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BBM 303 STRATEGIC MANAGEMENT

Table of Content
No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Description
Acknowledgement IBM Company Overview IBM existing strategies IBM Existing Mission Statement IBM External Opportunities and Threats IBM Competitive Profile Matrix (CPM) IBM External Factor Evaluation (EFE Matrix) IBM Internal Strengths and Weaknesses IBM Internal Factor Evaluation (IFE Matrix) IBM SWOT Matrix IBM SPACE Matrix Advantage and Disadvantage of SWOT Matrix Recommend Specific Strategies for IBM Recommend Long Term Objectives Recommendation Can Be Implemented and Expected Result IBM Financial Ratio Analysis (2006) Timetable and Agenda for action Recommend Specific annual objectives and policies Strategy Evaluation Framework References Appendix Appendix

Page
2 3 4 4 7 8 9 10 11 12-13 14 15-17 17-18 19-22 23-24 25-26 27 28 29 30 31 33

Acknowledgement
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First and foremost, our heartiest gratitude goes to all who have contributed towards the completion of this case study. I especially, grateful to Madam KAMALJEET KAUR for her advice, supervision and guidance that lead to pursuit of this case study. Her comments and encouragement are greatly appreciated. I would like to thanks to the lecturers for their help and advice and to our group member who contributed and supported in completing this case study. Thank you.

Company Overview
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International Business Machines Corporation (IBM) develops and manufactures information technologies, including computer systems, software, networking systems, storage devices, and microelectronics worldwide. Its Global Technology Services segment offers IT infrastructure and business process services, such as strategic outsourcing, business transformation outsourcing, integrated technology, and maintenance. The company Global Business Services segment provides professional services and application outsourcing services, including consulting and systems integration and application management. Its Systems and Technology segment offers computing and storage solutions, including servers, disk and tape storage systems and software, semiconductor technology and products, packaging solutions, engineering and technology services, and retail store solutions. IBM Software segment primarily offers middleware and operating systems software comprising information management software for database, content management, and information integration; lotus software for collaboration, messaging, and social networking; rational software, a process automation tool; Tivoli software for infrastructure management, including security and storage management; Websphere software for Webenabled applications; and product lifecycle management software. The company was founded in 1910 as Computing-Tabulating-Recording Company and changed its name to International Business Machines Corporation in 1924. IBM is based in Armonk, New York.

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IBM Existing Strategies


Product Development IBMs product and technology portfolio today is built around networked, modularized and embedded technologies, including service oriented architecture(SOA), information on demand, virtualization and open, modular system for businesses of all sizes. Major IBM product launches which is their next generation system z mainframe, system p servers, which bring POWER6 innovation to the entry level and POWER based virtualization offerings, which improve energy and space efficiency for UNIX customers. They also introducing a new BladeCenter offering and a highly innovative storage architecture. Market Development IBMs global operations are accelerating their companys growth. IBM today does business in 170 countries and enjoys an increasingly broad-based geographic distribution of revenue. In 2007, 63 percent of our revenue came from outside the United States. Many people think of emerging markets as the so-called BRIC countries of Brazil, Russia, India and China and last year their revenue increased 26 percent in those markets. But their global footprint extends much farther. Consider more than 50 countries including Czech Republic, Poland, Malaysia, Singapore, South Africa, Venezuela and Mexico in each of which grew more than 10 percent in local currency in 2007. In aggregate, IBMs business in this group grew at a rate of more than 20 percent in local currency last year and comprised 15 percent of geographic revenues.

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IBM Existing Mission Statement


Vision IBM currently does not seem to have a formally stated vision. No Publicly stated vision statement is available. New Vision Statement To Become the Premier Globally Integrated Enterprise Mission IBM currently does not have a formally mission statement. No publicly stated mission statement is available New Mission Statement The company business model is built to support two principal goals: helping clients succeed in delivering business value by becoming more innovative, efficient and competitive through the use of business insight and information technology (IT) solutions and providing long term value to shareholders.

IBM Customers Products / Services Markets Concern For Survival, Growth, Profitability Technology Philosophy Self - Concept Concern For Public Image Concern For Employee

Criteria/ Component

To Become World Globally Integrated Enterprise in Order to Participate in The Worlds Growth Markets and Improve IBM Productivity 5

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IBM External Opportunities and Threats


Opportunities 6

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1. 2. 3. 4. 5.

