Case

Analysis
Strategic Management

Shazil Ahmed
Saad Akhtar
Ibrar Chaudary
Rao Kamran Shazil

Muhammad Umer Jafar

Muhammad Naqeeb Arshad
Table of Contents

INTRODUCTION TO INTERNATIONAL BUSINESS MACHINES...................................................................2

VISION AND MISSION STATEMENTS.......................................................................................................3
OBJECTIVES & STRATEGIES.....................................................................................................................4
PORTER’S FIVE FORCES MODEL.............................................................................................................5
FINANCIAL ANALYSIS..............................................................................................................................6
CPM MATRIX..........................................................................................................................................7
EXTERNAL OPPORTUNITIES AND THREATS............................................................................................8
Opportunities.....................................................................................................................................8
Threats...............................................................................................................................................8
EFE MATRIX............................................................................................................................................9
INTERNAL STRENGTHS AND WEAKNESSES..........................................................................................11
Strengths.........................................................................................................................................11
Weaknesses.....................................................................................................................................11
IFE MATRIX...........................................................................................................................................12
SWOT MATRIX......................................................................................................................................14
QSPM...................................................................................................................................................17
GRAND STRATEGY MATRIX...................................................................................................................20
BCG MATRIX.........................................................................................................................................21
IE MATRIX............................................................................................................................................22
SPACE MATRIX.....................................................................................................................................23
CONCLUSION.......................................................................................................................................24
RECOMMENDATIONS...........................................................................................................................25
WORKS CITED......................................................................................................................................26
APPENDIX............................................................................................................................................27

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 INTRODUCTION TO INTERNATIONAL BUSINESS MACHINES

International Business Machines or IBM was founded in 1888 as “Herman Hollerith and the
Tabulating Machine Company”. Its name was later changed to IBM in 1924 when it became a
Fortune 500 company. It is known to have more patents than any other American tech
company. It was taken by the US government at the beginning of World War II in the war
effort and given a one percent profit, which it used to fund war victims and orphans.

IBM was one of the leader brands of I.T industry which is basically related to computing
various dimension of technology weather it is about gadget or the software. It developed
products from punch-card tabulating machines to room sized calculators and main frame
computers.

In 1980, the company introduced IBM Personal Computer (PC) in which the processor came
from Intel and operating system from Microsoft. In 1992, the company introduced laptops
which were named ThinkPad. IBM introduced cost effective technologies like instead of pure
silicon chip, they introduced a blend of silicon and germanium. IBM has On Demand
Innovation services where different teams offer business transformation and technology
consultation services.

Today, IBM is the largest information technology company and the eight largest company in
the world with workings in over 170 countries. More than 60% revenue of the company is
generated from outside of US.

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 VISION AND MISSION STATEMENTS

Vision Statement
“Solutions for a small planet”

Mission Statement

At IBM, we strive to lead in the invention, development and manufacture of the industry's
most advanced information technologies, including computer systems, software, storage
systems and microelectronics.
We translate these advanced technologies into value for our customers through our
professional solutions, services and consulting businesses worldwide.

Proposed Vision Statement

“To maintain quality, by continuous innovation and creativity, and to satisfy consumers”

Proposed Mission Statement

IBM strives to provide the world with leading innovations in the IT industry, for people who
appreciate the brands quality. Products of utmost reliability and rigidness include Computer
systems, software, storage systems & microelectronics. IBM provides unmatched build
quality known for its durability. We are committed to stay in the market as a continuous
leader in technology and innovation and at the same time being profitable for our investors.
We follow the belief of respect for the individual, the best customer service and superior
accomplishment of all tasks. We give continuous motivation, appraisal and promotions to our
employees. IBM is committed to environmental leadership in all of its business activities,
from its operations to the design of its products and use of its technology.

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Component Check

IBM’s Mission Statement Proposed Mission Statement

Customers

Products

Markets

Technology

Concern for survival, growth &

profitability

Self-concept

Concern for employees

OBJECTIVES & STRATEGIES

IBM is repositioning itself from a computer company to an information technology service

company through a series of acquisitions and divestitures. Thirteen acquisitions of
approximately $4.8 Billion were completed enabling IBM to expand its business. Since then
IBM concentrated on becoming stronger in high-added businesses. It concentrates on
development and manufacture of the advanced information technologies, including computer
systems, software storage systems and microelectronics. It engaged 50,000 employees in an
online intranet discussion over a period of three days using its Jam technology IBM generated
over 46,000 ideas through this.

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 PORTER’S FIVE FORCES MODEL

Threat of New Entrants

It is relatively low as this field requires heavy investment in research and innovation.

