Introduction
International Business Machine [IBM] is a public limited company, which operates within the global Information Technology industry. The firm deals with the provision of diverse information technology products and services.
Some of the services that the firm offers include outsourcing, integrated technology and business transformation outsourcing, and consulting services. In an effort to maximise profits, IBM has incorporated the concept of internationalisation.
This move has enabled the firm to venture in different markets. One of the markets that IBM has ventured into is Australia. The firm has managed to attain an optimal market position in Australia despite the intense competition.
However, the lucrative nature of the Australian IT industry is attracting numerous entrants and thus it has become critical for IBM to improve its competitiveness. The objective of this paper is to conduct an internal and external environmental analysis of IBM.
In analysing the firm’s external environment, the paper takes into account two models, which include the PEST and porter’s five forces. On the other hand, the SWOT analysis and value chain model are used to evaluate the internal environment.
Findings of the analysis reveal that IBM is faced by various threats emanating from the external environment despite it internal strengths. Therefore, to develop its competitive advantage in its Australian market, the paper recommends that IBM should consider improving its competitive strategies.
One of the ways through which the firm can achieve this goal is by investing in new market segments and creating increased market awareness.
Analysis of the macro-external environment
Pest analysis
In their operation, a wide range of external factors affects businesses. Some of these factors emanate from the political, social, economic, and social environments.
Political environment
Businesses face a wide range of threats and opportunities emanating from the political environment. However, the degree of threats and opportunities is relatively high for multinational companies such as IBM due to political differences across the different countries of operation (Mouncey 2007).
In the face of the present global economic challenges, governments are increasingly considering improving their political environment in an effort to promote businesses in different economic sectors. The political environment in Australia has been relatively stable.
A report by the IMD World Competitiveness Yearbook 2010 ranked Australia fourth with regard to political stability during the last decade.
The political stability in Australia has significantly improved the country’s rating as an investment destination. Given the political stability in the region, IBM has managed to operate successfully in Australia.
The Australian government has also implemented well-developed Intellectual Property Rights (IPRs) such as copyright laws and patents, which aim at protecting business innovations and trade secrets. Therefore, Australia has managed to promote international investment successfully.
In an effort to promote international trade for companies within its borders, the Australian government entered the Australian-New Zealand Free Trade Agreement. This move has significantly ameliorated trade relations between Australia and New Zealand.
Economic environment
The occurrence of the 2008/2009 economic recession adversely affected the global ICT industry. Most consumers changed their consumption patterns by shifting their spending to necessities. Consequently, there was a significant decline in consumption of Information Communication Technology products (Williams 2008).
Findings of a study conducted by a renowned research firm, IDC, reveal that there is a high probability of the Australian economy experiencing another recession.
In the event that Australia slides into another recession, IBM’s revenue might decline given that consumers will definitely cut down their consumption of IT products.
Social-cultural environment
Currently, the social environment is undergoing a significant transformation. One of the most notable transformations hinges on the fact that consumers, organisations, and individuals are increasingly adopting computer technology in their operations and consumptions (Neeraja 2003).
The growth in the Australian population has resulted in an increment in demand for ICT products, such as hardware and software.
A study conducted by Nielsen reveals an increment in demand for devices supporting mobility. Most Australian consumers are currently accessing the Internet through personal computers and mobile phones (Perry & Nichols 2011).This means that there is a high probability of IBM increasing its hardware and software sales.
Technological environment
Over the past few decades, the Australian Information Communication Technology industry has become one of the most attractive investment destinations. The resultant effect is that most ICT companies are considering venturing into the industry in an effort to maximise their profits.
In an effort to remain competitive, most firms within the Australian ICT industries are investing in research and development. This move presents a threat to firms within the industry through introduction of new technology.
Despite this, IBM has positioned itself as the trendsetter with regard to IT automation and development of new technology. IBM has to undertake research and development continuously to improve its competitive advantage. This aspect will significantly reduce the probability of its rivals claiming its market share (Perry & Nichols 2011).
Porters’ five forces
Buyer bargaining power
Buyers within the ICT industry can be categorised into two groups. The first group is composed of customers who seek low-cost service and products, while the other group is constituted of customers whose demand is inclined towards leading edge ICT products.
The leading edge customers purchase from few dealers and are ready to pay a premium. On the other hand, the low-cost service and product market is characterised by a mature market and a relatively high number of suppliers.
In its Australian market, IBM has positioned itself within the leading-edge market segment. As a result, the buyer bargaining power is low.
