IBM Analysis and Strategy Proposal

Running head: IBM STRATEGIC BUSINESS PLAN 1
IBM Strategic Business Plan
Paul Palmer
Embry–Riddle Aeronautical University
MBAA 635: Business Policy and Decision Making
Dr. Nathan Heller
28 November 2019
IBM STRATEGIC BUSINESS PLAN 2
Table of Contents
List of Figures …………………………………………… Page 4
List of Tables …………………………………………… Page 5
Abstract …………………………………………… Page 6
Introduction …………………………………………… Page 7
Methods …………………………………………… Page 7
Firm Overview …………………………………………… Page 8
Mission Statement …………………………………… Page 8
Vision Statement …………………………………… Page 8
History …………………………………… Page 8
Principal Goods and Services …………………………………… Page 10
Geographic Locations …………………………………… Page 11
Competitors and Market Share …………………………………… Page 11
Internal Assessment …………………………………………… Page 12
Organizational Structure …………………………………… Page 13
Marketing Strategy …………………………………… Page 14
Social Media Initiatives …………………………………… Page 14
Business Segments …………………………………… Page 16
Value Chain Analysis …………………………………… Page 17
Financial Evaluation …………………………………… Page 21
Strengths …………………………………… Page 26
Weaknesses …………………………………… Page 28
External Assessment …………………………………………… Page 30

Key Industry Trends …………………………………… Page 30
Major Competitors …………………………………… Page 31
Competitive Profile …………………………………… Page 32
Opportunities …………………………………… Page 34
Threats …………………………………… Page
36
Strategy Formulation …………………………………………… Page 37
Internal and External Factor Evaluation Matrixes …………………… Page 38
SWOT Analysis Matrix …………………………………… Page 39
Proposed Strategies and Implementation ………………………… Page 39
Financial Projections …………………………………………… Page 42
Projected Income Statement …………………………………… Page 43
Projected Balance Sheet …………………………………… Page 44
Projected Financial Ratios …………………………………… Page 45
Strategy Evaluation …………………………………………… Page 45
Balanced Scorecard …………………………………… Page 46
Summary …………………………………………… Page 46
Conclusion …………………………………………… Page 47
References …………………………………………… Page 48

List of Figures
Figure 1. Organizational Chart …………………………… Page 13
Figure 2. Revenue by Segment …………………………… Page 18
Figure 3. Annual Revenue, Net Income, and EPS …………………………… Page 22
Figure 4. Annual Dividend Yield and Payout Ratio …………………………… Page 25
Figure 5. IBM Major Competitors …………………………… Page 33
Figure 6. Balanced Scorecard …………………………… Page 46

List of Tables
Table 1. Business Segment Changes 2018-2019 …………………… Page 17
Table 2. Business Segment Financial Details 2017-2018 …………………… Page 19
Table 3. Comparison of Gross Profit Margin… …………………… Page 20
Table 4. Financial Ratios 2014-2018 …………………… Page 23
Table 5. Competitive Profile Matrix …………………… Page 34
Table 6. Internal and External Factor Evaluation Matrixes …………………… Page 38
Table 7. SWOT Analysis Matrix …………………… Page 39
Table 8. Projected Income Statement …………………… Page 43
Table 9. Projected Balance Sheet …………………… Page 44
Table 10. Projected Financial Ratios …………………… Page 45

