I. Current Situation (1991-1993) Essay

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I. Current Situation (1991-1993)
1. History of IBM:
IBM is a multinational corporation that started its activities in 1911. But its origins
can be traced back to 1890, during the height of the Industrial Revolution. It was first
known as the Computing-Recording Company, and then in 1924, it took the name of
International Business Machines. Nowadays, this multinational company is known as the
¡§Big Blue¡¨

2. Mission statement
IBM main activity is to find solutions to its wide range of clients using advanced
information technology. Its clients are individual users, specialized businesses, and
institutions such as government, science, defense, and spatial and educational

To meet and respond to its customers needs, IBM creates, develops and manufactures many of
the worlds most advanced technologies, ranging from computer systems and software to
networking systems, storage devices and microelectronics. Indeed, IBM has various product
lines and services a few of which are: the Personal Computer that was first created in
1981, AS/400 business system, RS/6000 family of workstations and server systems, S/390
enterprise server, groundbreaking ThinkPad notebook computer; the award-winning IBM
Netfinity and finally, PC Servers. It is an important supplier of hard disks, random
access memories, and liquid crystal monitors.

IBM has created the image ¡§Solutions for a Little World¡¨. Its products and
components in other firm products are so widespread that people around the world associate
the name IBM with computing functions.

3. Organization

IBM is a global information system and computing company. It is organized in 5 worldwide
regions, and the following business units:

1. Application Business Systems
2. Application Solutions
3. Enterprise Systems
4. Networking Systems
5. Pennant Systems Company
6. Personal Systems
7. Programming Systems
8. Storage Products
9. Technology Products
4. Past and current performance:
For many years, IBM succeeded in holding a very good market position. In fact, the company
achieved a very high market share and huge profits. However, this situation did not last
forever. In 1990, IBM experienced its first quarterly loss of $2billion due to some
unexpected accounting charges. However, revenues increased from $62.7 billion in the
previous year to $96 billion. In 1991, the company faced a net loss of $2.83 billion that
was mainly due to downsizing and restructuring costs. In addition, total hardware sales
were down by 16%. The years 1992 and 1993 knew a slight increase in revenues that reached
$13.4 billion and a net loss of $399 million that changed to a net profit of $392 million
in the first quarter of 1994.

5. Industry trends:
IBM¡¦s old belief was that personal computers are a vital part of their overall strategy
to link personal computers, minicomputers, and mainframes, their preferred product in this
line. It was not quick in adapting this belief to the new reality and importance of the PC
potential, so during the 1980s and early 1990s, IBM was thrown into turmoil by
back-to-back revolutions in the trends of the computer industry. The PC revolution placed
computers directly in the hands of millions of people, and then, the client/server
revolution sought to link all of those PCs (the "clients") with larger computers that
labored in the background (the "servers" that served data and applications to client
machines). Both revolutions transformed the way customers viewed, used and bought
technology, and both fundamentally rocked IBM.

6. Tactics at IBM were as follows:

Marketing at IBM has often been based on recycling and updating older proprietary systems
architectures in which it had a vested interest. It was a product rather than consumer
oriented strategy.

 IBM has made modest moves towards more industry specific approaches to problem
solutions in an effort to better meet customer needs.

 1988 attempt to restructure decision making from HQ to 6 group executives failed.

 Due to its size, IBM makes sure that when introducing a project, worldwide
capacity is available to manufacture it, and those foreign manufacturing requirements are

7. 1991-1993 CEO Akers undertook a major overhaul of IBM: he believed the problem was high
centralization, so he followed a decentralizing strategy that would greatly reduce
employee levels. Layoffs were as follows: 1991 20,000, 1992 20,000. Although a $3 billion
charge was made against 4th quarter earnings, IBM expected savings of $1 billion in 1992,
followed by $2 billion in later years.

Restructuring objectives:

a- Accelerate product deliveries.
b- To avoid or minimize costly delays and disruptions IBM would have to completely
separate its units into distinct independent divisions with greater control over
development strategies, including financial independence. IBM HQ would become a holding
company with 6 autonomous divisions reporting to senior vice presidents. Divisions are to
present annual plans to executive committee, set goals for return on investment, share in
profits, issue stocks in some cases. Each individual unit to report its results separately
thus allowing managers to gain responsibility for controlling costs and developing
competitive product marketing strategies. Emphasis to be placed on return on invested
capital. Executive pay to be tied to unit profits

c- Encourage 3d party relationships
d- Reduce staff.
e- Reduce product prices to match competitor prices. For example, IBM's lap top model
costs about $2,500 more than Dell or AST models.

