Académique Documents
Professionnel Documents
Culture Documents
Faculty of Business
Strategic Management
Strategic Ananlysist
2009
Table of Contents
Topics Page
Introduction and brief history of IBM 3
Internal Audit 11
Internal Factor Evaluation (IFE) Matrix 12
SWOT Matrix 13
SPACE Matrix 15
Recommendations 21
References 22
2
In 1886 Herman Hollerith, a statistician for the US Bureau of Census formed the Tabulating
Machine Company and Thomas J. Watson became its leader in 1915 and made the company
slogan “Think”. It changed its name to International Business Machines (IBM) in 1924. It was
taken by the US government at the beginning of World War II in the war effort and given a one
percent profit, which it used to fund war victims and orphans.
During the period between 1910 and 1960, it developed products from punch-card tabulating
machines to room-sized calculators to mainframe computing systems for large enterprises and
changed the nature of accounting, calculation and basic back-office business processes.
In the 1970s and 80s, IBM product lines expanded from its traditional mainframes to
minicomputer and personal computers and applications moved from backend operations to
departmental operation. In 1981, the company introduced the IBM Personal Computer or PC,
allowing the use of computers in schools, homes and businesses. Components for the computer
were sourced from outside the company. The processor chip came from Intel and the operating
system, called DOS (Disk Operating System), came from Microsoft.
IBM introduced the ThinkPad in 1992, the first in a series of notebook computers to be
manufactured by the company. In 1995, IBM acquired Lotus Development Corporation and
Tivoli Systems. In 1997, IBM demonstrated computing’s potential with Deep Blue, a 32-node
IBM RS/6000 SP computer programmed to play chess on a world class level.
During the nineties, with the Internet and open standards, IBM embraced the network
computing model and coined “ebusiness” to describe how network computing can transform
core businesses and transactions.
In October 2002, IBM acquired PwC Consulting, the global management consulting
and technology services unit of PriceWaterhouseCoopers. IBM sold most of its hard
disk drive operations to Hitachi in December 2002. The sale involved the creation of a
joint venture called Hitachi Global Storage Technologies, which was 70%-owned by
Hitachi.
In 2003, IBM Research launched On Demand Innovation services, which teamed customers
with a team of researchers who specialize in business transformation and technology
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consulting. Over one billion will be spent over the next three years and will be staffed with
200 IBM research consultants.
Today, IBM is by far the largest information technology in the world and the eighth largest
company in the world. In 2003, it had revenues of US $89.1 billion, a net income of 4.32,
more than 366,000 employees in 170 countries with approximately sixty percent of revenues
generated outside the United States.
Vision
Mission
Values
We translate these advanced technologies into value for our customers through
our professional solutions, services and consulting businesses worldwide.2
The threat of entry is low because the costs of R&D, support products and
services, manufacturing, and distribution are very high.
1
www-304.ibm.com
2
manonamission.blogspot.com
4
Bargaining Power of Buyers:
The power of buyers is high because the switching costs for buyers are low; there
are also many product choices for the buyers.
There are two biggest processor suppliers in the world who have very strong
power on the chip supplying.
However, the power of supplier for other low required materials and parts is
lower than the main suppliers.
Threat of Substitutes
The web hosting business of other companies and some advanced devices and
computers could cause threat of substitutes.
Competitive Rivalry:
The strength of competition in this industry is very high; the main rivals are
HP, Microsoft, Dell, and Fujitsu Siemens Computers, they compete with
international, national, regional, and local
PESTEL Framework:
Political:
- In general international operations are highly influenced by the
governmental policies and their laws, but in this case there is little effect
because most of countries are looking for developments and new
technologies.
5
- Heavy taxes in some countries make IBM increase its products price.
Economic:
- National growth rates.
- Fuel Prices.
Social:
- Positive customers' perception toward new technology around the world.
- Increase in population and internet users.
Technological
- Advanced technology development.
- Internet
- Increase numbers of companies that need ERP systems
Environmental:
- IBM made the some of the major technologies like to trace weather
throughout the world.
Legal:
- Cyber protection and the chemical the use in making hardware; like
carbon, germanium, and silicon
- Currency exchange
- Legal registration for their business outsourcing facilities.
External Audit
Opportunities Threats
6
1. Video game console market revenue 1. Competitors are strong.
is projected to reach $12 billion in
2008 and $66 billion in 2012. 2. Economic fluctuation could crimp
consumers’ spending.
2. The IT market in Russia, India,
Brazil, and China are expected to 3. Small & Medium business demand
grow twice as fast as in the rest of the fails to accelerate.
world.
