Question

How would you characterize the strategy of IBM? How does IBM create value for its customers? What critical risk and success factors must IBM manage?

Linke to IMB 2017 10K Report: https://www.ibm.com/investor/att/pdf/IBM_2017_Annual_10K.pdf

Answer 1

International Business Machines Corporation (IBM) is among the world’s biggest technology companies.At IBM, strategic choices of top executives are focused on global expansion and increased outsourcing, while focusing on business operations that have the highest profitability.IBM’s strategy involves the combination of global expansion and increased outsourcing. This strategy is competitive

STRATEGY OF IBM CAN BE CHARACTERIZED AS FOLLOWING:

1. GENERIC STRATEGY-

At present, IBM’s primary generic strategy is cost leadership.In Michael Porter’s model, the generic strategies are what companies use to ensure competitive advantages. In this case, the cost leadership generic competitive strategy supports IBM’s competitive advantages through cost-effectiveness of its operations. Nonetheless, the differentiation generic strategy continues to play a strategic role in supporting the company’s competitive advantages despite business emphasis on cost leadership.

2. SWOT ANALYSIS

Strengths. In the SWOT analysis model, IBM’s strategy successfully capitalizes on business strengths, such as the strong brand and the company’s global supply chain.

Weaknesses. IBM’s weaknesses reduce business potential for expansion and growth. In recent years, the company has experienced declining financial performance, which analysts associate with competitive rivalry

Opportunities. IBM has the opportunity to improve its financial performance through further and aggressive expansion in developing markets, such as China and India. Another opportunity is to use acquisitions to enter new industries and establish new operations that can complement the company’s existing operations.

Threats. In this SWOT analysis, competition is the main threat to IBM’s business. For example, the company suffers from the aggressive approaches of other technology firms

3. MARKETING STRATEGY

Cloud. The implications of cloud computing are far-reaching. One thing it means for IBM is a transition from products that clients previously held at their site to services that clients access remotely.

Data. Rometty compares data to a natural resource — “abundant, but worth little unless you refine it.”IBM, Facebook, and Google are just beginning to aggressively gather and process frontier market data.

Engagement. Engagement is the framework through which IBM thinks about innovations in mobile computing, social networks, and security. Much has been written about the mobile revolution in frontier markets.

IBM CREATES VALUE TO CUSTOMER IN FOLL. WAY:

Smart businesses realize and acknowledge this characteristic of their customers, whether those customers are other businesses or they are individual consumers. End users do not purchase products; they purchase value.As both technology and end-user sentiment change, the means to deliver value also changes. Organizations often become comfortable with the status quo, delivering the same value as before, only to be bypassed by savvy competitors leveraging a new technology to deliver enhanced or different value.

The service product:Traditionally, the infrastructure of personal services is human centered. For example, a maid and a butler are intelligent human beings that have access to supporting infrastructure. Today’s infrastructure for service delivery, however, is the Internet of Things. Like a maid and a butler, the Internet of Things delivery mechanism is intelligent; the primary difference is that today’s intelligence is provided by software. Additional intelligence is available today because the delivery of the service can be measured and analyzed easily using computational technologies that surpass human capabilities.

A process of perpetual improvement:

Several technologies can be used to manage the complexity of delivering this ecosystem. First, driving the entire process involves understanding and designing how the service will deliver value.Second, the overall system of delivery then needs to be modeled to understand the architecture required to instantiate the service.

A continuous engineering ecosystem:

Application of these technologies in a closed loop of perpetual improvement is called continuous engineering. In today’s competitive business environment, sitting still is not an option.

IBM Journey Analytics will enable you to gain the insights necessary to thoughtfully and smartly interact with your customers, so that they receive a high-quality, consistent experience across all channels, at all times. The solution allows you to study the top paths customers travel in a variety of ways, including the most traveled paths, the shortest paths and the paths generating the most revenue. By studying these top journeys and working with your customer experience design team, you can purposefully design experiences to accomplish specific business goals

CRITICAL SUCCESS FACTORS THAT IBM MUST MANAGE:

5 critical factors without which organizations embarking on an SAP-centric enterprise transformation project are not likely to succeed:

1. Deploy a system of engagement for SAP

Systems of engagement are systems built to connect users, mobile, the cloud, the web, partners, social media, and the internet of things (billions of devices) to the systems of record which contain business data, business logic, business processes, and transactions.

Since SAP applications provide user interfaces and some notion of "process", most SAP implementations use the SAP transactional backbone, that is, SAP system of record, as their default system of engagement for the vast majority of their business processes.

This less than optimal approach marries the business processes of an organization and the associated business policies to a less than user-friendly platform that is bound by the constraints of IT Application Life cycle Management (ALM). In most enterprises, this life-cycle typically spans three to six months and in some cases a year or more. Yet a wide range of business changes should optimally be implemented in a matter of days or weeks, not months.