Huge markets of IT industry Increase role of the IT and technology advancements Growth of IT industry in Asia Pacific, Asia and American region Strong presence in the IT industry Increase in new markets in terms of telecommunication, utilities, transportation,

banking etc. 6. Growth of IT industry in Asian Region 7. High consumer using IT products for the office or for themselves. Threats 1. dollar denominated 2. 3. 4. 5. 6. 7. to the U.S Market risk in terms of outstanding debt and non U.S assets and liabilities High competitive environment in IT industry Debt crisis, rising of unemployment Increasing new products in the market time by time. IT competition with Microsoft, HP and others Foreign currency exchange rate risk Currency rate fluctuation in terms of non U.S currencies

IBM Competitive Profile Matrix (CPM)


IBM MICROSOFT HEWLETT PACKARD(HP) Score ELECTRONIC DATA SYSTEM(EDS) Rating Score

Critical Success Factors

Weight Rating Score Rating Score Rating

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Advertising Market Share Gross Profit Margin Management Financial Position Customer Loyalty Global Expansion Customer Service Organization Structure Operation Effectiveness Total

0.10 0.08 0.09 0.09 0.15 0.10 0.08 0.11 0.08 0.12 1.00

2 4 4 2 4 3 1 2 2 3

0.20 0.32 0.36 0.18 0.60 0.30 0.08 0.22 0.16 0.36 2.78

2 3 3 4 3 3 3 3 3 4

0.20 0.24 0.27 0.36 0.45 0.30 0.24 0.33 0.24 0.48 3.11

2 3 2 2 3 3 2 3 2 4

0.20 0.24 0.18 0.18 0.45 0.30 0.16 0.33 0.16 0.48 2.68

2 3 3 3 3 3 2 3 3 2

0.20 0.24 0.27 0.27 0.45 0.30 0.16 0.33 0.24 0.24 2.70

IBM External Factor Evaluation (EFE) Matrix


Opportunities 1. Huge markets of IT industry 2. Growth of IT industry in Asia Pacific, Asia and American region. 3. Increase role of the IT and technology advancements 4. Strong presence in the IT industry 5. Increase in new markets in terms of telecommunication, utilities, transportation etc. 6. Growth of IT industry in Asian Region Weight Rating Weighted Scores 0.10 4 0.40 0.08 3 0.24 0.10 0.07 0.08 0.08 3 3 3 3 0.30 0.21 0.24 0.24 8

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7. High consumer using IT products for the office and themselves. Threats 1. Market risk in terms of outstanding debt and non U.S dollar denominated assets and liabilities 2. High competitive environment in IT industry 3. Debt crisis, rising of unemployment 4. Increasing new products in the market time by time 5. IT competition with Microsoft, HP and others 6. Foreign currency exchange rate risk 7. Currency rate fluctuation in terms of non U.S currencies to the U.S Total

0.05 0.05 0.08 0.05 0.05 0.10 0.06 0.05 1.00

3 3 3 2 2 4 2 2

0.15 0.15 0.24 0.10 0.10 0.40 0.18 0.10 3.05

IBM Internal Strengths and Weaknesses


Strengths 1. Aggressive growths strategies 2. Solid financial statements with net revenue for 2007 increase 7% compare to year 2006 3. The management is willingness to co-operate in order to develop future projects 4. Solid record cash performance was 17.4 billion in 2007, and increase of 2.1 billion last year 9

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5. Future development of business towards banking, transportation etc 6. The effective tax rate is declined in 2006 compared to 2005 Weaknesses 1. Largest workforce 150,000 employees. 2. High maintenance cost to overlook due to managing many operations 3. Total expense and other income increased 2.8 percent. Increase was primarily due to R&D and engineering expense. 4. High long-term debt 5. Advertising and promotion expenses decrease