Bargaining Power of Customers

There are a lot of similar products available which makes the power of bargaining higher.

Bargaining Power of Suppliers

In most areas of IBM, there are number of suppliers which make the power of suppliers low.

Substitutes

IBM provides number of products which have low or no substitutes.

Competitive Rivalry

It is high as there are large companies like HP, Microsoft and EDS to compete IBM.

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 FINANCIAL ANALYSIS

Current Ratio (2005) = 45,661,000/35,152,000 = 1.3

Current Ratio (2006) = 44,660,000/40,090,000 = 1.1

Return on Equity (2005) = 7,934,000/33,098,000 = 24%

Return on Equity (2006) = 9,492,000/28,506,000 = 33%

Profit Margin (2005) = 7,934,000/91,134,000 = 8.7%

Profit Margin (2006) = 9,492,000/91,424,000 = 10.4%

Debt to Equity Ratio (2005) = 72,650,000/33,098,000 = 2.2

Debt to Equity Ratio (2006) = 74,727,000/28,506,000 = 2.6

Earnings per Share (2006) = 9,492,000/207,663,223 = 4.5%

Sales Growth (2006) = (91,424,000-91,134,000)/91,134,000 = 0.3%

Asset Growth (2006) = (103,233,000-105,748,000)/105,748,000 = -2.3%

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 CPM MATRIX

Critical Success Weights IBM Microsoft HP EDS

Rate Score Rate Score Rate Score Rate Score
Factors
Diversification 0.1 3 0.3 4 0.4 1 0.1 4 0.3
Financial 0.15 4 0.6 2 0.3 2 0.3 1 0.15
position
Market share 0.2 2 0.4 4 0.8 2 0.4 3 0.6
Advertisement 0.2 1 0.2 2 0.4 4 0.6 1 0.2
Customer 0.1 4 0.4 2 0.2 3 0.3 1 0.1
relation
Management 0.05 2 0.1 4 0.2 3 0.15 3 0.15
R&D 0.2 4 0.8 4 0.8 2 0.4 2 0.4
TOTAL 1 2.8 3.1 2.25 1.9

The CPM shows the critical success factors for companies, which would be same for all in a
given economy. Seven factors were tested among competitors of IBM (i.e. Microsoft, HP,
EDS). Microsoft holds a strong competitive position among its competitors followed by IBM,
HP & EDS.

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 EXTERNAL OPPORTUNITIES AND THREATS

Opportunities
Globalization in order to balance the fluctuations in different economies

Create products appealing to a younger generation, e.g. iPod

Use patents to generate revenue

Focus more on OEM (17.9% revenue increase)

Hire and use international expertise

Threats
Over reliance on developing economies like India (38% growth)

Unstable electronics market

Change in technology (iPad)

Customers have low switching costs

Rapid product development from competitors

Fierce competition from Microsoft & HP

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 OPPORTUNITIES
KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED
SCORE
Globalization in order to balance the 0.05 3 0.15
fluctuations in different economies

Create products appealing to a younger 0.16 1 0.16

generation, e.g. iPod
Use patents to generate revenue 0.04 2 0.08
Focus more on OEM 0.1 2 0.2
Hire and use international expertise 0.16 3 0.48
EFE MATRIX

THREATS
Over reliance on developing economies 0.06 1 0.06
like India (38% growth)
Unstable electronics market 0.06 2 0.12
Change in technology (iPad) 0.1 3 0.3
Customers have low switching costs 0.07 2 0.14
Rapid product development from 0.1 3 0.3
competitors
Fierce competition from Microsoft & HP 0.1 3 0.3
TOTAL 1.00 2.29

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The EFE matrix shows various opportunities to be availed by IBM and the threats it faces.
After listing them, weights were assigned according to their importance and the degree to
which they affect the company. The weights are industry specific and assess the importance
of each factor in terms of surviving in the industry. The ratings were given as the following:

1. Is the “response is poor”.

2. Is the “response is average”.

3. Is “response is above average”

4. Is “response is excellent”.

The weighted score calculated by multiplying the weights with the rates assigned. The sum of
the total weighted score for opportunities and threats is called the total weighted score, which
for IBM are 2.29. This tells us that the business is performing below average and is not
capitalizing on its opportunities neither is reducing or avoiding threats.