Abstract
This paper provides an overview and detailed analysis of International Business Machines (IBM)
Corporation’s business operations and suggests a three-year, forward-looking strategic business
plan. Throughout this review, an internal and external assessment of IBM’s operations is
conducted, to include its organizational structure, marketing strategies, business segments,
industry trends, and major competitors. In addition, a SWOT analysis and balanced scorecard
reflecting proposed financial and nonfinancial objectives will is detailed. Lastly, IBM’s current
business strategies and financial details are discussed, and financial projections based on
proposed strategies are presented.
Keywords: IBM, International Business Machines, strategic business plan, SWOT analysis
IBM Strategic Business Plan
Introduction
For over a century, International Business Machines (IBM) has made its name known
throughout the technology sector. Throughout this period, the company has developed many
revolutionary technologies and led numerous initiatives. Although this is the case, IBM has also
encountered many organizational, competitive, and financial setbacks. As a result, IBM has been
faced with diminishing returns and falling stock prices for many years. Throughout this paper, a
detailed analysis of IBM’s business operations will be presented to outline the company’s
business activities in comparison to the markets in which it operates. In doing so, an internal
assessment of IBM’s operations will be conducted, detailing its organizational structure, business
segments, operational dynamics, strategic initiatives, and financial activities. In addition, an
external assessment of the market in which IBM operates will be evaluated, identifying key
industry trends and major competitors. Information assessed within these internal and external
assessments will then be utilized to construct a three-year, forward-looking strategic business
plan by means of a SWOT analysis. Finally, the presented strategy proposals will be evaluated
through adjusted financial projections.
Methods
Data collected for use in this paper was retrieved from various reputable primary and
secondary sources. Primary sources included company issued annual reports, financial
statements, investor briefings, stockholder meeting reports, and press releases. Secondary
sources included business and financial reporting sources, such as Moody’s, CSI Market, Guru
Focus, Stock Trak, Craft, Owler, and Y-Charts. Additionally, government affiliated sources such
as EDGAR, the International Monetary Fund, and the U.S. Securities and Exchange Commission
were utilized, along with scholarly peer-reviewed articles. All utilized data sources are identified
in the references section, located at the end of this paper. In analyzing and evaluating the
collected data, an internal and external assessment was conducted in conjunction with a SWOT
analysis and a balanced scorecard reflecting proposed financial and nonfinancial objectives.
Firm Overview
Mission Statement
“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” (IBM, 2019).
Vision Statement
“To be the world’s most successful and important Information Technology Company.
Successful in helping out customers apply technology to solve their problems. Successful in
introducing this extraordinary technology to new customers. Important, because we will continue
to be the basic resource of much of what is invested in this industry” (IBM, 2019).
History
IBM was initially established in the late 1800’s under the name, Computing, Tabulating
and Recording (CTR) Company, with its first noteworthy project being the development and
production of tabulation equipment utilized in analyzing the1890 US census. In the 1920s, CTR
changed its name to International Business Machines Corporation. Operating as the “world
leader in providing computer systems for both business and scientific applications,” IBM
flourished for decades, eventually setting the stage for the future of computing with the
introduction of the System/360 family of computers in the 1960s, which revolutionized the
industry and established IBM as a dominant force within the market (Computer History
Museum, n.d.). With the onset of this new technology came a substantial increase IMB’s
workforce and revenue, skyrocketing from a workforce of 30 thousand employee workforce,
earning $266 million in revenue in 1950, to maintaining a workforce of nearly 140 thousand
employees, earning more than $2.8 billion in 1963 (Cortada, 2018).
In the decades following these groundbreaking developments, IBM flourished with a 70
percent market share within the industry; but in 1969, IBM’s productivity was mired by antitrust
accusations from the federal government. Although the federal government eventually forewent
their efforts into breaking up IBM, 13 years of investigations and legal proceedings slowed
IBM’s progress and left it with a diminished market share (Crandall & Jackson, 2011).
Following this tremendous legal battle, IBM became cautious of perceptions of
monopolization and predatory pricing, resulting in production drawbacks and underpricing
strategies throughout the late 1980s and early 1990s. During this period, numerous new entrants
throughout the world began to capitalize on the rapid growth and driving demand within the
computing industry, and began developing smaller, faster and more powerful software and
hardware at competitive prices (Cortada, 2018). As a result, IBM failed to keep up with these
rapid technological advancements and it was quickly overtaken by competing companies that
began developing minicomputers and microcomputers, which were marketed in newly
established market segments (Bresnahan & Greenstein, 1999). Ultimately, this change in pace
led to billions of dollars in declining revenue and tremendous workforce decreases (Cortada,
2018).
Regardless of its struggles throughout the birth of the modern technology sector, IBM has
refused to become a victim of illiquidity, bankruptcy, antitrust legislature, product irrelevancy,
corporate divisions, or mergers and acquisitions. Although IBM has faced many hardships and
setbacks, it remained relevant within the market throughout the 2000s and has fought its way
back to becoming an industry leader throughout the most recent decade, with many of its
products being commonly utilized and highly sought after by governments, businesses and
households around the world today (Cortada, 2018).
Principal Goods and Services
In 2018 alone, 9,100 patents were registered by IBM. Such a high quantity of new
developments had placed IBM as the leader in U.S. patents ownership in 2018, with patents
being granted to “more than 8,500 IBM inventors in 47 different U.S. states and 48 countries”
(Blake, 2019). It is important to note that this is not a new accomplishment for the company. In
fact, IBM has led the country in patent grants for 26 consecutive years, accumulating more than
110,000 throughout this period. According to IBM’s research team, “nearly half of the patents
granted to IBM in 2018 are pioneering advancements in artificial intelligence (AI), cloud
computing, cybersecurity, blockchain and quantum computing” (IBM Research, 2019a).
As a leader in AI technology, cloud computing, cybersecurity, blockchain and quantum
computing technology, IBM produces numerous products. Some of the most noteworthy
products produced by IBM include the Summit supercomputer, which IBM claims to be the most
powerful processor in the world, the IBM Watson, an AI computing platform, widely known for
its revolutionary cognitive computing and language processing capabilities, IBM Linux ONE III,
a mainframe that allows users to “build secure, scalable, and flexible workloads” in hybrid multi-
clouds, and Cognos Analytics, an “AI-fueled business intelligence platform that supports the
entire analytics cycle” (IBM Products, 2019).
Aside from its principal goods, IBM also offers a variety of services. Typically, at no
additional cost to the consumer, IBM provides basic customer support for its products to all its
customers. In addition, IBM also offers ongoing hands-on services to customers in need of
software management. Some of the areas that IBM services these customers include IT
infrastructure management, security detection and response, workspace collaboration services,
blockchain building and deployment, cloud computing, talent management, financial services
solutions, and specialized software development (IBM Services, 2019).
Geographic Locations
Headquartered in Armonk, New York, IBM has 127 corporate office locations
throughout 97 countries on 6 continents (Craft, 2019a). In addition to these corporate offices
IBM also operates 12 laboratories, 19 research and manufacturing facilities, and numerous
distribution centers in 13 countries, including the US, the UK, Singapore, Kenya, South Africa,
Australia, Brazil, China, Israel, Ireland, India, Japan, and Switzerland (IBM Research, 2019b).
Competitors and Market Share
Operating primarily within the global technology services (GTS), global business
services (GBS) and software segments of the technology industry, IBM is challenged by
numerous competitors throughout various aspects of its operations. Due to the wide range of
products and services the company provides, it would be inaccurate to claim that any single
company is in direct competition with every aspect of its operations. Instead, IBM is faced with
competition from different companies depending on the specified industry segment. IBMs
competition and market share within these primary segments is briefly detailed throughout the
following paragraphs and is based on Q3 2019 figures provided by csimarket.com.
GTS segment. With a segment market share of nearly 24 percent, approximately 32
percent of IBM’s total revenue is derived from the GTS segment. Within the GTS segment,
IBM’s major competitor is Microsoft Corporation, which has a current market share of nearly 14
percent and earns approximately 25 percent of its revenue from this segment. Other competitors
include Accenture Plc and Oracle Corporation (CSI Market, 2019).
GBS segment. With a segment market share of nearly 89 percent, approximately 17
percent of IBM’s total revenue is derived from the GTS segment. Within the GBS segment,
IBM’s major competitor is ADTRAN Inc, which has a current market share slightly over 3
percent and earns 100 percent of its revenue from this segment. Other competitors include
Computer Sciences Corporation and Hewlett-Packard Company (CSI Market, 2019).
Software segment. With a segment market share slightly over 4 percent, approximately
21 percent of IBM’s total revenue is derived from the software segment. Within the computer
software segment, IBM’s major competitor is Cisco Systems Inc, which has a current market
share of nearly 8 percent and approximately 78 percent of its revenue from this segment. Other
competitors include Microsoft Corporation and Oracle Corporation (CSI Market, 2019).
Internal Assessment
As demonstrated within the firm overview, it is apparent that IBM is an extremely
versatile corporation with various organizational functions and activities. Throughout this
internal assessment, many aspects of IBM’s operations will be identified and evaluated. This will
include its organizational structure, marketing strategy, social media initiatives, and business
segments. Additionally, a value chain analysis and financial evaluation will be conducted.
Finally, ten of IBM’s most important strengths and weaknesses will be identified and briefly
addressed.
Organizational Structure
In order to effectively manage communications between each of its regional offices,
business segments and departments, IBM had established a “product-type divisional
organizational structure” (Lombardo, 2018). This structure essentially divides managerial
oversight into various departments, based on three broad areas. These areas include product-type
divisions, function-based segments, and geographical divisions. A general overview of IBM’s
organizational structure, constructed through information retrieved from the IBM 2018 Annual
Report (IBM, 2018), is depicted in the Figure 1.
Figure 1. Organizational Chart. Independently developed based on information retrieved from the IBM 2018 Annual
Report (IBM, 2018).
As such a complex, multi-national, multi-segmented organization, IBMs existing
organizational structure seems to be extremely effective. Based on the company’s current

