I.

Case Background

IBM began business in the 1800s with the Tabulating Machine Company, the
International Time Recording Company, and the Computing Scale Company of
America, all independently operat- ing separately as distinct corporations. In 1911, the
merger of these firms was completed, cre- ating the Computing-Tabulating-Recording
Company; the name was changed to International Business Machines (IBM) in 1924.
IBM has worked diligently in the last decade to shift re- sources and strategy away
from manufacturing into service industries. For example, IBM ac- quired SPSS and
Cognos (data analytics software) in 2009 for $1.2 billion. IBM plans to keep its high-
end server business, which is less prone to commoditization by other firms’ products.
In 2013, IBM acquired SoftLayer Technologies, a web hosting service, for about $2
billion. A year later, IBM initiated a partnership with Apple Inc. in enterprise mobility
and also acquired the business operations of Lighthouse Security Group, LLC, a
premier cloud security services provider. Financial terms were not disclosed. IBM
executives accepted no bonuses in 2014 for fiscal year 2013, because the firm
reported a 5 percent drop in sales and a 1 percent decline in net profit for 2013.
Today, IBM is investing more than $1.2 billion, expanding its data centers and cloud-
storage business and building 15 new centers, bringing the total to 40 in 2014.
The company is heavily involved in providing business consulting and business
analytics ser- vices. It is investing $3 billion between 2014 and 2019 to create
computer functionality to resemble how the human brain thinks. IBM says its
goal is to design a neural chip that mimics the human brain, with 10 billion
neurons and 100 trillion synapses, but that uses just 1 kilowatt of power.

In late 2014, IBM signed an extensive cooperative agreement with Twitter Inc.
to gain ac- cess to all tweets posted now and previously to 2006, so the
10,000+ IBM consultants can help solve client problems using IBM’s business
analytics software. Both Twitter and IBM, as part of the agreement, are now
developing data offerings for specific industries, such a banking, re- tail, travel,
and transportation. IBM’s CEO Rometty personally negotiated with Twitters’
CEO Costolo to forge the partnership.
Also in late 2014, IBM introduced a new email service called IBM Verse to complement its IBM
Notes software suite. With Verse, IBM hopes to address common complaints that customers
have with gmail, Yahoo! Email, and AOL email services, such as filter problems, spam, and
weak tracking features. In early 2015, IBM announced a new product called the z13, a machine
about the size of an extra-large refrigerator that reportedly is the most sophisticated computer
ever built. IBM says the z13 can complete 2.5 billion transactions a day, and analysts say the
product will generate $2.3 billion in revenue in 2015. Mainframe computers such as the z13
generate about 20 percent of IBM’s revenues.

For the second quarter of 2015 that ended June 30, IBM’s revenues fell 13 percent year- over-
year to $20.8 billion, and company earnings also declined 13 percent from the year-ago period.
Part of the decline was the result of IBM selling its System X server business to China’s Lenovo.
For Q2, IBM’s sales fell 8 percent in the Americas region, but only 2 percent when backing out
currency and System X effects. In IBM’s Asia-Pacific segment, revenues declined 19 percent,
and in the Europe/Middle East/Africa segment, revenues dropped 17 percent. In the BRIC bloc
of Brazil, Russia, India, and China, IBM’s revenues declined 35 percent. Even after backing out
the System X and currency valuation events, IBM’s organic sales to the BRIC mar- kets fell 18
percent year-over-year.
Also in Q2, IBM’s business and technology services segment revenues
declined 11 percent year-over-year, while the company’s software sales
decreased 10 percent. The company’s hard- ware segment revenues
declined 32 percent and now comprises only 9.6 percent of Big Blue’s
revenues, as the company has almost totally transitioned away from
hardware. On a positive note for Q2, IBM’s “strategic imperatives”
increased sales significantly. Specifically, the firm’s cloud computing
revenues rose more than 70 percent, backing out the currency and
System X sale again. Similarly, business analytics revenues at IBM grew
more than 20 percent, mobile services sales quadrupled, and the
company’s social revenues jumped 30 percent.
Values, Vision, Mission

