Assignment II Strategic Management IBM Ansoff Matrix, SWOT Matrix and Space Matrix & Case Study Analysis

Submitted to, Prof. Sanjeev Malage Dept. of FMS

Submitted by, Watisenla Noella Pongen MFM III

National Institiute of Fashion Technology, Bangalore 19/11/2013

INTERNATIONAL BUSINESS MACHINES (IBM)

The International Business Machines Corporation (commonly referred as IBM) is an American multinational technology and consulting corporation, with headquarters in Armonk, New York, United States. IBM manufactures and markets computer hardware and software, and offers infrastructure, hosting and consulting services in areas ranging from mainframe computers to nanotechnology. The company was founded in 1911 as the Computing Tabulating Recording Company (CTR) through a merger of three companies: the Tabulating Machine Company, the International Time Recording Company, and the Computing Scale Company. CTR adopted the name International Business Machines in 1924, using a name previously designated to CTR's subsidiary in Canada and later South America. Securities analysts nicknamed IBM Big Blue in recognition of IBM's common use of blue in products, packaging, and logo. In 2012, Fortune ranked IBM the No. 2 largest U.S. firm in terms of number of employees (435,000), the No. 4 largest in terms of market capitalization, the No. 9 most profitable, and the No. 19 largest firm in terms of revenue. Globally, the company was ranked the No. 31 largest in terms of revenue by Forbes for 2011. Other rankings for 2011/2012 include No. 1 company for leaders (Fortune), No. 1 green company worldwide (Newsweek), No. 2 best global brand (Interbrand), No. 2 most respected company (Barron's), No. 5 most admired company (Fortune), and No. 18 most innovative company (Fast Company). IBM has 12 research laboratories worldwide and, as of 2013, has held the record for most patents generated by a company for 20 consecutive years. Its employees have garnered five Nobel Prizes, six Turing Awards; ten National Medals of Technology, and five National Medals of Science. Notable inventions by IBM include the automated teller machine (ATM), the floppy disk, the hard disk drive, the magnetic stripe card, the relational database, the Universal Product Code (UPC), the financial swap, SABRE airline reservation system, DRAM, and Watson artificial intelligence.The company has undergone several organizational changes since its inception, acquiring companies such as Kenexa (2012) and SPSS (2009) and organizations such as PwC's consulting business (2002), spinning off companies like Lexmark (1991), and selling off product lines like ThinkPad to Lenovo (2005).

ANSOFF MATRIX

IBM is in the business of providing a wide plethora of products, services and business solutions to various industries ranging from Aerospace and defense, to Education, Finance & Insurance, Media and Entertainment, Metals and Mining, Retail, Travel and Transportation, Electronics, Consumer Products, Healthcare, Government, Energy and Utilities, Communication, Banking, Chemicals and Petroleum. IBM has secured itself as one of the leading company globally, with a strong brand image and an effective Research and Development team that strive for innovation. Diversification IBM should follow the route of Diversification. The company should focus on developing new and improving on existing products and services, selling it to new markets. IBM relies heavily on big businesses and corporation as their customers; the company should develop strategies to target individual customers and expand their customer base. Youth market being a highly sought after market, IBM should put to use its R&D team to develop technologies that appeal to them.

SWOT MATRIX STRENGTHS INTERNAL

1. Brand name, No.2 best global brand voted by Interbrand 2. Rising revenue from 104.51 Billion in 2011 to 106.93 Billion in 2012, globally the company was ranked the No. 31 largest in terms of revenue by Forbes for 2011. 3. Diversification (Software, Hardware, Finance, education, Nanotechnology, Aerospace, etc) 4. First mover in cloud computing solutions for enterprises 5. Strong competency in acquisitions. 6. Ranks second in market capitalization, net income, and long term growth behind Microsoft 7. Widespread operation in over 104 countries. 8. Rising earnings per share: 13.26 in 2011 to 14.54 in 2012 9. Innovativeness, IBM has been ranked number 16 by Booz and Company in 2013 for the most innovative company in the world. 10. Strong competency in acquisitions. S.O STRATEGIES 1. Use innovatiness to get in touch of the younger customer base in order to appeal to them. 2. Capitalize on brand name to get into gaming PCs

WEAKNESS
1. Difficult to coordinate over four geographical segments. 2. Too many employees (around 400,000) 3. Concentration or focus on three major divisions or segments puts the company at a vulnerable position if revenues from them decline. 4. Expensive service and software solutions.

