Introduction
In the past years, the International Business Machines (IBM) business organization, under the leadership of chief executive officer Virginia Rometty, has been experiencing a decline in revenue due to low sales in the market. The new management formulated strategies that were different from those of the predecessor, who based the operations of the firm around software, hardware, and services. Rometty, on the other hand, concentrated on cloud computing, mobile, security efforts, and data analytics. Following the change in management style that is from Palmisano’s tactic to the Rometty approach, IBM responded slowly as it lacked a sense of direction. Even though the Rometty method proved vital, the profit margin generated from the strategic operations was low.
Organizational Background
IBM is an international technology company operating in over 150 countries across the globe. The firm has its root in the earlier century before the aspects of electronic computers were discovered. It was formed in 1896 as the Tabulating Machine Company. In 1924, the manager known as Thomas Watson changed the business organization to IBM (“IBM at the Crossroad”, n.d.). Since then, IBM has operated as a manufacturing corporation producing different technological devices. In the early 1960s, IBM became one of the most renowned computer companies in the US where it was chosen to develop computers for the Airforce automated defense system.
The company operates in the information technology industry, offering various items and services to the market. The main products and services being sold by IBM include software, both public and private cloud computing infrastructures, hardware, and IT consulting services (IBM at the Crossroad, n.d.). In the industry, there are several corporations such as Amazon, Google, and Apple Inc. that are providing similar products to consumers in the market.
Situation Analysis
The current situation at IBM is a decline in sales since Rometty took charge as the CEO. The company has focused mainly on offering hybrid cloud computing and other software in the market, leaving other sensitive areas to be dominated by its competitors. IBM, instead of investing in producing its personal computers (PC) like its competitors, retained its mainframe computing not taking into consideration the rapid changes in the market as well as the demands of users. Rometty chose to focus on the three areas she perceived to be disruptive technologies in the future (IBM at the Crossroad, n.d.). The CEO gave much attention to systems of engagement, cloud computing, and big data and analytics. Based on the case study, the current issue facing the company is reduced sales in the market. The firm’s vertically integrated model and the focus on mainframe computing are facing a serious decline. In addition, the future problem that will likely challenge the business organization is innovation.
In the information technology industry, many firms manufacture and distribute the same products that IBM offers in the market. They include Hewlett-Packard (HP), Oracle, and Amazon. The organization’s revenue is approximately $59 billion. HP is well known for its ability to turn research and developments into effective market technologies. Oracle is a renowned company in the industry. The business organization has a net income of about $185 billion. Oracle has established an essential platform that allows the integrating of complementary entities through acquisition. Its distribution channel is strong and it provides satisfactory services to its clients.
The other active player in the sector is Amazon, which provides Amazon Web Services (AWS). Based on this segment, the corporation offers services such as machine learning, storage, analytics, and artificial intelligence. Amazon’s specialization in disruptive technologies enables it to capture a large market share. Over the past years, the company has been experiencing a rise in sales making its total revenue to be about $475 billion (“Yahoo is part of the Yahoo family of brands”, 2022). Its ability to diversify and invest in various segments is giving the firm an added advantage over others.
Competitive Analysis
Table 1: IBM SWOT Analysis
In the industry, IBM leaders maintain a competitive advantage by investing in innovation to develop new platforms that meet the needs of business organizations. Furthermore, the company provides services directly to its clients, thus promoting a close relationship with customers (Mengxi, 2021). The managers tend to form a merger with other small firms to enable them to build their expertise thus enhancing smooth operations in the company.
Porter’s Five Forces
Rivalry
The information technology industry contains a significant number of companies offering the same products and services to consumers. The market share of the firms is not distributed equally. In other words, some organizations have a larger percentage of the sector. To add value to the commodities, the corporation must invest heavily, thus allowing only firms with adequate funds to improve their services. Similarly, the cost of accessing materials and operating the entities is high, making it a challenge for the firms.
The Threat of New Entrants
The entry of new players in the industry poses a significant threat to the already existing firms. The incoming business organizations lower the profit margin as most of the sales reduce. There is no cost for consumers to switch from one entity to another (Wellner & Lakotta, 2020). The aspect makes it easier for the upcoming brands to obtain adequate market share. However, the newcomer must invest a significant amount of money in an advert to compete with an already established brand in the market.
