The Big Blue Strategy

Presented by Eagle Eye Inc

Introduction

International Business Machines Corporation (IBM) is a multinational computer technology company.

The company manufactures and sells computer hardware, software, hosting services and infrastructure services.

Company came to be known as IBM in 1924, with initial company Tabulating Machine Company formed in 1896.

Interactive Workshop

Each team will represent the strategic planning committee for a particular organisation

Each organisation will be given a fact sheet

Base your responses to the game master’s questions on these fact sheets

Phase 1

Early 1980s

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The situation of IBM:

IBM enters the Personal Computer very late

Suggested strategies to IBM:

Adopt the Emergent Strategy

Be proactive, environmentally aware

IBM - Early 1980s

6

The situation of IBM:

IBM establishes the subsidiary to manufacture and market its first PC

Suggested strategy to IBM:

Establish a division

IBM - Early 1980s

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IBM - Early 1980s

The situation of IBM:

IBM acquires chips from Intel and Microsoft

Suggested strategies to IBM:

Short term strategy: products become incompatible

Long term strategy: IBM to become the “integrator” to make others’ products compatible

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IBM - Early 1980s

The situation of IBM:

IBM recognises the threat from Microsoft and Intel

Suggested strategy to IBM:

React and encounter the problems quickly

Phase 2

Late 1990s

Remain one company

Focus on customers

Secure internal support

Reorganise the company

Introduce new corporate culture

IBM - Late 1990s

IBM - Late 1990s

Cut costs

Sale of peripheral companies

Acquire companies

Invest in computer service outsourcing

IBM Corporation

Swot Analysis

Strengths

Market leadership

Economies of Scale

Talent magnet

Strong brand equity

Strong R & D capability

USD 5-6 million spent annually

Value generated from their patent portfolio

Wide ranging portfolio of products & services

Diversified revenue streams allow IBM to be primed to take advantage of market specific opportunities

Integrated Global operations

Higher flexibility translates to sharing workloads across divisions & geographies

Weaknesses

Sluggish revenue growth and operating performance

5.4% decline in Total Revenues from USD 96.3 billion to 91.1 billion

Increasing cost base ; less than efficient deployment of assets

Attained profit targets through

Cost cutting

Cyclical surge in mainframe sales

Opportunities

Growth of Indian Operations

Low costs for IBM

Access to Indian IT software talent

Tap into emerging Indian emerging markets

Growth of Business Process & IT Outsourcing industries

Threats

Consolidation in end user markets

Higher bargaining power for customers

Lower margins for IBM

Competition

Stiff competition from large players in the many industries it operates in

Offshore consultancies especially from home-grown Indian companies

IBM Corporation

2003 and beyond

IBM: 2003 onwards

On-demand principle : product/service + internal reorganisation

Acquisitions and divestments

Ongoing research and emerging trends

The On-Demand Principle

An on-demand company would be “an enterprise (with) business processes--integrated end-to-end across the company and with key partners, suppliers and customers--(that) can respond with speed to any customer demand, market opportunity or external threat.” - Sam Palmisano

Different departments share the same computing infrastructure and are tightly integrated with others’ operations

The On-Demand Principle

On-Demand as applied in IBM

Unites PCs, servers, software, IT services, outsourcing and management consulting businesses

All IBM executives have repositioned themselves

On-Demand as a business outlook

E-business on demand is more than IT

Acquisitions

2004

10 acquisitions

Including Maersk Data, Candle Corp, Daksh eServices

2005

10 acquisitions

Data Power, Network Solutions Pvt Limited

2006

8 Acquisitions

MRO Software, Internet Security Systems ( USD 1.3 Billion)

Divestment

Sold off PC manufacturing business to Lenovo

USD 650 million cash

USD 600 in Lenovo Stock

Being unable to compete in highly competitive industry

Research and Emerging Trends

BlueEyes, Eclipse, alphaWorks, Extreme Blue

Gaming

Chips for consoles

Visualisation - Second Life

Evaluation

Lacklustre performance for a few years

Underlying health of services uncertain

But IBM 4Q 2006 results encouraging

Services businesses grew more than 6% to USD12.8 billionSoftware sales rose 14% to 5.6 bnNew services contracts signed rose 50% year on year to 17.8bn

Thank You

Any Other Questions?