IBM’s strategic change

 IBM’s strategic change

1.0 INTRODUCTION

Strategic change is part of all corporate and business organizations in the current economic environment. Competitiveness, technological development, and changing geopolitics have all forced business organizations to investigate their strategy and revise it accordingly for the sake of sustainable profitability. IBM is one such organization that although having being in existence or more than five decades in a highly dynamic tech industry, has remained relatively unchanged for long. However, the emergence of various competitors in the computing industry forced the management to investigate the prospects of a strategy change.

This paper intends to investigate IBM’s strategic change in detail since it’s realization that the process was not only necessary, but inevitable if the multinational was to survive. Starting off with a literature review of three main theories investigating the state of existing schools of knowledge, the paper intends to create a suitable background from which to understand the need for strategic change among companies. The theories will include innovations strategy, strategies for competitive advantage, and sustainable strategy. Afterwards, the paper will delve into the company using an analytical perspective in terms of its external and internal environments, as well as strategy and change with regards to the corporate objectives enshrined in IBM’s core competencies. Additionally, this analytical process will align itself with the three theoretical schools of thought introduced in the literature review. Finally, the paper will discuss how useful the identified theories would be in executing IBM’s strategic changes before a suitable conclusion.

2.0 LITERATURE REVIEW

2.1 Innovation Strategy

Aaker (2009) reported that unlike most business strategies, innovation strategies present the management of business organizations with challenges in the form of difficulties in predictions touching on time, impact, and steps necessary. Grant (2016) reiterated that the definitions of innovations strategies revolve around one central theme; the guidance of management decisions in adjusting organizational resources in delivering value, to better meet organizational goals, and build optimized competitive advantages in competitive industries or markets (Chaston, 2012). Ideally, the main goal according to this school of thought is management decision that improves business performance.

Another school of thought closely states that innovation strategies are organizational plans aimed at growing the business’s market share through both product and service innovation (Battistella, Biotto, and De Toni, 2012). Because the main objective of any business enterprise is to create value while making profit, this school of thought seems to concentrate a lot more on the market share. Ideally, such a definition and application of innovation strategy would apply to the service market as product-oriented markets cannot afford tunnel vision when it comes to creating value for their customers (JHA, 2015). However, this school of thought still explains the main theme of innovation strategy in the sense of innovation and market share.

Esty and Winston (2009), interested in the developments of innovation strategy and its contributions to organizational sustainability argued that it is investment in technology, research and development in order to boost organizational sustainability as much as satisfying customers. Clearly, the bias in technology as well as research and development points to an application in scientific as well as technology industries (Peng, 2013). However, the emphasis on innovation for customer benefit, as well as organizational development remains a common denominator. Therefore, this third school of thought demonstrates the variations mentioned earlier in terms of innovation strategy as there are differences in execution times, impacts desired, and steps necessary for execution.

Peng (2013), like most scholars, disagrees on the second guideline arguing that businesses in the service industry differ from the goods-oriented ones. However, the majority have agreed that the second guideline towards a successful identification, creation, and implementation of innovation strategy must identify the target firm’s external opportunities and challenges (Johnston and Bate, 2013). The innovation strategy is supposedly a solution for lags in the business firm’s competitive edge meaning that identifying potential opportunities and possible challenges is a helpful step in the right direction.

Additionally, the last guideline in the successful identification, creation, and implementation of an innovation strategy is establishing the business organization’s potential and distinct advantages after the process (Peng, 2013). Many business processes that involve the creation of strategies benefit greatly from investigations into the potential benefits of creating and adopting the said strategies (Whittington, Cailluet, and Yakis‐Douglas, 2011). Innovation strategies are not any different as the management has to inquire about the distinct benefits such individualized strategies accord the enterprise.

2.2 Strategies for Competitive Advantage

Teece (2010) postulated that strategies for competitive advantage comprise the various schools of thought that offer the business organization any form of competitive advantage over its rivals. Whittington, Cailluet, and Yakis‐Douglas (2011) agree that one of the best strategies for competitive advantage can be investigated from the Market-based View. This strategy, according to the said scholars, offers the firms competitive advantage in terms of the characteristics of its end-product relative to the market expectations (Whittington, Cailluet, and Yakis‐Douglas, 2011). Arguably, the firm may be engaged in goods or services that resemble those of its rivals, but how it executes its version in the same market offers it a competitive advantage. Research demonstrates that even the most subtle changes in the offers that firms make in competitive markets can make the difference. Therefore, these changes, and how they are optimized to offer customers the most value constitute such strategies for competitive advantage.

