application management, cloud computing, business consulting, network
consulting and integration, and hosted application management on embarking the initiation of
strategy 1 as these key areas are predicted to grow (Page 8, paragraph 1, line 3).

Proposal on objectives
Long-term Objectives
Financial
1. Financial growth: to achieve revenue of
$112 Billion by end of financial year
2018.
2. Efficiency growth: to increase the
operating profit margin to 25% by 2018.
3. Efficiency growth: to increase gross
profit margin to 54% by 2018.
4. Financial growth: to obtain a net income
of $19 Billion by end of financial year
2018.
Strategic (Non-Financial)
1. Retain the current market share in the
cloud computing industry as the market
leader in the next five years.
2. Achieve the goal to design a neural chip
that mimics the human brain, with 10
billion neurons and 100 trillion
synapses, but that uses just 1 kilowatt of
power by 2019.
3. Construct a comprehensive mission and
vision statements of the company by
year 2017.
4. Preserve the workplace equality and
gay-friendliness culture to retain
employees and attract new talent.
5. Strengthen partnership with universities
and other companies that can contribute
to IBM R&D progress.
6. To come up with new technological
breakthrough every 3 years.

37
Annual Objectives
Financial
1. Financial growth: to increase revenue by 1. Seek for consultant advice or view on
roughly 5% annually.
2. Efficiency growth: to increase the
operating profit margin by 1% annually.
3. Efficiency growth: to grow the gross
profit margin by 1% annually.
4. Financial growth: to obtain a 5% annual
growth on net income.
5. To increase the return on assets (ROA)
by 1% every year.
Strategic (Non-Financial)
the 5 main segments to identify any
market changes that required immediate
response.
2. Make proper planning on investment
capital especially on acquisition
activities to avoid over-spending on
acquisitions.
3. Continue to conduct heavy R&D
activities with proper financial planning.
4. Gather as many inputs and feedbacks on
IT from partnership programmes and
strategic alliances such as with Apple
and Twitter.
5. Developed new and innovate existing
software to grow parallelly with the
annual growth prediction on software
industry.
6. Provide excellent customer relationship
with existing customer base and new
customers by getting feedback and
entertain issues faced by them related to
provided services/products, in order to
retain good sales.
38
Corporate level strategies formulation for IBM
Integration Strategies Successful/
Profitability
This strategy is useful if the distributors are especially expensive.
However, in the case study, there is no mentioning on the
distributors of IBM. IBM’s business model is to be seen as direct
Forward
contact with clients without distributor. There is no mentioning on
Integration
outbound logistics that emphasise on the role of distributor. Since
IBM is focusing on providing services, most of the operation
require direct contact with clients.
Backward integration is appropriate when the present supplier is
expensive or unreliable. In this case study, Globalfoundries was
paid by IBM in the purpose to divest its costly chip division. So,
Backward currently Globalfoundries is the exclusive supplier of server
Integration processor semiconductor for IBM. Pursuing the backward
integration strategy would not be a smart action because it brings
back the costly chip division to IBM and IBM will have to incur
hefty operating cost for the chip manufacturing.
Horizontal integration strategy is when a company is seeking
ownership of or increased control over a firm's competitors. This
strategy has been optimised by IBM as IBM has managed to
acquire a large sum of other companies or competitors with a total
Horizontal of 30 acquisitions to date. This strategy fits well with IBM as it is
Integration a big company with huge capital investment expenditures. By
horizontal integration through acquisition, IBM can gain excess to
the acquired company’s patents, copyrights and technology which
can help IBM to move forward in the industry and obtain bigger
market share.

39
 Intensive Strategies Successful/
Profitability
Market penetration is suitable strategy in seeking to increase
market share for present products or services in present markets
through greater marketing efforts. There are many market that
has been tapped by IBM such as the US and Europe market.
However, these 2 markets are already concentrated with
Market competitors, as HP and Accenture originated from US and
Penetration Europe respectively and these markets are slow in growth. Asia
marked highest growth geographically and growth is expected
to increase in emerging market. IBM should consider the
strategy of penetrating emerging market and Asia regional
market as it is less concentrated and the total industry sales has
been increasing.
Market development is suitable when there are new untapped
or unsaturated markets exist. In this case, Accenture is focusing
on emerging market. Emerging market is the unsaturated
market where IBM can tap and positioned itself in the industry.
Usually, emerging market is described together with
Market
developing countries like Malaysia, Indonesia and other third-
Development
world countries which is currently developing. Developing
countries’ IT industry is less concentrated compared to
developed country like the US. IBM who has access to large
resources and has many skilled professional employees can
undergo market development strategy.
Product development is suitable for an organization who has
successful products that are in the maturity stage of the product
life cycle. This strategy is also appropriate because IBM has
Product strong research and development capabilities and is competing
Development in an industry characterized by rapid technological
developments. Currently, for the super-computer technology,
HP has offer a better-quality product of the first technology of
liquid-cooling. In addition to being liquid cooled, the new

40
 product operates 28 percent more efficiently than any other
product on the market. Thus, IBM can execute product
development on super-computer segment to stay competitive in
the industry segment.

