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IBM Company Analysis Research Paper

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Updated: Oct 8th, 2019

Brief Company History

Formally established in 1911, IBM has grown within the past 100 years into one of the largest technology-oriented enterprises in the world to date.

It was one of the first companies to develop the concept of the home personal computer, pioneered the development of the modern-day checkout line through the creation of the laser scanner, is the primary manufacturer of many of the cash registers in operation in grocery stores around the world and is one of the largest suppliers of automated teller machines used in nearly every single bank in operation at the present.

By 2005 the company shifted is operational makeup by selling its personal computer division to Lenovo and instead focused on providing software and hardware-based solutions to other multinational companies and international organizations. This has resulted in the present-day IBM, which is known around the world as a business solutions provider that enables businesses to run more smoothly and efficiently under a technological infrastructure developed by IBM.

Economic conditions

While the 2008 global financial crisis in effect obliterated the profit margins of hundreds of multinational companies around the world, IBM was largely unaffected and by 2009 actually emerged from the crisis with a 20% higher third-quarter income, which amounted to $2.05 per share. This is in stark contrast to the effects of the financial crisis on other technology-oriented firms who experienced billions of dollars in losses during this particular period.

The reason behind why IBM continued to be profitable despite the uncertain financial environment at the time is actually connected to the company relinquishing its production and sale of computer hardware and various devices directly to normal consumers. Instead, the company focused on the creation of software and service products with an emphasis on long term service contracts with corporations, government departments and various organizations.

What you have to understand is that a large percentage of the technology-based corporations that were negatively affected by the 2008 crisis were affected due to a lack of consumer demand for their products.

People were in effect to scared to buy new laptops, computers or other forms of technology-based products as a result of not only the high degrees of unemployment that permeated the market at the time but it was also due to the fact that there was a certain degree of fear in the markets regarding the possibility of job loss.

Since IBM catered directly to corporations, this in effect allowed the company to altogether avoid the slump affecting other technology based enterprises, especially when taking into consideration the long term contracts the company had.

Furthermore, as a direct result of the crisis many companies turned towards the concepts of Six Sigma and lean operations resulting in a distinct shift towards more efficient computer based operations as well as turned towards outsourcing various aspects of their operations to other countries.

This in effect necessitated the creation of newer and better software and hardware infrastructures, which IBM was only too happy to provide during this particular period of time.

On the other hand, it must be noted that as of late IBM has experienced some financial difficulties as many of its clients within Europe have been affected by the debt crisis, which has severely constrained their ability to expand/upgrade their systems. IBM has made up for this though by continuing to expand its outsourced operations within India and the Philippines, which enabled the company to more or less breakeven despite the lack of demand from its European clientele.

Ethical issues

One of the main ethical issues surrounding IBM at the present is its current predilection towards outsourcing various aspects of its internal operations and manufacturing processes to other countries.

While it may be true that companies that are based within the US are not under any legal obligation to ensure that all aspects of their operations remain within the country, the fact is that after IBM received extensive financial assistance in the form of government bailout money from the US government it still chose to fire nearly 5,000 US based employees over the following months and shifted a large percentage of its workforce to overseas operations such as those in India, China and the Philippines.

Given the fact that IBM in effect was helped by US taxpayers the company had the moral and ethical responsibility to at least pay them back to a certain extent by using the bailout money to subsequently increase the number of local jobs within the country.

While it may be true that the company did invest the money into IT infrastructure development which did create some jobs, the fact remains that this was barely felt within the US domestic market and as such calls into question the corporate social responsibility the company should have displayed in terms of actually helping the American people.

Marketing strategies

The gains achieved by IBM within the past 15 years can all be attributed to its marketing strategy of removing itself from direct competition within the currently oversaturated PC market.

Instead, the company has focused on direct business to business sales wherein its primary clients are multinational corporations, government and educational institutions, the airline industry, the food services industry as well as several other industries within the global economy today that rely on the technology, software and consulting expertise of IBM in order to resolve their technology-related issues.