Researchers also identify the possibility of competitive advantage emanating from within the organization’s internal environment (Battistella, Biotto, and De Toni, 2012). They argue that some organizations have an internal business environment that not only favors operations, but also how they are able to offer the most value to their customers. However, the strategic angle comes up in how the same organizations can manipulate these internal environmental advantages and fashion a strategy that offers them more competitive advantage compares to other business entities in the same market or industry (Whittington, Cailluet, and Yakis‐Douglas, 2011). Scholars have exemplified these internal environmental abilities as resources such as manpower and finances or special skills. However, the strategic ability of such internal resources rests on the management’s ability to optimize them for better competitive ability.

While many scholars consider manpower as a potentially strategic tool, some scholars have gone a step further to suggest the existence of similar strategic abilities in special knowledge (Battistella, Biotto, and De Toni, 2012). These researchers have argued that many organizations acquire distinct and measurable competitive advantage based on some degree of knowledge that is not only unique to them, but also restricted in use to their entity (Shim and Lee, 2012). Therefore, Knowledge-based Views demonstrate yet another school of thought in the strategies for competitive advantage arena where unique intellectual property offers its owner with some distinct degree of competitive advantage. Rothaermel (2015) summarized that because of such know-how, the company is not only able to offer the customers better goods and services, it also acquires the ability to surpass its rivals and perform relatively better.

In addition to labor force and knowledge, Rothaermel (2015) identified the presence of another source of strategic advantage in terms of competitiveness. Capabilities differ even in the same industry as demonstrated in the publications of many scholars in the industrial and engineering disciplines. One reason which also offers another strategy for competitive advantage lies in the individual capabilities of the various players in the same field to execute towards customer satisfaction (Whittington, Cailluet, and Yakis‐Douglas, 2011). Scholars argue that no two firms score the same in terms of their capability to make the same product even when supplied with the same material. Therefore, the firm that has better or greater capability not only satisfies its customers better, it acquires a distinct competitive advantage over its rivals.

2.3 Sustainable Strategy

Most schools of thought and research endeavors into the most appropriate business practices in terms of shareholder and stakeholder welfare support sustainable strategy (Peng, 2013). These schools of thought agree that the longevity of businesses is almost as important as the sustenance of profitability and operations. However, in order to initiate sustainable strategy, various considerations must be made for the sake of success within the context of customer welfare.

Teece (2010) suggested that sustainable strategies in the current era of competitiveness, technological advancement, and tough geopolitics have remained unchanged. Many scholars’ investigations of the possibilities of change in philosophy report that sustainable strategy supports the triple bottom practice. This means combinations of the environmental consideration as well as the social ones to the common financial performance indicators (Shim and Lee, 2012). Research by numerous scholars show customers biased towards corporations that not only care about their financial bottom line, but the social and environmental environments as well. Such practices define sustainable strategy perfectly.

Rainy (2013), like more current schools of thought related to sustainable strategy and sustainability have come up in the form of relationship building. Some professionals argue that the creation of strategic relationships financially, socially, and politically also constitutes sustainable strategy (Peng, 2013). However, differences have come up by some who argue that this perspective differs ever so slightly with the fundamental practice among corporations who only think about their balance sheet and financial bottom line (Rainy, 2013). Interestingly, a closer inspection of the proponents’ arguments reveals some degree of sustainable strategy in the sense that such relationships serve to lubricate a corporation’s future while enabling its present. Therefore, this forms the second form of sustainability.

3.0 ANALYSIS OF THE CASE

3.1 Brief History of IBM

Internal Business Machines (IBM)’s history goes back to 1890 when millions of immigrants were arriving in the United States. The Unites States Census Bureau became overwhelmed by the sheer numbers and organized a contest to establish the best method of census data tabulation. Ironically, in 1896 a German immigrant called Herman Holerinth who also worked for the Census Bureau won the competition with his methodology (Muzumdar, 2013). Consequently, he established the Punch Card Tabulating Machine Co. Ltd in the same year.

Later on, in 1911, the Punch Card Tabulating Machine Co. Ltd merged with Computing Scale Co. of America and the International Time Recording Company. The resulting company was known as the Computing-Tabulating Company. Its main business involved making cheese and meat slicer time recorders, punch cards, and tabulators. However, in 1914, Thomas Watson joined the company and spearheaded its technical and physical growth into new markets such as Europe and Australia. However, it was not until 1924 when the company acquired it not ubiquitous name of IBM. Eventually, with the advent of the electronic computing era, it ventured into mainframe computers which have remained the core of its operations.

3.2 Analysis of IBM according to the three theories

Unlike most business strategies, innovation strategies present the management of business organizations with challenges in the form of difficulties in predictions touching on time, impact, and steps necessary (Agarwal and Helfat, 2009). However, the definitions of innovations strategies revolve around one central theme; the guidance of management decisions in adjusting organizational resources in delivering value, to better meet organizational goals, and build optimized competitive advantages in competitive industries or markets. Ideally, the main goal according to this school of thought is management decision that improves business performance.

