Strategic Business Analysis: IBM
Table of Contents
TOC \o “1-3″ \h \z \u Internal and External Factors Affecting IBM
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Strategic Choices of IBM
Openness
Reduction of the Cost of Service
Justification of Strategic Resources
Openness
Reduction of the Cost of Service
References
Appendices
Appendix A: IBM: Background Information
Table of Figures
TOC \h \z \c “Figure” Figure 1 SWOT Analysis of IBM
Figure 2 Openness Strategy
Figure 3 Reduction of the Cost of Service
Introduction
As of now, there are different internal and external factors that are affecting the performance of each and every individual in an organization and the overall performance itself. In addition, it can be seen that those companies that are operating in the global market are the one that are directly affected due to the different changes. The said change is driven by transformation of local and international market such as the financial and economic situation of the world, trends in the local and international market as well as the changing tastes, preferences and behaviors of the customers. All of the said factors are considered as connected with each other, thus creating changes that are important in order to sustain the position of a company in the global market.
As a result, more and more companies are focusing on the process of evaluation of their current position in the local and global market which focuses on analyzing their internal strengths and weaknesses as well as the different external environment factors that can cause threats and opportunities for the company. All of the said factors can be used in the process of decision-making in different activities and plans that are needed to be done in order to ensure competitive advantage and position in the market.
Internal and External Factors Affecting IBM
International Business Machines Corporation (IBM), also known as the Big Blue is a multinational computer technology and consulting corporation that is located in Armonk, New York, USA. IBM is considered as one of the few Information Technology (IT) companies with a continuous history that dates back to the19th century. The company sells computer hardware and software and offers different infrastructure services, hosting services as well as consulting services in different IT areas from mainframe computers to nanotechnology. Aside from that, IBM is considered as the world’s largest computer history and considered as the largest IT employer in the world with 355,000 employees (Loyola Institute of Technology & Management n.d.) (see Appendix A).
SWOT Analysis
SWOT analysis is a strategic planning tool that is use n order to evaluate the strength, weaknesses, opportunities and threats that are involved in a project, business venture or in any other situation that requires a decision. Thus, the process of sizing up the internal strengths and weaknesses as well as the external opportunities and threats helps to provide a quick overview of the strategic situation of an organization (Spalding & Case 2007, p. 110).
Figure SEQ Figure \* ARABIC 1 SWOT Analysis of IBM
Figure 1 shows the SWOT analysis of IBM, showing the current strengths, weaknesses, together with the opportunities that can be exploited and the threats that must be prevented.
Strengths
The most important advantage of IBM is its image or brand. This is due to the fact that IBM was the first important player in the industry or in the field. The said aspect gives the company their competitive advantage due to the fact that they have already established a name as well as relationship with their customers. In 2003, IBM topped the study regarding the brand perception of IT services. Buyers of different IT services perceive IBM as the top brand in all vital aspects of the market. The result of the study had showed that most of the 197 respondents and consumers of IT services that were surveyed by Gartner put Big Blue as the top company in the business and IT consulting, systems development and integration, as well as IT outsourcing (Sharma 2003).
Another advantage is the strong global presence of the company. The IBM Business Continuity and Resiliency Services has a worldwide presence across four important geographies and provide consulting services as well as recovery support for the large systems, midrange and even distributed environment customers. In addition IBM brings their customers the convenience of doing business in their customer’s own language and culture because it can help to reduce efforts, time and cost of traveling, that enables an easy access to a business environment where in their customers will be comfortable (IBM).
In connection to the long history of the company, it enables them to get hold of different valuable intellectual property, software, patents as well as ideas due to the fact that they have established and gathered group of people with wide knowledge and skills regarding computers and application of IT. This enables the company to have a vast research and development aspect.
Weaknesses
The most important weakness of the company is that it is starting to show a declining share in the market, due to the growing competition in the national as well as global business industry. In 2007, the market share of the company had decline, making HP its leading competitor to gain the previous number one place of IBM in the worldwide market share. HP narrowly beat IBM in terms of worldwide market share, showing a 29.6% points, compare to the 28.9% points to IBM. It is important to consider that HP’s gain over the year was IBM’s loss, which shows that the companies are switching places. However, both of the manufacturers had been able to report positive revenue growth per year (Harushka 2008).