EXTERNAL

OPPORTUNITIES
1. Globalization; integration of economies and opening up of markets. 2. Create products appealing to the younger generation. 3. Use patents to generate

W.O STRATEGIES 1. Look for more new emerging markets where profitable business can be carried out from hardware products. 2. Opening up of new

revenues. 4. Expand services and software divisions 5. Increasing demand of cloud based services.

and Laptops for youth. 3. Develop better sustainable technology to reduce carbon footprint and be more environmental friendly. 4. Use innovation to further perfect cloud technology. S.W STRATEGIES 1. Use rising revenues to invest in latest technologies. 2. Capitalize on financial strength to acquire more small similar business to compete better with MS & HP. 3. Use innovation to engage in product development.

markets would enable IBM to generate more revenues, this benefit could be applied towards reducing prices later on.

THREATS
1. Increasing competition in the cloud computing market. Eg. iCloud by Apple 2. Slowed growth in world economy due to recession. 3. Unstable markets 4. Low customer switching costs. 5. Rapid product development from competitors. 6. Fierce competition from Microsoft & HP

W.T STRATEGIES 1. Reposition employment to more profitable regions. 2. Focus on reasonable horizontal acquisition to safeguard against unstable markets.

SPACE MATRIX INTERNAL POSITION

FINANCIAL STRENGTH (FS) Rising ROI Profit Margins Cash Flows Dividend Growth Revenue Growth Earnings Per Share Average Score COMPETITIVE (CS) Product Quality Customer Loyalty Market Share Brand Image Innovation Product Life Cycle -6 -5 -6 -7 -6 -3 RATES +8 +6 +6 +5 +4 +7 +6 STRATEGY RATES

STRATEGIC EXTERNAL POSITION

INDUSTRY STRENTH (IS) Growth Ease of entry Profit Potential Financial Stability Productivity Capacity utilization Average Score

STRATEGIC

RATES +6 +3 +5 +3 +6 +7 +5

ENVIRONMENTAL STREGTH RATES (ES) Competitive Pressure Barriers to entry Demand Technological Changes Risk involved Rate of inflation Competitive Pressure -7 -3 -5 -6 -3 -6 -3 -4.7 +0.28

Average Score TOTAL

-5.5 +0.5

Average Score TOTAL

The average of the FS, IS, CA and ES were calculated after giving them points. Then the coordinates were calculated by adding FS & IS and CA & ES. After calculating the co-ordinates for the vector on the space matrix, the vector has been drawn which points towards the aggressive strategies. Under, aggressive strategies: backward, forward or horizontal integration; market penetration; market development; product development, and related or unrelated diversification. IBM has secured position of being number two in the computer hardware & software, nanotechnology, IT services and consulting sector. In order for IBM to maintain its position as a market leader IBM should be more aggressive in terms of its advertisement and diversification strategies. IBM has been ranked number 16 by Booz and Company in 2013 for the most innovative company in the world. In hindsight IBM should focus on innovation and building a

stronger efficient and effective Research and Development, build on more problem solving solutions that may come up. IBM has already diversified its operations to multitudes of industries ranging from aerospace and defense, automotive, banking & insurance, petroleum, consumer products, education, etc. therefore IBM should focus on coming up with more innovative methods to provide solutions and deliver results faster.