Diversification Strategies Successful/

Profitability
IBM has diverse service offerings from outsourcing to
software and many other. With the opportunity of increasing
development of mobile app and existing alliance with Apple,
IBM can further divest its business app for mobile device to
Related
personal app or even family-sharing app segmented for
Diversification
family use. Increasing social media and demand for tablet
and smartphone would likely create high demand for these
products if it is successfully introduced and offered at a
reasonable price to the user.
To this point, IBM has not made any unrelated diversification
as there is no unrelated diversification mentioned in the case
study. Unrelated diversification might jeopardise IBM’s Can be

financial position as it is highly equipped in IT industry only either

and unrelated diversification might require outside skilled

professional to run the business unit. This strategy will be
Or
Unrelated sort of a gamble for IBM to ventured into. However, with the
diversification help of reliable consultant, if sufficient market research is
made, together with proper understanding on the selected depending
type of business, and proper selection on type of unrelated on
diversification is formulated, the business might be a success. the strategic
Unrelated diversification should be classified as Special planning.
Business Unit (SBU) and to be put under close supervision
during trial or provision period.

41
 Defensive Strategies Successful/
Profitability
Retrenchment is proper when the company is the weak
competitor in the industry and the company has low
efficiency, low profitability and low employee’s morale.
Retrenchment However, considering IBM is a strong competitor in the
market and still efficient in running business with operating
profit margin of more than 20% and with about 50% gross
profit margin, retrenchment is not required.
Divestiture happens when an organization has pursued a
retrenchment strategy and failed to accomplish
improvements and a division is responsible for an
organization's overall poor performance. IBM latest
divestiture is selling its costly chip division to
Globalfoundries. Currently, IBM does not need to make
Divestiture
another divestiture as its operating expenses is still under
control with maintain operating profit margin and although
the Global Finance segment is not a major contributor to
IBM’s overall business portfolio, the leasing agreements for
IBM products does not incur high operating expenses.

Liquidation occurs when an organization has pursued both a

retrenchment strategy and a divestiture strategy, and neither
has been successful. This strategy fits with the defensive
Liquidation strategy which does not suit IBM current strategy of
aggressive. This liquidation strategy does not fit with IBM’s
current financial, competitive, industry and stability
positions.

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Porter's Five Generic Strategies

Based on the case study, the business strategy for IBM according to Porter’s Five Generic
Strategies is focused differentiation strategy.

Justification on IBM focused differentiation strategy:

Characteristic Justification
Narrow segment 1. Services offered by IBM is mainly for business-to-business model
which includes the mainframe computer which caters for large
organisation that required mass data processing and large computing
power.
2. Small business organisation is highly likely not require the ‘big data’
services by IBM.
3. Cloud computing system which is offered by IBM is only used in the
narrow segment. Big companies such as the Fortune 500 companies
that require cloud computing system normally has its existing IT
infrastructure but needed outsourcing services by IBM to aid in risk
management, flexibility, and financial value improvement.
4. Software developed by IBM are normally used by certain people and
not for broad segment. For example, data analytical system of SPSS
and Cognos are used by researcher or people who wanted a system to
process a group of collected data.

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 Uniqueness 1. IBM product and services has its own uniqueness. That what makes
IBM a market leader in cloud computing and is a strong competitor
in the IT technology.
2. Another example is Z13, IBM’s mainframe computer which is rated
as the most sophisticated computer ever built and the refrigerator-
sized machine is able to process 2.5 billion transactions a day.
3. IBM software has its own uniqueness offered to clients. For example,
SPSS software analytical data is different from Microsoft Excel.
SPSS has better features to process and present input data for better
understanding. IBM even developed system for Apple product which
differentiate itself from Microsoft and Android system.

Based on the mentioned justification, the strategy for IBM is focused differentiation strategy
which caters to niche or narrow segment and IBM is able to differentiate its product/services
from other competitors which helps IBM to become stronger and bigger company compared to
HP and Accenture combined.

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