performance, it does not appear that its organizational structure needs to undergo any major
modifications or overhauls.
Marketing Strategy
According to IBM’s 2018 Annual Report, “IBM is a technology company, but first and
foremost it is an enterprise company” (IBM, 2018). As such, the company’s strategy focuses on
developing and growing start-up ventures that align with current technological trends.
Additionally, IBM strives to maintain a competitive advantage by leading the industry in AI,
cloud computing, cybersecurity, blockchain and quantum computing technological
advancements, while anticipating customer needs and expectations. In order to continually
develop a growing level of insight into customer needs and expectations, the company is
constantly evaluating data-driven feedback and research, while simultaneously improving data
collection techniques and technologies in ways that increase the rate at which data is collected,
improve the reliability of data, and maximize the overall usefulness of data (IBM, 2018). Doing
so is ultimately intended to position IBM to anticipate and identify cutting-edge growth
opportunities. Although the company’s main focus is on innovation and growth, IBM also
competes through quality initiatives, branding, competitive pricing, product support, customer
service, relationship building, and global presence. Ultimately, IBM’s overall strategy is geared
toward repositioning its business into “higher value market segments,” while focusing on
strategic acquisitions and high value organic investments (CSI Market, 2019).
Social Media Initiatives
Social media marketing plays a major role in IBMs overall strategy. With a wide variety
of consumers in various segments throughout the world, social media has aided IBM in
promoting brand recognition, expanding customer awareness, and improving sales. By utilizing
the five major social media platforms, Facebook, Twitter, Instagram, LinkedIn, and YouTube,
along with various other platforms, IBM has been able to gain valuable insight into customer
wants and needs by tracking audience participation and observing trends in content popularity.
As of November 2019, IBM has 1,088,544 Facebook followers, 555,750 Twitter followers,
304,791 Instagram followers, and 7,355,745 LinkedIn followers, and 254,000 YouTube
subscribers (Facebook, 2019; Twitter, 2019; Instagram, 2019; LinkedIn, 2019; YouTube, 2019).
IBM posts content in each of these platforms on a regular basis, striving to keep current and
potential customers and investors informed of new and upcoming product launches, software
updates, and other pertinent information.
IBM had taken note of social media’s growing popularity early on, and it began to
implement social media initiatives as early as 2007 when the company launched its own
platform, Lotus Connections. Lotus Connections was established to support collaborative and
social environments within businesses by integrating tools which provided employees a means of
communicating with each other through the use of personal profiles, blogs, and community
forums (Huff, 2015). Since then, IBM has capitalized on various social media opportunities,
including a partnership with Twitter in 2014, which was designed to aid companies in
maximizing engagement with their followers by integrating Twitter data with cloud-based
services the company provides, such as IBM Watson Analytics and IBM Bluemix (IBM, 2014).
Ultimately, IBM seems to have utilized social media effectively in propelling its business
initiatives forward, capturing new markets, and promoting its brand, while simultaneously
capitalizing on growth opportunities by integrating its technologies with various social media
platforms.
Business Segments
As a leader within the technology industry, IBM currently divides its operations into five
broad business segments. These segments include Cloud and Cognitive Software, Global
Business Services, Global Technology Services, Systems, and Global Financing. It is important
to note that these business segments are internal to IBM’s operations. Although each of these
internal business segments generally correlate with established industry segments, the individual
products and services within each segment often overlap with various industry segments. Due to
this indefinite correlation between IBM’s internal business segments and established industry
segments, definite and detailed market positions of each segment and product are not practically
identifiable within the scope of this assessment, but a general synopsis is provided in the
Competitors and Market Share section of this paper.
Prior to 2019, IBM’s reportable business segments differed from their current segment
organization. In order to align operations with the evolving market, to better provide for
consumer demand, and to more accurately reflect resource allocation and asset management,
corporate leadership reconfigured the business segments in Q1 2019. Previously, IBM’s business
segments consisted of Cognitive Solutions, Global Business Services, Technology Services and
Cloud Platforms, Systems, and Global Financing. This recent organizational modification mainly
transformed the Cognitive Solutions segment into the Cloud and Cognitive Software segment by
combining the “the previously reported Cognitive Solutions segment with Integration Software
and security services,” while redirecting Cloud Platforms from the previously reported
Technology Services and Cloud Platforms segment to the newly created Cloud and Cognitive
Software segment. With Cloud Platforms being removed from the Technology Services and
Cloud Platforms segment, this previously reported segment has been transformed into the Global
Technology Services segment. According to IBM leadership, this restructuring is intended to
bring “software platforms and solutions into one segment, further enabling IBM to deliver
integrated and secure cloud and data/AI solutions to its clients” (IBM Articles and Viewpoints,
2019). To provide a clear explanation of the changes to IBM’s business segments, Table 1
provides a depiction of the restructure.
Table 1.
Business segment changes 2018-2019.
Note: Reprinted from IBM Updates Reporting Segments in 2019, by IBM, March 27 2019,
retrieved from https://www.ibm.com/investor/article/mar2019.html Copyright 2019 by IBM
Corporation.
Value Chain Analysis
According to IBM’s most recent 10-K filing on February 26, 2019, IBM reported
$79.591 billion in revenue for fiscal year 2018. Of this total revenue, 23.3% came from the
Cognitive Solutions segment, 21.2% came from the Global Business Services segment, 43.4%
came from the Technology Services and Cloud Platforms segment, 10.1% came from the
Systems segment, and 2% came from the Global Financing segment (U.S. Securities and
Exchange Commission, 2019). As discussed previously discussed, these business segments were
restructured in Q1 2019. To address these segment modifications, Figure 2 provides a 2018
revenue snapshot in the 2019 segment structure.
Figure 2. Revenue by Segment. Reprinted from IBM Updates Reporting Segments in 2019, by
IBM, March 27, 2019, retrieved from https://www.ibm.com/investor/article/mar2019.html
Copyright 2019 by IBM Corporation.
Based on IBM’s revenue streams from each of its 2018 business segments, coupled with
the 2019 business segment restructure, it is projected that the majority of IBM’s revenue
throughout FY2019 will be derived from the newly established Global Technology Services
segment, with the Cloud and Cognitive Software segment providing the second greatest amount
of revenue, the Global Business Services segment providing the third greatest amount of
revenue, the Systems segment providing the fourth greatest amount of revenue, and the Global
Financing segment providing the least amount of revenue. Based on this ranking, one can assume
that the Global Technology Services segment maintains a superior standing within IBM’s value
chain. Although this is the case, the gross profit margin within each segment also plays a large
role in value chain analysis. As identified in Table 2, the previously reported Cognitive Solutions
segment, restructured as the Cloud and Cognitive Software segment, had the largest gross profit
margin among all five business segments in 2017 and 2018, resulting in 77.5% and 78.6%
respectively (IBM, 2018).
Table 2.
Business segment financial details 2017-2018.
Note: Reprinted from IBM 2018 Annual Report, by IBM, 2019, retrieved from
https://www.ibm.com/annualreport/assets/downloads/IBM_Annual_Report_2018.pdf Copyright
2019 by IBM Corporation.
Based on its substantially superior gross profit margin, the Cloud and Cognitive Software
segment is also on the forefront of IBM’s value chain. This is also the case since the Cloud and
Cognitive Software segment offers the highest level of growth opportunity, when compared to
IBM’s other business segments (IBM, 2018).
As can be determined by the information presented, the gross profit margin within each
business segment does not correlate with the revenue derived from the segment. With this being
the case, optimal resource and asset allocation can be difficult to determine. Ideally, resource
allocation should be based on the value derived from the allocation and the departmental
necessity to achieve optimal product or service output. In the case of IBM, it appears as though
its managers and executives are performing well in achieving an appropriate balance. To
illustrate this balance, Table 3 provides a side-by-side ranking comparison of the FY2018 gross
profit margin, the percentage of revenue derived from each business segment, and the percentage
of total assets allocated to each segment.
Table 3.
Comparison of gross profit margin, percentage of total revenue, and asset
allocation FY2018
Note: Data for percentage of total revenue and asset allocation from U.S.
Securities and Exchange Commission (2019), and for gross margin from IBM
(2018).
As illustrated in Table 3, we can see that the vast majority of IBM’s total assets, 40.3%,
are allocated toward the Global Financing segment, even though this segment only accounts for
2% of IBM’s total revenue. This may seem disproportional when considering that 43.4% of
IBM’s total revenue is derived from the Global Technology Services segment, while only 24%
of the company’s total assets are allocated toward this segment (U.S. Securities and Exchange
Commission, 2019). This can be justified by considering many other factors, including the return
on assets (ROA) of each business segment. It is possible that IBM’s Global Financing segment
has that highest ROA, which can partially justify the greatest percentage of assets being allocated
toward this segment. Similarly, it is possible that the Global Technology Services segment
requires a fewer assets to maximize productivity and output, therefore, the need for substantial
assets is not present. Regardless of the justifications behind asset allocation determinations, it is
clear that IBM places a great amount of emphasis on its Global Financing business segment as a
means of supporting consumer financing within the other four business segments. Given that
many of IBM’s products and services are considered to be high value and IBM is working
toward repositioning its business into “higher value market segments” (CSI Market, 2019), it is
definitely beneficial for IBM to provide internal financing for such products and services instead
of allowing external financing agencies an opportunity to capitalize on this segment.
Financial Evaluation
In 2018, IBM earned a total of $79.6 billion in revenue, with an operating EPS of $13.81
(IBM, 2018). This was the first full year in which IBM experienced positive revenue growth
since 2011, with its revenue reaching $106 billion. From 2011 to 2017, IBM’s revenue had
steadily declined each year at an average rate of 4.82% annually, with an especially challenging
year in 2015, when the company experienced an 11.9% revenue decrease (Guru Focus, 2019).
Along with declining revenue, IBM’s annual net income and annual EPS also experienced
substantial declines from 2013 to 2018, with 2013 and 2016 being particularly challenging years.
Although IBM has appeared to struggle financially for nearly a decade, operations have begun to
slightly improve as of 2018. The charts provided in Figure 3 illustrate the annual changes in
revenue, net income, and EPS.