It was mentioned in the strength of the company, that its human resource of work force is considered as the primary factors that drive the success of the company, however, it is always important to consider that too much of everything is bad. Thus, in the case of IBM, it has a huge employee population, and they are all highly paid. The said aspect can affect the entire operation of the company in terms of the production cost. Aside from that, it can also affect the communication process and management activities inside the company because of the huge population.
Opportunities
Currently, there are so many opportunities that can be exploited by the company in order to maintain their competitive advantage and eventually helps to continue the growth of the company in terms of size, sales and market share. One of the most important factors is the aspect of globalization. This can be done by market development, where in the company will focus on looking for new possible market. In addition, innovation is a very important aspect, thus it can be done by have a collaborative or partnership with other IT-related company in order to produce new products that will support the ever-changing needs of the clients. With connection to that said aspect, it will be important for the company to focus on the growing demand of the public and other organizations towards open source software. This is due to the fact that some of the competitors of the company and other players in the software and IT-services industries are offering products and services that are too high that cannot be afford by the clients, primarily those small businesses, but IT is considered as a must in most of the businesses.
Another opportunity of the company is the growing demand for IT and Information Systems. This is due to the fact that most of organizations, companies and businesses in the world are becoming more aware regarding the importance of application of technology, particularly IT in their processes.
Threats
The major threat that must be analyzed by the company is the current changes in the global economic and financial status. This is important because it will affect not only IBM, but also other businesses in the world. As a result, it will affect the individual performance of each and every client of IBM that will affect their buying behavior. The company will be hurt by the slowdown in the Systems and Technology business (Kanaracus 2008).
Another important aspect is the increasing competition. Due to the fact that computer is already considered as one of the basic needs of most of the individual, there are many IT companies that are entering the industry. And although the major competitor of IBM is Hewlett-Packard, it is also competing in some of small players or competitors such as Dell and Accenture.
Strategic Choices of IBM
Based on the said internal capabilities, the strategic choice of IBM must focus on two important aspects: the openness; and the reduction of cost of services.
Openness
Figure SEQ Figure \* ARABIC 2 Openness Strategy
It is important to consider the vitality of the current strength of the company and how it can be used in order to exploit the opportunities that can be found in the external environment. In the case of IBM, the primary strengths focus on the different technologies as well as knowledge that are available for the employees in order to start doing their innovation. In addition, the company also holds a strong team that focuses on research and development of the company.
On the other hand, the primary opportunity focuses on the fact that there is a growing demand for open-source products and services, in addition to that standards in the economic expansion. The said aspect is important due to the fact that customers from different part of the globe are looking for an integrated solution in order to solve their application development needs (Novell 2006).
The said action will be done by different partnership with different IT-related companies that are engaged in developing different open-source software and application. Open source is a human-readable source code that was made available under a copyright license that meets the Open Source Definition, where in it permits the users to use, change as well as improve the software, and then redistributes it. More often, than not, it is developed publicly and collaboratively. The reason behind the growth of demand for open source software is that it enables the customers to save up to billion every year (Rothwell 2008; The Standish Group 2008).
The said strategy will help IBM to focus on the greater demand of the customers, thus, making the company more aware regarding the behavior of the customers. It is also important to consider that the said strategy will help to boost the image of the company towards their customers, due to the fact that the company is helping their clients to save money and effort.
Reduction of the Cost of Service
Figure SEQ Figure \* ARABIC 3 Reduction of the Cost of Service
Figure 3 shows the reduction of cost and services strategy of IBM. The main weakness of the company focuses on the huge population with very high salary or pay. There is nothing bad about offering high salary or payment for the service or effort of the employees due to the fact that it is considered as one of the major driver of motivation inside an organization. As a result, it can help to improve the performance of each and every individual, and then later on reflect on the overall performance of the company. However, due to the different changes that are happening inside and outside the environment of the company, particularly during the time of global economic and financial crisis, it is important to focus on the negative impact of huge population and high salaried employees of the company, even though, they are considered as very talented and skilled employees. The company must focus on the fact that the human resource cost can affect the entire pricing strategy towards the products and services that the company is offering, as a result, the company will not be able to compete in terms of price.
