Written Case Analysis – IBM

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Written Case Analysis – IBM Salient Case Facts at a Glance: John Akers became the CEO of IBM in 1985. By this time, IBM had registered a drop in earnings for the first time. This trend continued, creating various other problems till John Akers was forced to resign in 1993. IBM was perceived as a ruthless giant with tremendous growth. Naturally, it was singled out for criticism by the entire industry and the government. IBM also attracted anti-trust legislation as a result. IBM lost out once the Personal Computer industry began to boom. It found that the old paradigm of closed proprietary systems applicable to the mainframe business was not relevant to PCs. Reasons for decline of IBM in the late 80's and early 90's: · IBM's earlier investments were yet to pay dividends and the future investments planned were high. · IBM's products were treated as generic. PC parts were available cheap and assembly was also cheap. Therefore customers opted for cheap clones. A high cost manufacturer like IBM had an obvious disadvantage. · IBM failed to read the industry trends and was still banking on the mainframe business to earn major revenues. It was losing market share in PC and laptop segments, which were growing fast and had tremendous potential. · IBM had excess manpower which resulted in heavy overheads. · IBM was seen as a single entity by customers. So the splitting of the company into autonomous business units was not acceptable to the customers. The customers would find it difficult to deal with different divisions of IBM. · IBM also did not appreciate that software was becoming more important than hardware in the light of the IT revolution. Louis Gerstner took over as CEO in 1993. The major policy initiatives that he launched included a decision not to split up the company but to make it even more closely linked, concentrate on networking and minimizing bureaucracy. Under his leadership, IBM's earnings showed a remarkable turnaround in the next two years after registering a huge loss in 1993. PC Industry - Structural Analysis: (Using Michael Porter's Model) Based on the information provided in the case, we can do a structural analysis of the PC industry which will help us in better analysis of the case. Threat of New Entrants: Entry was easy in the industry due to its huge potential. However, the major market share was held only by a few players. Rivalry: Stiff competition among a few major players having equal strength and potential. This led to intensive rivalry. Bargaining Power of Customers: High bargaining power because of stiff competition, and a large number of suppliers offering similar products to choose from. Bargaining Power of Suppliers: Bargaining power of suppliers is

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