International Business Machines (IBM) was dubbed the proverbial ‘sinking ship’ in the early nineties, but since then, due to the competent leadership of its management team, IBM made a successful comeback. IBM, with $103.63 billion in revenue in 2008, is the world’s top producer of computer hardware, software, and services. More than 50% of IBM’s revenues in 2008 can be attributed to sales outside the US. Among the leaders in almost every market in which in competes, IBM makes mainframes and servers, storage systems, and peripherals in its hardware product stream. IBM’s service arm is the largest in the world. It is also one of the largest providers of both software (ranking number two, behind Microsoft) and semiconductors. IBM has traditionally used acquisitions to augment its software and service businesses, while streamlining its hardware, software, and server operations. In 2007, for the fifteenth consecutive year, IBM was issued more US patents (3,125) than any other company.
IBM has seen significant changes in recent years. It reorganised its hardware business, merging its desktop and laptop operations to concentrate on its leading enterprise server and storage products. Early in 2004, IBM announced that it would also combine its technology (microchips) and systems (servers, storage) groups. Late in 2004, IBM ended the year with an agreement to sell its PC business – a segment that had yielded little profit for the company in recent years – to China’s Lenovo.
IBM’s growing services business now accounts for almost half of its sales, even though it is traditionally, seen as a provider of mainframe hardware. Looking to extend its lead, IBM acquired PricewaterhouseCoopers’ consulting and IT services unit, PWC Consulting, for an estimated $3.5 billion in cash and stock. Presenting IBM with a significant integration challenge, the transaction also served the dual purpose of augmenting IBM’s standard array of outsourcing, maintenance, and integration services, while moving the company into high-end management consulting.
IBM has largely used acquisitions to become a leader in yet another market – software – where it trails only Microsoft. A pioneer in server operating system (OS) software, IBM made an early move into messaging and network management software with its acquisitions of Lotus Development (1995) and Tivoli (1996). Its software operations now focused primarily on e-commerce infrastructure. IBM had continued its push beyond OS software, purchasing the database operations of Informix (2001) and application integration products from CrossWorlds Software (2002). In 2003, IBM acquired development tool maker Rational Software for $2.1 billion in cash and it also acquired supply chain software developer Trigo Technologies early in 2004. In early 2005, Lenovo Group Limited completed the acquisition of IBM’s Personal Computing Division. IBM’s ownership in Lenovo upon closing is 18.9 percent. In the dynamic IT industry, companies need to continually reinvent themselves to bring long-term value for clients. IBM’s strategy is to be the world leader in providing high-value solutions – focused on the enterprise and small and medium business clients. In 2007, IBM and Ricoch announced the formation of a joint venture company the InfoPrint Solutions Company, based in IBM’s Printing Systems Division.
In late 2007, IBM acquired Cognos for $5 billion. For IBM, the Cognos acquisition is a continuation of a “growth through mergers-and-acquisitions” effort it launched in February 2006. Since then, IBM bought 23 software companies as part of its Information on Demand strategy, which combines software and services to help corporations get the most out of all the data they gather about customers and their own business operations.
IBM is one of the Fortune 500 companies. Roughly half of IBM’s revenues and profits come from its hardware and software products.
In order to compete with Microsoft, IBM, along with others like Sun, has supported the Linux platform in a big way. Also, the open source initiative that IBM and others have spearheaded is seen as an effective means of cornering Microsoft. To gain support in the developer community, IBM has fully supported Java in is flagship middleware software platform, WebSphere, and also in its other parallel products such as Tivoli. IBM has almost the complete footprint in its product line in the hardware segment and software segment. The only area of software product that IBM conspicuously lacks is the ERP/CRM market, which is now being hotly contested by SAP and Oracle, especially after Oracle’s buyout of PeopleSoft. But, even in this segment, IBM has made successful inroads using its WebSphere middleware product, which is often preferred by some customers for their applications-integration requirement. Also, IBM’s PWC is one of the major players in the ERP/CRM implementation-services market.
In order to maintain this lead, it is important for IBM to ensure that its customers – the managers and decision makers who make purchasing decisions – are satisfied with IBM’s hardware and software products. Therefore, IBM conducted a survey-based study of decision makers in different roles in various companies. The survey participants chose a company, which they evaluated. The company chosen by the participant was IBM or a different company that competes with IBM in some way. The survey, named the IT Industry Customer Benchmark Survey, will be repeated each year. It will provide data on how IBM and its competitors are perceived by customers. The survey questions follows and the data file can be downloaded from Blackboard. IBM’s management team can use the results of the survey and its analysis to make strategic decisions to improve IBM’s standing in the eyes of its customers.
The Task
write a memo, of no more than 1,200 words, to IBM’s management team addressing the following issues:
• Describe the respondents of the questionnaire. For example, are there differences in opinions or preferences regarding vendor services among certain respondents? Also, given IBM’s greatest competitors are Microsoft and Compaq/HP, are there any relevant insights?
• Develop a model to predict reactions to a customer’s IT vendor.
• Make a recommendation regarding what IBM should do next, including where to focus more attention as a leading service provider.
Sample Solution