CASE STUDY ANALYSIS

AIR DECCAN: REVOLUTIONISING THE INDIAN SKIES DVR Seshadri and Jane Henry

'Every Indian can fly' It hit me like a ton of bricks. This country has a population of a billion, but only 15 rnillion.air passengers. May be the time is right. If one billion people can fly, and we get a miniscule percent of the market, imagine how big that will be? It's not an impossible dream.
-

Captain Gopinath, The Hindu, Sunday, 15 August 2004

A chance visit to USA in 2001 made Captain Gopinath (Gopi, to his friends) realize the world of possibilities that would open up by starting a low-cost airline in India. During this visit, he discovered that a relatively small city, Phoenix, in Arizona, USA, had over 1,500 flights a duy, catering to over 150,000 passengers daily or about 40 million a year. USA, with a quarter of the Indian population, had over 40,000 flights a day ! In stark contrast, India, a country with a huge population of over a billion people, had less than 1 per cent as many flights a day. If he could find ways to reduce costs of operating an airline, he could price the cost of air travel considerably lower than the well-established airlines, and entice huge numbers of people who had hitherto never flown, to using his low cost airline by offering them value at a lower price. Started in 2003, a distinctive strength of Air Deccan vis-a-vis any of the big three airlines in the country (Indian Airlines, Jet and Sahara)i s its ability to penetrate into the small towns of India. This untapped market comprised 70 percent of the Indian population. This case study illustrates how a start-up with a strong value proposition could take on the well-established players in the industry, by 'frame-breaking' innovation. In addition to the usual approaches to cost containment adopted by low-cost airlines worldwide, Air Deccan has implemented several measures that are unique to the Indian context. The entry of Air Deccan has resulted in fierce competition and price wars in the Indian skies, with the net result being that the passenger has benefited significantly. The 'lean and mean' approach of low-cost airlines across the world Low-Cost Airlines (LCA) usually operate on a three-pronged policy of low operational costs, appropriate positioning and no-frills services to harness only those customers who value cheap fares. Low operating costs are ensured through cost containrnent in all aspects of the airline's

operation such as contracting non-core activities, lower airport fees, shorter time on the ground through quick turnarounds, simple boarding process, higher percentage of online sales of tickets thus reducing the commission payable to travel agents, larger number of seats on the aircraft by optimally utilizing space on the aircraft, elimination of business-class section on the flight to pack more seats and ensuring that the flights run to full capacities. Unlike legacy airlines, lowcost airlines do not use the traditional 'hub and spoke' model. They offer no interline arrangements for seamless passenger transition or baggage handling from one airline to another. Positioning would include targeting non-business passengers, passengers travelling on leisure or on personal work, and price-conscious business passengers. It involves aggressive marketing strategies to attract targeted customers. Services provided are very simple with meals and drinks provided for a price. Seats are narrower to increase seating capacity. There are no seat reservations. Benefits such as frequent-flyer programmes are done away with. No assurance of onward connections is made to the passengers unlike in the case of legacy airlines. Innovations in bringing down project cost Air Deccan saved significantly on the project cost through several innovative methods: 1. Going in for an inexpensive Internet-based reservation system developed by a Delhibased startup software company rather than using one of three expensive global reservation systems (e.g., Galileo and Saber) that nearly all airlines and travel agents use. 2. Air Deccan innovatively negotiated u/ith aircraft vendors such as ATR (for the smaller aircraft) and Airbus (for the larger aircraft). Rather than pay the normal six months' lease deposit, which is a very substantial amount, Air Deccan's message to aircraft manufacturers was simple and rather blunt : 'Miss the opportunity to provide aircrafts to Air Deccan (free of lease deposit !), and you will have missed the fastest growing aviation market in the world!' This resulted in the company getting a waiver on the deposit amount. Innovations to achieve tight operational cost control 1. Most of the tickets sold to passengers are through the Internet. This eliminates commissions to travel agents, ensures that Air Deccan gets the money upfront (no credit policy) and obviates the costs involved in printed tickets. There is another unintended benefit of this system. The penalty to a passenger for cancellation of an air ticket has been traditionally low the world over. Since the booking

