A. 1. SWOT Analysis

Strengths

IBM’s continued domination of the global market produced record increases in revenues every year, with most of the revenues coming from its highly successful System/360 and System/370 mainframe series. These powerful mainframes, which fully automated a company’s manual information processing systems, became the industry standard that competitors tried to match. Apart from this, IBM’s high-priced lease strategy, backed by excellent customer service, also contributed to the rapid rise of the company’s fortunes. This leasing system tied the company to its customers, thus guaranteeing a steady cash flow. Over the years, IBM’s traditional focus on service, combined with a successful sales force, always gave it a competitive advantage.

Another of IBM’s strengths is its successful alliances and joint ventures with computer, software, and marketing companies such as Intel and Microsoft. These ventures helped IBM achieve product innovation and differentiation and enter new markets.
IBM’s contention system can also be considered as strength. In this system, project teams design competing product prototypes and a series of committees at all managerial levels debate the costs and benefits of each project over a time period. This resulted to the approval of generally successful projects. Furthermore, the product group structure which was implemented during the restructuring of the ‘90s proved to be very successful. In this structure, the divisions were organized around products instead of functions and each group had control over its manufacturing and marketing.

Weaknesses

IBM’s major weakness was its ‘mainframes were king’ corporate mindset. The company focused too much in protecting its mainframe market because they thought that nothing can beat mainframes and that ‘big machines meant big revenues’. This in effect, blinded them to threats emerging from the emergence of new kinds of computer technology. Furthermore, IBM’s overly bureaucratic and centralized approach to decision-making, combined with its ‘contention system’, slowed them so much that the company is always behind in responding to developing market segments caused by technological breakthroughs. As a result, they incur significant amount of costs, especially advertising costs, before they even become a key player in such developing markets, hoping for high profits.

Another factor that caused IBM’s failure to quickly respond to emerging markets and eventually achieve total domination over the computer industry are its high-priced products which they make and sell themselves with high costs. The company has been so used to high profit margins that it choked when low-cost competitors appeared. Furthermore, the company was not able to recognize the importance of patents, making it effortlessly easy for forgers and clone manufacturers to produce similar products at lower costs and sometimes, with even better quality.

Opportunities

Majority of the opportunities presented to IBM were due to changes in technology. The emergence of new kinds of computers such as minicomputers, PCs, workstations and microprocessors opened new markets which if fully developed, can contribute big revenues for the company. Furthermore, these technological breakthroughs were significantly cheaper and even faster than mainframe computers.

Opportunities also exist for IBM in the developing markets for software design and providing customer service, specifically for the design of general operating language and software applications. Data outsourcing and systems integration also had revenue-generating potential.

To sum it all up, the industry where IBM belongs to presents countless opportunities to differentiate and innovate products. If we try to look back, IBM’s success was itself the result of moving quickly and decisively to exploit the opportunities of new technology: the punch card machine, the transistor, and the integrated circuit.

Threats

With great opportunities also come great threats. This however, is the reality of the computer industry where IBM belongs. The threats mainly come from two sources: the competitors and the products themselves.
As the industry continues to grow, competition increases not only in size but also in intensity. These competitors (e.g. clone manufacturers) may be local or foreign, and have aggressive strategies for cost leadership and product differentiation. They offer low-price alternatives to the IBM mainframe and even promise quality support and low-cost service. Moreover, it has been discovered that technology has a high turnover rate. The mainframes are becoming obsolete and the product life cycle of computers is shortening, as new technological inventions are making their way.

To make situations worse, although the computer industry has many market segments, the future revenue-generating potential of such market segments are uncertain as their boundaries between the segments become less clear.

A. 2. PESTLE Analysis

Political/Legal | - Lack of strict and specific regulations involving activities within the computer industry- Protection of patents | Economic | - Decline of several US industries- Steadily falling price of integrated circuits | Socio-cultural | - Laying off of staff- Losing customers/market share | Technological | - Emergence of new kinds of computer technology- Rate of obsolescence of computer products | Environmental | - Disposal of computer products |

Political/Legal Factor

During the timeframe of the case, there weren’t any significant/strict regulations governing the activities within the computer industry. Laws and regulations for cross-country operations and labor laws are some of the laws that IBM may have to comply with. There may be laws specific to the manufacture and distribution of computer technology; however, these may still be in process.

Companies in the computer industry should also value the protection of their patents. Patent rights can help eliminate threat from clone manufacturers and similar kinds of competitors and thus protect a company’s market share and position.

Economic Factor

Since 1970, several US industries have declined due to the entry of low-cost Japanese competitors. These Japanese companies had great technical capabilities that can match or even exceed US products, thus posing a major threat to IBM’s domination of the global market.

Furthermore, the steadily falling price of integrated circuits is shortening the lifespan of every computer technology, especially the mainframes. This plunging of costs is making computer technology innovation more feasible for the computer industry players.
Socio-cultural Factor

During IBM’s reorganizations in response to the changes within the industry, a great number of employees were laid off because of the thought that the company has become too big that it can only respond slowly to technological changes. This may have produced a bad image of IBM to the workers who were promised a stable employment.

Furthermore, while changing its strategies in response to the changes within the industry, IBM lost quite a great number of customers, especially when it decided to end its leasing system. This evidently produced a negative effect to the company on the form of significant revenue declines. Moreover, IBM’s customers were becoming price conscious. Since IBM lagged behind technological breakthroughs, old and new customers were starting to look away from them.

Technological Factor

The technological breakthroughs as manifested by the minicomputers, PCs, workstations, microprocessors, and software bring with them hundreds of opportunities and only a single significant threat: the fast rate of obsolescence. IBM must create a mindset that in order to grab these opportunities, gain competitive advantage and thus be successful, speed is required. A company must act quickly and decisively to exploit the opportunities brought about by technological change.

Environmental Factor

The rapid obsolescence of computer technology poses a threat to the environment as technological wastes in the form of obsolete/useless/broken computers and component parts are making their way to disposal areas. Harmful chemicals were used to make these ‘tech’ products and if these are not disposed of properly, they may harm not only nature but also the people.