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 INTERNAL STRENGTHS AND WEAKNESSES

Strengths
Brand name

Rising revenue to 91 billion and rising net income to $9.4 billion

Diversification (Software, hardware, financing)

Acquisition of Watchfire Company in 2007

InnovationJam capability

Ranks second in market capitalization, net income, and long-term growth behind Microsoft

Widespread operations in 170 countries

Rising earnings per share (23% in 2006)

Weaknesses
Lack of synergy resulting from a series of acquisitions and divestitures

Difficult to coordinate over four geographical segments

Too many employees (around 400,000)

Concentration or focus on three major divisions or segments puts the company at a vulnerable
position if revenues from them decline

Declining profit margins from hardware (-7.6%)

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 IFE MATRIX
KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED
SCORE
STRENGTHS
Brand name 0.09 4 0.36
Rising revenue to 91 billion and rising net 0.1 4 0.4
income by 9% to $9.4 billion
Diversification (Software, hardware, 0.05 3 0.15
financing)
Known to have more patents than any other 0.03 3 0.09
American technology company
Acquisition of Watchfire Company in 2007 0.03 3 0.09
InnovationJam capability 0.15 4 0.6
Ranks second in market capitalization, net 0.05 3 0.15
income, and long-term growth behind
Microsoft
Widespread operations in 104 countries 0.05 3 0.15
Rising earnings per share (23% in 2006) 0.1 4 0.4

WEAKNESSES
Lack of synergy resulting from a series of 0.05 1 0.05
acquisitions and divestitures
Difficult to coordinate over four 0.07 1 0.07
geographical segments
Too many employees (around 400,000) 0.03 2 0.06
Concentration or focus on three major 0.08 1 0.08
divisions or segments puts the company at a
vulnerable position if revenues from them
decline
Declining profit margins from hardware (- 0.12 2 0.24
7.6%)
TOTAL 1.00 2.89

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The internal factor evaluation matrix shows that IBM’s internal position is above average.
They can come up with more planned and innovative techniques in order to improve their
position as there is room for improvement. IFE value is above 2.50 which means that IBM is
taking advantage of its strengths and minimizing weaknesses. The IFE matrix lists the
weights of each internal factor, both strengths and weaknesses and assigns them ratings and
then finds total weighed scores to assess the internal position of IBM. The weights are
industry specific and assess the importance of each factor in terms of surviving in the
industry. Coming to the ratings, they indicate how effectively the firm’s current strategies
respond to the factor. The total weighted score is found by multiplying the weights with the
ratings to find the weighted score.

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 SWOT MATRIX
Strengths
1. Brand name
2. Rising revenue to 91
billion and rising net
income by 9% to $9.4
billion
3. Diversification (Software,
hardware, financing)
4. Acquisition of Watchfire
Company in 2007
5. InnovationJam capability
6. Ranks second in market
capitalization, net income,
and long-term growth
behind Microsoft
7. Widespread operations in
104 countries
8. Rising earnings per share
(23% in 2006)
Opportunities S0 Strategies
1. Globalization in order to 1. Use InnovationJam
balance the fluctuations in technique to get in touch
different economies with younger customer
base in order to appeal to
2. Create products appealing them well <<S5,O2>>
to a younger generation,
e.g. iPod 2. Capitalize on worldwide
existence to hire
3. Use patents to generate international expertise to a
revenue larger extent <<S7,O5>>
4. Focus more on OEM 3. Use brand name to get
into Gaming PCs and
5. Hire and use international Laptops for 27% youth in
expertise the world <<S1,O2>>
Weaknesses
1. Lack of synergy resulting
from a series of
acquisitions and
divestitures
2. Difficult to coordinate
over four geographical
segments
3. Too many employees
(around 400,000)
4. Concentration or focus on
three major divisions or
segments puts the
company at a vulnerable
position if revenues from
them decline
5. Declining profit margins
from hardware (-7.6%)
W0 Strategies
1. Hire and use international
expertise in order to
eradicate lack of synergy
within business units
<<W1,O5>>
2. Look for new emerging
markets where profitable
business can be carried
out from hardware
products <<W5,O1>>
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 Strengths Weaknesses

1. Brand name 1. Lack of synergy resulting

2. Rising revenue to 91
billion and rising net
income by 9% to $9.4
billion
3. Diversification (Software,
hardware, financing)
4. Acquisition of Watchfire
Company in 2007
5. InnovationJam capability
6. Ranks second in market
capitalization, net income,
and long-term growth
behind Microsoft
7. Widespread operations in
104 countries
from a series of
acquisitions and
divestitures
2. Difficult to coordinate
over four geographical
segments
3. Too many employees
(around 400,000)
4. Concentration or focus on
three major divisions or
segments puts the
company at a vulnerable
position if revenues from
them decline
5. Declining profit margins
from hardware (-7.6%)