Supplier bargaining power
The supplier bargaining power in the Australian Information Technology industry is relatively low. This arises from the fact that the Australian government has established open standards that give customers an opportunity to migrate their data across competitor platforms.
The large number of suppliers of IT products and business consulting services means that it is impossible for IBM to force customers to use its products exclusively.
Threat of new entrants
In its operations, IBM mainly specialises in business consulting and Information Technology products. The two market segments in Australia have become very lucrative. In an effort to exploit the market opportunity presented, new firms are increasingly considering entering into the industry. consequently, the threat of entry is relatively high.
Threat of substitute
The Australian ICT industry is characterised by medium threat of substitute products. Firms operating in the industry are relatively smaller when compared to the giant IBM. However, there is a high probability of increased threat of substitute due to ease of entry into the market.
Despite the ease of entry, it is difficult for small firms to grow and sustain a high competitive advantage. Additionally, the high rate at which firms within the Australian ICT industry are investing in research and development will lead to increased introduction of new products and services into the market (Perry & Nichols 2011).
Competitor rivalry
IBM faces intense competition in its Australian market. Its top competitors include Microsoft Pty. Limited, HP-Enterprise Services Limited Liability Company, and Hewlett-Packard Australia Pty Limited (Yahoo Finance 2012).
However, IBM has managed to develop a large market share within the leading-edge information technology products market segment. To counter the intense competition, IBM has set the standards for Information Technology products and services in the market (Perry & Nichols 2011).
Analysis of the internal environment
Since its establishment, IBM has continuously been the market leader with regard to provision of IT services. Being a market leader significantly improves the competitive position and brand image of a particular company (Stone 2008).
SWOT analysis
Strengths
IBM is ranked as the market leader with regard to provision of information technology products and services. Additionally, the competitive nature of the global IT industry has increased the firm’s commitment towards research and development over the years.
To enhance its competitiveness in Australia, IBM opened a new research and development laboratory at Melbourne.
In line with the government’s commitment towards promoting the country’s economic growth through integration, the Australian Federal government contributed $ 22 million to aid in the establishment of the laboratory. Consequently, IBM has managed to nurture its research and development competences (Karena 2011).
In an effort to protect its innovation, IBM attaches high value on intellectual property rights (IPRs). IBM protects its business ideas and products using patents and copyrights. The firm’s strengths also hinge on the fact that it has a strong and talented human capital.
Weaknesses
Since its inception in 1932, IBM Australia has continuously maintained a large human resource base. This element presents a challenge to the firm with regard to addressing its customer’s wants. Additionally, its large employee base makes the firm to incur high operating costs.
Opportunities
The high rate of globalisation presents numerous market opportunities for IBM to exploit. For example, venturing into other markets within the Asia-Pacific region and developing new IT products and services will significantly safeguard the firm against financial fluctuations arising from possible economic recession.
There is also a high probability of IBM improving its competitive advantage by investing in research and development (Novak 2012).
Threats
In its Australian market, IBM faces intense competition from other companies such as Microsoft, HP-Enterprise Services, and Hewlett-Packard. Another potential threat is the firm losing its sensitive information to hackers. This threat can adversely affect the firm’s competitiveness by losing its trade secrets.
The firm’s dependence on Microsoft to secure certain services means that it would suffer adversely the event that Microsoft experiences a problem in the market (Novak 2012).
Value chain analyses
A second way to evaluate the internal environment of an organisation is by conducting a value chain analysis, which was developed by Michael Porter. Value analysis entails a comprehensive evaluation of organisations activities to determine its effectiveness in offering high quality products and services to its clients (Schermerhorn 2010).
IBM operations fall in two main categories based on the Porter’s Value Chain. The first category entails the primary activities, which mainly relate to production activities.
The other category underscores support activities, which include the various support activities that happen in the background. The support activities are paramount in any business operation.
Inbound activities
IBM is committed towards developing a strong competitive edge with regard to provision of high quality products and services. To achieve this goal, IBM has formulated comprehensive procurement policies that the procurement department should adhere to in the process of sourcing raw materials.
One of the ways through which the firm has managed to implement these policies effectively is by instituting an effective inventory control mechanism. Additionally, IBM has automated its inventory processes in an effort to ensure that it does not run out of stock.
Operations
Considering the dynamic nature of the IT industry, IBM has invested significant amount of money in research and development. This move is illustrated by the recent investment in a new research and development laboratory in Melbourne.
Such investment in research and development has gone a long way in ensuring that rival companies do not copy its products. Additionally, investment in research and development have enabled IBM to address the changes in demand for IT products by being innovative.
