Title: The Fall of IBM Date: September 20, 2013

I. Executive Summary

The purpose of this case study analysis is to analyze the situation of IBM in the 1990s, to come up with possible mutually exclusive alternatives for IBM’s management and ultimately, to recommend a possible strategy to regain back IBM’s throne in the industry.

The problem of the case study is all about the survival of IBM in a much more competitive market ever encountered by the company. And also, overcoming new challenges brought about IBM’s new management and the dynamic technological environment.

The methods of analysis used for this case study are the Porter’s Five Forces Model and the ANSOFF matrix analysis. Brief explanations were provided in each of the methods used for analysis.

After analyzing the case study, the following three mutually exclusive alternative course of action were developed: 1. Decentralize Management; 2. Invest heavily on research and development and; 3. Partner with suppliers

From the alternatives, I recommend that IBM should partner with its suppliers. Collaboration with suppliers will increase business flexibility and executive level business decision support. This will surely bring the most benefit for the company among the other alternatives course of action. The suppliers play a great role in the industry and having strong connections with them can help the company survive and even excel in the industry.

Outline and Implementation: | Objective | Indicator | Target | Action | Financial | To strengthen the financial position and increase profitability of the company | ROIMarket price per shareWorking capitalAsset turnover rate | Attain industry average or higher | Monitor closely changes in financial data and submit reports on time | Customer | Improve company branding | Increase in sales | Gain new consumers and retain existing consumers | Provide quality products and provide after sale services | Learning and Growth | To have employees who are knowledgeable in their fields | Less supervision and less rework | Zero rework and back jobs | Conduct seminars and training to employees | Process/Business | To have smooth process of production operating efficiently and effectively | Processes are well integrated and less downtime are experienced | Latest technology is adopted in business operations | Invest in new technology |

II. Method of Analysis A. Porter’s Five Forces Model

* Threat of New Entrants: LOW

Technology plays a big role in the computer industry that IBM belongs. And because of the rapid growth of technology, costs accompanying such growth are continually increasing. The threat of new entrants is low because of several factors. One factor is the cost of research and development which is enormous. Adapting to the latest technology to survive the industry is also costly. Building and maintenance of plants is seriously expensive. Plus, the customer service and support activities needed as reinforcement for the products were also costly.

* Bargaining Power of Suppliers: MEDIUM

It was explicitly stated in the case that IBM outsourced and bought the inputs it needed from other companies to make its PC. Intel, for examples, supplied the microchip that was the heart of personal computers and Microsoft delivered the programming language and software applications for the new IBM machine. Thus, power of suppliers is assessed to be high on major suppliers. However for suppliers of other materials, the supplier’s power in relation to this is low. Thus, the overall power of both major and minor supplier is assessed to be medium.

* Bargaining Power of Buyers: HIGH

Customer demand drove the prices of IBMs products down to cope with the existing and unavoidable price competition. Switching costs of buyers are also becoming low, as there are many product choices for the buyers. Consumers began to feel more comfortable about buying clones from companies that promised quality support and service at low costs. Thus, bargaining power of buyers is assessed to be high. * Competitive Rivalry: HIGH

Competition was increasing from companies that were trying to find ways to attract IBM’s customers and share in the huge revenues in the mainframe computer market. Early 1970s major competitors were Honeywell, Burroughs, Univac, NCR, and Control Data. Competitors began selling cheaper and high performing IBM compatible central processing units that posed a threat to the company. The end of the leasing program also led to increased competition from independent computer leasing companies that would buy older mainframes and then sell the older processors at a price that was frequently only 10% of the cost of IBMs newest machine. These companies were also said to dismantle mainframes to make smaller computers. Moreover, entry of Japanese competitors posed a threat to IBM because they had the technical capability to build a powerful computer that matched IBM’s mainframe system. Customers began buying clones from competing companies who promised quality similar to IBM.
IBM was also experiencing an increase on low-cost competitions on its outsourcing services business. An example was with its competition with Indian companies who had a low cost of operation. There was an intense competition on designing software’s that met the needs of customers. Clearly, many of IBM’s competitors were emerging and taking impressive strides in getting ahead. In the 1990s, IBM faced tough competition from Toshiba and Apple regarding personal computers. It was also in 1990s that severe competition existed in terms of workstations. Major competitors at that time were DEC, Apollo, Sun, and HP. Clearly, in all developed and developing segments of the computer market, IBM was facing stiff competition. * Threat of Substitutes: HIGH

Threat of substitutes is high. Obviously, there are already new products that are much more attractive to the consumers aside from the mainframes and other products that IBM produces. There was a threat on new technologies being developed to outperform the products of IBM. An example was the introduction of Minicomputers which acted as a substitute to some IBM mainframe applications. Even though IBM was successful with its PC division, clones were being made which reduced IBM’s sales. New and much improved products are also emerging in the market that has considerably being welcomed with open arms by the consumers posing a high threat of substitute to IBMs products.

