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Ibm turn around strategy
 

Ibm turn around strategy

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    Ibm turn around strategy Ibm turn around strategy Presentation Transcript

    • Submitted By Group 7 IBM Turnaround Strategy
    • IT industry • Most robust industry • Key driver of global economic growth • Global IT services predicted to grow at a CAGR of 5% to reach a market value of $1147 billions by 2017 Indian Scenario • Large dependency on the IT and ITES service providers to make business processes efficient and streamlined • NASSCOM predicts the IT services sector to increase to grow by 13-14% Penetrati on • Indian manufacturing sector has the highest IT spending, followed by automotive, chemicals and consumer product industries • India’s total IT industry’s share in the global market stands at 7% • Large integrated players consisting of both Indian and international service providers dominate the industry. INDUSTRY OVERVIEW
    • 1960s 1980s 1990s 2000s PRODUC T Mainframe S/360 5000 hardware and 20000 software products Expansion into services Business IT solutions MARKET Large Companies; International Expansion Expansion to Consumers & SME “Bear Hug” customers Everywhere, Everyone CHANNE L Key Account Sales people to Technical Buyer VAR & Retailers Executive A/c Leaders, Partners with enterprise software Consultants sell to business buyers, Flexible Financing and Delivery Exhibit I COMPANY BACKGROUND (HISTORY)
    • Global Technology Services segment IT infrastructure Business process services like outsourcing, cloud Consulting solutions Application management, maintenance & support services Software segment Middleware and operating systems software Information management software Tivoli software Rational software Mobile Software Systems and Technology segment Computing power and storage solutions Semiconduct or technology, products, and packaging solutions Global Financing segment Lease and loan financing to end users Commercial financing to dealers of IT products Remanufacturi ng and remarketing services for equipment COMPANY BACKGROUND (PROFILE)
    • MOST ADMIRED DINOSAUR / HAS-BEEN •Internal structural Problems •Earnings dropped to -$2.8 billion - a plummet of 146% •Expense to Revenue ratio = 42% (1993) •Cost cutting measures taken PROBLEMS PRODUCT LIFECYCLE The need for Mainframes shrank as networked computing was adopted MARKETING MYOPIA IBM failed to foresee the growing market of PCs. they left microprocessors to Intel and software to Microsoft, preferring to concentrate on other issues. DEEP HIERARCHY Executives were isolated from ground realities by layers of corporate staff. CONSENSUS -DRIVEN DECISION MAKING IBM was steered by lengthy committee meetings in which any one member could overrule general agreement. REPLICATION OF EFFORTS The 1990s followed on decades of untrammelled growth. The result was product complexity and organization silos. CUSTOMER TOUCH Blinded by hubris, IBM was out of touch with its customers. DECLINE
    • YEAR STEPS RESULTS 1993 • Louis Gerstner came in 1993 • Structural reforms to fight with huge operational costs in IT departments • ThinkPad - marketing team, one development team, shared synergies, and an executive team • Cost reduction of $7 billion •IBM posted a small profit of $382 million in the 4th quarter 1994 - 1997 • Cost of operating and running IT operations was cut in half • IT leadership was centralized, 128 CIOs were reduced to 1 • Networks converted to one common protocol (TCP/IP) • Company decreased internal applications from 16,000 to 5,200 •Increased component reuse by 34% • Generated over $2 billion in cost savings • Profits rose to $5 billion on revenues of $64 billion TURNAROUND
    • STRUCTURAL CHANGES – ONE IBM Executive Committee (CEC) Worldwide Management Council (WMC) Global sales teams Customer relationship manager and a dedicated sales and service team Product specialists
    • IBM 2001- 2010 Opportunities Capture growth in Emerging countries Tap skilled talent Identify the imminent change Remix the business to move to higher value products Extensive global integration to improve productivity Higher performing IBM today Enabled them to invest in resources for the future and provide a record return to investors and focus on long term financial goals Key Features  Deliver value to enterprise clients through integrated business and IT innovation  Build/expand strong positions in growth initiatives  Shift the business mix to higher-value software and services  Become the premier globally integrated enterprise Key Features Step 1: Focus on high value technologies and open solutions Step 2: Deliver Integration and innovation to clients Step 3: Globally leading and integrated enterprise