of tickets in the legacy airlines is done by credit extended by the airline to the travel agent, and vice versa, a passenger may be tempted to hold multiple tickets on different flights for a segment, so that s/he is not deprived of a ticket at a last minute, should s/he desire to travel. For the airline, this can be a nightmare, resulting in some flights being light due to a lot of last-minute cancellations, or conversely, flights going overbooked in which case the airline has to handle and accommodate irate passengers. This is not the case for Air Deccan, where the payment is upfront, and the penalty for cancellation of a ticket is considerable. 2. A lower turnaround time of 15 minutes from landing to take-off of an aircraft ensures that Air Deccan aircraft are air-borne for a much longer time each duy. In contrast, legacy airlines have turnaround times of 30 to 50 minutes. This translates into higher frequency of flights, more flying time per day of the aircraft and consequently more passengers flown per day by each aircraft. 3. Through its Internet-based system, Air Deccan can dynamically track load factors and adjust fares online. It just takes one broadcast on the Internet for Air Deccan to announce its fare for a particular flight on a particular day, and this is immediately picked up by passengers who are constantly tracking the company's website for lower fares. This results in higher load factors on its flights. 4. Air Deccan resorts to extensive outsourcing of non-core activities that helps in its costcontainment strategies. 5. In some of the areas like aircraft overhaul or repair, the company has subscribed to schemes such as fly by the hour offered by specialist third party agencies that keep spares etc, and take responsibility for the overhaul and repair activities. Air Deccan only pays a pre-agreed charge, akin to that of an insurance policy. The company, however keeps its own staff for the routine day-today maintenance. Positioning Air Deccan's target market segment is the middle class and the lower middle class of the Indian population, market segments that the legacy airlines never considered as their target customers. Captain Gopinath is convinced that Air Deccan can provide an alternative to road or rail transport commuters as well as corporate staff like sales executives. The success of Air Deccan provides a solid endorsement of the value delivered to this target segment.

Challenge ahead The key to the success of Air Deccan in the initial years has been the very hands-on approach of the top management of the company with absolutely no dependence/recourse on consultants. Quick implementation of new ideas has been another key strength. A strong ideology 'to democratize air travel' drives the company. In the future, ds the airline scales up its operations, the challenge will be to get enough disciplined people who share the founder's ideology, and who will join the company and stay with it for a long time. Unlike in developed countries, the policies relating to civil aviation in India are archaic. Air travel has for long been seen as a luxury. Consequently, there are a number of airline-baiters among politicians. This results in policy swings with each new government that comes to power. For instance, rninor changes in taxation on iet fuel can have a significant impact on profitability. The escalating cost of oil globally is a cause for worry. The Indian air traffic agency is not geared to meet the challenges posed by the steep increase in traffic over the last few years. Limited infrastructure at airports, such as runways, results in planes having to wait in long queues for both landing and take-off . The implications of this for costs and customer satisfaction are obvious. Another issue is whether the system as a whole is geared to take on the new responsibilities all this puts on safety. Despite these and other challenges, Captain Gopi is optimistic about the future of his entrepreneurial venture that offers value to Air Deccan's targeted customers (who were ignored by the legacy airlines) by making the price of air travel affordable for large sections of the Indian population through innovation in containing costs in running the airline.

CASE QUESTIONS 1. What are the lessons you can pick up from the launch of the entrepreneurial venture by Captain Gopinath? 2. While low cost airlines are not new to the world, Air Deccan was clearly the torch bearer of this concept in India. What additional challenges did Captain Gopi have to contend with vis--vis a low cost operator in the advanced countries? 3. Going forward, what are the challenges that the company has to grapple with?

