Case Study IBM at the Crossroads case study by McGraw Hill Case study solved by students @ Indian Institute of Forest Management

1. I B M
at the Crossroads
17003 Akash Kedare
17021 Kushagra Harshavardhan
17025 Nidhi Vyas

2. Brief History of IBM
• The International Business Machine
• Founded in 1911 as Computer Tabulating Recording Company by Charles Flint
• Renamed IBM in 1924
• Headquartered in NY, United States with operations in over 170 countries with a
total manpower exceeding 3.5 L
• Ginni Rometty (Current President and CEO)
• Current Segments : Cognitive solutions, Global business services, Technology
services & cloud platform, Systems and Global financing
• Out of all these Cognitive solution has the highest gross margin (78.6%)

3. At the Crossroads…..
A focus on high margin
products and software,
which could backfire
and alienate customers
The growing challenge of
continued dependence
on its home market
international sales

4. Louis Gerstner Era (1993-2002)
“Elephants can also Dance”
• No particular understanding of Computer- technology industry
• Travelled to meet customers personally to get a sense of market
• Reversed plan to split IBM into thirteen “Baby Blues”
• He liked the idea of integrated solution i.e. one stop shopping and service
(removing need for customers to contact different vendors)
• Focused on the emerging business opportunities and rapid adoption of internet
• Massive advertising and marketing to push e-business (coined by IBM)
• IBM’s market cap grew from $29bn in 1993 to $133bn in 2002

5. Sam Palmisano Era (2003-2011)
• Joined as a salesman at an early age of 22 years
• Instrumental in creating and leading IBM Global Services which later on became
largest IT Services organization in the industry
• Organized IBM around Hardware, Software and Services
• IBM only kept high margin hardware (divested its PC business to Lenovo)
• In software, IBM build expertise mainly with acquisition of small companies
(security, data management, web commerce)
• Transformed IBM from a multinational company with a worldwide operation to
seamless global enterprise with centers of expertise
• Strategic thrusts : Dedication to clients success, Innovation that matters and Trust &
personal responsibility in all relationships

6. Virginia Rometty Era (since 2012)
• Joined IBM in 1981 as System Engineer
• Oversaw successful integration of PWC
• IBM’s first female CEO, ranked no.10 on Forbes list of powerful women
• Focused on Strategic Imperative : Cloud Computing, Data Analytics, Mobile, Social
and Security efforts
• Ensured double digit growth for the company
• Sees IBM future in three disruptive technology :
• Cloud Computing
• Big Data and Analytics
• Systems of Engagement

7. IBM’s Cloud Computing Initiative
2007 : Blue Cloud
(not fully cloud)
2008 :
Integrated
Cloud
Computer
Center
2008 : Partnership
with Google,
Extended consulting
& tech services
2013 : Private Clouds
2016 : Hybrid Cloud

8. IBM’s Big Data and Analytics & Cloud Computing models
• 2009 : Idea of Smarter Planet
• 2011 : AI Computer System WATSON
• WATSON reflects new era of Cognitive Computing
• Computers are able to understand natural language
and learn to be able to engage with humans and
make decisions (AI)
Cloud Computing Delivery Models

9. PESTEL Analysis
Technological
• Technological integration in various
industries and markets
• Cybercrime
• Expanding global Internet reach
Political
• Governments’ move for digitization
• Political support for e-technologies
• Improving governmental efforts for
data protection
Environmental
• Increasing stress on reducing the
carbon footprints
• Rising interest for business
sustainability programs
Economic
• Stable economic growth in major
markets
• Rapid growth of developing market
• Rising demand for online products
Social
• Rising purchasing capacities
• Rising use of customer service in
evaluating product quality
• Increasing use of online services
Legal
• Expanding e-waste regulation
• Weak legal protection for
intellectual property in developing
markets

10. Analysis
Issues Implications Importance
IBM has traditionally operated in
market with products having high
margin
Political instability and hurts tech
companies (Attack on WTC, War
with Iraq)
The frequent disturbance in the
political scenario leads to loss of
clients and business losses
Intense rivalry in most of the
business segment has lead to
declining margin
For a company like IBM, it is of
greater concern as it needs revenues
to support huge manpower
Having decentralized offices around
the world and identifying the crisis
before it occurs
IBM has been involved in legal
issues which results in monetary
loss and loss of brand value as well
The legal issues does more harm to
brand value than monetary loss, it
should try to get over these issues
IBM shall try to maintain a clean
image and should focus on building
healthy relationship
With environmental laws becoming
stringent IBM would have to invest
to become compliant
Will have to adapt to the changing
environmental regulations which
may result in additional costs
By complying with the
environmental laws the company
would be perceived as responsible.

