Business
IBM Case Analysis
In order to determine the competitive advantage of the IMB corporation (if such in fact exists), it would be reasonable to apply a matrix developed by the Boston Consulting Group. Although originally it was aimed at describing a life cycle of a particular product, it is also applicable to the companies, in general (Proctor, 75).
Companies entering the market may be defined as question marks, as their market share at the beginning is low, and the market growth rate is inessential. If the company develops products and services required by consumers, both the market share and respective growth increase, therefore transferring the company into the category of stars. The growing popularity stimulates to gain more profits and expand the production. Once the market begins to saturate, the company starts to mature, and its products and services become a milking cow, i.e. the source of stable and predictable cash inflow. At this stage, the company (if it is not a monopoly) may face various risks. The competition grows, customers may demand more advanced products, and the present activities of the company are growing somewhat obsolete, both morally and economically. Finally, if there is no further innovation, the company gets into the stage of dogs, its market share declines, as there are more innovative and fierce competitors occupy the niche.
The history of IBM is an accurate example of all four stages. Since its inception until the 1930-ies the company was slowly growing and gaining recognition. During the Great Depression and especially during the World War II it became a prominent star, accommodating the needs of the governmental institutions for computing equipment and data storage infrastructure. The next forty years were the time of the milking cow, as the development of the technologies prevented the market from saturation with competing devices, and the reputation earned in the US allowed the IBM to remain one of a kind. On the brink of 1980-ies, however, the trend for personal computers has emerged, and the IBM failed to notice the threat to its practically monopolistic position on the global market. This resulted in a massive decrease of cash flow, and put the company on the brink of bankruptcy in the early 1990-ies. If things remained unchanged, it might be the end of the corporation, as well as its competitive advantage. However, things took a different turn.
The new management took an unprecedented step and diversified the main product pipeline of the company in favor of maintenance, support and consulting services, followed by a share of financial services as well. Fifteen years later, a new CEO took the course towards cloud computing and data storage, successfully negating numerous and powerful competitors and joining coalition with some of them.
IBM’s performance
On the one hand, it is possible to claim that IBM’s performance was responsive to the firm and industry effects. The company had to follow the market trends in order to stay afloat and fight the shortage of traditional cash flows, including those for the sale and maintenance of the supercomputers. The market started changing rapidly in the 1980-ies due to the introduction of personal computers and peripheral devices by Apple, and within the next 10 years the industry has drastically changed. The IBM was almost too late to join the new competition. While it was unreasonable to try to enter all the new niches, such as software or personal hardware manufacturing, the company did the only possible thing to survive the changes. It continued exploiting the traditional strengths of its products and at the same time performed a large scale diversification. This brings the second side of the medal – yes, the market had a strong impact on the evolution of the corporation, but not in a direct, straight-forward way.
The steps that the new management took in the middle of the 1990-ies might seem illogical or even dangerous at that moment. The company was proficient in IT-related consulting and support, however it was a risk back then to assess that there would be a sufficient market for those services both in the US and abroad. The company took the risk, and it turned out to be a success. One of the factors that contributed to the success was the system of priorities of the newly elected CEO, who claimed it to be more important to be customer-oriented than product-oriented. This shift of approach allowed the company to catch the wave of a new trend, and even the .com bubble of the late 1990-ies did not have a dramatic effect on the cashflow.
Summing it up, the market and the internal processes had a certain effect on the performance of the IBM corporation, but it was not so direct as it might seem to be.
IBM business model
There are several key principles that describe the present business model of the IBM corporation:
Traditional areas of expertise that brought the general recognition and reputation to the IBM still exist. Apart from the US corporations and government agencies, foreign clients also gain access to the products and services of the company. New data centers designed and manufactured by IBM are now in place all around the globe, from Poland to India and China.
IBM relies on wide diversification as a source of profits and no longer puts all eggs in one basket. Apart from production of hardware, the company develops software platforms, cloud infrastructure at local and global scale, it is engaged in a wide array of relevant services – data planning, maintenance, technical and informational support, consulting and financial services.
The company is increasingly diverse, global and efficient in terms of expense management. All or almost all positions that require a high degree of interpersonal communication and do not require a physical presence in the US, have been outsourced to locations with cheaper labor force. This step also made the company closer to the emerging markets and respective growth opportunities.
The company is flexible and adaptive in terms of new trends and technologies. While it got over 10 years behind when personal computers were introduced, it reacted on the cloud technologies quite promptly and successfully adopted the innovation, securing its decent (if not leading) share in the field of IaaS and PaaS.
Business and corporate level strategy of IBM
There are two aspects that correspond to the strategy of IBM. At first, in the 1990-ies, the company applied the strategy of catching up with competitors in terms of market share and diversity of products and services. Over time, however, the company changed the strategy. As it may be deducted from the case, the management of the corporation now insists on the strategy of outrunning, aimed at capitalizing the benefits of the emerging technology of cloud computing using the traditionally strong positions of IBM in large scale hardware and network production.
As of the corporate strategy, new managers of the company might have not been entirely familiar with the nuances of computing, however they all realized the necessity of expansion and simultaneous optimization of expenses. This is the reason the range of services increased together with the number of value generating employees, and at the same time the business operations largely migrated closer to the target markets and cheaper labor pools.
Strategy making process at IBM
Speaking of the strategy making process at the IBM corporation, it may be inferred from the case that the company uses a combination of various elements. Back in a day, before the downfall of the traditional business model, the basis of the managerial decision making was a conservative, hierarchically integrated decision matrix, with a strong influence of the leading figures as well as the semi-transparent external environment. Monopolistic and oligopolistic structures tend to depend on decisions of the few rather than the pluralism of opinions, therefore minimizing the diversity of decision making strategies.
As the company transformed, the strategy of decision making process got more open and complex at the same time. Growth of diverse sectors of the corporation, as well as a dramatic increase of factors influencing its market performance, made in necessary to implement both vertical and horizontal matrices for the purpose of a prompt and adequate response to the changing environment. As it is seen in the late 2000-ies, it is no longer a privilege, but a must for the leaders of the departments to discuss possible strategic steps with their employees, as the process of innovation is too fast, and the general managers can only arrange the overall supervision rather than a monopolistic control over the process of strategic decision making. The CEO outlined the general framework of the innovation, while his subordinates were free to alter it according to the market needs.
This transfer of authority within the framework of the decision making process is indeed a no lesser innovation to the IBM corporation than product diversification or the continuing globalization. On the one hand it may undermine the formal leadership of the corporate executives. On the other hand, in the world of free and aggressive competition and explosive growth of new technologies, this may appear the only option not only for further corporate expansion, but also for the very survival of the corporation that has already made it through the 19th and 20th centuries, and plans to preserve its captaincy in business in the 21st century, as well. According to the presented case, the chances of the company to do so are far above average.
Works cited:
Proctor, Tony. Strategic marketing: an introduction. Routledge, 2014.