8. Rising earnings per share

(23% in 2006)
Threats ST Strategies WT Strategies

1. Over reliance on 1. Use rising revenues to 1. Reposition employment to

developing economies invest in latest more profitable regions
like India (38% growth) technologies <<S2,T3>> <<W3,T1>>

2. Unstable electronics 2. Capitalize on financial 2. Focus on reasonable

market strength by acquiring horizontal acquisition to
more small similar safeguard against unstable
3. Change in technology businesses like Watchfire electronics market
(iPad) to compete better with MS <<W1,T2>>
& HP <<S2,T6>>
4. Customers have low
switching costs 3. Use InnovationJam talent
to engage in product
5. Rapid product development. <<S5,T5>>
development from
competitors

6. Fierce competition from

Microsoft & HP

The SWOT Matrix of IBM lists its strengths, weaknesses, opportunities and threats and then
devises strategies by aligning the strengths with the opportunities, weaknesses with the
opportunities, strengths with the threats and weaknesses with the threats. The aim is to
capitalize on the strengths by taking advantage of the opportunities, overcoming the
weaknesses, and undermining the threats. Coming to the strengths and opportunities cell,

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Strength5 and opportunity 2 it can use the innovation jam technique to appeal to the demands
of a younger population. Coming to the weakness opportunities cell, weakness 1 and
opportunity 5 have been aligned by devising the strategy of eradicating lack of synergy
within business units.

Coming to the strengths threat cell and aligning the weakness of change in technology (threat
3) with the strength of rising revenues (strength 2) the strategy arrived at is that IBM should
use revenues to invest in latest technologies. Aligning the weakness of too many employees
(weakness 3) with the threat of over reliance on developing nations (threat 1), the company
should reposition employment in more profitable regions.

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 QSPM

STRATEGY 1 STRATEGY 2

Enter the market for Enter the market for

Google’s Android tablets. cellphones.
KEY FACTORS WEIGHT AS TAS AS TAS
OPPORTUNITIES
Globalization in order to balance the 0.06 3 0.18 4 0.20
fluctuations in different economies

Create products appealing to a 0.06 4 0.24 4 0.10

younger generation, e.g. iPod
Use patents to generate revenue 0.1 - - - -
Focus more on OEM 0.07 - - - -
Hire and use international expertise 0.1 2 0.2 3 0.3
THREATS
Over reliance on developing 0.05 - - - -
economies like India (38% growth)
Unstable electronics market 0.16 2 0.32 1 0.16
Change in technology (iPad) 0.04 - - - -
Customers have low switching costs 0.1 1 0.1 4 0.4
Rapid product development from 0.16 4 0.64 3 0.48
competitors
Fierce competition from Microsoft 0.05 3 0.15 1 0.05
& HP

STRENGTHS
Brand name
WEAKNESSES 0.09 4 0.36 2 0.18
Rising
Lack ofrevenue
synergytoresulting
91 billion anda
from 0.1
0.05 -- -- -- --
rising net income by
series of acquisitions and 9% to $9.4
billion
divestitures
Diversification (Software,
Difficult to coordinate over four 0.05
0.07 4- 0.2
- 3- 0.15
-
hardware, financing)
geographical segments
Acquisition of Watchfire
Too many employees (around 0.03 - -- - --
Company
400,000) in 2007
InnovationJam
Concentration or capability
focus on three 0.03
0.08 -4 - 0.32 -3 - 0.24
major divisions or
Ranks second in market segments puts 0.15 - - - -
the company atnet
capitalization, a vulnerable
income, and
position if revenues
long-term growth behind from them
decline
Microsoft
Declining profit
Widespread marginsinfrom
operations 104 0.12
0.05 33 0.15
0.15 44 0.20
0.20
hardware (-7.6%)
countries
TOTAL
Rising earnings per share (23% 1.00
0.05 -- - 3.01 -- - 2.66
in 2006)

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The Quantitative Strategic Planning Matrix states critical internal and external success factors
and evaluates each of them for alternative strategies that are made at Stage 1 and Stage 2 of
the Strategy Formulation Framework. We have arrived at two strategies for IBM namely

1) Enter the market for Google’s Android tablets.

2) Enter the market for cellphones.

Now the relative attractiveness of each strategy has been evaluated against critical internal
and external success factors that can be improved upon or capitalized. Weights are the same
for these internal and external factors as were previously used in the IFE and EFE matrix
respectively. These are industry specific and show the importance of each factor in terms of
surviving in the industry. For example, fierce competition from Microsoft and HP has been
assigned a high weight of 0.05 as it is extremely important to the whole industry. Both
strategies are inter-related or similar as both relate to product development.