As such, IBM does not advertise in the traditional sense but rather relies on direct business contacts, product roadshows and its reputation as one of the best companies in the world for technology based solutions to gain clients.

Evidence of the effectiveness of such a method of marketing is actually seen by the average consumer on an almost daily basis wherein most of automated teller machines, cash registers, and credit cards readers encountered by a vast majority of the general public are all mostly made by IBM or one of its subsidiaries.

In cases where IBM does do direct marketing campaigns, the advertisements are not directed at the average consumer as seen in the case of numerous advertisements by companies such as Asus, Toshiba, and Apple, which rely on a strategy of presenting how much better their product is compared to their competitors.

Instead, IBM’s marketing strategy revolves around presenting solutions involving software, consulting services and the implementation of a technological infrastructure that would resolve any and all issues a client would have regarding creating an efficient and effective business platform.

There are three components within market orientation that determine how a company will implement a marketing strategy within the competitive environment that it finds itself in:

These components are comprised of the following:

  1. Customer orientation
  2. Competitor orientation
  3. Inter-functional coordination.

When it comes to marketing strategies involving customer orientation, a company utilizes its available resources in gathering data on the needs and behaviors of the consumer segment that it is targeting. The same can be said for competitor orientation marketing strategies however, in this case, it focuses on competitors within the same market instead.

Either method though has a distinct weakness; focusing too much on consumer orientation can actually blind a company to changes in the market or may actually stifle innovation since the company focuses too much on consumer satisfaction rather than changing based on trends.

Focusing too much on competitor orientation, on the other hand, results in too much time and capital being placed on competitive activities, which results in companies at times neglecting their consumer bases and focusing too much on getting ahead of the competition. In the case of IBM, what was done was to focus on a customer-oriented strategy by providing solutions instead of merely software and hardware.

Not only that, the company also avoided the potential pitfall of being blind to changes within the market by in effect taking itself out of the competitive direct to consumer PC market and instead focused on a niche market strategy involving multinational corporations, institutions and other such organizations.

This strategy can be considered a stroke of genius since it enabled the company to further enhance its reputation through better client services, which in effect resulted in additional clients for IBM. The end result of this particular marketing strategy enabled IBM to become the 2nd largest firm within the US based on the number of employees it currently has as well as enabling it to reach the 4 highest position within the US market in terms of the sheer amount of market capitalization it has at the present.

Strengths and Weaknesses

As mentioned earlier, the current strength of the company lies in the fact that it does not provide individual products to consumers but rather sells IT based solutions to its clientele. This can come in the form of a technological infrastructure with long term IT support that ensures a continuous stream of income from such clients as they continue to develop and upgrade their systems in order to keep up with the current pace of technological improvements.

On the other hand, the weakness of the company lies in the fact that as more IT based companies enter into the business to business solutions market, IBM does not have a fall back industry in the form of direct sales of computers to rely on for additional income.

Industry analysis- Necessity for Innovation and the Need to Change Markets

Thamhain (2005) indicates that research and development into new ways of producing and utilizing technology is one of the practices most often seen in technology-intensive enterprises (Thamhain, 2005). This is due to the fact that technology has as of late been under a constantly accelerating level development and as a result, has enabled new players to enter into markets whereas in the past distinct barriers to proper entry would have been present (Thamhain, 2005).

As such, failure to sufficiently innovate along with new technological trends and products can be thought of as a failure on the part of the managerial practices at a company since being able to anticipate trends and use them to either reach greater market penetration or keep the company relevant to consumers is a necessity in today’s technology intensive market economy.

Nowhere is this more evident that in the IT services industry at the present wherein IBM has to directly compete with other business to business service providers such as Oracle, Cisco, Dell and now HP as this company transitions from a consumer-oriented approach to one that focuses primarily on selling to various businesses and organizations.

Of particular concern within this particular industry are the possible long term implications of a prolonged economic recession within the US, especially when coupled with the debt crisis within Europe, which are two of the main markets of technology-oriented enterprises such as IBM.