On the other hand, the company can also take advantage of the low labor cost in China. This can be done by establishing production sites and headquarters in China. The per-hour cost for an employee in an American or European plant is between and or evens more, and this is mainly dependent on the decision of the workers’ union in the plant, the location and degree of welfare the plant provides. On the other hand, in China, the average per-hour cost for a worker in a Chinese plant is below 1 dollar, showing a dozen times lower compare to the two first mentioned nations (People’s Daily Online 2004).
Justification of Strategic Resources
Openness
The said strategy will help the company to lessen their labor cost that will later on reflect in their production cost. In addition, it can help the company to focus on the competitive advantage that will focus on price differentiation. This is due to the fact that more and more people, especially those from developing countries that are looking for computers and IT-services that are affordable. By doing this, the company will be able to hit two birds in one stone, where in first it will help to lessen their production cost that will help to focus on the pricing strategy of the company; at the same time, focuses on the changing demands and behavior of the customers regarding their products and services.
Reduction of the Cost of Service
The reduction of the cost of services, particularly the outsourcing can help the company to save money or cost in terms of human resource, especially today that the world is facing financial problems.
In order to prevent the said future problem regarding the financial negative impact of having huge human resource, it will be important for the company to lessen the number of employees. On the other hand, outsourcing can be applied in order to save time, money and effort. Outsourcing is considered as a contracting activity with another company or person in order to do jobs function. As of now, most of the company is outsourcing in some and different ways. More often than not, the functions that are being outsourced are considered as a non-core activity to the business (Sourcingmag.com 2008). The said strategy will help the company to save money due to the fact that the outsourcing company will be directly responsible in the process of selection, hiring and positioning employees to a given project.
References
Harushka, J 2008, HP Passess IBM in Server Market Share as Segment Booms, Ars Technica, viewed 18 December 2008, <http://arstechnica.com/news .ars/post/20080523-hp-passes-ibm-in-server-market-share-as-segment-bo oms.html>
IBM, Worldwide Presence, viewed 18 December 2008, <http://www-935.ibm.com/services/us/bcrs/html/worldwide.html>
Kanaracus, C 2008, IBM Q3 Rises, But Signs of Downturn Loom, viewed 18 December 2008, <http://www.techworld.com.au/article/264158/ibm_q3 _revenue_rises_signs_downturn_loom>
Loyola Institute of Technology & Management, IBM, viewed 18 December 2008, <http://www.litam.ac.in/companies/ibm.html>
Novell, IBM and Novell Join Forces to Support Growing Demand for Open Source, viewed 18 December 2008, <http://www.novell.com/news/press/i bm-and-novell-join-forces-to-support-growing-demand-for-open-source/>
People’s Daily Online 2004, China’s Advantage in Low Labor Cost will Remain in Coming Decade, Report, viewed 18 December 2008, <http://engli sh.peopledaily.com.cn/200409/07/eng20040907_156220.html>
Rothwell, R 2008, Creating Wealth With Free Software, Free Software Magazine, viewed 18 December 2008, <http://www.freesoftwaremagazine.com/com munity_posts/creating_wealth_free_software>
Sharma, D 2006, IBM Top of IT Services Brand Perception Study, Silicon.com, viewed 18 December 2008, <http://management.silicon.com/itdire ctor/0,39024673,10006300,00.htm?r=2>
Spalding, G & Case, G 2007, Continual Service Improvement: Continual Service Improvement, The Stationery Office
Sourcingmag.com 2008, Outsourcing – What is Outsourcing? Viewed 18 December 2008, <http://www.sourcingmag.com/content/what_is_outs ourcing.asp>
The Standish Group 2008, Free Open Source Software is Costing Vendor Billion, viewed 18 December 2008, <http://www.standishgroup.com/news room/open_source.php>
Appendices
Appendix A: IBM: Background Information
Credit:ivythesis.typepad.com
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