Based on the above theory, innovation changes in IBM such as the decision to diversify microprocessor architecture to gain entry into business process computing makes sense. Such change was effected around the need for management to redirect its vast pool of resources to create more value for its customers, create more competitive advantage and better achieve its organizational goals (Shim and Lee, 2012). While the current management has succeeded in large measure in the process, innovation strategy is a continuous process that needs constant input from all players. The customers are always shifting their needs meaning that computing needs need to be aligned with these changes. Additionally, IBM has always strived to remain on top especially in mainframes and large scale computing power, meaning that the management must revise its strategy through innovation to meet these goals.

Rainy (2013), represents another different school of thought on innovation strategy, and researchers agree that the guidelines applicable in a successful application remain the same. These professionals agree that most businesses intent on successfully identifying and implementing an innovation strategy first need to analyze their business’s competitive and technological environments (Peng, 2013). A successful innovation strategy for IBM according to   the current global economy must combine the two in a synergy that both satisfied the business and its customer base. Creation of value is geared towards the customer while sustainability and competitive edge are the business’ benefits (Smith, 2009).

Another school of thought closely states that innovation strategies are organizational plans aimed at growing the business’s market share through both product and service innovation. Because the main objective of any business enterprise is to create value while making profit, this school of thought seems to concentrate a lot more on the market share (Shim and Lee, 2012). Ideally, such a definition and application of innovation strategy would apply to the service market as product-oriented markets cannot afford tunnel vision when it comes to creating value for their customers (Agarwal and Helfat, 2009). However, this school of thought still explains the main theme of innovation strategy in the sense of innovation and market share.

The consideration that innovations strategy could be achieved through the constant input aimed at creating and sustaining a continuous flow of innovative services and products makes sense in the computing world (Chevalier-Roignant and Trigeorgis, 2011). Although not much innovation is necessary in mainframe computing relative to personal computing, IBM must strive to keep ahead of the steep curve of innovation especially since computing innovation become obsolete virtually in months. Most computing innovations last little over twelve months but IMB’s  large pool of RnD, extensive skills set and huge experience curve mean the company  is well placed to tweak its strategy to better meet the ever growing  demands.

Strategies for competitive advantage comprise the various schools of thought that offer the business organization any form of competitive advantage over its rivals (Kelley, 2011). Various scholars agree that one of the best strategies for competitive advantage can be investigated from the Market-based View. This strategy, according to the said scholars, offers the firms competitive advantage in terms of the characteristics of its end-product relative to the market expectations. Arguably, the firm may be engaged in goods or services that resemble those of its rivals, but how it executes its version in the same market offers it a competitive advantage (McPhee, 2014). Research demonstrates that even the most subtle changes in the offers that firms make in competitive markets can make the difference. Therefore, these changes, and how they are optimized to offer customers the most value constitute such strategies for competitive advantage.

IBM’s strategies for competitive advantage must include processes and plans that marry into a workable strategic change. Although IBM faces little threat in the way of rivalry in its large scale computing sectors, other areas of its core business have continued to be slowly consumed by newer and smaller but intensely innovative companies (Chevalier-Roignant and Trigeorgis, 2011). However, the company can tap into some of its core strengths such as economies of scale and better technical experience to ensure that although the products and markets are similar, the execution is better. One strategic change that demonstrates an effective implementation was the company’s optimization of the supercomputer programming services. Such strategic moves were implemented systematically starting with a strategic tap into local and international skills pools in order to identify best programmers and engineers. The strategy would ensure that IBM recovers any grounds it has lost to new entrants in the supercomputer sector from China or more innovative players.

While many scholars consider manpower as a potentially strategic tool, some scholars have gone a step further to suggest the existence of similar strategic abilities in special knowledge. These researchers have argued that many organizations acquire distinct and measurable competitive advantage based on some degree of knowledge that is not only unique to them, but also restricted in use to their entity (Muzumdar, 2013). Therefore, Knowledge-based Views demonstrate yet another school of thought in the strategies for competitive advantage arena where unique intellectual property offers its owner with some distinct degree of competitive advantage. Because of such know-how, the company is not only able to offer the customers better goods and services, it also acquires the ability to surpass its rivals and perform relatively better.

IBM’s economies of scale, as well as its position in the market ensure that it attracts some of the best skills from the best universities in the world. These include; MIT, Harvard University, Stanford University, and Yale University. Computer scientists, programmers, and engineers from these institutions of higher learning provide the company with unrivaled skills and innovative ability that continues to maintain its top position in computing for both business and institutional needs.