Externalizing at least some degree of SAP process control accelerates business-led change, enabled by a flexible process layer in the system of engagement. It can deliver dramatically enhanced flexibility, agility, and control over the traditional SAP implementation approach.

2. Balance SAP with application independent, industry-leading integration platform

SAP has been extending its offerings beyond the traditional scope of packaged enterprise application software into the area of integration middleware, including enterprise integration, business process management, mobile, portal, development life-cycle, business intelligence, database, and so on. These middleware offerings are typically well integrated within the SAP business application suite, but are often not adequate for integrating SAP and non-SAP systems.

Organizations adopting SAP software should not assume that all the middleware products that SAP offers are equally proven in the industry and are equally robust. Instead, governance process for architecture decisions should be used to evaluate and choose enterprise-class software infrastructure to support all application environments.

SAP has remained one of the most integration-enabled platforms for the last 20 years. It integrates well with robust third party integration middleware software such as the software provided by IBM.

3. Establish governance for architectural decisions

SAP adoption is a complex endeavor which involves multiple stakeholders, partners, vendors, technology alternatives, and so on. When a massive investment is directed towards a single vendor such as SAP, organizations have to establish an effective mechanism to make key architectural decisions in the best interest of their enterprise and not just follow vendor bias.

Establishing a governance mechanism for making balanced integration and process management technology decisions in the enterprise own best-interest is very important. It should prevent architectural decisions regarding application infrastructure to be driven by a vendor to push application-specific integration infrastructure into the enterprise domain. Good governance processes must ensure that carefully selected enterprise-class integration technology is used to integrate SAP with non-SAP systems.

4. Avoid custom coding

The long-term ROI on SAP implementations is directly linked to the level of SAP customization. The premise of SAP application investments is "buy not build". Organizations with significantly customized SAP deployments incur a much larger upgrade cost when compared to a more standard SAP installation.

IBM Smarter Process technology provides application-independent technology to extend packaged applications without “breaking” the applications. IBM Smarter Process enables a balanced SAP adoption strategy: To consolidate and optimize non-differentiating, commodity type business processes in SAP, while using a Business Process Management (BPM) strategy to assemble and optimize differentiating business processes.

5. Reduce business and IT risk with best-in-class enterprise middleware platform

Successful SAP adopters reduce business and IT risk by combining the value of pre-built SAP integration within the SAP domain based on SAP middleware ("integration you buy"), also known as Inner Ring, with best-in-class IBM enterprise middleware for custom integration in the enterprise which needs to be developed for an SAP-centric transformation program ("integration you build"), also known as Outer Ring. IBM uses the concepts of Inner and Outer Ring to mean: what happens inside SAP stays inside SAP, but what happens in the enterprise goes through IBM middleware.

The IBM Redbooks publication IBM Software for SAP Solutions explains the critical success factors for an SAP-centric transformation and describes how to enhance and extend pre-built capabilities in SAP software with best-in-class IBM enterprise software, enabling clients to maximize ROI in their SAP investment and achieve a balanced enterprise architecture approach.

Risk is inherent to any investment. The question for investors is whether the risk is manageable, and whether the stock offers enough potential upside to offset a worst-case scenario.

THE RISKS AHEAD

One of the few cloud providers on the planet that can rival IBM is the aforementioned Microsoft, though it's hardly the only one. With so much opportunity comes competition, and competition often translates to risk. That's particularly true when the competition includes some of the tech industry's biggest players, which certainly describes the cloud market.

As of last quarter, Microsoft boasted in excess of a $12.1 billion annual run rate of cloud-related sales, largely because of its SaaS offerings. Sure, its Azure cloud platform sales skyrocketed 102% last quarter and usage more than doubled, but that's merely a means to its SaaS end: Microsoft's 54% jump in Office 365 commercial sales is a testament to that.

IBM also faces the not-so-small matter of increased expectations from both investors and the Street. The impressive gains across its strategic imperatives units has been the impetus behind investors rising optimism, but if there's a hiccup of any kind in future quarters, the negative reaction would be immediate and harsh, to say the least.

As of last quarter, IBM was carrying over $44 billion in short- and long-term debt on its balance sheet, along with $10.6 billion in cash and equivalents. While not overly concerning for a company the size of IBM that generated free cash flow of $2.1 billion last quarter, the larger risk lies in why its debt has climbed: acquisitions.

IBM has already acquired 11 companies this year totaling more than $5 billion. The upside of all those deals is they have largely been in line with IBM's strategic-imperatives initiatives. But as Microsoft knows firsthand -- thanks to its failed smartphone ambitions, which ended with more than an $8 billion write-off -- successfully incorporating new technologies and people into an established firm can be a lot easier said than done.