University of Jordan Faculty of Business Strategic Management

International Business Machines

Strategic Ananlysist

Prepared by Fathi Salem Mohammed Abdullah

!!"

#able of $ontents #opics Page % & ' ( ) ) * " ++ + +% +' +( +) +) +* +

Introduction and brief history of IBM Vision, Mission, Value Porters Five Forces Framework PES E! Framework E"ternal #udit $PM%$om&etitive Profile Matri" E"ternal Factor Evaluation 'EFE( Matri" Financial )atio #nalysis Internal #udit Internal Factor Evaluation 'IFE( Matri" S*+ Matri" SP#$E Matri" ,rand Strate-y Matri" he Boston $onsultin- ,rou& 'B$,( Matri" he Internal%E"ternal 'IE( Matri" he .uantitative Strate-ic Plannin- Matri" '.SPM( )ecommendations )eferences

,ntroduction- Brief History of IBM:

In /001 2erman 2ollerith, a statistician for the 3S Bureau of $ensus formed the abulatinMachine $om&any and homas 45 *atson became its leader in /6/7 and made the com&any slo-an 8 hink95 It chan-ed its name to International Business Machines 'IBM( in /6:;5 It was taken by the 3S -overnment at the be-innin- of *orld *ar II in the war effort and -iven a one &ercent &rofit, which it used to fund war victims and or&hans5 <urin- the &eriod between /6/= and /61=, it develo&ed &roducts from &unch%card tabulatinmachines to room%si>ed calculators to mainframe com&utin- systems for lar-e enter&rises and chan-ed the nature of accountin-, calculation and basic back%office business &rocesses5 In the /6?=s and 0=s, IBM &roduct lines e"&anded from its traditional mainframes to minicom&uter and &ersonal com&uters and a&&lications moved from backend o&erations to de&artmental o&eration5 In /60/, the com&any introduced the IBM Personal $om&uter or P$, allowin- the use of com&uters in schools, homes and businesses5 $om&onents for the com&uter were sourced from outside the com&any5 he &rocessor chi& came from Intel and the o&eratinsystem, called <+S '<isk +&eratin- System(, came from Microsoft5 IBM introduced the hinkPad in /66:, the first in a series of notebook com&uters to be manufactured by the com&any5 In /667, IBM ac@uired !otus <evelo&ment $or&oration and ivoli Systems5 In /66?, IBM demonstrated com&utin-s &otential with <ee& Blue, a A:%node IBM )SB1=== SP com&uter &ro-rammed to &lay chess on a world class level5 <urin- the nineties, with the Internet and o&en standards, IBM embraced the network com&utin- model and coined 8ebusiness9 to describe how network com&utin- can transform core businesses and transactions5 In +ctober :==:, IBM ac@uired Pw$ $onsultin-, the -lobal mana-ement consultinand technolo-y services unit of Price*aterhouse$oo&ers5 IBM sold most of its hard disk drive o&erations to 2itachi in <ecember :==:5 he sale involved the creation of a Coint venture called 2itachi ,lobal Stora-e echnolo-ies, which was ?=D%owned by 2itachi5 In :==A, IBM )esearch launched +n <emand Innovation services, which teamed customers with a team of researchers who s&eciali>e in business transformation and technolo-y
3

consultin-5 +ver one billion will be s&ent over the ne"t three years and will be staffed with :== IBM research consultants5 oday, IBM is by far the lar-est information technolo-y in the world and the ei-hth lar-est com&any in the world5 In :==A, it had revenues of 3S E065/ billion, a net income of ;5A:, more than A11,=== em&loyees in /?= countries with a&&ro"imately si"ty &ercent of revenues -enerated outside the 3nited States5

.ision Breakthrou-h micro&rocessor architecture that &uts broadband communications ri-ht on the chi&.1 Mission #t IBM, we strive to o&erate in the invention, develo&ment and manufacture of the industryFs most advanced information technolo-ies, includin- com&uter systems, software, stora-e systems and microelectronics5 .alues *e translate these advanced technolo-ies into value for our customers throu-h our &rofessional solutions, services and consultin- businesses worldwide5:

Porter/s Five Forces Frame0or1-

#he #hreat of 2ntrantshe threat of entry is low because the costs of )G<, su&&ort &roducts and services, manufacturin-, and distribution are very hi-h5
1

www%A=;5ibm5com manonamission5blo-s&ot5com

Bargaining Po0er of Buyershe &ower of buyers is hi-h because the switchin- costs for buyers are lowH there are also many &roduct choices for the buyers5 Bargaining po0er of suppliershere are two bi--est &rocessor su&&liers in the world who have very stron&ower on the chi& su&&lyin-5 2owever, the &ower of su&&lier for other low re@uired materials and &arts is lower than the main su&&liers5 #hreat of Substitutes he web hostin- business of other com&anies and some advanced devices and com&uters could cause threat of substitutes5 $ompetitive 3ivalryhe stren-th of com&etition in this industry is very hi-hH the main rivals are 2P, Microsoft, <ell, and FuCitsu Siemens $om&uters, they com&ete with international, national, re-ional, and local

P2S#24 Frame0or1Political:
In -eneral international o&erations are hi-hly influenced by the -overnmental &olicies and their laws, but in this case there is little effect because most of countries are lookin- for develo&ments and new technolo-ies5
5

2eavy ta"es in some countries make IBM increase its &roducts &rice5

Economic:
-

Iational -rowth rates5 Fuel Prices5

Social:
Positive customersF &erce&tion toward new technolo-y around the world5 Increase in &o&ulation and internet users5

echnolo-ical
-

#dvanced technolo-y develo&ment5 Internet Increase numbers of com&anies that need E)P systems

Environmental:
IBM made the some of the maCor technolo-ies like to trace weather throu-hout the world5

!e-al:
$yber &rotection and the chemical the use in makin- hardwareH like carbon, -ermanium, and silicon $urrency e"chan-e !e-al re-istration for their business outsourcin- facilities5

25ternal Audit
Opportunities Threats

/5

Video -ame console market revenue is &roCected to reach E/: billion in :==0 and E11 billion in :=/:5 he I market in )ussia, India, Bra>il, and $hina are e"&ected to -row twice as fast as in the rest of the world5 Mobile &hone markets are e"&ected to -row by 6D in :==0J5 2andheld com&uters markets are e"&ected to -row by A:D in :==05

/5 $om&etitors are stron-5 :5 Economic fluctuation could crim& consumers s&endin-5 A5 Small G Medium business demand fails to accelerate5

:5

A5

;5

$PM6$ompetitive Profile Matri5

IBM Critical Success Factors Price Financial Position Advertising Innovation Market Share Manageme nt lo!al E"#ansion Total Weight Rating Weight ed Score 0.36 0.45 0.20 0.88 0.66 0.40 0.30 3.25 MSFT Rating Weight ed Score 0.36 0.45 0.30 0.66 0.88 0.40 0.30 3.35 HPQ Rating Weight ed Score 0.48 0.30 0.40 0.66 0.44 0.30 0.30 2.88 EDS Rating Weight ed Score 0.36 0.30 0.20 0.44 0.44 0.30 0.30 2.34

0.12 0.15 0.09 0.22 0. 22 0.10 0.10 1.00

3 3 2 4 3 4 3

3 3 3 3 4 4 3

4 2 4 3 2 3 3

3 2 2 2 2 3 3

25ternal Factor 2valuation 72F28 Matri5 Key E"ternal Factors *ei-ht

7

)atin-

*ei-hted

Score Opportunities
1. Video game console mar et re!en"e is #ro$ected to reach %12 &illion in 2008 and %66 &illion in 2012 2. 'he (' mar et in R"ssia) (ndia) *ra+il) and ,hina are e-#ected to gro. t.ice as /ast as in the rest o/ the .orld 3. 0o&ile #hone mar ets are e-#ected to gro. &1 92 in 2008 4. 3andheld com#"ters mar ets are e-#ected to gro. &1 322 in 2008
0.20 3 0.60