Outbound logistics
Development of a product or service cannot be beneficial to the firm unless it reaches the target customer (Lai & Cheng 2009). IBM has managed to develop an effective distribution network by incorporating both direct and indirect distribution channels.
Considering the sensitive nature of IT products, IBM’s indirect distribution channel is composed of certified dealers. With regard to direct distribution, IBM embraces the concept of e-commerce in an effort to reach online customers.
IBM has implemented a technology known as WebSphere Commerce, which enables the firm to support various business models such as B2B, B2C, and B-2-B-2-C (Schermerhorn 2010).
Marketing and sales
Firms have to create sufficient market awareness for their products and services in order to generate sales. IBM appreciates that customers have diverse needs and wants (Hill 2012). IBM prides in a portfolio of products and services through continuous innovation and research and development (Perry & Nichols 2011).
The management team of IBM is cognisant of the fact that creating market awareness is the first step towards generating sales. As a result, the firm has adopted Integrated Marketing Communication in its marketing processes. IBM has integrated various mediums of creating market awareness through advertising.
The firm uses both emerging and traditional advertising mediums such as print media like magazines and newspapers, radio, and television. The firm also undertakes outdoor advertising through billboards.
With regard to emerging mediums, the firm has integrated emerging social communication networks such as Facebook, YouTube, MySpace, and Twitter (Samson & Daft 2011).
In its marketing efforts, HP has adopted the concept of Integrated Marketing Communication (IMC) (Samson & Daft 2011). This entails use of traditional and emerging marketing communication methods (Samson & Daft 2011).
For example, the firm undertakes advertising via various mediums such as the television, radio and outdoor advertising such as use of billboards. In addition, HP has also integrated online advertising through various social networking tools such as Facebook, Twitter, MySpace, and YouTube.
After sale services
As a profit making entity, IBM is committed towards nurturing a strong customer base. Consequently, the firm offers its customers a number of after sale services. For example, the firm has established a call centre, which aims at serving customers in case of any complaint or question.
Incorporation of after sale services allows IBM to provide its customers with the necessary technical support. Additionally, IBM offers its customers warranties for the products and services purchased.
Recommendations
The SWOT analysis shows that there is a high probability of IBM enhancing its competitiveness. To achieve this goal, IBM should incorporate certain alternative strategies in order to nurture its competitive advantage.
This idea is well illustrated by the Quantitative Strategic Planning Matrix (QSPM). The chart below illustrates IBM’s QSPM.
The QSPM model analyses two main alternative strategies that the firm should consider in order to promote its competitiveness.
These include venturing into the hand held computer market segment and improving its market awareness strategies. Based on the QSPM model, the two strategies are worth for the firm to implement.
Considering the fact that the Asia-Pacific region passes as an emerging market, IBM should consider developing its competitiveness in order to exploit the market opportunity presented. IBM should consider integrating the concept of market diversification to succeed in venturing in the handheld personal computer market segment.
In its diversification strategy, the firm should integrate the focus strategy. This strategy will enable the firm to identify a market niche for hand-help PC’s. Such a strategy will enable the firm to establish a new market niche within the Australian market. The resultant effect is that, the firm’s competitiveness will improve significantly.
In its focus strategy, IBM should focus on differentiation, which will enable the firm to address the specific needs of the customers effectively. Moreover, IBM should conduct a comprehensive consumer market research to differentiate its products effectively.
In improving its market awareness, IBM should consider adopting both traditional and emerging market communication strategies. This strategy will increase the probability of the firm reaching the various customer categories.
Conclusion
Evidently, the Australian government is committed at steering the country towards higher economic and development given that the country has maintained political stability for a considerable duration.
The government is also committed at promoting investment in the IT sector by instituting intellectual property rights that protect individual and organisational innovation. IBM should take advantage of the IPRs and invest in development of new products in order to develop a higher competitive advantage.
The demand for the firm’s products will increase given the fact that the country is recovering from the 2008-2009 recession. Opportunity for IBM increasing its competitiveness also depends on the social transformation whereby consumers are adopting technology in their purchasing process.
Additionally, IBM should invest in research and development continuously. This move will enable the company to counter the dynamic nature of the IT sector. Additionally, conducting a continuous market research will significantly improve IBM’s understanding of the industry.
An evaluation of the firm’s internal operations reveals that IBM is very effective in implementing operational strategies, which is well illustrated by the firm’s SWOT analysis and value chain. The firm’s strengths and a well-implemented value chain allow the firm to generate substantial profit margins.
Venturing into new market segments within the IT sector and investing in market awareness will improve the firm’s competitiveness in the market.
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