IBM at the Crossroad
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The document outlines the history, leadership changes, and strategic evolution of IBM since its founding in 1911. Key periods include the Louis Gerstner era, which focused on integrated solutions and e-business, and the Virginia Rometty era, emphasizing cloud computing and data analytics. It also discusses challenges such as competition, declining revenues, and the importance of adapting to market and regulatory changes.
IBM at the Crossroad
- 1. I B M at the Crossroads 17003 Akash Kedare 17021 Kushagra Harshavardhan 17025 Nidhi Vyas
- 2. Brief History of IBM • The International Business Machine • Founded in 1911 as Computer Tabulating Recording Company by Charles Flint • Renamed IBM in 1924 • Headquartered in NY, United States with operations in over 170 countries with a total manpower exceeding 3.5 L • Ginni Rometty (Current President and CEO) • Current Segments : Cognitive solutions, Global business services, Technology services & cloud platform, Systems and Global financing • Out of all these Cognitive solution has the highest gross margin (78.6%)
- 3. At the Crossroads….. A focus on high margin products and software, which could backfire and alienate customers The growing challenge of continued dependence on its home market international sales
- 4. Louis Gerstner Era (1993-2002) “Elephants can also Dance” • No particular understanding of Computer- technology industry • Travelled to meet customers personally to get a sense of market • Reversed plan to split IBM into thirteen “Baby Blues” • He liked the idea of integrated solution i.e. one stop shopping and service (removing need for customers to contact different vendors) • Focused on the emerging business opportunities and rapid adoption of internet • Massive advertising and marketing to push e-business (coined by IBM) • IBM’s market cap grew from $29bn in 1993 to $133bn in 2002
- 5. Sam Palmisano Era (2003-2011) • Joined as a salesman at an early age of 22 years • Instrumental in creating and leading IBM Global Services which later on became largest IT Services organization in the industry • Organized IBM around Hardware, Software and Services • IBM only kept high margin hardware (divested its PC business to Lenovo) • In software, IBM build expertise mainly with acquisition of small companies (security, data management, web commerce) • Transformed IBM from a multinational company with a worldwide operation to seamless global enterprise with centers of expertise • Strategic thrusts : Dedication to clients success, Innovation that matters and Trust & personal responsibility in all relationships
- 6. Virginia Rometty Era (since 2012) • Joined IBM in 1981 as System Engineer • Oversaw successful integration of PWC • IBM’s first female CEO, ranked no.10 on Forbes list of powerful women • Focused on Strategic Imperative : Cloud Computing, Data Analytics, Mobile, Social and Security efforts • Ensured double digit growth for the company • Sees IBM future in three disruptive technology : • Cloud Computing • Big Data and Analytics • Systems of Engagement
- 7. IBM’s Cloud Computing Initiative 2007 : Blue Cloud (not fully cloud) 2008 : Integrated Cloud Computer Center 2008 : Partnership with Google, Extended consulting & tech services 2013 : Private Clouds 2016 : Hybrid Cloud
- 8. IBM’s Big Data and Analytics & Cloud Computing models • 2009 : Idea of Smarter Planet • 2011 : AI Computer System WATSON • WATSON reflects new era of Cognitive Computing • Computers are able to understand natural language and learn to be able to engage with humans and make decisions (AI) Cloud Computing Delivery Models
- 9. PESTEL Analysis Technological • Technological integration in various industries and markets • Cybercrime • Expanding global Internet reach Political • Governments’ move for digitization • Political support for e-technologies • Improving governmental efforts for data protection Environmental • Increasing stress on reducing the carbon footprints • Rising interest for business sustainability programs Economic • Stable economic growth in major markets • Rapid growth of developing market • Rising demand for online products Social • Rising purchasing capacities • Rising use of customer service in evaluating product quality • Increasing use of online services Legal • Expanding e-waste regulation • Weak legal protection for intellectual property in developing markets
- 10. Analysis Issues Implications Importance IBM has traditionally operated in market with products having high margin Political instability and hurts tech companies (Attack on WTC, War with Iraq) The frequent disturbance in the political scenario leads to loss of clients and business losses Intense rivalry in most of the business segment has lead to declining margin For a company like IBM, it is of greater concern as it needs revenues to support huge manpower Having decentralized offices around the world and identifying the crisis before it occurs IBM has been involved in legal issues which results in monetary loss and loss of brand value as well The legal issues does more harm to brand value than monetary loss, it should try to get over these issues IBM shall try to maintain a clean image and should focus on building healthy relationship With environmental laws becoming stringent IBM would have to invest to become compliant Will have to adapt to the changing environmental regulations which may result in additional costs By complying with the environmental laws the company would be perceived as responsible.
