STRATEGIC FOCUS

IBM closely watches its competitors to stay at the top of its game
It is critical for companies to study their major rivals to help them shape and implement their strategies to counter competitors strengths and to exploit their weaknesses. Armed with effective analyses of competitors, companies can enhance their market position and increase returns on their investments. International Business Machines (IBM) is the worlds top provider of computer products and services. IBM makes mainframes and servers, storage systems and peripherals, but also has the largest computer service unit in the world; it accounts for more than half of IBMs total revenue. To remain competitive in its various markets, IBM established a competitive analysis team with the sole purpose of observing and analysing competitors such as Hewlett-Packard (HP) and Sun Microsystems. IBM uses the data from these analyses to adjust its strategies and business plans accordingly, to ensure that the firm effectively competes with its major rivals. IBMs competitive analysis team found that Suns direct sales team focuses on the top 1500 accounts in

its installed base, and that its remaining customers are being serviced by business partners. The IBM team also found that Suns sales reps primarily emphasize selling hardware instead of solutions, a definitive weakness that provided opportunities for IBM to take away customers from Sun. In addition, IBMs team carefully analysed a large number of HP announcements for its e-business weak points in its high availability campaign. IBM said that the 5Minutes campaign is only a vision that has little business value for its customers, but the campaign has strong marketing value for HP. The analysis showed that HP has low software and services revenues and thus is primarily a hardware company. HP lost approximately 15 per cent of its potential customers because it lacked its own support and consulting services and is too reliant on EDS, Accenture, Cisco, HP resellers and EDS (which HP has recently acquired). IBM was a pioneer of the multinational business model. It created mini-IBMs in each country, each with its own administration, manufacturing and service operations. Based on the analyses of rival Indian technology companies, IBM identified that a flatter structure and leaner organization was needed to compete effectively. Likewise the competitor analyses discovered that Chinese competitors provided high-quality goods and services for a much lower price. These competitor analyses led IBM to develop global integrated operations. IBMs global shift makes it possible to use lower-cost talent in India to manage machines and software in data centres. In addition, the data centres are interchangeable, so if India has problems, IBM can reroute computing jobs and calls to other locations. Eventually, international competitors will build global delivery hubs, but they will be unlikely to compete with IBMs scientific research capabilities. IBMs integrated global services and research organizations enable it to design innovative services. The cost savings achieved through its global integration efforts led to a higher earnings growth. The overall goal of this global integration plan is to lower costs while simultaneously providing superior services to customers. In doing so, IBM can enhance its competitiveness, increase its market share, and drive revenue and profit growth. Based on the information obtained from recent competitor analyses, IBM decided only a few adjustments were needed. For example, IBM decided to emphasize its higher margin business consulting services, which help companies change the way they

Alessandro Della Bella/Keystone/Corbis

operate, and to focus less on technology integration. IBM also changed the strategy of its software division. Because software is the fastest growing and most profitable segment of the company, IBM has made several acquisitions of software companies, including FileNet, MRO Software, and Webify Solutions. These acquisitions fill holes in IBMs product portfolio and increase its ability to compete effectively with Sun Microsystems and similar rivals. IBMs strategic actions are creating positive results. Total revenues for the first quarter of 2007 reached 17.3 billion, an increase of 7 per cent from the first quarter of 2006. First quarter 2007 income increased 8 per cent over 2006 to 1.4 billion. And its first quarter 2007 earnings of 0.95 per share represented an increase of 12 per cent over the first quarter of 2006.
Sources: Hamm, S. (2006) Big blue shift, BusinessWeek, http://www.businessweek.com, June 6; Morgan, T. P. (1999) IBMs competitive analysis on Sun, HP, Computer-

gram International, http://www.findarticles.com, Oct. 4; Lex: IBM (2005) Financial Times, http://www.ft.com, May 5; Hamm, S. (2006) IBMs revved-up software engine, BusinessWeek, http://www.businessweek.com, Aug. 15; Krippel, J. (2007) International Business Machines Corporation, Hoovers, http://www.hoovers.com; 2007, http://www.ibm. com/news, May 5.

Questions
1 How does intelligence? IBM benefit from competitive

2 Discuss whether competitor analysis makes is useful for all firms. 3 What are the conditions for it to be most effective? 4 What conditions make competitor analysis less effective? 5 Can competitor analysis be detrimental to company performance? Explain and discuss.

KEY DEBATE

Environmental analysis how much?

he analysis of the external environment is comprehensive. It includes scrutiny of the changes in the general environment, the developments in the industry and the actions and intentions of rivals. Engaging in comprehensive analysis certainly has benefits, it enables firms to better understand, anticipate and implement the right strategies at the right time. However, exhaustive analysis also has some downsides. Such comprehensive analysis is costly as it takes skill and time to be done well. It focuses attention on the outside to an extent that does not seem justified by the degree to which firms can change their external environment. This chapter made the case that firms

should engage in analysing what cannot easily (or only under great difficulty) be influenced. Advocates who point out the immediate and irrevocable costs of environmental analysis and its uncertain returns may counter this position. Rather than focusing on what cannot be changed firms need to understand how they can best act to improve their situation. In the extreme, some suggest to avoid (excessive) analysis in favour of engaging with reality. While exhaustive analysis and direct engagement may be two extreme positions, they illustrate the range of positions taken in the ongoing debate on the questions:

sebastian-julian

Questions
1 How much environmental analysis is good and how much is excessive? 2 How useful is it to know about what cannot be influenced? 3 Is environmental analysis like an insurance in the sense that if you conduct more environmental analysis you will be safer and not fall victim to negative turns of events?