Ibm Analysis

Written Case Analysis - IBM

Salient Case Facts at a Glance:

John Akers became the CEO of IBM in 1985. By this time, IBM

had registered a drop in earnings for the first time. This trend

continued, creating various other problems till John Akers was

forced to resign in 1993.

IBM was perceived as a ruthless giant with tremendous growth.

Naturally, it was singled out for criticism by the entire industry

and the government. IBM also attracted anti-trust legislation as

a result.

IBM lost out once the Personal Computer industry began to boom.

It found that the old paradigm of closed proprietary systems

applicable to the mainframe business was not relevant to PCs.

Reasons for decline of IBM in the late 80's and early 90's:

* IBM's earlier investments were yet to pay dividends and the

future investments planned were high.

* IBM's products were treated as generic. PC parts were

available cheap and assembly was also cheap. Therefore

customers opted for cheap clones. A high cost manufacturer

like IBM had an obvious disadvantage.

* IBM failed to read the industry trends and was still banking

on the mainframe business to earn major revenues. It was

losing market share in PC and laptop segments, which were

growing fast and had tremendous potential.

* IBM had excess manpower which resulted in heavy overheads.

* IBM was seen as a single entity by customers. So the splitting

of the company into autonomous business units was not

acceptable to the customers. The customers would find it

difficult to deal with different divisions of IBM.

* IBM also did not appreciate that software was becoming more

important than hardware in the light of the IT revolution.

Louis Gerstner took over as CEO in 1993. The major policy

initiatives that he launched included a decision not to split up the

company but to make it even more closely linked, concentrate on

networking and minimizing bureaucracy. Under his leadership,

IBM's earnings showed a remarkable turnaround in the next two

years after registering a huge loss in 1993.

PC Industry - Structural Analysis: (Using Michael Porter's

Model)

Based on the information provided in the case, we can do a

structural analysis of the PC industry which will help us in better

analysis of the case.

Threat of New Entrants: Entry was easy in the industry due to

its huge potential. However, the major market share was held only

by a few players.

Rivalry: Stiff competition among a few major players having equal

strength and potential. This led to intensive rivalry.

Bargaining Power of Customers: High bargaining power because of

stiff competition, and a large number of suppliers offering similar

products to choose from.

Bargaining Power of Suppliers: Bargaining power of suppliers is

high because of the dominant position of players such as

Microsoft and Intel.

Substitutes: The PC industry was a highly dynamic one. However

an immediate substitute did not seem likely.

Major Problems Facing IBM :

In the current scenario, the most important task was to initiate a

long term growth strategy that would sustain IBM's recovery and

spearhead it into the future. An associated