In 2003, IBM executives and over 300,000 employees convened for the first time in 100 years to reestablish
and reanalyze the company’s core values and existing mission statement. Core values, according to top
management at IBM, are more than ethics and legal compliance. From that 2003, 72-hour discussion, IBM
decided on these three core values that all IBM employees globally are expected to live every day. Although
vague, the values are:

1. Dedication to every client’s success

2. Innovation that matters for our company and the world

3. Trust and personal responsibility in all relationships

At the 2003 meeting, IBM abandoned its existing more formal mission statement. As of 2015, there is still no
formal mission or vision statement provided on any literature published on IBM’s website. Lacking written
vision and mission statements to guide strategy and direction,
It is unclear whether IBM has the necessary foundation to make clear
strategy decisions moving forward.

IBM is exemplary regarding workplace equality. It is no accident that

IBM’s CEO is a woman, Virginia Rometty. IBM provides same-sex
partners of its employees with health ben- efits and provides an anti-
discrimination clause. The Human Rights Campaign for 10 consecu- tive
years has rated IBM 100 percent on its index of gay-friendliness. In
recent years, IBM UK has ranked first in Stonewall’s annual Workplace
Equality Index for United Kingdom (UK) employers.
Internal Issues
Organizational Structure

Many analysts do not consider IBM’s organizational structure to be

exemplary. There is no chief operating officer or chief administrative
office, the divisions are named in somewhat obscure ways, and the CEO
is also the chairperson and president. No actual chart could be
obtained, but a depiction of IBM’s probable structure is given in Exhibit
1.
Strategy

Over 60 percent of IBM employees in R&D are working in fields such as “big data,” cloud com- putting, and other key growth
initiatives. This is a drastic change from 20 years ago when over 70 percent of R&D workers were focused on materials and hardware.
The new IBM wants to “own the cloud,” but ironically and unfortunately for IBM, the cloud will kill profit margins on main- frames,
and those profit margins are still the mainstay at IBM. Michael Holland, the principal money manager of Holland & Company in New
York City, says, “I am as negative on IBM as I could be. I was a long-term shareholder, and now I’m out of the stock.”

IBM’s 2013 Annual Report revealed three key “strategic imperatives” moving forward. The first of three key initiatives is to focus on
the area of big data, which IBM estimates will be a

$187 billion industry by year-end 2015. IBM has invested over $24 billion to date, made 30 acquisitions, and has 15,000 consultants
and 400 mathematicians in this area. About two thirds of all IBM’s R&D is devoted to big data. With 6,000 partners and 1,000
university partnerships, IBM is committed to evolving into a big data company.

The launch of IBM Watson Group in January 2014 promises to grow IBM revenues. Watson helps clients understand big data in a
natural language, helping nontechnical people understand complex information more easily. Watson is working on recommending
tailored treatments for cancer patients by scanning medical journals and patients’ own DNA. Watson is a vast collection of artificial
intelligence and machine-learning algorithms, sometimes called “cognitive comput- ing.” IBM has had some success with Watson-
based technologies in areas such as education and health care. In 2015, IBM formed a strategic alliance with Japan’s SoftBank,
extending Watson’s reach into that country. Until now, Watson has been operating on an English-only corpus.
IBM’s second key initiative focuses on cloud computing, which IBM estimates will be a $250 billion
industry by year-end 2015. Roughly 80 percent of all Fortune 500 companies today use IBM’s cloud
services and IBM remains a leader in this area. IBM recently acquired SoftLayer along with 14 other
cloud-based firms for a total of $7 billion. Much of IBM’s R&D expenses not devoted to big data are
focused on the firm’s cloud-computing initiative.

The third key in IBM’s initiative, dubbed “systems of engagement,” centers on technological social
interaction products and services. IBM expects firms to double its expenses in this area by 2016. IBM’s
purchase of Skype and Facebook’s purchase of WhatsApp are two examples of companies trying to
profit off the social media revolution.