Note that the strategies are mutually exclusive and cannot be assigned the same AS for a
given factor. The total attractiveness scores (TAS) have been arrived at by multiplying the
weights for each internal/external factor by the AS. The sum of the total attractiveness scores
for each factor is then calculated .Strategy 1 has a higher Sum Total Attractiveness
Score(STAS=3.01) as compared to Strategy 2 (STAS=2.66) which suggests that IBM should
adopt Strategy 1, that is, go for investing in Android tablets.

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 GRAND STRATEGY MATRIX

The grand strategy matrix defines and analysis the current position of the company.
According to our analysis, we place IBM in the fourth quadrant. It is a slow growth firm,
which has a strong competitive position in the industry. IBM can move into promising growth
areas through the following strategies

 Related or un-related diversification

 Joint ventures

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 BCG MATRIX
Division Revenue ($ Million) Revenues (%)
Financial services 25,181 27.54
Public 13,401 14.65
Industrial 11,535 12.61
Distribution 9,034 9.88
Communications 8,679 9.49
Small & medium businesses 16,981 18.57
OEM 3,856 4.21
Other 2,756 3.01
Total 91,423 100

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 IE MATRIX

The IE Matrix shows the IFE total weighted scores on the x-axis and the EFE total weighted
scores on the y axis. On the x-axis, the total weighted score of 2.29 shows an average internal
position of IBM in terms of capitalizing on its strengths and overcoming its weaknesses. On
the other hand, on the y-axis, the total weighted score of 2.89 is considered medium when we
look at how the company is taking advantage of its opportunities and undermining the threats
it is exposed to.

This results in the company falling in cell number 5 of the IE Matrix which suggests that it
should use the hold and maintain strategy that includes applying intensive strategies like
market penetration and product development. The IE matrix has been applied for the whole
organization rather than its individual divisions so it is an overall analysis of the internal and
external position of IBM and what strategies it should employ considering its internal-
external position.

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 SPACE MATRIX
Financial Strength Industry Strength Competitive Environmental
Advantage Strength
Rising ROE +6 Growth +4 Product quality -5 Competitive -5
pressure
Profit margin +4 Ease of +1 Customer -2 Barriers to -6
entry loyalty entry
Average +5 Average +2.5 Average -3.5 Average -5.5

The average of FS, IS, CA and ES were calculated after giving them points between -6 to +6.
Then the co-ordinates were calculated by adding FS & IS and CA & ES. After calculating the
co-ordinates for the vector on the space matrix, the vector has been drawn which points
towards the defensive strategies. Under defensive strategies come retrenchment, divestiture
and liquidation. According to the case, IBM should go for divestiture.

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 CONCLUSION

The study of IBM and its current position shows that with its current situation and strategies
it will be forced into the lane of defensive strategies. IBM in order to maintain its competitive
advantage strives on research & development and diversifies its operations.

The study shows that IBM has ample room for improvement in its Internal as well as external
environment. The fact that the company needs to further strengthen its brand image can be
done through exploiting potential markets in the long run. In addition, IBM has some loss
making departments which are a burden on the company. The company has not yet come up
with any strategy to divestiture such departments. There is room for improvement IBM needs
to reinstate its line of brands through effective advertisements around the global market.

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 RECOMMENDATIONS

 The company needs invest more in research and development in order to gain market
leadership through differentiation.

 IBM needs to get rid of their loss making departments, this should be done through
the following
1 Divestiture

 For the company’s profit making departments they should use competitive strategies
and opt for
1 Product development
2 Market penetration

 IBM should launch android based Tablets to cater the markets new demand for touch
screen Tablets

 Another Category which should be introduced by IBM is the cell phone market as
they have the IT required for most of the work

 IBM should cater the youth by providing high end gaming PC’s and Laptops.

 They should improvise on their marketing department as well. There can be more of
celebrity or branded programming entertainment.

 They should move forward with the plan of acquiring intensive strategies.

 IBM should lay off its employees as they are a burden on the company.

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 WORKS CITED

International Business Machines – 2007, Vijaya Narapareddy, University of Denver

International Business Machines – 2009, F

athi Salem Muhammad Abdullah, University of Jordan

Strategic Plan: IBM – 2010, Yiri Hujizen, College of Applied Sciences

www.prb.org/pdf06/YouthInAGlobalWorld.pdf

http://www.ibm.com/annualreport/2009/2009_ibm_higher_value.pdf (2009 Annual report)

http://www.ibm.com/annualreport/2008/note_t.shtml

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APPENDIX

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