Term Paper ID:20676
Origins, stocks, strengths & weaknesses, computers, industry conditions, opportunities, competition, strategy recommendations.... More...
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Origins, stocks, strengths & weaknesses, computers, industry conditions, opportunities, competition, strategy recommendations.
The Tabulating Machine Company, International Time Recording Coimpany and the Computing Scale Company of America consolidated in 1911 to form the Computing Tabulating Recording company. Over the next 20 years, the company continued to acquire and merge with other organizations, becoming International Business Machines (IBM) in 1933. IBM continued to grow in the coming decades, maturing into a strong presence in calculating machines, typewriters and similar machinery. However, the advent of the electronic computer and the leadership provided by Thomas Watson moved the company into the realm of the multinational organization. IBM came to epitomize the American-based global organization, employing close to 400,000 workers worldwide at its height in the mid-1980s (Scheier, 1993, p. 1). The company's stock was considered a blue-chip issue, and institutions (pensions funds
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27). Chief among these is the loss ofmarket share that the company has suffered in all of its product lines,most especially in the mainframe area. Even though the company is planning to cut its research anddevelopment by more than one billion dollars, the company remains adominant force in research in the computer and peripherals industry (Moad,1993, p. 121 ), andviolated an unwritten company policy of no lay-offs, reducing its workforceby 25, in late 1992, and with additional cuts forecast (Niemond, 1993,p. Another area that presents opportunities to IBM is that of networkingsystems, which grew by ten percent during 1992. Niemond, G. Moody's IndustrialManual, 1992, pp. The company took the unusual stepof reducing its dividend by 54 percent in 1993 (Vohra, 1993, p. The company is in the unique position of beingable to put large amounts of money into its development efforts, more moneythan many of its competitors combined. IBM held more than 85 percent of the market in 1989, but thatshare dropped to 68 percent by 1993. IBM's futuresuccess will depend not only on its ability to provide innovation, but onbusiness solutions. In the microcomputer market, IBMand Apple machines are the two recognized standards. 121 ). (1993, August 5). The microcomputer is not the only area in which the company hasproblems, however. Other manufacturers of microcomputers fell by the wayside asIBM made its presence known, and as its personal computers set the standardfor the industry. IBM is one of the most carefully watched companies in the nation, duein part to its size and to the amount of influence its products andpolicies have in the nation's economies. (1993, June 7). ValueLine, p. IBM was not used to competing on price alone, and foundthe challenge to be more than it could sustain. Moad, J. The company has a third strength in its recent management changes andthe resulting restructuring of the organization. As the industry continues its shakeout, however, thereis likely to be increased opportunity for the remaining companies, IBMamong them. IBMcreated a new subsidiary, the Integrated Systems Solutions Corporation,which posted earnings of $3 million on $1.84 billion in revenue. Having done so, it is now difficult for the company tocreate technology which takes its users far afield from that which theyalready use. IBM continued to grow inthe coming decades, maturing into a strong presence in calculatingmachines, typewriters and similar machinery. For years,IBM dominated the office technology market, and it did so again when itentered the computer market. 27). The DOS-based machines now share market dominationwith Apple. Over the next 2 years, thecompany continued to acquire and merge with other organizations, becomingInternational Business Machines (IBM) in 1933. Companies such as Compaq andPackard Bell, manufacturers of IBMÄcompatible personal computers, arelikely to join forces with Intel and Microsoft in order to fend off theprogress that the IBMÄAppleÄMotorola partnership might make. Theseservices and consulting rely on personal expertise rather than ontechnological innovation, and can help boost IBM's sales in other areassince customers of the consulting group are likely to take advantage oftheir relationship with IBM when considering technology products. Networking poses thegreatest threat to IBM's mainframe and minicomputer market as companies usenetworks of lower machines instead of purchasing the next higher platform.By becoming proficient in providing networks and networking services, IBMcan help ease the transition from mainframe to minicomputer networks, andfrom minicomputers to PC networks. The midgets, the mammoth and themainframes: aggressive rivals are edging out IBM mainframe disktechnology. The 198 s, which began well for the company, brought about a dramaticchange in IBM's fortunes. The company's stock was considered a blue-chip issue, and institutions(pensions funds, for example) held 39 percent of the stock in early 1993(Vohra, 1993, p. This development is significant because it provides a way for the twolargest manufacturers of microcomputers to effectively reshape the marketby locking out competition from companies such as Compaq that have risen toprominence by copying IBM's developments. Consumers soon stopped differentiating betweenIBM and IBM-compatible microcomputers, and the company was unable to reactquickly enough to prevent what may be irreparable harm to its sales. IBM continues to be a fundamentally strong company with a reputationin the marketplace for providing high quality products. Scheier, R. International business machines.Standard and Poor's Stock Reports, p. However, the computer industry turned out to be very different fromother industries in which the giant company had competed in before. PC Week, p 1. 