IBM Internal Factor Evaluation (IFE) Matrix


Strengths 1. 2. 3. 4. 5. Aggressive growths strategies Solid financial statements Profitable joint ventures Solid record cash performance Future development of business towards banking, transportation etc 6. Effective tax rate is declined in 2006 compared to 2005 Weaknesses 1. Largest workforce 150,000 employees. 2. High maintenance cost to overlook due to managing many operations Weight Rating Weighted Scores 0.10 4 0.40 0.10 4 0.40 0.10 4 0.40 0.09 3 0.27 0.10 4 0.40 0.07 0.08 0.10 3 2 1 0.21 0.16 0.10

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3. Total expense and other income increased 2.8 percent. Increase primarily due to R&D and engineering expense 4. High long-term debt 5. Advertising and promotion expense decrease Total

0.08 0.10 0.08 1.00

2 1 2

0.16 0.10 0.16 2.76

IBM Strengths Weaknesses Opportunities Threats (SWOT) Matrix


STRENGTHS S WEAKNESSES W

1. Aggressive growths strategies 2. Solid financial statements 3. Management willingness to co-operate in order to develop future projects 4. Solid record cash performance 5. Future development of business towards banking, transportation etc 6. Effective tax rate declined in 2006 compared to 2005

1. Largest workforce 150,000 employees. 2. High maintenance cost to overlook due to managing many operations 3. High long-term debt 4. Advertising and promotion expenses decrease. 5. Total expense and other income increased 2.8 percent. Increase was 11

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primarily due to R&D and engineering expense.

OPPORTUNITIES O

SO STRATEGIES

WO STRATEGIES

1. Huge markets of IT industry 2. Increase role of the IT and technology advancements 3. Growth of IT industry in Asia Pacific, Asia and American region 4. Strong presence in IT industry 5. Increase in new markets in terms of telecommunication, utilities, transportation etc 6. Growth of IT industry in Asian region 7. High consumer using IT production for the office or for themselves.

1. Outsourcing the industry towards globalization (S3,S5 O3,O6) 2. More involve in other industry or environment like banking etc.(S1-02,05

1. More refinance on advertising and promotion(W4-O3,O6)

THREATS T

ST STRATEGIES

WT STRATEGIES

1. Market risk in terms of outstanding debt and non U.S dollar denominated assets and liabilities.

1. Create more new products to compete with other competitors(S3T2,T5)

1. Create Non Union environment to reduce turn over (W1 T3) 12

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2. High competitive environment in IT industry 3. Debt crisis, rising of unemployment 4. Increasing new products in the market time by time 5. IT competition with Microsoft, HP and others 6. Foreign currency exchange rate risk 7. Currency rate fluctuation in terms of non U.S currencies to the U.S

IBM Strategic Position and Evaluation (SPACE) Matrix


Financial Strength (FS) 1. High profitability ratios: Gross Profit Margin 41.9% 2. Profitable from Asian, Asia Pacific region 3. IBM, companies stronger in high value-added businesses Financial Strength (FS) Average Environment Stability (ES) +6 +6 +6 +18 +6.0 13

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1. IT industry will remain stronger in the future 2. IBM compete with other competitors like Microsoft, HP and others 3. Currency rate fluctuation in terms of non U.S currencies to the US. Environment Stability (ES) Average Competitive Advantage (CA) 1. IBM is a key player in the hypercompetitive Diversified Computer System industry. 2. More stronger in US presence by acquired local IT companies 3. Strong focus on customer service and satisfaction Competitive Advantage (CA) Average Industry Strength (IS) 1. 2. 3. Companies strong presence in the IT industry Future development of business towards other industry Increased use of technology and the IT industry

-3 -6 -3 -12 -4.0 -2 -4 -3 -9 -3.00 +5 +5 +5 +15 +5.00

Industry Strength (IS)Average


FS

Directional Vector Coordinates: X Axis: -4.00 + 6.00 = 2.00 Y Axis: -3.00 + 5.00 = 2.00

Conservative

5 4 3 2 1

Aggressive (+2.00, +2.00)

CA -5 -4 -3 -2 -1 -2 -3 1 2 3 4 5

IS

Defensive

-4 -5 ES

Competitive

Advantages and Disadvantages Strengths Weaknesses Opportunities Threats(SWOT) Matrix