0.10

0.40

0.15

0.45

0.15

0.45

Threats
1. ,om#etitors are strong 2. 4conomic /l"ct"ation co"ld crim# cons"mers5 s#ending 3. Small 6 0edi"m &"siness demand /ails to accelerate
Total 0.20 0.10 0.10 1.00 2 2 3 0.40 0.20 0.30 2.80

Financial 3atio Analysis + 9 !!(

8

:ro0th 3ates ; Sales '.tr vs year a-o @tr( Iet Income 'L < vs L <( Iet Income '.tr vs year a-o @tr( Sales '7%Lear #nnual #v-5( Iet Income '7%Lear #nnual #v-5( <ividends '7%Lear #nnual #v-5( Price 3atios $urrent PBE )atio PBE )atio 7%Lear 2i-h PBE )atio 7%Lear !ow PriceBSales )atio PriceBBook Value PriceB$ash Flow )atio Profit Margins ,ross Mar-in Pre% a" Mar-in Iet Profit Mar-in 7Lr ,ross Mar-in '7%Lear #v-5( 7Lr Pre a" Mar-in '7%Lear #v-5( 7Lr Iet Profit Mar-in '7%Lear #v-5( Financial $ondition <ebtBE@uity )atio $urrent )atio .uick )atio Interest $overa-e !evera-e )atio Book ValueBShare ,nvestment 3eturns ; )eturn +n E@uity )eturn +n #ssets )eturn +n $a&ital )eturn +n E@uity '7%Lear #v-5( )eturn +n #ssets '7%Lear #v-5( )eturn +n $a&ital '7%Lear #v-5( Management 2fficiency IncomeBEm&loyee

,BM 656= /=57= /;5== ;5== /;5AA :=57: /75/ :151 /A51 /57: 75A= I# ;:5: /;5? /=51 A651 /:56 65= /5:; /5/ /5/ :/51 ;5: :=57? A151 65A /75A :051 ?56 /:5; I#
9

,ndustry //5?= :656= ::5;= ?51A ?510 /=566 /15/ ::5A 05/ /5A: ;5/6 75:= A75: //50 050 AA51 65A 151 =5?? /5: /5/ //51 A5A /?5;6 :?50 05? /;5? /657 15: /=5= /0,A0?

SP6'!! 65== /75;= =56= /A5=7 /6500 /=5=A ::56 ::5? 15? :5;6 A57A /=5;= AA5? /?57 /:5; AA5; /151 //57 /5:; =56 =5? ;:5A ;5: /157= :/5A 750 ?50 /75; 75= 15? 7:,:;=

)evenueBEm&loyee )eceivable urnover Inventory urnover #sset urnover <ate /:B=? /:B=1 /:B=7 /:B=; /:B=A <ate /:B=? /:B=1 /:B=7 /:B=; /:B=A Avg= P92 /;5?= /A5?= /?5== :=5?= ::5?= Boo1 .alue9 Share E:=57? E/056: E:/5=A E/65:1 E/15;;

I# A5/ I# =56 Price9Sales /576 /517 /5;? /5?7 /50A <ebt92?uity /5:; =50= =510 =5?: =507

:10,:7: ;56 ;5? /5= Price9Boo 1 75:1 75/A A56/ 75/: 751; 3@2 7;8 A151 AA5= :;5/ :A5? :A51

;:;,1:1 /:50 757 =51

>et Profit Margin 7;8 /=57 /=5A 050 ?50 ?5; 3@A 7;8 05? 65/ ?51 150 15A ,nterest $overage ::5/ ;:56 ;/51 165: 7657