CASE SUMMARY This case study describes the story of the launch of Air Deccan, India's first Low-cost Airline, and the challenges ahead of it. In addition to the usual approaches to cost containment adopted by low-cost airlines worldwide, Air Deccan has implemented several measures that are unique in the Indian context. This has resulted in steady increase in the market share of the airline, much to the consternation of the established players. It perceives the market as practically unlimited, and sees itself as the largest airline in India five years hence. With daily sales in excess of Rs. 15 mn, and growing steadily, Air Deccan has redefined the paradigm of air travel in India. Until the launch of Air Deccan, air travel was essentially meant for the affluent sections of the society, due to the high pricing structures. Air Deccan has transformed the aviation landscape in the country. Today, air travel, if planned well in advance, is often cheaper than travel by second-class train. While there are many low cost airlines the world over, especially in the USA, Europe, Far East and Australia, the challenges of replicating this in India were not trivial. Three powerful established players (Indian Airlines, Jet Airways and Sahara) were not amused with this upstart airline and with their deep connections in the political and bureaucratic system of the country, wanted to scuttle the start-up airline. This case is one of intense constancy of purpose and extreme tenacity of the main promoter of the venture, Capt. Gopinath. Despite heavy odds, including lack of finances, he and his team came up with creative solutions at every step, to overcome the hurdles. ANALYSIS OF CASE QUESTIONS 1. What are the lessons you can pick up from the launch of the entrepreneurial venture by Captain Gopinath? Ans: The case is replete with illustrations of how Captain Gopinath crafted the company from scratch. He went on a 'boot strapping' mode, which is the hallmark of a successful entrepreneur. The constancy of purpose, focus and humility are evident. His ability to sense opportunities from chance encounters (such as a visit to the USA or the Southeast Asian countries) are out of the ordinary experience. These and many other qualities are a 'must have' list of qualities of a successful entrepreneur. Anyone aspiring to succeed in an entrepreneurial venture will do well to emulate these qualities, among others. The class may be encouraged to extract all the various qualities of Captain Gopi that have made him successful.

2. While low cost airlines are not new to the world, Air Deccan was clearly the torchbearer of this concept in India. What additional challenges did Captain Gopi have to contend with vis--vis a low cost operator in the advanced countries? Ans: A precursor to this discussion that would be useful is to draw out challenges of setting up and operating a low cost airline anywhere in the world, including in advanced countries. Setting up and successfully operating a low cost airline is a challenge in the best of circumstances, even in the advanced countries. In India the challenge is considerably more. The case is embedded with a lot of subtle factors that make the challenge of setting up and successfully running a low cost airline in India even more of a challenge, than it is to do in the advanced countries. Participants may pick up these aspects, and in fact debate on whether it is easier or more difficult to pull off such a venture in India vis--vis the advanced countries.

3. Going forward, what are the challenges that the company has to grapple with? Ans: The challenges that the company has to face are now only beginning. In the initial stages of the company, many of the established players (Indian Airlines, Jet Airways and Sahara) would have trivialized the company and not expected it to reach the level it has reached now. Suddenly, the company has appeared as a big dot on the radar screen of these well-established players. The existing paradigm is that running an airline requires large funding, something that Captain Gopinath lacked. Hence, the existing players would have concluded that this venture was bound to fail. However, there was a lot of entrepreneurial creativity manifested by Captain Gopi that helped him make his dream a reality, and today Air Deccan is a force to reckon with. Besides, many other 'me too' low cost airlines are already on the anvil.

REFERENCES
http://www.slideshare.net/dpdas3/ibm-swot http://business-fundas.com/2011/ansoff-matrix/ http://en.wikipedia.org/wiki/IBM#Corporate_affairs www.ibm.com http://www-935.ibm.com/services/us/imc/pdf/g510-3983-rewiring-electronics.pdf http://www.marketwatch.com/investing/stock/ibm/financials#