8. Gerstner's strategy is to maintain IBM's broadness to take advantage of consumer
confusion in the market. Consumers will recognize IBM's name in different products and
purchase it. This will keep costs high however because the different units need to stay
coordinated. According to him, IBM's challenge is to develop good working relations across
the various operating units. It doesn't need an overall vision but a series of tough
minded, market driven strategies for each of its businesses. Balancing shareholder needs
of higher margins with customer needs of lower margin open system products. Gerstner
brought with him a customer-oriented sensibility and the strategic-thinking. He tried to
rebuild IBM's product line, to reduce the workforce and to make significant cost
reductions. Despite mounting pressure to split IBM into separate, independent companies,
Gerstner decided to keep the company together. He recognized that one of IBM's enduring
strengths was its ability to provide integrated solutions for customers -- someone to
represent more than piece parts or components. Splitting the company would have destroyed
a unique IBM advantage.

II. SWOT analysis:

 External environment:


1.1. E-business: the use of the Internet is rapidly becoming an important distribution
method for multinational companies, and a source of products for businesses and consumers.
it is a way of doing business electronically using new concepts. By emphasizing on
marketing this kind of operations, IBM will increase its presence in world operations, by
making easier for a company to trade with another one, without any physical contact.

1.2. Strategic alliances: three days ago, IBM announced its alliance with a huge IT
company, DELL. This constitutes an opportunity for IBM to become stronger and acquire new
knowledge. This part will be discussed later in the presentation.

1.3.As a third point, it seems that IBM should change its image among customers: when you
think of IBM, the first image that comes to you is that of a computer, whereas IBM
manufactures much more products: servers, mainframes, supercomputers, Internet services,
and so on. Therefore, a good opportunity for the Big Blue would be to change this
conception and make its diversified range of products better known. There must be more
advertising made about the other products in order to make people aware of IBM diversity.

2. Threats:

2.1.IBM most important competition is not within the mainframe market, but outside it, in
the increasing range of other machines that can do much of what a mainframe does.

 Indeed, throughout the first half of the 1990s, the apparition of very small PCs
attacked and reduced demand for mainframes, and this drove IBM almost to bankruptcy.
However, the company responded by slashing prices and developing new mainframes that
shared many of their components (such as memory) with PCs, thus benefiting from the PC
industry's economies of scale.

2.2.It seems that customers are beginning to buy products from different companies, due to
a decrease in the confidence put in one single company. Their belief is that if their
hardware come from different manufacturers, they will have a more open system, and
diversified configurations. However, this trend leads to problems of compatibility among
the different products. IBM is now trying to discourage customers from switching to other
suppliers, by striving to improve the connectability of its computers.

2.3.Y2K: the Y2K issue arises because many computer hardware and software systems use only
two digits to represent the year. As a result, these systems may not process dates beyond
1999, which may cause errors in information or system failures. According to its CEO, IBM
is considered to be Y2K ready. However, the Y2K readiness of the company's customers
varies, and the company continues actively to encourage its customers to prepare their own
systems. While this behavior may increase demand for certain of IBM products, it could
also soften demand for other offerings or change customer buying practices from past

 while IBM continues to believe that the Y2K matters discussed above will not have
a material impact on its business, financial condition or results of operations, it
remains uncertain whether or to what extent the company may be affected.

 Internal environment:

1. Strengths

1.1 IBM is the largest IT company in the world:
 It has 240,600 employees
 It has commercial activities in 164 countries
 It is the 6th company ranked in Fortune magazine

1.2. Education and training are key factors in providing IBM partners with the necessary
skills to sell and support IBM software products. The delivery of this education can be
done through many formats, from traditional classroom settings to seminars and satellite
broadcasts. IBM provides education and certifications on both IBM software products and
other software technologies.

1.3 Industry knowledge: before launching any product, IBM managers completely understand
the industry organization, key contacts, strategies and offerings, in order to be fully
integrated in the organization.

1.4 IBM marketing approach consists of analyzing market and competition, performing
segmentation and developing plans and solutions that respond to End User/market needs and
competitive trends, and finally differentiating IBM/Business Partner solutions in the

1.5 IBM have at its customers?disposal consultants that will advise them if they want to
buy new material or change their equipment. IBM employees do their best to satisfy the
client and to understand his/her needs.

1.6 Helping businesses optimize their IT infrastructure
A Total Systems Management (TSM) solution leverages IBM skills, services and systems
expertise to help customers increase the business value of their IT solutions.

 TSM brings IBM Global Services systems management experts together with a
customer's IT executives to assess the customer's information technology environment
against its business goals and identify the key IT areas that are critical to achieving
those objectives.

IBM develops a customized services solution to enhance the customer's system-wide
operations and enable its IT infrastructure to better support its business goals, such as

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