Case study of IBM

Introduction 

IBM has been the forerunner in data processing for over 100 years. They are synonymous with efficiency, data processing, and managing big data.  Their history with the US Government and managing the complex issues of a world power are legendary.  They have experienced great technological highs over the decades but also had a number of lows as they become almost irrelevant during the explosion of the PC computers and the decline of mainframe computing.  Many felt the end was in sight for “Big Blue” but due to visionary leadership, they were able to turn things around and are now blazing a new trail ahead with cloud technology and creating a “smarter planet” with technology aiding sustainability.

External environmental analysis

P—IBM has partnered with the US Government for decades, starting with managing the Social Security Act of 1935, maintaining employment data for 26 million people.  IBM was later taken over by the US Government during World War 2.  Following the war, IBM maintained contracts with the US Government for decades.  As IBM moved into Cloud technology with the notion of rapid business innovation, they worked in tandem with municipalities as they developed plans for public cloud facilities.  Their focus was a hybrid model, where clients could integrate their private clouds with public infrastructure.  IBM also expanded into the EU university system to collaborate with universities to develop new cloud-related computer science models.  Their focus was on government partnerships.  CEO Sam Palmisano focus forward was clear.  He outlined it in gave a speech to the Council on Foreign Relations with the theme of IBM increasing their public and private investment in creating more efficient system infrastructures to fuel future growth.

E—the economic factors in the external environment was focused on efficiency and sustainability.  Their focus was on building a “smarter planet.”  Since the world was already instrumented (transistors, mobile phones, RFID tags, sensors) and interconnected (2 billion people on the internet), the next step was providing guidance to this enormous global e-business.  Inefficiencies in the energy supply systems; over/under supply of water in different geographical regions; congested highways with air pollution; waste in inefficient supply chains; and the 2008-2010 global financial crisis all played a large role in IBM’s external economic environment.

S—sociocultural factors capture a society’s cultures, norms, and values.  The world has become more focused on a company’s Corporate Social Responsibility (CSR) and the impact they are making in creating a better, more sustainable planet.  IBM was able to assist Stockholm through their smart intelligent infrastructure by reducing traffic 20%; oil extraction technologies could exploit more than the current 20% of available services; smart food systems could trace everything back to the farm level; and smart health care networks were able to lower the cost of therapy by 90%.  These were the sociocultural factors impacting the future direction of IBM and their global CSR.

T—technological factors to create new processes and products.  Amazon was by far the leader in public infrastructure cloud segment and Google was exploding creating huge data centers, fighting copyright restrictions, digitizing the world’s libraries and launching a new browser.  IBM worked in tandem with these technological giants to focus on developing middleware, defined as “in the cloud integration services between as a service offerings.” IBM worked hard at competing with Amazon & Google as well as acquiring smaller companies offering the necessary middleware.  They wanted to create an ecosystem of partners in which every vendor addressed a specific business need so IBM could offer their clients integrated business solutions.  IBM’s proposal of having a “technology-fueled economic recovery plan” was beyond what they could handle at the time.  Growth in technology was the aim and focus of IBM on the horizon.

E—Ecological factors were pollution in the air and over/under supply of water in different geographical regions.  IBM took aim at these inefficiencies to use their smart technology to solve world problems.  Leveraging the biotechnological revolution, they sought to be known for their sustainable objectives.

L—legal environment and regulations for IBM varied based on the government and country they interacted.  IBM entered emerging markets by entering into alliances with local, leading small enterprises.  Their focus was to either acquire small companies or partner with governments to improve their intelligent infrastructure.

Porter’s Five forces—Threat of entry; power of suppliers; power of buyers; threat of substitutes; rivalry among existing competitors.  One of IBM’s founders Thomas Watson allegedly once said there was a world market for maybe only five computers.  He was prophetic in speaking of cloud computing.  The case study states on pC222, “All that was needed was a cloud for consumer applications (Google & Salesforce), a cloud for enterprise applications, two clouds to provide the necessary infrastructure, one to act as a content provider to make the four other clouds work together.”  Cloud service markets ranged all the way from $42billion IDC on the low end to $160billion Merrill Lynch on the high end.  The public cloud-infrastructure was dominated by Amazon with Rackspace in second. Google was a point of reference in the PaaS segment and Enomaly (Elastic Compute Platform) for adapting their preexisting indrastructures to offer cloud services.  Players outside the IT market could enter the market to capitalize on their infrastructures, brand names, and scale and cost capabilities like AT&T and their controlled bandwidth.  The market was wide open for private cloud-infrastructure segment.   The competitive environment was growing and new firms were emerging as substitutes.  Firms likely to become strong cloud players were Microsoft (addressing the PaaS segment); AT&T (using their control and understanding of the telecommunications network); Savvis and Terremark (enterprise level web hosting firms); VMware (vSphere solution in the established enterprise market).