Figure 3. Annual Revenue, Net Income, and EPS 2009-2019. Reprinted from International
Business Machines Corporation, by Guru Focus, 2019, retrieved from
https://www.gurufocus.com/stock/IBM/summary Copyright 2019 by GuruFocus.com, LLC.
Although IBM had not reached levels of profitability until 2018, it did manage to
maintain fairly reasonable financial ratios. Table 4 provides a detailed itemization of various key
financial metrics from 2014 to 2018 which delineate IBM’s performance throughout the past five
years. A brief synopsis of the some of the most important metrics follows Table 4 in order to
highlight a few of IBM’s key financial performance areas.
Table 4.
Financial ratios 2014-2018.
Note: Data for financial ratios from IBM (2018) and Guru Focus (2019).
Current ratio. Currently, IBM’s current ratio is ranked lower than 75% of all the
companies operating within the software industry, with its major competitor, Accenture PLC,
maintaining a current ratio of 1.40 (Guru Focus, 2019). As an indicator of financial health, the
current ratio denotes the company’s state of short-term financial strength. Given that a current
ratio equal to 1 indicates that a company has just enough assets to cover only its short-term
liabilities, a ratio greater than 1.20 is preferable. Although IBM managed to achieve positive
revenue growth in 2018, its current ratio decreased by 0.04 within the same period. Based on this
information, it may be in IBM’s best interest to increase its current ratio by either increasing its
current assets or decreasing its current liabilities.

Debt-to-assets ratio. Currently, IBM has one of the highest debt-to assets ratios within
the technology industry, with the majority of companies in the industry maintaining a ratio of
0.05 (Guru Focus, 2019). With the debt-to assets ratio greater than 1 indicating that a company
has more debt than assets, a lower ratio suggests better financial health. Given that IBM’s debt-to
assets ratio has steadily increased throughout the past five years, surpassing all of its major
competitors, IBM should make attempts decrease its ratio by decreasing its total debt.
Debt-to-equity-ratio. Currently, IBM’s debt-to-equity-ratio is ranked lower than 98% of
all the companies operating within the software industry (Guru Focus, 2019). Although the
technology industry is a capital-intensive industry, a debt-to-equity-ratio of 2.73 indicates that
IBM may be utilizing too much debt in financing its activities. With IBM’s total debt being 2.73
times greater than total stockholders’ equity, IBM may want to consider decreasing its total debt.
Return on assets (ROA). Currently, IBM has a ROA that is ranked higher than 66% of
all the companies operating within the software industry (Guru Focus, 2019). With ROA
measuring the effectiveness at which a company is utilizing its assets to generate profit, a ROA
greater than 5% is generally considered favorable. IBM’s ROA was below this threshold in 2017
at 4.74%, but it managed to increase its ROA to 7.02% in 2018. Although this is the case, IBM
should strive to increase its ROA to reach or exceed 2014-2016 levels, when it ranged from
9.87% to 11.58% (IBM, 2018; Guru Focus, 2019).
Return on equity (ROE). Currently, IBM has a ROE that is ranked higher than 96% of
all the companies operating within the software industry (Guru Focus, 2019). Given that ROE
identifies a company’s profitability, in comparison to capital invested by stockholders, a higher
ROE is desirable. With IBM’s ROE being 50.76%, it seems to be utilizing its stockholders’
equity very efficiently. Although this may be the case, IBM’s ROE is below its 2014-2016
levels, when it ranged from 69.37% to 100.96% (Guru Focus, 2019).
Dividends. In addition to these key financial metrics, IBM’s dividend activity is also
worth discussing. Figure 4 illustrates IBM stock’s annual dividend yield and annual dividend
payout ratio.
Figure 4. Annual Dividend Yield and Payout Ratio 2015-2019. Reprinted from International
Business Machines Corporation, by Guru Focus, 2019, retrieved from
https://www.gurufocus.com/stock/IBM/summary Copyright 2019 by GuruFocus.com, LLC.
Based on Figure 4, it is clear that IBM has gradually increased its dividends throughout
the past 5 years. In fact, IBM has increased its dividend payments every year for the past two
decades, averaging an annual increase of 14.92% each year. Even throughout the period between
2012 to 2017, when IBM was experiencing annual revenue declines, the company still increased
dividends by an average of 12.62% per year (Guru Focus, 2019). This has likely been in attempts
to maintain favorability among stockholders and potential investors even though the company’s
bottom line was unappealing. Although this is the case, IBM has consistently had a high
dividend payout ratio, which suggests that the dividend may not be sustainable. The dividend
payout ratio is calculated by dividing the dividends per share by the EPS without non-recurring
items (NRI). With IBM’s EPS without NRI declining substantially from 2015 to 2017 and the
dividends per share continuously increasing throughout the same period, its dividend payout
ratio increased from 0.37 to 0.96 (Guru Focus, 2019). Although IBM’s dividend payout ratio
decreased to 0.65 in 2018 due to EPS growth, IBM may want to consider decreasing dividend
payments in the near future to bring this ratio down even further. With IBM’s debt-based ratios
all being fairly unfavorable, it could consider reallocating dividend funds to debt repayment.
Stockholders may not be thrilled at such a tactic, but it may be best for IBM’s overall long-term
financial health.
Strengths
1. Geographic Coverage: With offices in 97 countries, and ongoing operations occurring
throughout 12 laboratories and 19 research and manufacturing facilities on every
continent except Antarctica, IBM is strategically placed with geographic coverage that is
greater than any other industrial research organization (Craft, 2019a; IBM Research,
2019b).
2. Patent Leadership: IBM has led the country in patent grants for 26 consecutive years,
accumulating more than 110,000 patents throughout this period. According to IBM’s
research team, “nearly half of the patents granted to IBM in 2018 are pioneering
advancements in AI, cloud computing, cybersecurity, blockchain and quantum
computing” (IBM Research, 2019a).

