Ibm Strategy

IBM and Lou Gerstner

• IBM Had the Best Year in its History Until Then in 1990 (Sales $69 billion, Net Income $ 6 billion) • In 1992, IBM Suffered its Worst Year Ever, Losing $ 5 billion; Akers Removed as CEO by Board of Directors. • April 1,1993, Lou Gerstner Hired From Outside – Services unit was 27 % of revenues and the software unit didn’t even exist

• In 2001, services and software combinedly represented 58% of total revenues • In 2005, major restructuring process took place • More recently, IBM continues to do well with 70% of revenues from software and services

The Challenge of Discontinuous Change • IBM was initially unable to adapt to the paradigm shift from mainframe computers to networked computing; they were aware of the changes, but could not leave behind profitable installed base of legacy systems • Gerstner moved IBM away from a highly vertically integrated company by divesting many divisions; then he refocused the company by concentrating on the customers; • It is now a ‘total solutions’ company and a leader

IBM’s Strategies 

Focus on total and partnered solutions for complex, heterogeneous enterprise requirements



Focus on three primary growth areas:  Services  Cross-platform Software  Unix & Intel-based Servers

SWOT Internal Analysis Strengths • Brand name & Good will • Penetration in high computer hard-wares, high end OS, applications, and specialized software • Valluable intellectual property, software, patents, ideas…. • Talented work force • Heavy spending on Research & Development($ 5.7 Billion) • Solid systems management expertise that can handle large infrastructure projects

SWOT Internal Analysis Weaknesses • High Operating costs • Exodus of talent(they don’t take pain to retain talent) • Service desk area not upto the mark • Time it takes to bring innovation to market

SWOT Internal Analysis Opportunities • Less penetration in large consumer Base economies • Growth in grid-computing products & Open Grid Services Architecture(OGSA) • Reduce cost and IT budgets • Enormous amount of computing power which will reduce processing time

• Opportunities in cloud computing

SWOT Internal Analysis Threats

• New competitors in service market especially in low-cost growth regions • Biggest challenge to IBM is IBM itself

– IBM’s Selling, general and administration costs are higher than that of small companies.

Porter 5 forces analysis

High end jobs  Low Low end jobs  moderate

Moderate ly Low

Low

High

In terms of cost  high In terms of service 

Why IBM Failed ??? Inspite of having a pool of smart, talented people & file drawers full of WINNING STRATEGIES……… yet the company was frozen in place ….The fundamental issue was of

EXECUTION

IBM Moves (2004-2007) (1) • 2004 – Sells PC division to Lenovo – Acquires several software product companies – Revenues = $96.5 Billion

IBM Moves (2004-2007) (2) • 2005 – Revenues dip by 5% – Begins Restructuring to target high growth conutries – Replaces the european management with two integrated teams focused on clusters of countries, breaking fiefdoms – Buys more than 14 companies

Restructuring Process IBM before the restructuring Top heavy, individual countries were run as fiefdoms

IBM after the restructuring

Impact of the restructuring

Manpower and hierarchy Productivity gains of 10in high-cost economies 15 % in delivery and reduced, 6 regions formed support functions

Every contry had its own Support function were Helped in saving $1 Billion delivery and support centralized and delivered in support cost, around $2 functions out of low cost centres Billion in delivery cost Procurement spread Procurement shifted to Improvement in EPS, across countries and china; 100,000 employees enhanced managed out of the US in low-cost countries competitiveness against offshore players Small presence in lowcost but high-growth countries

Market share increase in Supply chain gains were high-growth countries; top huge, target in 2006 was player in BRIC countries $3 billion - $5 billion

Though the company was Operations, delivery, international, it was not supply chains, and even

Savings were used to invest in high-growth

IBM Moves (2004-2007) (3) • 2006 – Revenues up by 4% – Acquired more than 13 companies in the software arena – International investor’s conference in Bangalore  Importance given to Developing Countries

IBM Moves (2004-2007) (4) • 2007

– Revenues up by 8% – Bottom line improves  Low-cost operations became significant – Workforce in low-cost, high growth countries reaches 100,000 – Acquired more than 9 companies – Revenues from GTS & Global Business Services – both of which source much of their talent from India – were $54.4 billion – That’s more than the total revenues of the entire Indian IT services Industry - $47.8 billion

Differentiating Factor • Growth engine for IBM  Application of technology, not its invention • IBM differs from its peers in that it has also developed the local market • IBM looked at BRIC(Brazil, Russia, India and China) countries as both a market and a low-cost delivery option • Monopoly in fast-growing sectors in India such as Telecom, where the three largest companies – Bharti Airtel, Vodafone and Idea • IBM is leveraging its global workforce to compete with younger and more agile rivals

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