A. ANSOFF Matrix Analysis

* Penetration (Existing markets and existing products): LOW RISK

Develop a customer loyalty program. Once a customer purchase again IBM products, discounts and/or other incentives are given to delight consumers and induce sales. The risk level of this option is low because it does not entail huge cash outlay in carrying out the program. Also, implementing the program might increase customer loyalty resulting to a much stable market share. IBM could also offer new and improved features in workstations. Faster and more efficient processing activity could be enhanced in IBM’s workstations. Workstations could have access to Internet in the most convenient way possible.

* Market Development (New markets and existing products): MODERATE RISK

Develop workstations that can be used for schools or if possible for students. I think personal computers should also be marketed to college students and those enrolled in the graduate school aside from the high end professionals in business and in other fields.

* Product Development (New products and existing markets): HIGH RISK

Introduce a new product different from workstations and personal computers. This option imposed high risk because it might not be the right time to introduce a new product to the existing markets and the cash outflows in developing the new product will all be put into waste.

* Diversification (New products and new markets): HIGH RISK

Having a new product in a new market is not a feasible option right now. Financial resources will not be enough for both developing a new product and introducing it to a new market. IBM should focus first on improving its products and making consumers want to buy it.

B. Alternative Course of Action

1. Decentralize Management

Focus on improving management by properly implementing decentralization in its decision making aspect. A problem pointed out in the case study was a slow response to crisis and problems because of centralized management style. So to remedy the situation, additional and possibly rigorous training will be given to some employee for them to be able to make calculated decisions.

2. Invest heavily on research and development

Developing IBM’s products is a good idea. However, since substantial amount will be allocated for research and development activities, results should be positive. Researching on how to incorporate the internet to IBM’s product would be a worthwhile investment.

3. Partner with suppliers

Collaboration with suppliers will increase business flexibility and executive level business decision support. Also, IBM should even have good relations to its suppliers since parts supplied by them are essential for IBM’s products. Partnering to suppliers could mean buying stocks, if ever such supplier/s is/are stock Corporation, or if not, enter into contracts with them. Good suppliers should be scouted. The suppliers play a great role in the industry and having strong connections with them can help the company survive and even excel in the industry.

C. Bibliography

Books
Hill, C., & Jones, G. (2010). Strategic management theory: an integrated approach (9th Ed.). South-Western: Cengage Learning

Websites
Application of Porter’s Five Forces Model Paper. (n.d.). Ohio Dominican. Retrieved September 5, 2013, from www.ohiodominican.edu/uploadedFiles/Library/CoursePages/Courses/Bus/Bus498/Application-PortersFiveForcesModelPaperExample.pdf

ANSOFF: Interior Design Case Study. (n.d.). VentureNavigator. Retrieved September 12, 2013, from http://www.venturenavigator.co.uk/content/548

Ansoff's matrix - Marketing and product strategies for growth - Enterprise Rent-A-Car | Enterprise Rent-A-Car case studies, videos, social media and information | The Times 100. (n.d.). The Times 100 . Retrieved September 12, 2013, from http://businesscasestudies.co.uk/enterprise-rent-a-car/marketing-and-product-strategies-for-growth/ansoffs-matrix.html#axzz2edjne4AY

Raghavendra, P. (n.d.). How to Apply Porter's Five Forces Model in Business. eHow. Retrieved September 5, 2013, from http://www.ehow.com/how_7626292_apply-five-forces-model-business.html#ixzz2e2C3N1W9

Salem, F., & Abdullah, M. (n.d.). IBM Case Study . Scribd. Retrieved September 19, 2013, from http://www.scribd.com/doc/16050800/IBM-Case-Study-

The fall of IBM. (n.d.). Studymode. Retrieved September 19, 2013, from http://www.studymode.com/essays/The-Fall-Of-Ibm-933523.htm