3. Strong FCF Position: IBM has a long-term record of favorable free cash flow (FCF)
performance. Although the company’s FCF has declined by nearly 48% in the past 10
years, decreasing from $16.7 billion in 2009 to $11.3 billion in 2018, IBM’s FCF margin
in 2018 was 14.18, with an FCF per share of $12.31 (Guru Focus, 2019). These figures
suggest that IBM has sufficient FCF to support shareholder returns, while simultaneously
investing in growth opportunities.
4. Liquid Balance Sheet: IBM has a strong track record of “maintaining a liquid balance
sheet,” with consistent cash flow, and various forms of alternate liquidity, such as a
commercial paper program and revolving credit facilities. As of March 2019, IBM’s
balance sheet included $18 billion in “cash and marketable securities.” Additionally, IBM
has $15 billion in commercial paper and $30.5 billion in credit facilities (Moody’s
Investors Service, 2019). With this being the case, IBM has a decent amount of financial
flexibility, which supports its highly leveraged financing activities.
5. Red Hat Acquisition: In early July 2019, IBM finalized a $34 billion dollar acquisition
of Red Hat, Inc., by purchasing all “issued and outstanding common shares for $190 per
share” (Red Hat, 2019). Within only a few weeks following the acquisition IBM had
already “optimized more than 100 products” from its software portfolio for use on
OpenShift, which is a “container platform that is available on any cloud that allows its
customers to run Red Hat Enterprise Linux” (Lardinois, 2019). Based on past
performance, this new acquisition is expected to generate $3.5 billion in revenue with an
anticipated 15% annual growth rate (Red Hat, 2019).

Weaknesses
6. Poor Stock Performance: IBM has experienced poor stock performance since 2013,
when its annual net income began to decline year over year. This net income decline
drove down the company’s EPS, and its stock price followed, dropping from a high of
$213.21 in March 2013 to its current price of $134.34, closing on 22 November 2019.
Even with the positive revenue and net income growth that occurred throughout 2018,
IBM’s stock price continued to decline, dropping to a low of $110.67 in December 2018,
up from a high of $165.43 in January 2018. It wasn’t until 24 December 2018 that its
stock price began to recover from its low point (Guru Focus, 2019). This recovery likely
resulted from the solidification of the Red Hat acquisition, but even since recovering the
stock has been fairly volatile, with an average of 13 sell ratings, 9 neutral ratings, and
only 2 buy ratings throughout the past month (Stock Trak, 2019).
7. Poor Revenue and Income: Although IBM experienced revenue and net income growth
in FY2018 for the first time in more than 5 years, it has not been able to maintain positive
growth levels throughout 2019. In Q1 2019, quarterly revenue decreased from $21.76
billion to $18.181 billion and quarterly net income decreased from $1.951 billion to
$1.591 billion. Although revenue and net income had then increased in Q2 2019, both
decreased once again in Q3 2019, with revenue decreasing from $19.161 billion to
$18.027 billion and net income decreasing from $2.498 billion to $1.672 billion. Based
on Q1 thru Q3 reports, IBM has generated a total of $55.369 billion in revenue and
$5.761 billion in net income thus far into FY2019. With the FY2018 annual revenue
totaling $79.59 billion and net income totaling $8.728 billion, IBM must generate at least
$24.221 billion in revenue and $2.967 in net income in order to match FY2018’s reported
figures. Given that IBM has not generated a quarterly revenue that high since 2013 or a
quarterly net income that high since 2016, it is highly unlikely that either of these figures
will experience year over year growth in FY 2019 (Guru Focus, 2019).
8. High Debt Levels: In May 2019, IBM raised nearly $20 billion in long-term debt to
finance the acquisition of Red Hat, Inc. (Moody’s Investors Service, 2019), increasing its
long-term debt from $39.7 billion to $58.4 billion (Guru Focus, 2019). This decision
played a large role in the company’s debt-to-EBITDA ratio spiking from its 2018 year-
end ratio of 2.77 to its Q3 2019 ratio of 4.93. This decision also contributed to IBM’s
debt-to-equity ratio increasing from 2.73 to 3.98 throughout the same period (Guru
Focus, 2019). As a result, Moody’s Rating Agency downgraded IBM’s senior unsecured
rating from A1 to A2 (Moody’s Investors Service, 2019).
9. Dividend Growth Rate: Expectations for continuous dividend increases threaten IBM’s
ability to decrease its total debt. The company’s dividend payout ratio suggests that
dividends cannot be sustained, and debt-based ratios indicate that IBM is struggling to
manage its debt levels. Given that IBM has been increasing its dividends every year for
the past two decades, any drawback will likely be met with stockholder disapproval.
10. Financing Segment Costs: Although only 2% of IBM’s revenue is derived from its
Global Financing business segment, more than 40% of IBM’s assets are allocated to
support financing operations. Additionally, in recent years, the costs required to manage
this segment have steadily increased at a greater rate than the revenue derived from
operations. From 2016 to 2018 alone, the cost of revenue generating financing activities
increased from 61.05% of revenue to 70.79% or revenue (Guru Focus, 2019).

External Assessment
In addition to the internal assessment that has been presented in the previous section, this
section will detail an external assessment, in which external forces affecting IBM’s operations
will be identified and evaluated. This external assessment will include identification of key
industry trends, IBM’s major competitors, and a competitive profile of the company and a few of
its major competitors. Additionally, ten of IBM’s most important opportunities and strengths will
be identified and briefly addressed.
Key Industry Trends
Trends within the technology industry are constantly changing with no end in sight. Due
to the overwhelming complexities of the technology industry, there are currently too many trends
to identify and discuss within the scope of this paper, but a few key areas include analytics,
cloud, and AI. Current trends within each of these areas are briefly discussed below.
Analytics. Analytics trends within the industry are rapidly evolving. Modern
technological capabilities are widening the scope of data collection and increasing the amount of
data available for analysis. As a result, the demand for powerful data collection and analysis
tools is growing. In addition, consumer demand is driving requirements for self-service analytics
programs and features that provide real-time, predictive data analysis (Khare & Ghaisas, 2019).
Cloud. In order to efficiently store and evaluate massive amounts of data, the demand for
cloud-based technology is also rapidly increasing. Organizations are continuously striving to
keep up with changing consumer wants and needs, which is driving the demand for quick and
effective cloud-based solutions that decrease organizational computing limitations, while
simultaneously increasing capabilities and overall productivity (Asakawa, 2019).