>et Aorth Analysis + 9 !!( 7in millions8 StockholdersF E@uity M ,oodwillN :0,7=1M/:,07; Iet income " 7 N 6,;6: " 7 Share &rice N //=BEPS 15:1:NE/?57? " 6,;6: Iumber of Shares +utstandin- " Share &rice N /,7=15;0"//= Method Average /5 :5 A5 ;5 E;/,A1= E;?,;1= E/11??;5; E/17?/:50 E/=7,A:150

,nternal Audit
10

Strength
/5 IBM revenues increased ? &ercent to 1656:E5billion in :==15 :5 # uni@ue a&&roach to en-a-e their em&loyees in an online intranet usinits 4am technolo-y5 A5 Stron- strate-ic &lannin- to be an innovation%centric -lobally inte-rated cor&oration5 ;5 IBM o&erates in /?= countries with about 1= &ercent of its revenues bein-enerated outside the 3S5 75 IBM concentrated on becominstron-er in hi-h value added businesses5 15 IBM ranked number / hosted service &rovider in *estern Euro&e5 ?5 IBM is su&ercom&utin- leader as &rovider of A7 of the worldFs /== most &owerful su&ercom&uters5

Weakness /5 <eclinin- in revenues of services and systems se-ments in :==15 :5 <ecline in revenue of &ublic, industrial, small and medium business industries in :==1 by 651D5 A5 <ecline in revenues in #sia Pacific area by 75?D5 ;5 otal assets are -radually decreasin- from /=6M to /=AM in :==15

,nternal Factor 2valuation 7,F28 Matri5

11

Key Internal Factors Strengths

/5 IBM revenues increased ? &ercent to 1656:E5billion :5 # uni@ue a&&roach to en-a-e their em&loyees in an online intranet usin- its 4am technolo-y A5 Stron- strate-ic &lannin- to be an innovation%centric -lobally inte-rated cor&oration ;5 IBM o&erates in /?= countries with about 1= &ercent of its revenues bein- -enerated outside the 3S 75 IBM concentrated on becominstron-er in hi-h value added businesses 15 IBM ranked number / hosted service &rovider in *estern Euro&e ?5 IBM is su&ercom&utin- leader as &rovider of A7 of the worldFs /== most &owerful su&ercom&uters

Weight

Rating

Weighted Score

0.10

0.40

0.06

0.18

0.06

0.18

0.10

0.40

0.10

0.40

0.10

0.40

0.12

0.48

Weaknesses
1. 7eclining in re!en"es o/ ser!ices and s1stems segments in 2006 2. 7ecline in re!en"e o/ #"&lic) ind"strial) small and medi"m &"siness ind"stries in 2006 &1 9.62 3. 7ecline in re!en"es in 8sia 9aci/ic area &1 5.72 4. 'otal assets are grad"all1 decreasing /rom 1090 to 1030 in 2006 Total 0.08 2 0.16

0.08

0.16

0.10 0.10

2 2

0.20 0.20

1.00

3.16

12

SA@# Matri5

13

Strengths

$eaknesses 1. 7eclining in re!en"es o/ ser!ices and s1stems segments in 2006. 2. 7ecline in re!en"e o/ #"&lic) ind"strial) small and medi"m &"siness ind"stries in 2006 &1 9.62. 3. 7ecline in re!en"es in 8sia 9aci/ic area &1 5.72. 4. 'otal assets are grad"all1 decreasing /rom 1090 to 1030 in 2006.

/5 IBM revenues increased ? &ercent to 1656:E5billion in :==15 :5 # uni@ue a&&roach to en-a-e their em&loyees in an online intranet usin- its 4am technolo-y5 A5 Stron- strate-ic &lannin- to be an innovation%centric -lobally inte-rated cor&oration5 ;5 IBM o&erates in /?= countries with about 1= &ercent of its revenues bein- -enerated outside the 3S5 75 IBM concentrated on becominstron-er in hi-h value added businesses5 15 IBM ranked number / hosted service &rovider in *estern Euro&e5 ?5 IBM is su&ercom&utin- leader as &rovider of A7 of the worldFs /== most &owerful su&ercom&uters5

Opportunities 1. Video game console mar et re!en"e is #ro$ected to reach %12 &illion in 2008 and %66 &illion in 2012. 2. 'he (' mar et in R"ssia) (ndia) *ra+il) and ,hina are

S-O Strategies 1. 4ntering the !ideo game console mar et &1 #rod"ce !ideo game console) :S5) ;1<. 2. 4ntering the mo&ile #hone mar et) :S5) ;3<. 3. 4ntering the 143andheld com#"ters mar et) :S5) ;4<.