The main problem with consumer markets in economies such as those within the US, Europe and the Middle East is the fact that consumer spending is at an all-time low which has resulted in the current economic downturn since consumer spending is the primary basis of economic recoveries or recessions (Keller & Kotler, 2009).

Unfortunately, the inherent problem with the current situation is that it creates a vicious cycle wherein low consumer spending results in companies reducing various aspects of their operational capacity (i.e., manufacturing of products, low-level employees, etc.) in order to remain in business which results in even lower consumer spending since people don’t have jobs to support themselves anymore (Putting the air back in, 2008).

An example of the effect of such behavior by major corporations can be seen in the US wherein up to 8% percent of the population is unemployed due to workforce cutbacks employed by various companies in an attempt to continue to remain viable despite lackluster local demand (The End of Free-Trade Globalization, 2010).

Another global factor that should be taken into consideration in regards to this particular industry is the current debt crisis in Europe that was brought about through not only the reckless actions of various banks within region (as seen in the case of Ireland) but also through government mismanagement of finances (seen in the case of Greece) and exposure to a reckless housing market (the case of Spain) (Candelon & Palm, 2010).

In fact when examining the sheer scale of the problem with the European Union possibly having to bail out not only Greece and Ireland but Spain and Italy as well this creates a chaotic economic environment which has the possibility of spilling over into the US should the EU bailouts prove to be in effective (Candelon & Palm, 2010).

While IBM was able to escape relatively unscathed from the economic crisis and was actually able to increase its profits, such a situation may not necessarily repeat itself given the potential for its two largest markets in effect entering into another prolonged recession, which would definitely affect its consumer base.

One avenue of approach that has been implemented as of late by companies such as IBM has been to shift resources towards foreign markets that have not been as adversely affected by the current economic downturn and focus efforts there instead of in cathartic local markets.

Asian markets such as those within China and the ASEAN (Association of South East Asian Nations) present themselves as viable consumer markets due to the fact that despite the slowdown of various western economies, eastern economies have actually grown on average by five to eight percent annually.

As such, the new strategy of companies within this industry to continue to sell products and services despite the current global economic situation has been to shift gears and actually sell in locations where consumers are willing to spend and at the present this takes the form of Asian markets.

Financial Situation of IBM (numbers are set in millions)

An examination of the latest financial statements from IBM reveal a rise in revenue from $99,870 in 2010 to $106,916 in 2011, which is equivalent to a 2 to 3 percent increase in overall revenue. This is a particularly positive outcome, especially when examining the stock price of the company, which rose from $146.76 in 2010 to $183.88 in 2011.

When combined with an overall increase in employees from 426,751 in 2010 to 433,362 in 2011, this is indicative of the fact that the company is doing well financially and even shows that the company is expanding its various operations. Evidence of this expansion can be seen in the growth of IBM’s call centers within the Philippines, which resolves the customer service concerns of a variety of US based companies such as Sprint.

Recommendations to improve Organizational Performance

Management practices in some of today’s technology-oriented organizations (such as IBM) need to facilitate better collaboration and communication between global teams despite the distances and diverse cultural differences involved.

This means facilitating new means of cooperation through team exchanges (members of one team visiting the other), implementing means of open communication and conceptualization between the two teams at all times and facilitating better cooperative practices through the development of cultural understanding regarding how particular business cultures work over diverse locations.

It is only through this that effective practices can be implemented, which result in the characteristics mentioned earlier that are deemed necessary for a technology-oriented company to survive and to thrive.

Reference List

Candelon, B., & Palm, F. (2010). Banking and Debt Crises in Europe: The Dangerous Liaisons. De Economist (0013-063X), 158(1), 81-99. Web.

Keller, K., & Kotler, P. (2009). Marketing management. (13th ed.). New York: Pearson/Prentice Hall. Web.

Putting the air back in. (2008). Economist, 389(8604), 79-80. Web.

Thamhain, H. (2005). Management of technology. New Jersey: John Wiley & Sons. Web.

The End of Free-Trade Globalization. (2010). Nation, 291(21), 20-25. Web.

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