11. Porter 5 Forces
Moderate Force
• High imitation potential
• High cost of entry
• Difficult to price cheaper than large
firms
Very strong Force
• Moderate degree of differentiation
• High Imitation potential
• Aggressive firms
Moderately High
• Technological innovation at rapid pace
• Low level of product differentiation
Moderately Low
• High overall supply
• Moderate size of individual supplier
Moderate Force
• Low cost of changing
• Moderate order size
• Large number of customers
Attractive
Industry

12. Competitive Landscape (Segment wise)
Cognitive Solution
Global Business Services
Technology & Cloud
Financial Services

13. Competitor Analysis
Immediate Competitors
Impending Competitors
Invisible Competitors

14. SWOT Analysis
SWOT
Threats
• Lack of global strategy
• Firms like google have high economies of
scale
• Stiff competition in cloud and analytics
segment
Opportunities
• Largest player in the upcoming market
• Growth opportunities in government
business segment
• Business diversification
• Investing heavily in consulting business
Strengths
• Skilled human resource, Stable CEO
• Huge R&D facility
• Successful alliances
• Brand Value (31.79b, 2016)
• Vertical Integration
Weakness
• Slow reaction to disruptive technology
• Continually involved in litigation
• Sluggish growth in core business units
• Focus only on large enterprise
• Expensive software & solution (High Margin)

15. Analysis of Financial Statements
0
20000
40000
60000
80000
100000
120000
2013 2014 2015 2016 2017
Chart showing declining revenues and
gross margin
Revenue Gross Margin
IBM Share S&P 500
Jan 14 160.44 2058.90
July 18 145.15 2818.82
0
5
10
15
20
2010 2011 2012 2013 2014 2015 2016 2017
EPS
EPS

16. Case Questions

17. Question : 1
• Declining Sales and unstable gross profit margin (Exhibit 8)
• Falling stock prices while the market (S&P 500) is on rise (Exhibit 10)
• Increased competition in cloud computing from Amazon and Google
(Exhibit 2)
• IBM was struggling to stay relevant in rapidly changing tech market
Yes, Rometty did identify the challenges to a larger extent and
responded accordingly (focused on building high growth business)
• Doubled down on current strategy
• Investing (Cloud) and Divesting (Server, Chip)
What were challenges facing IBM when Rometty became CEO? Did she correctly identify those challenges?

18. Question : 2
• No, She initially avoided changing IBM’s Strategy.
• Major moves :
• High investment in cloud computing and data analysis ($4bn)
• Divested unprofitable business (Server business to Lenovo for $2.1bn
in 2014)
• Paid $1.5bn to Global Foundries to take over IBM’s money losing Chip
business
• Transformation Strategy :
• Cloud computing, Big data and analytics and System of engagements
Did Rometty have a clear strategy from the beginning? What were her major moves as CEO and how did they fit into
her transformation strategy ? Did she act quickly enough? Use The Change Wheel to evaluate Rometty’s efforts.
Avoided
changing
strategy
High
investment in
cloud and
data
Divesting
unprofitable
businesses
Strategic
alliances, first
mover
advantage
Declining
revenues and
profitability
Post 2013

19. Question : 3
• IBM aggressively seeks revenue growth through acquisitions
• The acquisition of consultancy business of PwC to diversify itself in
consultancy sector
Analyze IBM’s acquisitions. What types of companies were acquired and how were they integrated
into larger IBM? What were the challenges? Identify potential difficulties associated with being
acquired by IBM.

20. THANK
YOU