Artificial Intelligence. With the growing number of challenges and complexities
resulting from increased populations and evolving technologies, the demand for AI computing
systems is rapidly expanding. Through the use of AI technology, organizations can eliminate
waste, while performing various departmental roles and responsibilities “more efficiently and
effectively by reducing or eliminating repetitive tasks, revealing new insights from data,
improving customer service and enhancing agencies’ ability to achieve their missions”
(Partnership for Public Service, 2019)
Major Competitors
In the Firm Overview section of this paper, a few of IBM’s major competitors were
identified. As explained, products within each of IBM’s business segments compete with
products that fall under various industry segments. As a result, IBM has various competitors that
challenge IBM in different ways. A few of these major competitors include Microsoft Corp.,
Accenture Plc., and Cisco Systems Inc. (CSI Market, 2019).
Microsoft Corp. As one of IBM’s primary competitors within the GTS segment,
“Microsoft is a company that develops, licenses, supports and sells software devices, services,
and solutions” (Craft, 2019b). Based on recent reports, Microsoft is valued at approximately $1
trillion, maintaining operations in 200 countries and employing a workforce of approximately
144,000 personnel. Throughout FY2018, Microsoft generated $125.8 billion in revenue, with
$82.9 billion in gross profit and $39.2 billion in net income (Craft, 2019b).
Accenture Plc. As one of IBM’s primary competitors within the GBS segment,
“Accenture is a professional services company providing a broad range of services and solutions
in strategy, consulting, digital, technology and operations.” (Craft, 2019b). Based on recent
reports, Accenture is valued at approximately $117 billion, maintaining operations in 52

countries and employing a workforce of approximately 492,000 personnel. Throughout FY2018,
Accenture generated $43.2 billion in revenue, with $13.3 billion in gross profit and $4.8 billion
in net income (Craft, 2019b).
Cisco Systems, Inc. As one of IBM’s primary competitors within the software segment,
“Cisco is a company that manufactures and distributes Internet Protocol (IP) based networking
and other products” (Craft, 2019b). Based on recent reports, Cisco is valued at approximately
$241 billion, maintaining operations in 97 countries and employing a workforce of
approximately 76,000 personnel. Throughout FY2018, Cisco generated $51.9 billion in revenue,
with $32.7 billion in gross profit and $11.6 billion in net income (Craft, 2019b).
Competitive Profile
To gain a more complete view of IBM, in comparison to three of its major competitors,
Microsoft Corp., Accenture Plc., and Cisco Systems Inc., Figure 5 depicts a side-by-side
comparison of these companies.

Figure 5. IBM Major Competitors. Data consolidated from IBM Competitors, by Craft.co,
2019, retrieved from https://craft.co/ibm/competitors?competitors=ibm%2Cmicrosoft%
2Caccenture%2Ccisco.
Based on the details provided in Figure 5, along with a wide variety of information
retrieved from Accenture (2018), Bhasin (2018), Cisco (2018), Craft (2019), Guru Focus (2019),
IBM (2018), Microsoft (2018), and Owler (2019), a competitive profile matrix of IBM,
Microsoft, Accenture, and Cisco is provided in Table 5.

Table 5.
Competitive profile matrix.
Note: Numerical determinations derived from data provided from Accenture (2018), Bhasin
(2018), Cisco (2018), Craft (2019), Guru Focus (2019), IBM (2018), Microsoft (2018), and
Owler (2019).
Opportunities
1. Large Workforce: IBM employs a workforce of approximately 350,000 personnel, but
only generated $79 billion in revenue it earned in FY2018. In comparison, Microsoft
employs approximately 144,000 personnel and generated approximately $125 billion in
revenue throughout the same period (Craft, 2019b). Given that IBM’s workforce is nearly
59% larger than Microsoft’s workforce, while its annual revenue is almost 37% less than
Microsoft’s annual revenue, IBM has an opportunity to utilize its superior workforce
more effectively to grow its revenue.
2. Cloud Growth Potential: According to research conducted by IBM and Red Hat, the
average enterprise has “only transitioned 20% of its data to the cloud” (Taulli, 2019).
With this being the case, IBM has an opportunity to rapidly grow its newly acquired Red
Hat business by participating in B2B transactions with a plethora of new customers
throughout every market sector.
3. Environmental Policies: With the modern concerns regarding climate change, numerous
environmental policies are regularly being introduced and implemented by governments
throughout the world. As a result, companies and government agencies are seeking ways
to reduce their ecological footprint. Given that IBM owns patents on “significant
inventions in quantum computing” (Krishna, 2019), along with sole marketing rights over
the Summit Supercomputer, which is known to be the most powerful computing
processor in the world, and the IBM Watson AI computing platform, which is world
renowned for its revolutionary cognitive computing capabilities (IBM Products, 2019),
IBM has an opportunity to answer the calls of changing environmental policies. By
utilizing technologies such as these to manage and mitigate the “human demand on
nature,” IBM can market “early detection systems to identify and monitor potentially
disruptive conditions” (Krishna, 2019).
4. Government Business: For many years, the government has been struggling with
budgetary drawbacks, in which it is striving to reduces costs and waste, while
maximizing efficiencies in manpower and resource utilization. Given IBM’s
technological advancements, IBM has an opportunity to increase revenues by aiding the
government in its cost-cutting initiatives through the use of AI, cloud computing, and
analytics (Partnership for Public Service, 2019).
5. Mergers and Acquisitions: Given its strong record of stable FCF levels (Guru Focus,
2019; Moody’s Investors Service, 2019), IBM has an opportunity to invest in strategic
growth opportunities than can potentially drive expansion. This includes maneuvering
into additional market segments through investments in new technologies and product
categories. IBM can also utilize its FCF to participate in vertical mergers or acquisitions
that would decrease fixed and variable costs.
Threats
6. Competitive Pricing: Compared to Microsoft, one of its major competitors in the GTS
segment, IBM’s COGS in FY2019 was $42.7 billion, while Microsoft’s COGS was $42.9
billion. Given that IBM’s revenue was $79.6 billion, while Microsoft’s revenue was
$125.8 billion, IBM’s COGS, relative to its revenue, was substantially higher than
Microsoft’s COGS (Craft, 2019b). This disparity threatens IBM’s ability to generate
income within the GTS segment, considering that Microsoft can likely afford to offer
more competitive prices to consumers.
7. New Market Entry: With IBM shifting its focus toward entering new markets, “such as
smarter planet and business analytics,” it is being faced with intense competition (CSI
Market, 2019). Competition within the AI, cloud computing, and analytics markets is
extremely high due to growth opportunity, so IBM’s desire to repositioning its business
into “higher value market segments” (CSI Market, 2019) is threatened by competitors
that can provide similar products at competitive prices.
8. Increasing Variable Costs: Throughout the past three years, IBM’s total revenue from
services, sales, and financing has increased at a lesser rate than the total costs expended
in generating the revenue. In 2016, total costs equated to 51.81% of total revenue, with an
increase to 53.59% in 2018. This has resulted in gross profit decreasing from 48.19% of
total revenue to 46.41% throughout the same period (Guru Focus, 2019). This is likely a
result of increases in variable costs exceeding increases in product pricing.

9. Downgraded Credit Rating: In July 2019, Moody's Credit Rating Agency downgraded
IBM's senior unsecured rating from A1 to A2 (Moody’s Investors Service, 2019). This
decreased credit rating will result in IBM paying higher interest rates to creditors, to
include higher interest rates on any new bonds the company issues. These increased
interest payments can ultimately decrease IBM’s profit margin and threaten its bottom
line.
10. Inflation Rate: Although the U.S. inflation is down to 1.76% as of October 2019, from
2.52% one year prior, it has increased from 0.17% throughout the past four years (Y
Charts, 2019). Additionally, based on IMF forecasts, the US inflation rate is projected to
increase by 2.25% per year until 2024 (International Monetary Fund, 2019). Although
this is the case, “considering the annual inflation rate in the United States in recent years,
a 2.25 percent inflation rate is a very moderate projection” (Duffin, 2019). Even if IMF
projections prove to be accurate, these annual increases will make it difficult for IBM to
offer low interest rates to is consumers. As a result, IBM’s sales and overall revenue may
decrease.
Strategy Formulation
Based on the internal and external assessments conducted throughout the previous
sections, the internal and external factor evaluation matrixes depicted in Table 6 consolidates
IBM’s identified strengths, weaknesses, opportunities, and threats, and provide weighted levels
of importance for each factor. Additionally, a SWOT analysis matrix is detailed in Table 7
details, identifying strategies to be implemented according to correlating strengths, weaknesses,
opportunities, and threats.