Recently, IBM announced an alliance with Apple to work in tandem to create business apps for mobile
devices for IBM’s corporate customers. Reeling from 8 consecutive year-over-year revenue declines,
IBM is betting on Apple’s popularity and simplicity to help please the IBM customer base. Roughly one
third of iPad sales in 2013 were to governments or corporations. Many corporate employees use their
personal Apple products at work. The new Apple IBM al- liance is expected to put increasing pressure
on Google and its Android platform to develop corporate partners. It remains to be seen how the
difference in culture between IBM and Apple will affect the alliance. Traditionally, IBM has focused on
businesses while Apple has focused on upscale personal consumers.
Political / Legal It is IBM’s long-standing policy that
we participate in politics as private
citizens, not as IBMers. Therefore,
it is the policy of the IBM Company
not to make contributions of
resources such as money, goods or
services to political candidates or
parties. This policy applies equally
in all countries where IBM does
business, regardless of whether or
not such contributions are
considered legal in any host
country.
Economic The world’s economy has never
been more connected or more
complex. With the right skills,
innovative products and services,
and access to markets, individuals
and businesses can gain access to
unprecedented opportunities.
Through educational and
economic development programs,
IBM is helping to close the gap
between “potential” and “success”
for young people, small
businesses, and military veterans
transitioning to civilian careers.
Socio-Cultural Organizational culture or corporate
culture defines the philosophies,
IBM suffers the weakness of the
imitability of its products, which
means other technology companies
have a low barrier of entry to
develop products that are similar to
IBM’s.
The company has faced significant
drops too. They might be 43rd on
Brand Value this year, but last year
they were 40th; their numbers are
falling. They are losing brand value
and market share. This is a
weakness because the company
failed to keep up with the market
which was in its grip at one point in
time.
These factors can provide crucial
information about the local
Industry Environment (Porter’s Five Force’s)
Industry Environment
Rivalry
Bargaining Power of Consumer
Bargaining Power of Suppliers
Opportunities Threats
The inventions of new gadgets Competition
and technologies for better
promotion of business
For all of IBM’s businesses, the Company invests a lot of
customers are big companies money in research and
with technology support and development worldwide to
cloud service requirements. ensure differentiation of its
The products offered by the offerings.
company are customized and
catered to the needs of the
customer
IBM has over 14000 suppliers There’s a switching cost
spread across 100 countries in among the product of the
the world. This indicates that company.
the volume of suppliers is
extremely high, and they are
highly diversified. Some of the
Internal Environment Analysis
B.1 The functional Areas
Functional Areas Strengths
Finance IBM FINANCIAL STRENGTHS
INCREASE YEARLY DUE TO THE
INVENTIONS OF A MODERN
TECHNOLOGY AND COMPUTER
HARDWARE.
Marketing Marketing of new product
technology and computer
hardware becomes easy because
of the modern gadgets that is
being used by the company.
People coming from different
country will have an access to
the current trends in computer
and technology.
Organization & Management IBM’s expertise in production
processes and materials
management. Such expertise is
based on a long history of
Weaknesses
The company needs to think new
innovation of different
technologies to ensure stable
finance in the company.
In marketing new products the
company needs more funds and
money to inform people from
different places.
The company’s operations in only
a limited number of market
segments within the information
technology industry
C. Internal and external environment analysis
STRENGTHS WEAKNESSES

1. Innovations of technology 1. High price

2.High demand of investors consumers 2. Decreasing brand awareness
3.High sales 3. Constant legitation
4.Strong research and development personnel 4. High business capital

OPPORTUNTIES THREATS

1. Taking advantage of cloud technology 1 ibm competitors continue to emerge

2.Business and consultancy 2. Fragile cyber security
3.Service expansion 3. Global economic crisis
4. Expansion expansion 4. Cybercrime increases
 III. CENTRAL PROBLEM:

• A. Central Problem:
The IBM company must think deeply for the innovations for
development of new technology to satisfy the wants of the customers.
• A.1 Support evidence of the problem
IBM began business in the 1800s with the Tabulating Machine Company, the International Time
Recording Company, and the Computing Scale Company of America, all independently operat- ing
separately as distinct corporations.
• In 2013, IBM acquired SoftLayer Technologies, a web hosting service, for about $2 billion. A year later, IBM initiated a partnership with Apple
Inc. in enterprise mobility and also acquired the business operations of Lighthouse Security Group, LLC, a premier cloud security services
provider. Financial terms were not disclosed. IBM executives accepted no bonuses in 2014 for fiscal year 2013, because the firm reported a
5 percent drop in sales and a 1 percent decline in net profit for 2013. Today, IBM is investing more than $1.2 billion, expanding its data
centers and cloud-storage business and building 15 new centers, bringing the total to 40 in 2014.
• The company is heavily involved in providing business consulting and business analytics ser- vices. It is investing $3 billion between 2014 and
2019 to create computer functionality to resemble how the human brain thinks. IBM says its goal is to design a neural chip that mimics the
human brain, with 10 billion neurons and 100 trillion synapses, but that uses just 1 kilowatt of power.
• Also in late 2014, IBM introduced a new email service called IBM Verse to complement its IBM Notes software suite. With Verse, IBM hopes
to address common complaints that customers have with gmail, Yahoo! Email, and AOL email services, such as filter problems, spam, and
weak tracking features. In early 2015, IBM announced a new product called the z13, a machine about the size of an extra-large refrigerator
that reportedly is the most sophisticated computer ever built. IBM says the z13 can complete 2.5 billion transactions a day, and analysts say
the product will generate $2.3 billion in revenue in 2015. Mainframe computers such as the z13 generate about 20 percent of IBM’s
revenues.
 Quantitative Strategic Planning Matrix(QSPM)

• Market Penetration:
• 1. Innovations of new technology every year for costumers satisfactions.

• Market Development
• 1. Promote new technology that will catch the attention of every customers around the globe.
• 2. To develop trendy gadgets , computer and technology that will be useful for everyone.
• Product Development
• 1. Expand company branches in different country around the globe.

• Related Diversitication
• 1. Expand and develop new trendy technology that would catch the interest and attention of the customers.
• 2. Develop and upgrade existing products yearly for company’s greater sale
KEY FACTORS WEIGHT STRATEGY 1 STRATEGY 2 STRATEGY 3
Strengthening INNOVATIONS OF NEW SERVICE DEVELOPMENT
research and TECHNOLOGY
development team

Ratin Score Rating Score Rating Score

g
STRENGTHS
1. Strong R &D .35 4 1.40 4 0.35 3 1.05

2. High sales 0.20 4 0.80 2 0.40 4 0.80

3. High demand customers 0.10 2 0.30 4 0.40 3 0.30

4. Increase number of investors 0.10 2 0.20 2 0.20 2 0.20

5. Innovations of New technology 0.5 3 0.15 1 0.5 4 0.20

KEY FACTORS WEIGHT STRATEGY 1 STRATEGY 2 Strategy 3
Strengthening research Innovations of new Service and development
and development technology
team.

Rating Score Rating Score Rating Score

OPPORTUNTIES
1. High profit and sales yearly 0.3 4 0.12 2 0.06 3 0.09

2. Increase in global market space for 0.05 3 0.15 2 0.10 1 0.05

products and computer Technology
3. High quality products and services 0.2 2 0.4 4 1.08 1 0.02
offered
4. Expansion of software 0.1 4 0.4 2 0.02 2 0.02

THREATS
1. High Price 0.1 2 0.02 2 0.02 3 0.03

2. Decreasing brand awareness 0.1 4 0.04 1 0.1 4 0.4

3. Emerging competitors 0.1 3 0.03 1 0.1 2 0.02

Sub Total: 0.14 0.44 0.66 2.43

KEY FACTORS WEIGHT STRATEGY 1 Strategy 2 Strategy,3
Strengthening Innovations of new service and
research and technology development
development team