1 96). Its research and development effortsneed to work in tandem with the marketing effort to develop products thatpresent solutions to the market, not merely innovation. International business machines. 27). Threats also come from the peripheral part of the business. During the early 198 s, the market forpersonal computers expanded rapidly, and IBM was positioned to takeadvantage of, even to drive, that expansion. While a significant improvement in technology wouldlikely push the market into a new growth spurt, such an innovation does notappear to be on the horizon, and companies must adjust to a slow growthindustry in what was a rapidly expanding industry just a few yearsprevious. Thewell known IBM culture had rendered the company unable to effectivelycompete in the new market. Newer marketing strategies are needed by thecompany in order to boost sales across the organization as a whole. IBM came toepitomize the American-based global organization, employing close to4 , workers worldwide at its height in the mid-198 s (Scheier, 1993, p.1). This industry has seen a much more rapid life cyclethan other technology markets, with the result that industry analysts havethemselves been caught off guard. 27). 27. 1 96). Thecomputer industry changed much more rapidly than other industries, withtechnological innovations coming at a much more rapid pace than in othersegments of the economy. 31). New companies, such as Apple, which had littlehistory and no established bureaucracy, were able to better adapt to therapidly changing marketplace. The company can exist in a variety of markets because ofits size, but it should focus on those markets which provide a good fitwith its overall business structure. IBM's short-term strategy must include two key points: innovation andcost reduction. When IBMentered the microcomputer market in the early 198 s, it was large enough todefine the market. The appointment of LouisGerstner as chairman and CEO in early 1993 indicated to the market that thecompany is willing to make the changes necessary in order to forge a newdirection. 298 - 314. In 1983, the stock sold for a high of 134.25; itreached 175.875 in 1987, then began a gradual decline that has continuedinto the 199 s. IBM machines have traditionallyused Intel 8 x86 chips. 121 . (1993, June 15). On the innovation side, IBM needs to focus its energies onits research and development in all of its business segments, and return toa position of leadership. IBM also faces opportunities in the form of integration and consultingservices, one aspect of the company's revenues that increased in 1992. These are two important areas that thecompany is doing well to address. Other opportunities present themselves in the form of the company'sstill dominant presence in the market. IBM's worst year ever puts board onhot seat. Finally, IBM must recognize that it is no longer the single dominantplayer in the market, and that it must be willing to issue discounts andparticipate in pricing strategies that it formerly did not need to use.All companies have been affected by the recession, and all companies arerealigning their purchasing strategies. IBM invested more than nine billion dollars in research anddevelopment during 1992, a figure that is difficult for any other companyto match. The agreement also excludesMicrosoft from the process, a company that rose to a strong market positionby providing its operating system, MS-DOS, not only to IBM, but to the manycompetitors of IBM machines. The inability to adapt to this will mean disaster for somecompanies. International business machines.Datamation, p. The company's recentdownturn has brought about concern from a number of quarters because of thecompany's influence on American business, and because the downturnreinforces the idea that if it can happen to IBM, it can happen to anyone.This research examines the current situation of IBM with an emphasis onwhat the company can do to return to a healthy stance within the market. IBM facesstrong competition in the printer market, which posted a decline in revenueduring 1992 (Moad, 1993, p. This loss of market share isattributed to the company's inattention to specialized market niches andits loss of technology leadership (Verity, 1993, p. The Tabulating Machine Company, International Time Recording Coimpany andthe Computing Scale Company of America consolidated in 1911 to form theComputing Tabulating Recording company. 121 ). 1 96. Such opportunity will come about in the form of filling in thedemand for products left by manufacturers which leave the market. However, the company needs to carefully consider the businesses inwhich it operates, and whether those businesses fit with the company'soverall mission. 298). Since Louis Gerstner is not from within IBM (he was formerlychairman of RJR Nabisco), his appointment indicates that the company isserious about changing the direction it is taking and the way in which itdoes business. 