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Running Head: The International Business Machines Corporation: A Strategic Analysis

The International Business Machines Corporation: A Strategic Analysis

Abstract

The International Business Machines Corporation, IBM, is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. Drawing on resources from across IBM and key Business Partners, IBM offers a wide range of services, solutions and technologies that enable customers, small, medium, and large, to take full advantage of the new era of e-business. This paper will present a brief overview of the company, including a detailed SWOT analysis, and a review of the marketing, management, and financial aspects of the firm. Finally, recommendations will be made for continued growth and success.

IBM: A Strategic Analysis

The International Business Machines Corporation, known as IBM, was founded in 1924. Today, it is the world's largest information technology company. Drawing on resources from across IBM and key Business Partners, IBM offers a wide range of services, solutions, and technologies that enable customers, small, medium, and large, to take full advantage of the new era of e-business.

SWOT Analysis

Strengths

IBM as global services brand in the information technology area is very, very powerful. The global IT is so enormous will be even bigger in the future. IBM brand value is worth $23 billion. It is a leading information technology company in the world.

This 81-year-old company has spent the past several years moving from technology product supplier to on-demand service provider-all while still investing and protecting its well established traditional tech image (Bulik, 2005).

IBM is an innovation company. On Jan 11, 2004, America's patent office reported that IBM had earned the top spot in its annual patent ranking for the 12th time in succession, earning 3,248 patents. One of these new things that will blow your mind is Pocket PC, equipped with IBM's Multilingual Automatic Speech-to-Speech Translator (Rothman, 2005). The world's foremost supercomputer ranking authority, TOP 500, named an IBM supercomputing system as the world's most powerful supercomputer in the world ("Report: IBM," 2005). For the first time in history a single vendor, IBM, has more than 51% of the total number of systems on the list. They believe that sharing intellectual property can be more profitable than keeping it to one company. It pledged 500 of its existing software patents to the open-source community, to be placed into a patent "commons" that allows open-source software developers to use the innovations and build upon them without risk of infringement. ("An Open Secret," 2005)

Open-source software is a new way of working together. It is a decentralized form of collaboration. It breaks complex tasks down into modular bits, which are worked on by specialists through a clever form of self-organization (made possible by the Internet), and are then reassembled. IBM profits from open-source in two ways. First, open-source software is less expensive than proprietary software, so using it lowers the overall cost a customer pays for IBM's computers, applications, or servers. Second, it provides a common platform on top of which IBM can build and sell special applications and services. This leading information technology company has some weaknesses, however.

Weaknesses

The Chief Executive Officers preceding Sam Palmasano, in order to hit quarterly numbers divested IBM of key capital assets that had assured IBM's long term health. A very accurate metaphor was that they consistently sold the geese that were laying the golden eggs, and when they ran out of geese the firm started to collapse. (Enderle, 2005) IBM spun off its printer division, which became Lexmark, Storage division, named Hitachi, and recently PC division was sold to Lenovo. Surprisingly, each division reemerged as a power in its industry. None of these was possible with IBM's restrictive policies that kept them from being able to compete. IBM's CEO is back to selling its golden geese and there aren't many left. In May 2005, IBM cut 13000 jobs worldwide. Around the globe, unions and employee groups joined in a show of solidarity to protest this job cut.

With many employees worldwide, earning high profits per employee presents a challenge. The more workers they employ, the more difficult it is for them to earn high profits per employee. IBM earns as much as $20,000 or more per employees (Bryan, 2005).

Product complexity and high costs are also weaknesses of IBM. Compared to its competitors such as Oracle, Microsoft, etc, IBM's products require more training and cost more. For example: Microsoft charges users of Windows Server System products in virtual machine environments licensing fees at the time of use, while IBM charges flat rate. Microsoft's new policy gives competitive advantage over IBM, because now customers will no longer have to license every inactive or stored instance of a Windows Server System product. (Galli, 2005)

Opportunities

The move to On Demand is a big growth opportunity. Companies tap specialized expertise for help optimizing, transforming and managing business- support functions such as human resources, finance and accounting, supply chain, risk management and new product development. ("IBM Viewpoint," 2005) IBM calls this market in business expertise Business Performance Transformation Services (BPTS). This market lies outside the traditional IT markets. Conventionally measured the 2005 enterprise IT market is worth $1.3 trillion and is growing at about 6% a year. IBM calculates that the 2005 BPTS market is worth $1.6 trillion and is growing at more than 9% a year. IBM has targeted about $500 billion-worth of BPTS spending as its opportunity. IBM adds to its skills to address targeted BPTS segments. It has also made several acquisitions to build out its software capabilities in support of the BPTS opportunity. The BPTS marketplace also gives IBM a competitive advantage over traditional IT providers. The skills needed to succeed in this market- either within the inner workings of industries, or inside specific domains such as customer relationship management or human services- fall outside their core expertise.

IBM's

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