Internal analysis

IBM’s resources were their century long dominance in infrastructures and wisdom in consulting services.  Their focus was to maintain their reputation as a reference point in the industry.  They had staked a claim on almost every emerging cloud front: Software-as-a-Service (SaaS); Platform-as-a-Service (PaaS); Infrastructure-as-a-Service (IaaS), and middleware. They found tremendous success in private clouds or hybrid clouds for its clients to run behind their firewalls.  IBM was a forerunner in the cloud development and by 2010, it began to pay off.  To keep growing its cloud integration capacities, they focused on acquiring more smaller companies offering the necessary middleware.  These newly acquired companies would then act as an ecosystem and value chain focused on working in unison to provide integrated business solutions to clients of IBM.  IBM began to build cloud-computing centers in emerging markets as China, Vietnam, Japan, Brazil, India, Korea, Ireland, Poland, and South Africa.  They would enter these countries through alliances with local, leading small enterprises.  From 2003 until 2007, IBM spent $11.8 billion on 54 acquisitions—36 software and 18 service companies—to grow in their vertical integration.  IBM sold their PC division to have software play an even bigger role offset with their services. VRIO framework–Due to IBM’s focus on vertical integration through acquisitions and their alliances, their cloud technology was valuable; rare (extent of their knowledge & global alliances); costly to imitate; and organized to capture value (global structure of smart infrastructure). Their expertise was built through acquisitions of small companies in the fields of security, data management, and web commerce.  Their most valuable asset could be described as their seamless global enterprise with centers of expertise, each having a hub in a global service network.

Current business level & corporate level strategies

In the future, IBM’s vision was to move to a smarter planet involving cities, regions, and even nations with a technology fueled economic recovery plan.  IBM has focused on introducing new offerings at every level of the cloud infrastructure.  Lotus Live was promoted as the offering for Software-as-a-Service.  Rational, Tivoli, Websphere were offered as Platform-as-a-Service.  Middleware was a major focus of IBM moving forward as they acquired smaller firms with middleware expertise.  IBM’s consulting arm was a major thrust to help clients determine the right cloud formation for them.

Firm’s performance

Profit ratios

IMG_3503 (1)

Gross margin is growing in Global Technology Services, Global Business Services, Software.  Total Revenue declined in 2009.

IMG_3506 (1)

Net Income has been growing since 2002 while IBM’s revenue has fluctuated since 2002 with no major declines.

Activity ratios

 

IMG_3508 (3)

IBM’s Total Assets has fluctuated since 1999 but has grown from $89,571,000 to $109,022,000 in 2009.  The firm seems to be managing their assets well as their focus has changed to cloud technology.

Leverage ratios

IBM’s total debt has maintained a consistent level from $28,354,000 in 1989 to a lower rate in 2009 of $26,099,000.

Their return on Stockholder’s Equity is 80.4% in 2009.  They are in a healthy position.

Liquidity ratios

Current Liabilities/Total Assets.  26,099,000/109,022,000 = 24% of total assets the firm’s current liabilities represent.

Market ratios

IMG_3509

Earnings per share has grown every year since 2003.  This is a great stock to invest in at this point as IBM has grown and expanded their services.

Making the diagnosis

IBM needs to continue with their vertical integration through acquiring smaller firms for their middleware software.  They need to continue to use their acquired companies as a ecosystem of development and focus on their identity as a reference point for the market.  Cloud technology is their future and continuing to expand into sustainability through smaller technology is a winner for them.  As customers desire to partner with companies they can believe and support, IBM would be smart to increase their market in the public and private investment in efficient system infrastructures to fuel future growth.

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