W-O Strategies

1. (ncreasing mar eting e//orts into 8sia

9aci/ic) :W3) ;3<.

SPA$2 Matri5
Financial Strength Ret"rn on assets >e!erage ?et (ncome 49S R;4 ,ash @lo. 8!erage %ating 6 5 5 5 5 6 5.33 Environmental Sta!ilit& Rate o/ in/lation 'echnological changes 9rice 4lasticit1 o/ demand ,om#etiti!e #ress"re *arriers to entr1 ne. mar ets Ris in!ol!ed in &"siness 8!erage A=a-is Competitive A vantage 0ar et share 9rod"ct C"alit1 ,"stomer >o1alt1 ,ontrol o!er other #arties 'echnological no.=ho. !ating =2 =2 =2 =2 =2 "n ustr# Strengt$ Bro.th #otential @inancial sta&ilit1 4ase o/ entr1 ne. mar ets Reso"rces "tili+ation 9ro/it #otential 7emand !aria&ilit1 %ating =3 =5 =4 =6 =3 =4 4.167 1.163 !ating 6 5 5 4 6 5

8!erage

2.0

8!erage D=a-is

5.167 3.16%

15

<irectional vector point is -7 %=+()B +=+(%8

@S ,onser!ati! e 8ggressi!e

, 8 7e/ensi!e ,om#etiti! e 4S

(S

:rand Strategy Matri5

Ra#id 0ar et Bro.th C"adrant (( C"adrant (

Wea ,om#etiti! e 9osition C"adrant ((( C"adrant (V

Strong ,om#etiti! e 9osition

Slo. 0ar et Bro.th

16

#he Boston $onsulting :roup 7B$:8 Matri5

Mar1et share position

,ndustry Sales :ro0th 3ate

,BM Stars Cuestion Mar1s

$ash $a0

<ogs

#he ,nternal625ternal 7,28 Matri5

T$e ")( Total Weig$te Stron- A5= to A566 3igh ( 3.0 to 3.99 (( S*ore !ow /5= to /566 (((

Medium :5= to :566

0edi"m (V T$e ()( 2.0 to Total Weig$te 2.99 S*ore

V(

"&'

V((

V(((

(D

>o. 1.0 to 1.99

#he Cuantitative Strategic Planning Matri5 7CSPM8

17

Strategy 1 Enter video game console market

+e# "nternal )a*tors Weig$t 0.10 0.06 AS 4 TAS 0.40 -

Strategy 2 Increasing marketing e orts into !sia and Europe

AS 2 TAS 0.20 -

Strengths
IBM revenues increased ? &ercent to 1656:E5billion in :==1 # uni@ue a&&roach to en-a-e their em&loyees in an online intranet usin- its 4am technolo-y Stron- strate-ic &lannin- to be an innovation% centric -lobally inte-rated cor&oration IBM o&erates in /?= countries with about 1= &ercent of its revenues bein- -enerated outside the 3S IBM concentrated on becomin- stron-er in hi-h value added businesses IBM ranked number / hosted service &rovider in *estern Euro&e IBM is su&ercom&utin- leader as &rovider of A7 of the worldFs /== most &owerful su&ercom&uters

