Wednesday, April 21, 2010

Strategic Management: Space Matric, QSPM, EFE, IFE

International Business Machines – 2007

Forest David: Francis Marion University

A. Case Abstract

International Business Machines (IBM) (www.ibm.com) is a comprehensive business policy and strategic management case that includes the company’s fiscal year-end December 2006 financial statements, competitor information and more. The case time setting is the year 2007. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Armonk, NY IBM’s common stock is publicly traded on the New York Stock Exchange under the ticker symbol IBM.

IBM operates in three segments: Systems and Financing, Software, Services. Products offered include: personal computers, servers, printing systems, integrated circuits, and more. IBM was founded in 1910 and operates worldwide. The company is led by CEO Samuel Palmisano whose base pay was over $6M in 2006. The firm’s two major competitors are Hewlett-Packard and Electronic Data Systems.

B. Vision Statement (proposed)

IBM is committed to maintaining their position as the world’s largest technology company.

C. Mission Statement (proposed)

At IBM, our mission is to engage collaboration with our clients (1) and tackle their most complex business problems on a global scale (3, 7). We will apply our business insights to develop fresh, innovative solutions that provide real and measurable business outcomes, whether it is designing and implementing new service after sales business models, revolutionizing the business model for automotive insurance with innovative technology (4) or becoming one of the leading logistic providers for supply software, storage devices, printing systems and PC recycling and buyback programs for business (2). We will work with our clients to identify the level of change that suits their needs that results in actionable change and sustainable outcomes (5). We also contribute to the economic strength of society and function as good corporate citizen (8), providing our employees (9) with excellent working conditions, superior leadership, compensation and opportunities for growth.