Buyer Power
Generally, the number of buyers in the industry is higher than that of companies. Similarly, consumers do not incur charges while switching firms. The product and services offered have the potential to increase the performance of buyers. Before purchasing some of the products, they require important details on how to use them. These facets give corporations an advantage to manipulate prices and increase them without the influence of clients.
The Supplier Power
In the industry, companies can switch suppliers quickly when they do not obtain the best offers. Labor, materials, and services are standardized to allow the firms to have proper bargaining power. Furthermore, the information technology industry is an essential customer to the vendors. Most business organizations invest heavily in products to enhance efficiency in their operations (Wellner & Lakotta, 2020). The aspect makes the enterprises high bargaining power over suppliers in the sector.
Threat of Substitutes
Substitute is a major concern in the industry because they can lower costs. Most IT products have almost equal prices and their functions are similar. Consumers do not have to incur costs to switch to the other product. These aspects limit the threat of substitutes in the industry and clients are only able to buy and use the available products and services at the prevailing market prices.
PESTEL Analysis
Problem
Based on the IBM case study, the issue is the business strategy being used by the firm which depends on cloud computing, big data analysis, and system engagement. The focus limits the ability of the firm to focus on other active areas that should generate business profit. The probable long-term effect will be a significant decline in the company’s total revenue since the three areas are unable to provide adequate sales.
Alternatives
Manufacturing own PC
To overcome the challenge, IBM should expand its operation to include producing its PC. The approach will enable it to increase its production in the market thus improving sales. The firm’s reputation will allow the product to sell easily.
Expanding its mergers and acquisitions
By increasing its subsidiaries, IBM will be able to cover a large market and increase its awareness. The approach will make it easier to provide the three services to many clients across the globe leading to improved sales.
Manufacture microprocessors
In the industry, the market for microprocessors is performing due to the high demand for the products. By utilizing its research and development capabilities, IBM has the potential to develop effective microchips that can be supplied to its competitors in the sector.
For the firm to implement the above-mentioned alternatives, it must consider the capital required to facilitate the production process. In addition, the company must assess the level of competition in the commodities and how the players perform in the market. At this point, IBM should value picking another approach to enable it to regain its profit margin. The decisions are not optional for the organization and each must be weighed accordingly to make a proper judgment.
In a competitive business environment, a company must link its innovation activities with the business plan. Having such alignment is essential in enabling the firm to work effectively towards its goals. IBM should encourage teamwork and participation of its employees to facilitate the generation of new ideas that have the potential to create value for the enterprise (Das, 2019). Innovativeness, therefore, enables the company to have an array of techniques that can be used to complement the strategic plan. As per the alternative solutions, ethical practice is needed to improve the relationship between IBM and its subsidiaries.
Recommendation and Implementation
In relation to the issue, IBM is facing, the most effective alternative to enable the company to increase its profit margin is the manufacturing of microprocessors. The approach will create an element of diversification in the firm’s operations. Instead of depending on the three core areas, IBM will have the opportunity to generate additional revenue from the sales of microchips. According to the results of the SWOT analysis, IBM has strong research and development techniques that will make it easier to produce effective products for other firms in the market.
Conclusion
In a fast-growing and competitive industry, it is essential for business organizations to formulate effective strategic plans that would allow them to remain proactive and profitable in the market. The choice of IBM CEO to invest heavily in cloud computing, big data analytics, and system engagement was appropriate though it deprived the company of having the ability to compete with its competitors in the industry.
References
Das, D. K. (2019). Exploring perspectives of the information technology industry in a South African city. Sustainability, 11(22), 6520. Web.
IBM at the Crossroad. (n.d.). Case study.
Mengxi, W. (2021). Business culture and strategy–Take IBM as an example. Journal of Sociology and Ethnology, 3(5), 124-130. Web.
Wellner, S., & Lakotta, J. (2020). Porter’s five forces in the German railway industry. Journal of Rail Transport Planning & Management, 14, 100181. Web.
Yahoo is part of the Yahoo family of brands. (2022). Finance.yahoo.com. Web.