Most schools of thought and research endeavors into the most appropriate business practices in terms of shareholder and stakeholder welfare support sustainable strategy. These schools of thought agree that the longevity of businesses is almost as important as the sustenance of profitability and operations (McPhee, 2014). However, in order to initiate sustainable strategy, various considerations must be made for the sake of success within the context of customer welfare.

IBM has been in the business processes and mainframe computing industries for almost a century and has taken many steps aimed at sustainability (Smith, 2009). The multinational’s sustainable strategy includes investing in education institutions that are the main source of its skills. It also invests in environmental programs worldwide given the need for both CSR and environmental conservation (Agarwal and Helfat, 2009). IBM has also invested billions of dollars in many social and economic development programs in Sub-Saharan Africa, Latin America, and Asia. All these are part of the multinational’s extensive sustainable strategy aimed at not only creating value for its stakeholders, but demonstrating willingness for future growth that is both considerate and strategic.

Hart (1997) also argued that sustainable value is sustainable strategy based on his 2X2 model’s ability to introduce sustainability to the business environment. By pitting internal factors at IBM against external ones, and the present against the future the management may succeed in demonstrating the manner in which the right mix serves the present state of affairs while contemplating about the future for both the stakeholders and shareholders. This interesting school of thought has clear indications of sustainable strategy although some scholars argued that sustainability cannot be function of such few variables. Indeed IBM management have a tough job given the current complexities of business and the sheer size of the organization. However, a clear understanding of the applicability of these theoretical schools of thought and adept managerial strategy will shore the company into a successful future.

4.0 DISCUSSION

The theories were instrumental in understanding the case for IBM to various extents. Unfortunately, not all theories developed fully with respect to current practices at IBM. One example of this lag is the currently harsh global economy that has forced even the hardiest multinationals to restructure their labor structure through downsizing and closure of various departments deemed redundant (McPhee, 2014).

However, the theory of innovative strategies has been immensely helpful in understanding the recent decisions at IBM. Investment in skills and other core support structures of the highly technical industry ensures the entity can maintain a competitive edge in the face of intense competitiveness (Chevalier-Roignant and Trigeorgis, 2011). These investments align well with the company’s continued investment in the latest silicon manufacturing technology and chip architecture, all which comprise innovation strategy.

Additionally, IBM’s decision to diversify into other business process-oriented sectors other than its core business of mainframe computing is a strategic move aimed at creation strategies that induce competitive advantage. By diversifying in such a tactical manner, IBM can diversify its income streams and reduce the risks associated with a single income stream or core business activity (Kelley, 2011).  Such diversification exemplified the theory of strategies aimed at creating competitive advantages very well while expounding on the theoretical framework necessary for the next theory discussed.

Sustainability is a common objective among multinational who aim to remain relevant even as the global economic and geopolitical environments change. IBM has not lagged behind in this aspect as sustainable strategy concepts discussed and demonstrated by the company demonstrate (Smith, 2009). Its investment in education, environmental conservation, and social welfare programs is a clear means to understanding sustainable strategy from the lens of IBM; the largest computing company.

While the theories discussed all the pertinent aspects of strategy at IBM, there was little in the way of future developments in terms of strategy (Kelley, 2011). As IBM continues to set the precedent in large scale computing and mainframes, the strategies it employs to remain on top also need revamping. However, the theories never mentioned any attempts at breaking new ground in the academic and scholarly sense as management disciplines continue to benefit from scholarly and analytical research. The lags in academic and field-based development or research form the bulk of limitations in all three theories compared with the dynamic computing industry in which IBM operates.

5.0 CONCLUSION

Strategy is the subject of intense research among scholars and industry players who are not only keen to establish the best standards, but also break new ground in the same concept. IBM, the largest computing company in the world, benefits intensely from the adoption of sound strategic practices and the adjustment of these same strategies for maximum customer value and sustainability.

The paper intended to investigate the current strategic standards and changes at IBM. IBM is one such organization that although having being in existence or more than five decades in a highly dynamic tech industry, has remained relatively unchanged for long. However, the emergence of various competitors in the computing industry forced the management to investigate the prospects of a strategy change. Using a set of theories relevant to the exercise, it established a literature review whose main purpose was to set the conceptual framework from which to work. Afterwards, the company’s brief history was given followed by an analysis of the theories in terms of their impact on the current status and anticipated performance at IBM.

From the exercise, it became clear that the three strategic theories benefit IBM greatly given its current and past performance. However, shortcomings in the rate of development of these strategic theories came up as potential hindrances to their optimization of the computer manufacturer’s growth and sustainability given the dynamic nature of the industry. Finally, it becomes clear that more effort is needed in the academic and professional arenas to align the dynamic development at computing with the strategic theories and practices employed in order to bolster performance.

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