Advantages The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as 14

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opportunities or threats. Strengths can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats. Disadvantages While useful for reducing a large quantity of situational factor into a more manageable profile, the SWOT framework has a tendency to oversimplify the situation by classifying the forms environment factors into categories in which they may not always fit. The classification of some factors as strengths or weaknesses, or as opportunities or threats is somewhat arbitrary. A technological change can be a either a threat or an opportunity. Perhaps, it is more important than the superficial classification of these factors is the firms awareness of them and its development of a strategic plan to use them to its advantage. Solution and ideas in an improvement We believe that economic conditions in the global financing, including the downturn in the housing market and credit concerns, during the latter half of 2007 and into 2008 have had, and could continue to have, a negative impact on our operating results. The impact is currently most noticeable at our global operation, particularly those outside of United States.

Global Financing is a reportable segment that is measured as if it were a standalone entity. Accordingly, the information presented in this section is consistent with this separate company view. The mission of Global Financing is to generate a strong return on equity and to facilitate clients acquisition of IBM hardware, software and services. Global Financing invests in financing assets, manages the associated risks, and leverages with debt, all with the objective of generating consistently strong returns on equity.

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The primary focus on IBM products and IBM clients mitigates the risks normally associated with a financing company. Global Financing has the benefit of both a deep knowledge of its client base and a clear insight into the products that are being leased. This combination allows Global Financing to effectively manage two of the major risks (credit and residual value) that are normally associated with financing. Global Financing comprises three lines of business: Client financing provides lease and loan financing to end users and internal clients for terms generally between two and seven years. Internal financing is predominantly in support of Global Services long-term client service contracts. Global financing also factors a selected portion of the companys accounts receivable, primarily for cash management purposes. All internal financing arrangements are at arms-length rates and are based upon market conditions. Commercial financing provides primarily short-term inventory and accounts receivable financing to dealers and remarketers of IT products. Remarketing sells and leases used equipment to new or existing clients both externally and internally. This equipment is primarily sourced from the conclusion of lease transactions. Externally-remarketed equipment revenue represents sales or leases to clients and resellers. Internally-remarketed equipment revenue primarily represents used equipment that is sold or leased internally to the System and Technology and Global Services segments. The System and Technology segment may also sell the equipment that it purchases from Global Financing to external clients.

In addition to the strength of the economy and its impact on corporate IT budgets, key drivers of Global Financings results are interest rates and originations. Interest rates directly impact Global Financings business by increasing or decreasing both financing revenue and the associated borrowing costs. Originations, which determine the asset base of Global Financings annuity-like business, are impacted by IBMs non-Global Financing sales volumes and Global Financings participation rates. Participation rates are the 16

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propensity of IBMs clients to finance their purchases through Global Financing in lieu of paying IBM up-front cash or financing through a third party.

Recommend Specific Strategies for IBM


Based on the calculation on the space matrix, I believe that IBM should pursue the integration strategy and diversification strategy. I choose the integration strategy and diversification strategy industries because International Business Machine (IBM) can be even more successful if they fulfilled the horizontal strategy (integration) and unrelated diversification strategy (diversification strategy) Horizontal Integration In July 2007, IBM acquired Watchfire Corporation. A privately held security and compliance testing Software Company based in Waltham, Massachusetts. In August 2007, In August 2007, IBM acquired WebDialogs, Inc.., and then a month later completed the acquisition of DataMirrorCorp. But if IBM want to be more stronger competitor it should be merging, joint venture or acquired the Electronic Data System(EDS) because it would help it stand out from other computer hardware in an increasingly difficult business. A purchase would be a smart way for IBM to take on its rival like Hewlett Packard (HP) years. In addition, International Business Machines (IBM) and SAP the local software companies in the US can join team up to create new technology that the two companies will launch their first joint software product in the fourth quarter of 2008. The product, codenamed "Atlantic," will integrate IBM's Lotus Notes software with SAP's Business Suite, according to a statement released by IBM. The two companies have dodged rumors of a merger, though they noted that their mutual customers have requested the specific functions that the "Atlantic" software will provide. 17 which, while known as a hardware maker has derived the bulk of its sales and profit from software and services for

