IBM
...company record). Its 2003 income from continuing operations was almost one and a half time 2002 income (from $5.3 billion to $7.6 billion). The acquisition of PricewaterhouseCooper’s Global Business Consulting and Technology Services Unit was the biggest strategic move that IBM has made in 2002 (growth family, related diversification strategy). Of paramount importance in this deal to IBM was the acquisition provides the company with new expertise in business strategy, industry-based consulting, process integration and application management. IBM move into this market has opened up some very large businesses beyond the frontiers of the traditional IT industry, opportunities that remain out of reach for most of its competitors. One promising example is Business Transformation Outsourcing (BTO), which was not even part of the industry lexicon 24 months ago. In BTO engagements, IBM becomes responsible for transforming and actually providing a client’s business process in areas such as human resources, procurement, customer care, and finance and administration. IBM was able to grasp at these opportunities thanks to the acquisition of PwCC. Its Global Services generated $55 billion in services signings in 2003, including seven contracts over $1 billion and a $3 billion in BTO signing during the fourth quarter of 2003 alone. To give a rough idea of the potential here, the current size of businesses’ outsourced spending on sales, marketing, logistics, finance, HR and all other administrative processes is about $1 trillion a year. Of that, there is an opportunity in excess of $100 billion in the BTO areas IBM is pursuing. In summary, the acquisition of PwCC should have a dramatic impact of IBM’s future revenues and profits. The largest acquisition of IBM in 2003 was Rational Software Corporation (growth family, related diversification strategy/ vertical integration strategy). Rational provides open, industry standard tools, and best practices and services for developing business applications and building software products and systems. The Rational acquisition provides IBM with the ability to offer a complete development environment for clients. The addition of Rational not only allowed IBM to become an innovator who provide leading-edge technology, services, expertise and intellectual capital to client success but also strengthened IBM’s marketed product mix and portfolio. After two decades of disaggregation, the IT industry is re-integrating due to major shift in client demand and technology. As a result of the acquisition, IBM is leading the industry toward the more fundamental, industry-specific transformations of on demand business. IBM defines an on demand business as an enterprise whose business processes are responsive to any client demand, market opportunity or threat, integrated end-to-end across the company, and integrated across industry value. An essential aspect of an on demand-operating environment is that its infrastructure is based on industry-wide standards (open standards). Without the open standards that enable all manner of computing platforms to communicate and work with one another, the integration of any client’s internal systems, applications and processes remains a monumental and expensive task. The open standard also allows the computing infrastructure to more easily absorb new technical innovation. Rational’s software development tools can be used to develop and upgrade any other company’s software products. Therefore, this acquisition is a critical part of IBM’s open standards strategy. The software revenue increased 11.8% in 2003 is an example of the successful integration of Rational acquisition. Rational surpassed expectation and yielded 28% revenue growth over its separately reported results for the 2002 fourth quarter. IBM also made at least 13 other strategic acquisitions in the last three years. Most of the acquisitions were for software companies and database software business. Retrenchment Family Strategies In the second quarter of 2002, IBM executed several actions in its Microelectronics Division. The Microelectronics Division is within the company’s Technology Group segment. These actions were the result of the company’s announced to refocus and direct its Microelectronics business to the high-end foundry, Application Specific Integrated Circuits (ASICs) and standard products, while creating a technology services business. As part of the company’s strategic realignment of its Microelectronics bu...