    • Global Technolo gy Services Business Transformatio n through outsourcing Integrated Technology Services Maintenance Global Business Services Leveraging business process expertise Middleware for efficient integration Launch Websphere on SOA platform Sales and Distributi on Dedicated operating units Helped improve clients’ business performance Address new market opportunities R&D Spends $6 billion Most US patents SOA – Cloud Computing Integrated Operation s Integrated Supply Chain Integrated technology delivery Integrated business process delivery BUSINESS SEGMENTS AND CAPABILITIES
    • COMPETITOR ANALYSIS 100 78 112 16.5 22 5 IBM MICROSOFT HP-COMPAQ Revenue - Income in billion USD Revenue Net income IBM Systems Technology services Business services Software Manufacturin g IBM Microsof t HP
    • Key Drivers Revenue Growth Operating leverage Share Repurchase ROAD MAP 2015 Growth Market • Attain 30% of IBM Revenue by 2015 • Focus on Geographic Expansion and creating new markets • Invested more than $ 1Billion Cloud • Generate $ 7 Billion in revenue in 2015 • Clients such as banking, health care, government • Cloud based infrastructure, integr ation services and security Business Analytics • Generate $ 16 Billion revenue in 2015 • Helps clients see patterns and trends, understand exposure to risk • Acquisition of over 25 companies Smarter planet • Generate $ 10 Billion revenue in 2015 • Use of digital intelligence • It highlighted company’s differentiated capabilities •Software services contributes about half of the segment revenues •Growth initiatives deliver about $20 billion in revenue growth •Growth markets revenue approaches 30 per cent of IBM’s geographic total •Enterprise productivity delivers $8 billion in gross earnings •$20 billion in spending on acquisitions •$100 billion in cash flows •Return $70 billion to shareholders over the roadmap
    • 3.32 1.81 11.67 13.44 15.25 16.28 20 0 5 10 15 20 25 2000 2002 2010 2011 2012 2013 2015F Operating EPS ($)  Changes business mix to provide higher value and more profitable technologies  Focus not just Hardware but also on Software, particularly on cloud based offerings  Generate significant amount of cash and profit – invest in other sources and markets  Net acquisition worth $32 billion ; Dividends worth $30 billion ; Share repurchases worth $123 billion STRATEGY TO ATTAIN $20 EPS
    • 14% 35% 41% 38% 45% 27% 2012 2000 Year Segment Wise: Proportion of Pre-Tax Income Hardware/Financing Services Software 11 16 16 2010 2013 2015 (TARGET) Analytics Revenue Analytics 2.6 4.4 7 2012 2013 2015 (TARGET) Cloud Revenue Cloud ROAD MAP 2015
    • 36.59 91.6 59.31 64.36 78.73 88.04 72.31 2007 2008 2009 2010 2011 2012 2013 RoE (in %) FINANCIALS 8.65 11.26 12.31 13.07 13.62 13.93 13.06 2007 2008 2009 2010 2011 2012 2013 RoA (in %) 13.68 15.38 17.77 18.17 18.97 19.56 18.82 2007 2008 2009 2010 2011 2012 2013 Operating Margin (%) 1.24 2.52 1.15 1.24 1.56 1.76 1.74 2007 2008 2009 2010 2011 2012 2013 Debt/Equity 0.2 0.21 0.21 0.21 0.21 0.22 0.24 2007 2008 2009 2010 2011 2012 2013 Dividend Payout Ratio 10.55 11.9 14.02 14.85 14.83 15.89 16.52 2007 2008 2009 2010 2011 2012 2013 Net Margin (%)
    • FINANCIALS Fiscal Period Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Revenue per Share ($) 68.1 74.67 71.39 77.58 88.09 90.45 90.43 EBITDA per Share ($) 14 16.46 17.54 19.36 21.61 23.4 22.31 EBIT per Share ($) 9.32 11.48 12.68 14.1 16.71 17.69 17.02 Earnings per Share (diluted) ($) 7.18 8.89 10.01 11.52 13.06 14.37 14.94 Free Cashflow per Share ($) 7.9 10.55 12.92 11.49 12.97 12.87 12.1 Dividends Per Share 1.5 1.9 2.15 2.5 2.9 3.3 3.7 Book Value Per Share ($) 20.57 10.06 17.34 18.77 17.31 16.88 20.99 Month End Stock Price ($) 108.1 84.16 130.9 146.76 183.88 191.55 187.57
    • REASONS OF DECLINE  Decline in Performance in Growth Markets Revenue from this segment declined by 9 per cent China accounted for almost half of the revenue decline IBM missed its revenue expectation by $1 billion  The decreased hardware sales are cited as the main reason behind the decreased revenues.  The Systems and Technology segment generated $3.2 billion in revenue, down by 17% from 2012.  Much of the hardware decline came from China as the government waited for the new economic policy. Even the revenues in other parts of the world in all other segments also decreased slightly.  IBM started looking at the cloud for its growth. And started laying off a part of the workforce especially from the Systems and Technology segment to concentrate on Cloud and analytics. Growth Markets Hardware
    • FUTURE Investors should still trust IBM management and Business model? Ambitious goals Strategic initiatives of $20 EPS by 2015 Clear roadmap to 2015