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IBM's Lotus Notes, currently used by more than 135 million people around the globe, is a system of accessing business email, calendars and instant messages. SAP's contribution will include programs that help companies to back office work such as payroll, inventory management and accounting. Unrelated Diversification In Defense Industry Some industries in the United States, such as defense companies like BOEING, Lockheed Martin, and Northrop Grumman are the companies that using full of latest technology on computer systems. This is the opportunities for IBM to involve in new industry on defense industry. It should provide IBM industry bigger than other competitors. In addition, it gives IBM more getting profit than ever before not just in IT industry profit but it also profit comes from other industry which is defense industry. In Other Industry In addition, IBM can see multiple areas of investment growth within particular industries. For example, telecommunications companies continue to upgrade their infrastructure to broadband. Also, utilities face outdated systems, the transformation from analog to digital and new regulatory requirements. Across the world, businesses and institutions are continuing to make investments that save them money, preserve capital and address issues they simply may not defer.

Recommend long term objectives


Based on research on IBM annual report of previous year (2005, 2006 and 2007), we have computed for the following figure for year 2006 according to different category. Underlying both the measurement of benefit obligations and net periodic cost are actuarial valuations. These valuations use participant- specific information such as salary, age and years of service, as well as certain assumptions, the most significant of which 18

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include estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates. The company evaluates these assumptions, at a minimum, annually, and makes changes as necessary. Discount Rate The discount rate assumptions used for the retirement-related benefit plans accounting reflect the yields available on high-quality, fixed income debt instruments. For the U.S. discount rate assumptions, a portfolio of corporate bonds is constructed with maturities that match the expected timing of the benefit obligation payments. In the non-U.S., where markets for high-quality long-term bonds are not generally as well developed, long-term government bonds are used as a base, to which a credit spread is added to simulate corporate bond yields at these maturities in the jurisdiction of each plan, as the benchmark for developing the respective discount rates. For the PPP, the changes in discount rate assumptions impacted both net periodic cost and the PBO. For purposes of measuring the net periodic cost for the years ended December 31, 2007, 2006 and 2005, the changes in discount rate assumptions resulted in a decrease in the 2007 net periodic cost of $92 million and an increase in the 2006 and 2005 net periodic cost of $94 million and $90 million, respectively. For purposes of measuring the PBO, the changes in discount rate assumptions resulted in a decrease in the PBO of $1,185 million and $1,240 million at December 31, 2007 and 2006, respectively. For the significant non-U.S. defined benefit pension plans, the changes in discount rate resulted in an increase in the 2007 and 2006 net periodic cost of $30 million and $274 million, respectively. Changes in discount rate assumptions had no material impact on the 2005 net periodic cost. For the U.S. nonpension postretirement benefit plan, the changes in discount rate assumptions had no material impact on net periodic cost for the years ended December 31, 2007, 2006 and 2005 and on the APBO at December 31, 2007 and 2006. Expected Long-Term Returns on Plan Assets The expected long-term return on plan assets assumption takes into account long-term expectations for future returns, investment strategy and the market-related value of plan assets. The market-related value of plan assets is a calculated value, in accordance with 19

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accounting guidance that recognizes changes in the fair value of plan assets in a systematic manner over five years. The rates of expected return are developed by the company in conjunction with external advisors, are calculated using an arithmetic average and are tested for reasonableness against the historical return average by asset category, usually over a 10-year period. The use of expected long-term returns on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and therefore result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. Differences between actual and expected returns are recognized over five years in the expected return on plan assets line in net periodic cost and also as a component of net loss or gain in the Accumulated gains and (losses) not affecting retained earnings, which is recognized over the service lives of the employees in the plan, provided such amounts exceed thresholds which are based upon the obligation or the value of plan assets, as provided by accounting standards. For the PPP, the expected long-term return on plan assets of 8.00 percent remained constant for the years ended December 31, 2007, 2006 and 2005 and, consequently, had no incremental impact on net periodic cost. For the material non-U.S. defined benefit pension plans, the changes in the expected long-term return on plan assets resulted in an increase in the 2007, 2006 and 2005 net periodic cost of $50 million, $18 million and $140 million, respectively. For the U.S. nonpension postretirement benefit plan, the company maintains a nominal, highly liquid trust fund balance to ensure payments are made timely. As a result, for the years ended December 31, 2007, 2006 and 2005, the expected long-term return on plan assets and the actual return on those assets were not material. Rate of Compensation Increases and Mortality Rate The rate of compensation increases is determined by the company, based upon its longterm plans for such increases. Mortality rate assumptions are based on life expectancy and death rates for different types of participants. Mortality rates are periodically updated based on actual experience. Changes to defined benefit pension plans mortality rate assumptions increased the 2007 and 2006 net periodic cost approximately $80 million and $55 million, respectively, and increased the 2007 benefit obligation approximately $790 million. 20

