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1. INTRODUCTION

There can be no doubt that the International Business Machines Corporation (IBM) stands head and shoulders above every other company in the crowded IT marketplace. During the last 5 years, Microsoft may have stolen its crown as the world’s leading software vendor, likewise Hewlett Packard (HP) in hardware and the days of its unconditional preeminence in any field other than mainframe computing are long gone. Nevertheless, IBM is still the world’s biggest IT supplier in terms of revenue, and it is the only pure IT player to employ over 329,000 staff (Band, 2003).

In early 90’s, the company faced huge losses and in 1992. One of the main causes of decline was its reliance on sales of mainframe computers, and neglecting the emergence of personal computer (Lynch, 2003). Since then, IBM made major changes in its business activities, shifting its focus significantly away from components and hardware and towards software and services.

After surviving a near-death experience, IBM gradually recovered under new leadership. Although its distinctive corporate culture remains deeply rooted, IBM managed to get organizational culture to adopt a new persona for public consumption - more easy-going, unbuttoned (suits and ties were no longer mandatory at all times), and more receptive to other people’s ideas (Band, 2003).


2. IBM Macro Environment Analysis - PESTEL

2.1 Political
IBM enjoys strong relationships with government, public, private and corporate IT sectors throughout the world. IBM leverage its marketing network and relationships with existing clients to improve its business process outsourcing business and services. The increasing IT outsourcing worldwide information technology (IT) outsourcing, and emerging developing markets in India and China are both threats and opportunity.

2.2 Economic
US economy which is IBM key market, has seen 16 successive interest rate hikes over the past few years, leading to an high of 5%. According to International Monetary Fund’s World Economic Outlook 2005, the US’ real GDP growth could fall from 3.5% in 2005 to 3.3% in 2006. In the Eurozone, any additional interest rate increase could halt an economic recovery that started in the last half of 2005 (Datamonitor 2006). The US and the Eurozone as key markets for the IBM, and slowdown in their economies could lead to reduced demand for the services.

2.3 Social
IT sector expansion benefits were enjoyed by IT companies over last three decades, but there is expected to be a slowdown in IT spending coming years (Datamonitor 2006). Reductions in corporate IT spending will adversely affect the revenues and profitability of the IT sector in general and IBM in particular.

2.4 Technological
Information technology industry is being radically reshaped by developments in technology, its application in business and the onrush of globalization. The companies with spending for research and development and innovations always have edge. Market much of trust on outsourcing and increasing number of corporations worldwide are outsourcing IT services to on and offshore service providers to reduce costs and improve efficiency.

2.5 Environmental
The growing concern over the environmental changes also put pressure on electrical and electronics equipment disposal. The governments around the world look for producers responsible for disposals. European Union already has regulates and many other countries are in the process.

2.6 Legal
There has been a surge of Indian based technology consulting and outsourcing companies that are entering the US and other countries markets with a stronger and more consolidated base in India. Any regulation to curtail outsourcing may also have an adverse impact on the global company like IBM.

3. POTENTIAL IMPACT

3.1 IBM core competencies
IBM has diverse product and services portfolio, it operate in all IT sectors. The company’s diverse portfolio enables it to provide end-to-end solutions. With a strong presence in consulting, the company differentiates its offerings and gains a competitive edge over regional players. IBM acquired several companies in last 5 years, which might become a competitor in future.

3.2 Sustaining competitive advantage
IBM as an enterprise IT Company, has competitive advantage with diverse portfolio, global services, a complete solution to corporation was one success factor in past. The trust and confidence build over the years and strong influence across industries enable IBM to enjoy monopoly. It is changing and will now depend much on the growing number of competitors and corporation expansion.

3.3 Performance
IBM overall performance for the last 5 years was not brilliant. Its operating profit reduced 4.9 % in 2004 to 2005. The company’s five year average operating margin and net margin from 2001-2005 were 9.9% and 8.1% respectively, considerably lower than corresponding industry averages of 14.7% and 25.4% for the same period (Datamonitor 2006).