0.06 0.10

0.30

0.40

0.10 0.10 0.12

4 2 -

0.40 0.20 -

4 4 -

0.40 0.40 -

Aea1nesses
<eclinin- in revenues of services and systems se-ments in :==1 <ecline in revenue of &ublic, industrial, small and medium business industries in :==1 by 651D <ecline in revenues in #sia Pacific area by 75?D otal assets are -radually decreasin- from /=6M to /=AM in :==1 S'BT(TA) 0.08 0.08 2 3 0.16 0.24 4 4 0.32 0.32

0.10 0.10 *+,,

2 3

0.20 0.30 -+-,

4 3

0.40 0.30 -+.-

18

Strategy 1 Enter video game console market

+e# "nternal )a*tors Opportunities Video game console mar et re!en"e is #ro$ected to reach %12 &illion in 2008 and %66 &illion in 2012 'he (' mar et in R"ssia) (ndia) *ra+il) and ,hina are e-#ected to gro. t.ice as /ast as in the rest o/ the .orld 0o&ile #hone mar ets are e-#ected to gro. &1 92 in 2008 3andheld com#"ters mar ets are e-#ected to gro. &1 322 in 2008 T$reats 0.20 4 .80 Weig$t AS TAS

Strategy 2 Increasing marketing e orts into !sia and Europe

AS TAS

0.60

0.10

0.10

0.30

0.15 0.15

$om&etitors are stronEconomic fluctuation could crim& consumers s&endinSmall G Medium business demand fails to accelerate
S'BT(TA)

0.20 0.10

4 1

0.80 0.10

4 3

0.80 0.30

0.10

0.10

0.40

*+/,

-+.,

3ecommendation
Enter video game console market "y providing ne# video game console at a cost o $1 "illion and increasing marketing e orts in !sia and Europe at a cost o $2%% million&

2PS92B,# Analysis
19

E #mount IeededO E/,:== Million Stock PriceO E//= a" )ateO A7D Interest )ateO ?D P of Shares +utstandin-O /,7=15;0 Million
Common Stock Financing Recession Normal Boom EBIT Interest EBT Taxes EAT #shares EPS 2,000,000,000 0 2,000,000,000 700000000 1,300,000,000 1517389091 0 !"#$%&$$& 4,000,000,000 0 4,000,000,000 1400000000 2,600,000,000 1517389091 ' $'%&#("&! 6,000,000,000 0 6,000,000,000 2100000000 3,900,000,000 1517389091 ) "$0)0&%)) Recession 2,000,000,00 0 140000000 1,860,000,00 0 651000000 1,209,000,00 0 1506480000 0 !0)"%%0"$ Debt Financing Normal 4,000,000,000 280000000 3,720,000,000 1302000000 2,418,000,000 1506480000 ' #0"0##''& Boom 6,000,000,000 420000000 5,580,000,000 1953000000 3,627,000,000 1506480000 ) &0$"(('$)

$0 *ercent Stock+ %0 Percent Debt Recession Normal Boom EBIT Interest EBT Taxes EAT #shares EPS 2,000,000,000 42000000 1,958,000,000 685300000 1,272,700,000 1514116364 0 !&0""#)#! 4,000,000,000 84000000 3,916,000,000 1370600000 2,545,400,000 1514116364 ' #!''')"%# 6,000,000,000 126000000 5,874,000,000 2055900000 3,818,100,000 1514116364 ) ")'##!!0&

$0 Percent Debt+ %0 Percent Stock Recession Normal Boom 2,000,000,00 0 4,000,000,000 6,000,000,000 98000000 196000000 294000000 1,902,000,00 0 3,804,000,000 5,706,000,000 665700000 1331400000 1997100000 1,236,300,00 0 2,472,600,000 3,708,900,000 1509752727 1509752727 1509752727 0 !'!!$"!'! ' #%$$"'#%$ ) &"##)$&""

3everences

1. ....(*0.com
20

:5 www5A=;5ibm5com A5 www5manonamission5blo-s&ot5com 4. 4"romonitor (nternational, site ....euromonitor.com 5. ---.mone#*entral.msn.*om

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