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Changes to the rate of compensation increases had no material impact on the 2007 net periodic cost and reduced the 2006 net periodic cost approximately $32 million. Changes to the rate of compensation increases or to mortality rate assumptions had no material impact on the 2005 net periodic cost and on benefit obligations at December 31, 2006. Interest Crediting Rate Benefits for certain participants in the PPP are calculated using a cash balance formula. An assumption underlying this formula is an interest crediting rate, which impacts both net periodic cost and the PBO. This assumption provides a basis for projecting the expected interest rate those participants will earn on the benefits that they are expected to receive in the following year and is based on the average from August to October of the one-year U.S. Treasury Constant Maturity yield plus one percent. For the PPP, the change in the interest crediting rate to 6.0 percent for the year ended December 31, 2007 from 5.0 percent for the year ended December 31, 2006 resulted in an increase in the 2007 net periodic cost of $125 million. The change in the interest crediting rate to 5.0 percent for the year ended December 31, 2006 from 3.1 percent for the year ended December 31, 2005 resulted in an increase in the 2006 net periodic cost of $170 million. The change in the interest crediting rate to 3.1 percent for the year ended December 31, 2005 from 2.3 percent for the year ended December 31, 2004 resulted in an increase in the 2005 net periodic cost of $55 million.

Healthcare Cost Trend Rate

For nonpension postretirement benefit plan accounting, the company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates. However, the healthcare cost trend rate has an insignificant effect on plan costs and obligations as a result of the terms of the plan which limit the companys obligation to the participants. The company assumes that the healthcare cost trend rate for 2008 will be 8 percent. In addition, the company assumes that the same trend rate will decrease to 5 percent over the next six years. A one percentage point increase or decrease in the assumed healthcare cost trend rate would not have a material effect on the 2007, 2006 and 2005 net periodic cost or the benefit obligations as of December 31, 2007 and 2006. 21

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Recommendation Can Be Implemented and Expected Result


After I have carefully analyzed IBM and the industry in which it operates. I have used the companys strengths and the industrys opportunities to develop strategic recommendations to overcome IBM weaknesses.

Management
1. Develop a vision and mission statement I recommend development of a vision and mission statement. Definition of a companys purpose allows all employees a means to focus on goals and methods of obtaining goals. Upper management can develop these statements by identifying where IBM can be in the future and prioritize company goals. 22

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2. Diversify of Top managements workforce I recommend moving toward a more diversify in higher management workforce. IBM needs to actively recruit a younger professional group into top management executives position. These will generate more new innovative idea in managing IBM corporation.

Marketing
1. Conduct Market Research In order to expand markets and efficiently meet its customers or clients, IBM needs to conduct a market research. This markets research will allow IBM to identify and study a perfect way to customer main preferences in terms new high tech technology in IT industry to improve every aspect of companys business division. 2. Expand to different markets IBM high growth strategy has proven to be extremely successful, but we recommend expanding into different markets.. I suggest that the company could benefit by putting more effort into opening new markets. Defense industry and other industry in telecommunication, utilities is a perfect way for IBM businesses more bigger and I feel this market is a potential or more giving a profit to IBM.

Operations Financial
Reduce long-term debt I recommend that IBM reduce its long-term debt. On top of investing in new projects with IBM available cash flow, the company should also use a portion of their profits to reduce its debt. Reducing debt will decrease the interest payments and in turn, can use this portion of what would have previously been paid to interest to continually pay off more of the debt.