Internal Factor Evaluation Matrix
Table 6.
Internal and external factor evaluation matrixes.
Note: Key internal factors and numerical determinations derived from data provided from Craft (2019a; 2019b), CSI
Market (2019), Duffin (2019), Guru Focus (2019), IBM Products (2019), IBM Research (2019a; 2019b), International
Monetary Fund (2019), Krishna (2019), Lardinois (2019), Moody’s Investors Service (2019), Partnership for Public
Service (2019), Red Hat (2019), Stock Trak (2019), Taulli (2019), and Y Charts (2019).
SWOT Analysis Matrix
Table 7.
SWOT analysis matrix.
Note: Determinations derived from data provided from Craft (2019a; 2019b), CSI Market
(2019), Duffin (2019), Guru Focus (2019), IBM Products (2019), IBM Research (2019a;
2019b), International Monetary Fund (2019), Krishna (2019), Lardinois (2019), Moody’s
Investors Service (2019), Partnership for Public Service (2019), Red Hat (2019), Stock Trak
(2019), Taulli (2019), and Y Charts (2019).
Proposed Strategies and Implementation
Based on the assessment and evaluation of IBM conducted throughout this paper, the
strategies proposed within the SWOT analysis matrix in Table 7 are outlined throughout the
following paragraphs. Given that the proposed strategies overlap in complexity, they are
combined and divided into two broad strategies: debt reduction, and mergers and acquisitions.
Debt reduction. All of the debt-based ratios currently indicate that IBM should make
efforts to decrease its debt. Although IBM has a strong track record of “maintaining a liquid
balance sheet,” with consistent cash flow, and various forms of alternate liquidity (Moody’s
Investors Service, 2019), decreasing debt levels will ultimately strengthen the company by
bringing the Moody’s credit rating back to A1, reducing interest rates, and increasing investor
appeal. In order to reduce long-term debt, the following actions can be taken.
Given that IBM’s FCF increased by 27% in Q1 2019, decreased by 45% in Q2 2019, and
increased by 30% in Q3 2019, let’s assume that its FCF will decrease by 11% in Q4 2019. If this
occurs, IBM will end 2019 with $11.7 billion in FCF, which will be a 4% increase from its $11.3
billion FCF in 2018. Considering IBM’s positive revenue outlook, coupled with the acquisition
of Red Hat, Inc., which is projected to generate $3.5 billion in revenue, growing at a rate of 15%
annually (Moody’s Investors Service, 2019), let’s assume that IBM experiences and overall
revenue growth of 5% per year for the following 3 years. With IBM’s total revenue in 2019
being $79.6 billion and its FCF being $11.3 billion, its FCF was equal to 14% of revenue.
Assuming that the revenue from Red Hat generates an equal amount of FCF, 14% of 3.5 billon
equates to a $500 million FCF increase with a 15% annual growth rate, which will result in a
2020 FCF of $12.3 billion, a 2021 FCF of $12.9 billion, and a 2022 FCF of $13.5 billion. At a
minimum, 50% of this FCF should be directed toward long-term debt repayment, affording a
debt reduction equal to a total of $19.4 billion throughout the three-year period from 2020 to
2022 (IBM, 2018; Guru Focus, 2019).
From 2016 to 2017 dividends increased by 4.7%, and from 2017 to 2018 dividends
increased by 2.9%. If IBM reduces this increase further, to a rate of 1% per year, given the 2018
distribution on $5.66 billion, the 2020 distribution will be $5.78 billion, 2021 will be $5.83
billion, and 2022 will be $5.89 billion. Compared to maintaining the 2.9% increase established in
2018, this 1% increase will save IBM approximately $1 billion over the course of three years,
which should be allocated toward long-term debt repayment. Although this savings will be
beneficial to IBM, stockholders will likely express discontent. With this being the case,
executives should initiate a campaign to control public opinion by outlining the long-term
benefits of reducing the dividend growth rate (IBM, 2018; Guru Focus, 2019).
In 2016, 2017 and 2018, IBM repurchased $3.5 billion, $4.34 billion and $4.44 billion
shares of common stock, respectively. Throughout the next three years, all share repurchases
should be halted in order to increase IBM’s FCF. With share repurchases equating to 4.38% of
revenue in 2016, 5.48% of revenue in 2017, and 5.58% of revenue in 2018, we can assume that
projected share repurchases would be equal at least 5.58% of future revenue if share repurchases
were to take place from 2020 to 2022. Given this assumption, by calculating 5.58% of projected
annual revenue, the funds saved by halting share repurchases will equate to $15.4 billion
throughout the three-year period from 2020 to 2022 (IBM, 2018; Guru Focus, 2019).
Combining the $19.4 billion derived from 50% of the FCF throughout the next three
years with the $1 billion saved by reducing the dividend growth rate to 1%, and the $15.4 billion
saved by halting share repurchase, IBM will end up having a total of $35.8 billion that will be
directed toward long-term debt repayment. This will allow IBM to repay $15.8 billion in addition
to the $20 billion in long-term debt that was raised to finance the acquisition of Red Hat, Inc. In
doing do, assuming that the company does not issue any additional debt, IBM’s total debt will
decrease from $57.8 billion in Q3 2019 to $22 billion in Q4 2022, reducing the company’s debt-
to-equity ratio from 3.98 to 1.98 throughout the same period if total stockholders’ equity remains
unchanged. Additionally, with EBITDA unchanged, IBM’s debt-to-EBITDA will decrease from
4.93 to 2.46. With these ratios and other debt-based ratios becoming more desirable, it is likely
that Moody’s Rating Agency will upgrade IBM’s rating back to A1.
Mergers and acquisitions. Given the cost of sales, services and financing increasing
more rapidly than the revenue they derive, IBM should consider vertical mergers, acquisitions, or
partnerships that will increase synergies and decrease variable costs. This is especially the case
for financing revenues, in which costs increased from 61.05% of revenue to 70.79% from 2016
to 2018 (Guru Focus, 2019). This 13.76% increase can be drastically reduced within the next
three to five years by merging with a financing firm that can support increasing levels of
consumer financing. Merging with a financing firm will also aid in providing financing for new
Red Hat customers. Currently, IBM claims that typical businesses have only transitioned 20% of
their data to the cloud (Taulli, 2019). If this is truly the case, there is tremendous growth
opportunity for Red Hat, which will drive a greater demand for financing.
Since IBM likely issues long term debt as a means of acquiring capital for consumer
financing, merging with a financing firm will eliminate interest payments on debt issued in
support of consumer financing operations. Doing so will ultimately allow IBM to decrease its
financing costs and increase its Global Financing business segment’s profit margin. Additionally,
IBM currently allocates more than 40% of its assets to its global financing business segment. By
merging with a financing firm, IBM will likely be able to free up a substantial amount of cash
assets that can be directed toward growth opportunities in other business segments.
Financial Projections
By implementing these strategies within IBM, the following projected Income Statement
and Balance Sheet provided in Table 8 and Table 9 are assumed for a three-year forward-looking
period. In addition, projected financial ratios are provided in Table 10.