1. Customer

2. Products or services

3. Markets

4. Technology

5. Concern for survival, profitability, growth

6. Philosophy

7. Self-concept

8. Concern for public image

9. Concern for employees

D. External Audit

Opportunities

1. Growth in engineering technologies rose by 11 percent in 2006.

2. A shift from software to service-oriented architecture market is expected to double to $143 billion by 2008.

3. Sony Corporation expected to lose more than $1 billion in the Playstation 3 console’s first year of existence.

4. Global spending on IT services is expected to increase by 5.7 percent growth rate between 2005 and 2010.

5. Telecommunications industry grew by 14 percent in 2006.

6. Diversified computer systems industry grew 72 percent in 2005.

7. Video gaming industry rose 17.5 percent for year 2006.

8. US software producers hold roughly 70 percent of the world market.

9. China government has developed incentive policies to encourage growth in the software industry.

10. Diversified computer industry has a profit margin of more than 6 percent.

11. Hand held computers are expected to grow 31 percent.

Threats

1. Possible legislation to limit the number of software patents awarded.

2. Leading competitor has developed new technology to reduce greenhouse gas emissions by 37 million pounds in 2007.

3. Revenue in major European countries decreased by 31 percent.

4. Leading competitor has over 12 percent more market share as leading vendor of external disk storage systems.

5. China forming contracts with Australia for biochip technology research.

6. Government regulation in the computer industry is expected to increase by 2008.

7. Leading competitor expected to acquire major software firm.

8. Leading competitor increased R&D by 1.2 percent.

9. Interest rates are expected to grow 1.7 percent annually.


CPM – Competitive Profile Matrix


Hewlett-Packard

Dell

IBM

Critical Success Factors

Weight

Rating

Weighted Score

Rating

Weighted Score

Rating

Weighted Score


Market Share

Price

Financial Position

Product Quality

Product Lines

Consumer Loyalty

Employees

0.20

0.10

0.20

0.15

0.10

0.20

0.05

3

3

3

3

4

3

4

0.60

0.30

0.60

0.45

0.40

0.60

0.20

2

3

3

3

2

2

2

0.40

0.30

0.60

0.45

0.20

0.40

0.10

3

2

4

4

4

3

4

0.60

0.20

0.80

0.60

0.40

0.60

0.20


TOTAL

1.00

3.15

2.45

3.40













External Factor Evaluation (EFE) Matrix

Key External Factors

Weight

Rating

Weighted Score

Opportunities

1. Growth in engineering technologies rose by 11 percent in 2006.

0.04

2

0.08

2. A shift from software to service-oriented architecture market is expected to double to $143 billion by 2008.

0.05

3

0.15

3. Sony Corporation expected to lose more than $1 billion in the Playstation 3 console’s first year of existence.

0.07

4

0.28

4. Global spending on IT services is expected to increase by 5.7 percent growth rate between 2005 and 2010.

0.03

1

0.03

5. Telecommunications industry grew by 14 percent in 2006.

0.07

1

0.07

6. Diversified computer systems industry grew 72 percent in 2005.

0.02

4

0.08

7. Video gaming industry rose 17.5 percent for year 2006.

0.07

2

0.14

8. US software producers hold roughly 70 percent of the world market.

0.04

4

0.16

9. China government has developed incentive policies to encourage growth in the software industry.

0.08

2

0.16

10. Diversified computer industry has a profit margin of more than 6 percent.

0.04

3

0.12

11. Hand held computers are expected to grow 31 percent.

0.09

1

0.09

Threats

1. Possible legislation to limit the number of software patents awarded.

0.09

2

0.18

2. Leading competitor has developed new technology to reduce greenhouse gas emissions by 37 million pounds in 2007.

0.03

1

0.03

3. Revenue in major European countries decreased by 31 percent.

0.07

2

0.14

4. Leading competitor has over 12 percent more market share as leading vendor of external disk storage systems.

0.04

3

0.12

5. China forming contracts with Australia for biochip technology research.

0.05

2

0.10

6. Government regulation in the computer industry is expected to increase by 2008.

0.05

3

0.15

7. Leading competitor expected to acquire major software firm.

0.02

4

0.08

8. Leading competitor increased R&D by 1.2 percent.

0.02

1

0.02

9. Interest rates are expected to grow 1.7 percent annually.

0.03

2

0.06

TOTAL

1.00


2.24


E. Internal Audit

Strengths

1. Ranked #1 service provider in IT outsourcing, web hosting, and consulting.

2. Leads in supercomputer, 219 out of 500 systems.

3. Invested $5 to 6 billion in R&D.

4. Stockholders’ equity increased from $31,688M to 33,098M.

5. 13th year IBM received more patents than any other company.

6. 9 factors/plants have been integrated into a single flexible network.

7. Has a skills market that indexes 68,000 professionals worldwide.

8. Decreased the time it takes to process a purchase within 10 years to a few hours.

9. Leader in provider with approximately 500 certified partners worldwide.

10. Engineering & Technology services revenue increased 28 percent.

11. IBM has generated $60.8 billion in cash over past 5 years.

Weaknesses

1. Only gained nine percent in China in 2006.

2. Only grew 6 percent in small & medium-sized businesses.

3. Increased loss from discontinued operations, $18 million to $24 million.

4. Revenues across all industries sectors decreased 5.4 percent.

5. Total assets decreased from $111 billion to $105 billion in 2006.

6. IBM website isn’t as aesthetically pleasing, user-friendly, and innovative as competing firms.

7. Communications sector declined revenue 13.6 percent in 2006.

8. Systems & technology gross profit declined 40.4 percent in 2006.


Internal Factor Evaluation (IFE) Matrix

Key Internal Factors

Weight

Rating

Weighted

Score

Strengths




1. Ranked #1 service provider in IT outsourcing, web hosting, and consulting.

0.02

4

0.08

2. Leads in supercomputer, 219 out of 500 systems.

0.03

3

0.09

3. Invested $5 to 6 billion in R&D.

0.10

4

0.40

4. Stockholders’ equity increased from $31,688M to 33,098M.

0.02

3

0.06

5. 13th year IBM received more patents than any other company.

0.03

3

0.09

6. 9 factors/plants have been integrated into a single flexible network.