- 11. Porter 5 Forces Moderate Force • High imitation potential • High cost of entry • Difficult to price cheaper than large firms Very strong Force • Moderate degree of differentiation • High Imitation potential • Aggressive firms Moderately High • Technological innovation at rapid pace • Low level of product differentiation Moderately Low • High overall supply • Moderate size of individual supplier Moderate Force • Low cost of changing • Moderate order size • Large number of customers Attractive Industry
- 12. Competitive Landscape (Segment wise) Cognitive Solution Global Business Services Technology & Cloud Financial Services
- 13. Competitor Analysis Immediate Competitors Impending Competitors Invisible Competitors
- 14. SWOT Analysis SWOT Threats • Lack of global strategy • Firms like google have high economies of scale • Stiff competition in cloud and analytics segment Opportunities • Largest player in the upcoming market • Growth opportunities in government business segment • Business diversification • Investing heavily in consulting business Strengths • Skilled human resource, Stable CEO • Huge R&D facility • Successful alliances • Brand Value (31.79b, 2016) • Vertical Integration Weakness • Slow reaction to disruptive technology • Continually involved in litigation • Sluggish growth in core business units • Focus only on large enterprise • Expensive software & solution (High Margin)
- 15. Analysis of Financial Statements 0 20000 40000 60000 80000 100000 120000 2013 2014 2015 2016 2017 Chart showing declining revenues and gross margin Revenue Gross Margin IBM Share S&P 500 Jan 14 160.44 2058.90 July 18 145.15 2818.82 0 5 10 15 20 2010 2011 2012 2013 2014 2015 2016 2017 EPS EPS
- 16. Case Questions
- 17. Question : 1 • Declining Sales and unstable gross profit margin (Exhibit 8) • Falling stock prices while the market (S&P 500) is on rise (Exhibit 10) • Increased competition in cloud computing from Amazon and Google (Exhibit 2) • IBM was struggling to stay relevant in rapidly changing tech market Yes, Rometty did identify the challenges to a larger extent and responded accordingly (focused on building high growth business) • Doubled down on current strategy • Investing (Cloud) and Divesting (Server, Chip) What were challenges facing IBM when Rometty became CEO? Did she correctly identify those challenges?
- 18. Question : 2 • No, She initially avoided changing IBM’s Strategy. • Major moves : • High investment in cloud computing and data analysis ($4bn) • Divested unprofitable business (Server business to Lenovo for $2.1bn in 2014) • Paid $1.5bn to Global Foundries to take over IBM’s money losing Chip business • Transformation Strategy : • Cloud computing, Big data and analytics and System of engagements Did Rometty have a clear strategy from the beginning? What were her major moves as CEO and how did they fit into her transformation strategy ? Did she act quickly enough? Use The Change Wheel to evaluate Rometty’s efforts. Avoided changing strategy High investment in cloud and data Divesting unprofitable businesses Strategic alliances, first mover advantage Declining revenues and profitability Post 2013
- 19. Question : 3 • IBM aggressively seeks revenue growth through acquisitions • The acquisition of consultancy business of PwC to diversify itself in consultancy sector Analyze IBM’s acquisitions. What types of companies were acquired and how were they integrated into larger IBM? What were the challenges? Identify potential difficulties associated with being acquired by IBM.
- 20. THANK YOU
Editor's Notes
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