31. Another of the company's strengths is the dominance of the IBM-PCarchitecture in the microcomputer marketplace. From a high of 1 .375 in 1992, the stock is now tradingin the high 4 s (Vohra, 1993, p. As newer companies began imitating IBM's computer architecture, andproduced similar machines for lower prices, the increased competition cutinto IBM's sales. IBM's corporate culture can also be considered a weakness. IBM, with its strong corporate culture andentrenched bureaucracy, found it increasingly difficult to compete. Softwarerevenues also increased by 8 percent in 1992; combined, these two areasgrew to more than 4 percent of the company's revenue in 1992 (Moad, 1993,p. (1993, July 3 ). Chief among IBM's strengths is its reputation and position in themarket. Cost reduction is a key short-term strategy that the company needs toadopt in order to survive the next few years. Vohra, N. An additional threat comes from the maturation of the computerindustry as a whole. While other companiesbegan selling their microcomputers in retail chains, IBM refrained fromselling through other than authorized and established dealers, a move whichhurt them in the long run. Additional workforce cuts have been announced,with the company expecting to employ 255, at the end of 1993, and225, at the end of 1994 (Vohra, 1993, p. IBM is not the only computermanufacturer undergoing difficult times; it has gained a large amount ofattention because of its size and the role that the company has played inAmerican industry. Where IBM was formerly able tooffer a premium price for perceived value, the perceived value no longerjustifies higher prices. IBM also had success with itsminicomputer segment in 1992 as its RISC-based minicomputer, the RS/6 ,became profitable for the first time, according to industry analysts (Moad,1992, p. (1993, January 25). In addition, one of the new projects that theIBM/Apple partnership is investigating are new markets for IBM's ReducedInstruction Set Computer (RISC) architecture, using a single chip versionof the architecture developed by Motorola. Companies are not willing to invest inthese machines which use a proprietary operating system, which are oftenpriced much higher than similar DOS-based IBM-compatible machines, andwhich have a limited amount of software associated with them. In the microcomputer market, the same dominance of architecture thatmakes IBM strong also prohibits it from successfully introducingproprietary platforms. While other companies, suchas Dell and Packard Bell are able to produce knock-offs of IBM machines,they lack the resources to guide the direction of the market. Verity, J. The minicomputer businesshas also been lucrative for IBM, with its AS/4 a popular choice for manybusinesses. The company's primary weakness is its recent financial performance.The company's net profit margin fell from a decadeÄhigh 14.3 percent in1984 to a scant 2.2 percent in 1992, and is forecasting a loss for 1993(Niemond, 1993, p. The mainframe computer is a mainstay of the company'scomputer offerings, but the mainframe is becoming a declining business ascomputers at each level become more powerful. With the newmanagement, an emphasis on effective cost cutting, and the new jointventures that the company has announced, IBM stands a good chance ofremaining a strong presence in its markets.References International business machines corporation. There are a number of opportunities which IBM can take advantage of,and the company did not remain still during its decline in recent years.The company announced in 192 that it will work with Apple Computer, aprimary competitor, to develop new technologies that both companies willuse in their current and future products and market to others. The market is no longer interested in small incremental technologicaladvances which are outweighed by the additional costs of training andhardware investment. A key partof the project is a plan to create a jointly owned company to developobject-oriented software that will offer new functions for users andsimplify application programming. Becausethere are so many IBM-compatible machines in the market, it is unlikelythat companies will switch to another platform, a change that would resultin high training costs and additional hardware investments. Business Week, p. The company has alreadyannounced large planned cuts in its work force, and it has also made knownthat it intends to divest itself from business units that no longer fit thecompany's goals and objectives. The company continues to face significant threats, however, despiteits recent restructurings and changes. IBM should also pursue its services segment as that can provide ahighly lucrative area of revenue for the company, and IBM can build on itsrole as an industry leader to help bolster sales in this area. 1 96). It, too, has suffered recently as competition has increasedfrom Hewlett-Packard and Digital Equipment Corporation. The prudent use of this resourcecombined with a strong marketing effort for the resulting products shouldresult in a new generation of products that can help see the company wellinto the next century. IBM has introduced newer technology in the form of the PS/2machines which use the OS/2 operating system, but the acceptance of thesenew machines has been limited. Its mainframes and minicomputers were widelyaccepted, and it redefined the microcomputer market when it entered in theearly 198 s. In this single announcement, IBM is marking abreak with the past in the microcomputer industry, and is setting out tochange the industry once again ("International Business MachinesCorporation," 1992, p. However, the advent of theelectronic computer and the leadership provided by Thomas Watson moved thecompany into the realm of the multinational organization. 121 ). While its bondratings were recently downgraded, they remain investment quality, and themarket wants the company to succeed (Niemond, 1993, p. Disk technology, in which IBM competesthrough its subsidiary Adstar, continues to be a difficult market for thecompany. The explosive growth periodof the life cycle is over, however, and the industry has entered a maturephase during which growth has slowed tremendously, and prices have dropped.
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