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International Business Machine (IBM) Financial Ratio Analysis (2006)


International Business Machine (IBM) Financial ratios Liquidity Ratio Liquidity ratios measure a firms ability to meet maturing short term obligations. Current Ratio = Current Assets / Current Liabilities = 44,660,000 / 40,090,000 = 1.114 Quick Ratio = Current Assets- Inventory / Current Liabilities = 44,660,000- 2,810,000 / 40,090,000 =1.044

Leverage Rations Leverage ratios measure the extent to which a firm has been financed by debt. 24

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Debt to Total Assets Ratio = Total Debt / Total Assets = 74,727,000 / 103,233,000 = 0.724 Debt to Equity Ratio = Total Debt / Total Stockholders Equity = 74,727,000 / 28,506,000 = 2.621 Long Term Debt to Equity Ratio = Long Term debt / Total stockholders equity = 13,780,000/ 28,506,000 = 0.483 Times Interest Earned Ratio = Profits before interest and taxes / Total interest charges = 38,295,000 / 278,000 = 137.8 Activity Ratios Activity ratios measure how effectively a firm measure is using its resources. Inventory Turnover = Sales / Inventory of finished goods = 8,022,000 / 2,810,000 = 2.855 Fixed Assets Turnover = Sales / Fixed Assets = 8,022,000 / 17,430,293 = 0.41

Total Assets Turnover = Sales / Total Assets = 8,022,000 / 103,233,000 = 0.077 Profitability Ratios Profitability ratios measure managements overall effectiveness as shown by the returns generated on sales and investment. Gross Profit margin = Sales-cost of goods sold / Sales = 8,022,000-2,810,000 / 8,022,000 = 0.65 Operating Profit Margin = Earning before interest and taxes (EBIT) / sales = 13,595,000 / 8,022,000 = 1.695 Net Profit Margin = Net Income / Sales = 9,492,000 / 8,022,000 25

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= 1.183 Return on Total Assets (ROA) = Net Income / Total Assets = 9,492,000 / 103,233,000 = 0.092 Return on Stockholders Equity (ROE) = Net Income / Total Stockholders Equity = 9,492,000 / 28,506,000 = 0.333 Earning per Share (EPS) = Net Income / Number of share of common stock Outstanding = 9,492,000 / 31,271,000 = 0.304 Price Earnings Ratio = Market price per share / Earning per share = 16.81/ 6.262 = 2.684 Growth Ratios Growth ratios measure the firms ability to maintain its economic position in the growth of the economy and industry. Net Income = Annual % growth in total sales = 1.2% increase compare to year 2005 Net Income = Annual % growth in profits = 1.05% increase compare to year 2005

Timetable and Agenda for action


Strategy Horizontal Integration strategy Merge or acquired local IT companies Unrelated Diversification strategy Enter new market into Defense industry and other industry like telecommunication etc January 2007-January 2009 Time August 2007 August 2008

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Recommend Specific annual objectives and policies


IBM Companys Long Term Objectives

LONG TERM COMPANY OBJECTIVE Achieve 42.33% annual improvements in gross margin and to reinvest this growth in acquire latest technology and investment expenditures, so as to maintain a relatively steady operating margin.

DIVISION IT Increase divisional revenues by 30% next year (current revenue $ 7million.

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Marketing annual objective Increase Marketing in Areas of new development promoting job and economic growth increase 25% of new development annual marketing budget

Finance annual objective Increase Gross Revenues 10%/year while maintaining gross margins through Acquisitions, New future development.

Strategy Evaluation Framework

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ACTIVITY ONE: REVIEW UNDERLYING BASES OF STRATEGIES Prepare revised Internal Factor Evaluation (IFE) MatrixPrepare revised External Factor Evaluation (EFE) MatrixCompare Revised to existing Internal Factor Evaluation (IFE) MatrixCompare revised to existing External Factor Evaluation (EFE) Matrix

Do significant differences occur?

YE S

NO

ACTIVITY TWO: MEASURE ORGANIZATIONAL PERFORMANCE Compare planned to actual progress toward meeting stated objectives ACTIVITY THREE: TAKE CORRECTIVE ACTIONS

Do significant differences occur?

YE S

NO

Continue present course

References:
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1. Fred R.david, Strategic Management 12th edition, Pearson International Edition. 2. International Business Machine (IBM): www.ibm.com 3. www.forbes.com

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