Team Strategy Case AnalysisMATCHING DELL: IBM
...ers Communication is prioritized, thereby keeping cost for transport and inventory low Production 1. Cut complexity and standardize components2. High bottleneck and efficiency management (streamlined production)3. measure everything (days in inventory, cash, conversion cycles, cycle times) and focus on main cost drivers4. Minimized overhead Continuous improvement by constant measurement and follow-up Sales & Advertising Cut out retailers and sell directly to customer Better positioned to forecast real customer demand Service Service via call centers Save cost but supply necessary customer support Chart 3: Comparison of Dell’s main advantages over IBM The comparison shows that Dell focused on IBM’s weak areas such as purchasing, production and sales & advertising, utilizing its strong focus on customer demand and cost savings to create a superiorly competitive business and pushing the former trend-setter into the background. Dell’s advantages were simultaneously also IBM’s disadvantages: · Large investments in the R&D area at IBM had not yet paid their dividends and future investment was planned to be similarly high · PC parts were available cheap and Dell found an even cheaper way of assembling them allowing customers to buy cheaper clones · Although IBM was showing major losses in the booming PC industry, it continued to focus on the mainframe business; at the same time, IBM did not recognize the growing importance of the software industry · Over the years, IBM had grown into a giant with a more than giant and inflexible overhead structure 3. Suggestions of potential strategic moves (PARTS analysis) The “PARTS” model is a theoretical model that helps to systematically analyze strategic options. The letters P.A.R.T.S. stand for certain categories of criteria: P – for Players (number of players in a given market, and the effect a change in the number would have); A – for Added Value (Pay-off distribution); R – for Rules (Can rules be influenced or changed?); T – for Tactics (Perceptions); and S – for Scope (Scope of the game). The resulting strategic options must be subsequently evaluate in regards to their relevance and realism. P: Players P.1) Find a strong partner: e.g. Dell. An opportunity for IBM would be to cooperate with another top-market-player that could be described as one that holds a strongly branded product portfolio with a competitive price advantage and a strong focus on the direct sales channel but lacks a professional service force. DELL, for example, is the most successful PC-selling company in the market. A potential cooperation could be based on DELL selling best price PCs and handing the service, solution and consulting business over to IBM, who would sell high technology/high price devices and focus on services as well as also selling DELL-products. P.2) Acquire Compaq. In addition, IBM could think about acquiring a weak performing competitor to expand its own product portfolio, customer penetration and market share. With a total revenue of over $81 billion, a net income of $6,3 billion and a return on equity of 32,6% in 1998, IBM is a potential acquirer. COMPAQ, on the other hand, with a ROE of -24,2% and a Net Income of $2,7 billion in 1998, is a potential take-over candidate. Therefore, IBM could purchase COMPAQ. Chart 4: Performance of major PC manufacturer, 1998 A: Added Value A.1) Promote niche suppliers to achieve a lower price scheme for components. Intel and Microsoft are such dominant suppliers that they can basically charge any price they want for the components they deliver. By working together with other companies and promoting them, cost reductions could be achieved. Linux could be used as a substitute supplier for the Microsoft-dominated operating system and Rational could deliver an alternative to Intel’s microprocessors. A.2) Copy Dell’s cost model. Dell’s model provides the best production and selling costs in the industry, with which Dell is able to offer very competitive pricing and at the same time remain very profitable. Chart 5: Development of PC-Prices: Consumer Market Chart 6: Development of PC-Prices: Business Market If IBM wants to successfully copy the Dell model, it should concentrate on changing its production systems, reducing inventories and changing the selling system to a mainly direct model (avoiding intermediaries). A.3) Become a full service and solution provider. IBM is already moving in the services direction as can be seen in the following graphic. Chart 7: IBM-Revenues, 1996-1998 By offering services and solutions, IBM could differentiate itself from its peer. In addition, it could provide its customers something that is not offered by anyone else in the industry. In this sense, IBM could benefit from a first-mover advantage. A.4) Add value to products through new developments. By having the highest R&D budget in the industry, IBM should profit from more advanced developments, especially in the server segment, a segment that is still very profitable. Chart 8: IBM-R&D spending, 1996-1998 R: Rules R.1) Change a competitor into a partner. At the moment, big companies are engaged in fierce competition. A partnership with a big player such as Dell could be a new way of creating a win-win situation, establish more precise branding and increase profits. Both companies could benefit from such an alliance and by doing so, weaken the rest of the competition. R.2) Apply a new type of customer-relation management. By developing a new direct and intense type of customer-relation management, IBM could position itself better as a solution provider and shed its image as a product supplier. This step would also improve customer loyalty for the company. R.3) Promote open standards for the operating system. Until now, operating systems are mainly supplied by Microsoft. By promoting open operating systems such as Linux, IBM could support beneficial competitive dynamics in the supplier market; a move that could present the company with a first mover advantage. T: Tactics T.1) Stop producing PCs. Being a diversified enterprise in the IT-hardware business, IBM could adopt the “Jack Welch strategy”, which GE’s former CEO applied to its fully diversified conglomerate: Each product needed to achieve status as #1 or #2 in any given market in order to stay within GE’s portfolio. Everything else had to be fixed or sold. If IBM would adopt this strategy, its marketing would have to communicate this strategy externally; its HR department would communicate internally. Once this strategy would be adopted, reflecting the image of a high technology company as well as considering the devastating results in the PC-segment, the firm should drop out of the PC-business. Chart 9: IBM-Income, 1996 - 1998 Chart 10: Ranking of PC-vendors T.2) Focus on high-tech premium products. It is very difficult for IBM to have a “low-cost” strategy. IBM needs to differentiate. The company could focus on high-tech premium products with top machine performance. T.3) Become a full-service and solution provider. In addition, the company should commit to focus on solution providing. Strong signals to the market could be: Ř Exiting a traditional product line such as PCs Ř Giving the whole company a new mission: Solution provider Ř Investing in IT-consulting or/ and outsourcing T.4) Block competitors from entering the service and solution space. IBM should strive to block competitors from entering the service and solution space – potentially also through alliances. S: Scope S.1) Expand IT-consulting business. The actions that need to be taken, should lead into the direction of a clear attack and positioning in the IT-consulting industry by investing heavily in an acquisition or growth of own staff. Moreover, the IT-outsourcing business effort should be stressed by intense activities on increasing the market awareness in this field (e.g. acquisition of reference projects with strong reputation). 4. Assessment of prospects of success for potential moves P.1) Find a strong partner: e.g. Dell. A partnership agreement with Dell should be possible to implement....