4. FUTURE STRATEGIC CHOICES
IBM has implemented successful strategies for the last 15 years and has survived, but its performance is still a question. The continuous reshaping and developments in the technology needs to review incessantly. The reduction in revenues for the last 5 years adversely affected investor confidence and have also hinder the long term strategy of the company.

Analysing IBM competitive environment there is need of alternative strategies to look for. Size may not guarantee the market power it once did, but it does imply a certain staying power.

4.1 Investment in IBM India
Industry trends to outsourcing and offshore services from developing markets, especially India is inevitable for companies to sustain businesses. IBM which is more focused on developed markets in North America and Europe, has established low cost IBM India hub which has provided substantial revenues in last years. IBM needs to further invest and increase operations to get benefits from the potential.

The Chinese and Indian economies are blooming, they account for approximately 50% of GDP. In year 2005, India’s IT and IT related services industry grew by 31% to £15.8 bn, and business process outsourcing grew by 37% to 3.4 bn (Witchall 2006).

Over the past three years, IBM’s India operations have shown considerable growth. IBM India’s headcount at the end of 2005 stood at 11.6% of its total headcount, the most among any centre outside the US. India revenues have been growing steadily, while IBM’s overall revenues have remained flat (Band 2003).

Increasing IT outsourcing worldwide and emerging developing markets in India and China are challenges for established IT services. Indian companies like Wipro, Infosys and TCS are benefiting from their unique cost proposition. Wipro and TCS have also been acquiring IBM’s market share in the consulting business on account of their low cost India based operations. Any expansion of these competitors’ business may will come at the cost of IBM’s own market share, affecting IBM’s business worldwide. While developing markets like India and China still got great potential, both at corporate and personal level (Hamm 2006).

In July 2006, IBM top outsourcing competitor Accenture launched a new R&D facility in India. India is not only a source for low cost, but a hub for innovation (Witchall 2006).

Advantages
IBM operations in India will not only reduce cost, it will also provide access to India’s vast pool of software developers. The innovation in constantly changing technology needs research and development and with lower investment higher result can be achieved.

India operations will also provide an opportunity for IBM to tap the Indian, china and other emerging Asian markets. This could significantly boost the company’s top line as well as profitability in the long run.

Disadvantages
The cost cut and more investment in India operation will result job cuts at other countries. The company which has major concentration in US, have to bear much from this.

4.2. Cost effective solutions

Many things have an effect on IBM competitive edge, including: its reputation for high prices, its high overheads and the expectation of IBM shareholders to maintain high margins. There is now need for IBM to figure out cost effective solutions and compete in the competitive market otherwise it has to leave market.

IBM competes with several large players in the various industries it operates in. In the consulting and outsourcing industry, it faces stiff competition from Accenture and Capgemini. In the application infrastructure software business, IBM faces competition from BEA Systems, Oracle, Sun Microsystems and Microsoft. In software, IBM is second to Microsoft, the world’s largest software company. In the market for servers, IBM’s position of leadership is challenged by Unix, Hewlett Packard, Sun Microsystems and Dell (Datamonitor 2006).

The company was unable to compete with Dell, HP and various other large and small PC manufacturers in the highly competitive PC market. In late 2004, IBM had to sold its PC manufacturing business to Chinese computer manufacturer Lenovo (Global Insight 2006). Leaving market such as PCs, IBM not only lost actual and potential of PC growth but also a big clientele access.

Advantages
IBM needs to sustain its industry lead, as market getting competitive and the future competitor’s threats need IBM to find cost effective solutions.

Although acquisitions in line with its strategy in recent years worked, but competitors are large multinational companies, with the finances and development expertise to pose a considerable threat to IBM’s market share and revenues.

Disadvantage
In spite of its size and diversity of operations, the company’s inability to successfully maintain its position in any business can result in loss of investor confidence.

IBM seems left behind in innovation and new technology in dot net 2. Google, yahoo and msn provided many new opportunities and ideas which are still in progress and IBM cannot be seen in near top in the list. The question arise what major innovation IBM came up with in last 5 years?

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