0.10

4

0.40

7. Has a skills market that indexes 68,000 professionals worldwide.

0.06

4

0.24

8. Decreased the time it takes to process a purchase within 10 years to a few hours.

0.10

4

0.40

9. Leader in provider with approximately 500 certified partners worldwide.

0.08

3

0.24

10. Engineering & Technology services revenue increased 28 percent.

0.04

3

0.12

11. IBM has generated $60.8 billion in cash over past 5 years.

0.06

4

0.24

Weaknesses

1. Only gained nine percent in China in 2006.

0.03

2

0.06

2. Only grew 6 percent in small & medium-sized businesses.

0.04

2

0.08

3. Increased loss from discontinued operations, $18 million to $24 million.

0.01

1

0.01

4. Revenues across all industries sectors decreased 5.4 percent.

0.03

2

0.06

5. Total assets decreased from $111 billion to $105 billion in 2006.

0.10

2

0.20

6. IBM website isn’t as aesthetically pleasing, user-friendly, and innovative as competing firms.

0.02

1

0.02

7. Communications sector declined revenue 13.6 percent in 2006.

0.03

2

0.06

8. Systems & technology gross profit declined 40.4 percent in 2006.

0.10

2

0.20

TOTAL

1.00


3.05


F. SWOT Strategies

SO Strategies

1. Expand R&D in new telecommunication devices (S3, S10, S11, O1, O5).

2. Increase IT services in China (S1, O4, O9).

3. Acquire Sony Corporation gaming division (S9, S11, O3, O7).

4. Develop new PC hand-held device (S6, S11, O8, O10).

WO Strategies

1. Increase revenue from the small and medium-sized business segment (W2, O6).

2. Develop a more user friendly and innovative website (W6, O1, O6).

ST Strategies

1. Increase RD spending (S3, S11, T5, T6).

2. Increase marketing budget in European countries (S3, S11, T3).

3. Increase political alliances (S5, T1, T7).

WT Strategies

1. Research global sector to search for feasibility of continuing services (W1, W4, T3)


G. SPACE Matrix

x-axis: -1.8 + 5.0 = 3.2

y-axis: 4.8 + -4.0 = 0.8



















J. QSPM

Strategic Alternatives

Key Internal Factors Weight

Enter the Hand Held PC Market

Increase Advertising Worldwide

Strengths

AS

TAS

AS

TAS

1. Ranked #1 service provider in IT outsourcing, web hosting, and consulting.

0.02

---

---

---

---

2. Leads in supercomputer, 219 out of 500 systems.

0.03

---

---

---

---

3. Invested $5 to 6 billion in R&D.

0.10

4

0.40

2

0.20

4. Stockholders’ equity increased from $31,688M to 33,098M.

0.02

2

0.04

3

0.06

5. 13th year IBM received more patents than any other company.

0.03

3

0.09

1

0.03

6. 9 factors/plants have been integrated into a single flexible network.

0.10

---

---

---

---

7. Has a skills market that indexes 68,000 professionals worldwide.

0.06

4

0.24

2

0.12

8. Decreased the time it takes to process a purchase within 10 years to a few hours.

0.10

---

---

---

---

9. Leader in provider with approximately 500 certified partners worldwide.

0.08

1

0.08

3

0.24

10. Engineering & Technology services revenue increased 28 percent.

0.04

4

0.16

2

0.08

11. IBM has generated $60.8 billion in cash over past 5 years.

0.06

4

0.24

3

0.18

Weaknesses

1. Only gained nine percent in China in 2006.

0.03

1

0.03

4

0.12

2. Only grew 6 percent in small & medium-sized businesses.

0.04

1

0.04

4

0.16

3. Increased loss from discontinued operations, $18 million to $24 million.

0.01

---

---

---

---

4. Revenues across all industries sectors decreased 5.4 percent.

0.03

1

0.03

3

0.09

5. Total assets decreased from $111 billion to $105 billion in 2006.

0.10

1

0.10

3

0.30

6. IBM website isn’t as aesthetically pleasing, user-friendly, and innovative as competing firms.

0.02

---

---

---

--

7. Communications sector declined revenue 13.6 percent in 2006.

0.03

1

0.03

4

0.12

8. Systems & technology gross profit declined 40.4 percent in 2006.

0.10

1

0.10

3

0.30

SUBTOTAL

1.00


1.58


2.00

Key External Factors Weight

Enter the Hand Held PC Market

Increase Advertising Worldwide

Opportunities

AS

TAS

AS

TAS

1. Growth in engineering technologies rose by 11 percent in 2006.

0.04

3

0.12

1

0.04

2. A shift from software to service-oriented architecture market is expected to double to $143 billion by 2008.

0.05

1

0.05

3

0.15

3. Sony Corporation expected to lose more than $1 billion in the Playstation 3 console’s first year of existence.

0.07

---

---

---

---

4. Global spending on IT services is expected to increase by 5.7 percent growth rate between 2005 and 2010.

0.03

---

---

---

---

5. Telecommunications industry grew by 14 percent in 2006.

0.07

---

---

---

---

6. Diversified computer systems industry grew 72 percent in 2005.

0.02

3

0.06

2

0.04

7. Video gaming industry rose 17.5 percent for year 2006.

0.07

---

---

---

---

8. US software producers hold roughly 70 percent of the world market.

0.04

2

0.08

3

0.12

9. China government has developed incentive policies to encourage growth in the software industry.

0.08

1

0.08

3

0.24

10. Diversified computer industry has a profit margin of more than 6 percent.

0.04

---

---

---

---

11. Hand held computers are expected to grow 31 percent.

0.09

4

0.36

2

0.18

Threats

1. Possible legislation to limit the number of software patents awarded.

0.09

---

---

---

---

2. Leading competitor has developed new technology to reduce greenhouse gas emissions by 37 million pounds in 2007.

0.03

---

---

---

---

3. Revenue in major European countries decreased by 31 percent.

0.07

1

0.07

3

0.21

4. Leading competitor has over 12 percent more market share as leading vendor of external disk storage systems.

0.04

---

---

---

---

5. China forming contracts with Australia for biochip technology research.

0.05

---

---

---

---

6. Government regulation in the computer industry is expected to increase by 2008.

0.05

---

---

---

---

7. Leading competitor expected to acquire major software firm.

0.02

---

---

---

---

8. Leading competitor increased R&D by 1.2 percent.

0.02

---

---

---

---

9. Interest rates are expected to grow 1.7 percent annually.

0.03

---

---

---

---

SUBTOTAL



0.82


0.98

SUM TOTAL ATTRACTIVENESS SCORE



2.40


2.98


K. Recommendations

1. The QSPM strategies assessed entering the hand held PC market or increasing advertising world wide to take advantage of the growth in Asia and Eastern Europe. Both strategies are appropriate and can be implemented. Total amount needed to acquire Palm is $1 billion and an additional $500 million in advertising.