Ratin Score Rating Score Rating Score

g
WEAKNESSES

Fragile cyber security

The company’s competitors continue

to emerge

Sub Total: 0.14 0.44 0.66 0.20

OVERALL SCORE: 1.0 3.29 1.66 2.75

RECOMMENDATION: Therefore we can conclude that the company must use strategy number one which
is the strengthen the research and development team in order to produce a more
advanced product and computer and technologies.
Recommendations
RECOMMENDATIONS: based on the data being gathered we can
recommend to use strategy number one which is to strengthen the
research and development team of IBM company in order to achieve
its goal, vision and mission in the future which is to hand a newly
innovative technology to its customer.
IV. ACTION PLANS
FUCNTIONAL AREAS OBJECTIVE STRATEGY TIME FRAME BUDGET

To produce a With the collaborative $ 5.5M

high quality effort of the research and By the end of
technology production team the IBM 2024
Company can ensure a
and product high quality product all
for the the time
MARKETING costumer
To introduce Advertising using the For the next
new product in newest technology three (3) years.
the market in invented by the company
fastest way is one way in order to
introduce product to the
market more in a fastest
way
To ensure that $3M
the product
being
PRODUCTION introduced by
the company
will be a big
help to the
different
customers and
to ensure that
the product
being
introduced by
the company
will be a big
FUCNTIONAL AREAS OBJECTIVE STRATEGY TIME FRAME BUDGET

To be more A better organization for By the end of

centralized all the workers and 2024
and open for company as much better
in in order to ensure that
the workers the flow of works in the
company is stress free and
ORGANIZATION no pressure.
To be updated Conduct workshops and For the next $3.5M
with the current seminars for the workers three (3) years.
trends around so that they will be aware
the globe. of what is happening
around the globe

To get more Fisher plan is applicable By the end of 6.5M

investors for but then the company 2024
FINANCE new must give attention to the
technologies. growth of each worker
And products therefore their skills must
being produced be enhanced through
seminars and workshops
To reduce To promote products in
company’s long- the market more often so
term debt. that income will be
increases and also to avoid
HRD Competitive The company must have a For the next
and skilled standard in hiring three (3) years.
workers is employee to ensure the
development of the
very company in the future.
important for
the
development
of the
company
To offer Training seminars and For the next
seminars & workshops as necessary in three (3) years
training in order to help the existing
existing and new workers
employees that developers skills for the
would help development of their
them develop company.
their skills and
their capacity in
order to give
progres to the
company
With the use of Creating more pages in By the end of $4M
computer and the internet is one way 2024
technology inorder for the people to
INFORMATION everyone can
now have an
know the new release
product and computer and
SYSTEM access to technology of the
information company
about the
company.
 Selected Ratios

Year ending December 31,2024

Total Asset Turnover
Reported 0.48 0.43 0.47 0.51 0.65
Adjusted 0.49 0.46 0.51 0.53 0.64
Liquidity Ratio
Current Ratio
Reported 0.92 0.88 0.98 1.02 1.29
Adjusted 1.53 1.43 1.48 1.53 1.86
Solvency Ratios
Debt to Equity
Reported 2.32 2.74 2.99 3.02 2.73
Adjusted 1.58 1.70 1.90 1.80 1.64
Debt to Capital
Reported 0.70 0.73 0.75 0.75 0.73
Adjusted 0.61 0.63 0.66 0.64 0.62
Financial Leverage
Reported 5.80 6.98 7.57 7.30 7.35
Adjusted 3.54 3.86 4.21 3.89 3.99
Profitability Ratios
Net Profit Margin
Reported 2.71%10.01% 7.59%12.22% 10.97%
Adjusted 8.11%13.95% 3.58%13.01% 10.42%
Return on Equity (ROE)
Reported 7.47%30.38% 27.14% 45.25% 51.96%
Adjusted 14.19% 24.88% 7.67%26.96% 26.51%
Return on Assets (ROA)
Reported 1.29%4.35%3.58%6.20%7.07%
Adjusted 4.01%6.45%1.82%6.92%6.65%