Critical Weight Rating Weight Rating Weight Rating Weight Rating Weight
Success ed ed ed ed
Factors Score Score Score Score
Threats
1. Competitors are strong 0.20 2 0.40
8
Growth Rates % IBM Industry SP-500
Sales (Qtr vs year ago qtr) 9.90 11.70 9.00
Net Income (YTD vs YTD) 10.50 29.90 15.40
Net Income (Qtr vs year ago qtr) 14.00 22.40 0.90
Sales (5-Year Annual Avg.) 4.00 7.63 13.05
Net Income (5-Year Annual Avg.) 14.33 7.68 19.88
Dividends (5-Year Annual Avg.) 20.52 10.99 10.03
Price Ratios
Current P/E Ratio 15.1 16.1 22.9
P/E Ratio 5-Year High 26.6 22.3 22.7
P/E Ratio 5-Year Low 13.6 8.1 6.7
Price/Sales Ratio 1.52 1.32 2.49
Price/Book Value 5.30 4.19 3.53
Price/Cash Flow Ratio NA 5.20 10.40
Profit Margins
Gross Margin 42.2 35.2 33.7
Pre-Tax Margin 14.7 11.8 17.5
Net Profit Margin 10.6 8.8 12.4
5Yr Gross Margin (5-Year Avg.) 39.6 33.6 33.4
5Yr PreTax Margin (5-Year Avg.) 12.9 9.3 16.6
5Yr Net Profit Margin (5-Year
9.0 6.6 11.5
Avg.)
Financial Condition
Debt/Equity Ratio 1.24 0.77 1.24
Current Ratio 1.1 1.2 0.9
Quick Ratio 1.1 1.1 0.7
Interest Coverage 21.6 11.6 42.3
Leverage Ratio 4.2 3.3 4.2
Book Value/Share 20.57 17.49 16.50
Investment Returns %
Return On Equity 36.6 27.8 21.3
Return On Assets 9.3 8.7 5.8
Return On Capital 15.3 14.7 7.8
Return On Equity (5-Year Avg.) 28.6 19.5 15.4
Return On Assets (5-Year Avg.) 7.9 6.2 5.0
Return On Capital (5-Year Avg.)
12.4 10.0 6.7
Management Efficiency
Income/Employee NA 18,387 52,240
9
Revenue/Employee NA 268,252 424,626
Receivable Turnover 3.1 4.9 12.8
Inventory Turnover NA 4.7 5.5
Asset Turnover 0.9 1.0 0.6
Internal Audit
10
Strength Weakness
1. IBM revenues increased 7 percent to 1. Declining in revenues of
69.92$.billion in 2006. services and systems
segments in 2006.
2. A unique approach to engage their
2. Decline in revenue of public,
employees in an online intranet using
industrial, small and medium
its Jam technology.
business industries in 2006
3. Strong strategic planning to be an by 9.6%.
innovation-centric globally integrated 3. Decline in revenues in Asia
corporation. Pacific area by 5.7%.
4. Total assets are gradually
4. IBM operates in 170 countries with
decreasing from 109M to
about 60 percent of its revenues being
103M in 2006.
generated outside the US.
11
Key Internal Factors Weight Rating Weighted Score
Strengths
1. IBM revenues increased 7 percent to 0.10 4 0.40
69.92$.billion
Weaknesses
1. Declining in revenues of 0.08 2 0.16
services and systems segments
in 2006
2. Decline in revenue of public, 0.08 2 0.16
industrial, small and medium
business industries in 2006 by
9.6%
3. Decline in revenues in Asia 0.10 2 0.20
Pacific area by 5.7%
4. Total assets are gradually 0.10 2 0.20
decreasing from 109M to 103M
in 2006
Total 1.00 3.16
12
SWOT Matrix
13
Strengths Weaknesses
expected to grow
Directional vector point is :( 3.167, 1.163)
FS
Conservativ Aggressive
e
C IS
A
Defensive Competitiv
e
ES
Quadrant II Quadrant I
Weak Strong
Competitiv
Competitiv
e
e
Position
Position
Quadrant III Quadrant IV
15
The Boston Consulting Group (BCG) Matrix
Market share position
Industry
IBM
Sales Growth
Stars Question Marks
Rate
High
I II III
3.0 to 3.99
Medium IV V VI
The EFE
2.0 to IBM
Total
Weighted
2.99
Score
16
VII VIII IX
Low
1.0 to 1.99
Strategy 1 Strategy 2
Strengths
IBM revenues increased 7 percent to 0.10 4 0.40 2 0.20
69.92$.billion in 2006
Weaknesses
Declining in revenues of services and systems 0.08 2 0.16 4 0.32
segments in 2006
17
Decline in revenue of public, industrial, small 0.08 3 0.24 4 0.32
and medium business industries in 2006 by
9.6%
Strategy 1 Strategy 2
Opportunities
Threats
18
Recommendation
Enter video game console market by providing new video game console at a cost of $1 billion
and increasing marketing efforts in Asia and Europe at a cost of $200 million.
EPS/EBIT Analysis
$ Amount Needed: $1,200 Million
Interest Rate: 7%
19
Reverences
1. www.IBM.com
2. www.304.ibm.com
3. www.manonamission.blogspot.com
5. www.moneycentral.msn.com
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