Projected Income Statement
Table 8.
Projected income statement.
Note: Determinations derived from information and data provided from Craft (2019a;
2019b), CSI Market (2019), Duffin (2019), Guru Focus (2019), IBM Products (2019),
IBM Research (2019a; 2019b), International Monetary Fund (2019), Krishna (2019),
Lardinois (2019), Moody’s Investors Service (2019), Partnership for Public Service
(2019), Red Hat (2019), Stock Trak (2019), Taulli (2019), and Y Charts (2019).
Projected Balance Sheet
Table 9.
Projected balance sheet.
Note: Determinations derived from information and data provided from Craft (2019a; 2019b),
CSI Market (2019), Duffin (2019), Guru Focus (2019), IBM Products (2019), IBM Research
(2019a; 2019b), International Monetary Fund (2019), Krishna (2019), Lardinois (2019),
Moody’s Investors Service (2019), Partnership for Public Service (2019), Red Hat (2019),
Stock Trak (2019), Taulli (2019), and Y Charts (2019).
Projected Financial Ratios
Table 10.
Projected financial ratios.
Note: Determinations derived from information and data provided from Craft
(2019a; 2019b), CSI Market (2019), Duffin (2019), Guru Focus (2019), IBM
Products (2019), IBM Research (2019a; 2019b), International Monetary Fund
(2019), Krishna (2019), Lardinois (2019), Moody’s Investors Service (2019),
Partnership for Public Service (2019), Red Hat (2019), Stock Trak (2019),
Taulli (2019), and Y Charts (2019).
Strategy Evaluation
Based on the financial projections provided in Tables 8, 9, and 10, it appears as though
the strategies proposed by means of the internal and external assessments are valid. By
implementing the proposed strategies, IBM’s overall financial health will strengthen, and both its
market share and stock price will likely increase over time.
In review of the proposed strategies, the balanced scorecard provided in Figure 6
identifies the overall goals, strategies, and targets of the proposed financial, customer, internal
process, and learning and growth strategies. As detailed within this balanced scorecard, each of
these strategies are intertwined and should be implemented concurrently with one another in
order to maximize the effectiveness.

Figure 6. Balanced Scorecard. Independently developed based on information retrieved from Craft (2019a; 2019b), CSI
Market (2019), Duffin (2019), Guru Focus (2019), IBM Products (2019), IBM Research (2019a; 2019b), International
Monetary Fund (2019), Krishna (2019), Lardinois (2019), Moody’s Investors Service (2019), Partnership for Public
Service (2019), Red Hat (2019), Stock Trak (2019), Taulli (2019), and Y Charts (2019).
Summary
Throughout this paper, numerous aspects of IBM’s operations and business activities
have been closely analyzed. An internal assessment was performed, in which IBM’s
organizational structure, business segments, operational dynamics, strategic initiatives, and
financial activities were discussed; and an external assessment, detailing the market in which
IBM operates, its major competitors, and key industry trends, was evaluated. This information
was then consolidated in order to develop a three-year, forward-looking strategic business
strategy, utilizing the SWOT analysis. In doing so, projected financial determinations were made
and the proposed strategies were tested with a balanced scorecard. Ultimately, it must be
understood that the market is constantly evolving, so all strategies must be regularly reviewed,
revised, and adapted in order to maintain relevancy. Although this is the case, the strategies
proposed throughout this paper can serve as a foundation in which IBM can build.
Conclusion
As we have determined throughout this analysis of IBM’s operations, the past decade has
not been a successful period for the company. It has struggled with intense competition in a time
of rapid technological advancements, while striving to reposition its activities and overhaul its
business model. Unfortunately, IBM has not fared well in its attempts thus far, but there is hope
for the future of IBMers. The company has many strengths it can focus on and seemingly endless
opportunities in which it can capitalize. In doing so, if IBM strives to improve its weaknesses
and carries out sufficient efforts to counter the threats it faces, the future of the company appears
to be bright.
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IBM Analysis and Strategy Proposal

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IBM Analysis and Strategy Proposal

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Running head: IBM STRATEGIC BUSINESS PLAN 1

IBM Strategic Business Plan

Embry–Riddle Aeronautical University

MBAA 635: Business Policy and Decision Making

Dr. Nathan Heller

List of Figures …………………………………………… Page 4

List of Tables …………………………………………… Page 5

Abstract …………………………………………… Page 6

Introduction …………………………………………… Page 7

Methods …………………………………………… Page 7

Firm Overview …………………………………………… Page 8

Mission Statement …………………………………… Page 8

Vision Statement …………………………………… Page 8

History …………………………………… Page 8

Principal Goods and Services …………………………………… Page 10

Geographic Locations …………………………………… Page 11

Competitors and Market Share …………………………………… Page 11

Internal Assessment …………………………………………… Page 12

Organizational Structure …………………………………… Page 13

Marketing Strategy …………………………………… Page 14

Social Media Initiatives …………………………………… Page 14

Business Segments …………………………………… Page 16

Value Chain Analysis …………………………………… Page 17

Financial Evaluation …………………………………… Page 21

Strengths …………………………………… Page 26

Weaknesses …………………………………… Page 28

External Assessment …………………………………………… Page 30

Key Industry Trends …………………………………… Page 30

Major Competitors …………………………………… Page 31

Competitive Profile …………………………………… Page 32

Opportunities …………………………………… Page 34

Threats …………………………………… Page

Strategy Formulation …………………………………………… Page 37

Internal and External Factor Evaluation Matrixes …………………… Page 38

SWOT Analysis Matrix …………………………………… Page 39

Proposed Strategies and Implementation ………………………… Page 39

Financial Projections …………………………………………… Page 42

Projected Income Statement …………………………………… Page 43

Projected Balance Sheet …………………………………… Page 44

Projected Financial Ratios …………………………………… Page 45

Strategy Evaluation …………………………………………… Page 45

Balanced Scorecard …………………………………… Page 46

Summary …………………………………………… Page 46

Conclusion …………………………………………… Page 47

References …………………………………………… Page 48

Figure 1. Organizational Chart …………………………… Page 13

Figure 2. Revenue by Segment …………………………… Page 18

Figure 3. Annual Revenue, Net Income, and EPS …………………………… Page 22

Figure 4. Annual Dividend Yield and Payout Ratio …………………………… Page 25

Figure 5. IBM Major Competitors …………………………… Page 33

Figure 6. Balanced Scorecard …………………………… Page 46

Table 1. Business Segment Changes 2018-2019 …………………… Page 17

Table 2. Business Segment Financial Details 2017-2018 …………………… Page 19

Table 3. Comparison of Gross Profit Margin… …………………… Page 20

Table 4. Financial Ratios 2014-2018 …………………… Page 23

Table 5. Competitive Profile Matrix …………………… Page 34

Table 6. Internal and External Factor Evaluation Matrixes …………………… Page 38

Table 7. SWOT Analysis Matrix …………………… Page 39

Table 8. Projected Income Statement …………………… Page 43

Table 9. Projected Balance Sheet …………………… Page 44

Table 10. Projected Financial Ratios …………………… Page 45

Corporation’s business operations and suggests a three-year, forward-looking strategic business

conducted, to include its organizational structure, marketing strategies, business segments,

proposed strategies are presented.