Analysis Macro And Micro Environment Of Ibm

Introduction

The world has grown increasingly complex, resulting from the greater interdependence among world economies (Thompson, 2002). Successful organization is largely determined by how well the organization adjusts all its tangible and intangible properties to keep itself on track with its surrounding (Armenakes & Bedeian, 1999). Strategy was concerned to manage firm’s activities and resources to the environment in which it operates. This essay will analyse the micro and macro external environment in the part five years (2000 to 2006) of IBM Company by using PESTEL and five forces model to analyse in the first part. The second part will discuss about the advantages and disadvantages of the two possible alternative strategies for IBM.

Part 1: Analysis of Micro and Macro External Environment

1.1 PESTEL Analysis

The external factors can be divided into six broadly categories which are political, environment, social, technology, environment and legal (Johnson, 2005). Such external factors usually are out of the firm's control and sometimes present themselves as threats. In this case, political factor, environmental factor and technology factor will be used to analyse the computer technology industry.

Political factor

The Iraq War is an ongoing war which began with a United State led invasion of Iraq in 2003. This war affected to the world economy, especially, USA who directly war with Iraq. Fear of a possible U.S. led war with Iraq soured investors’ sentiment in U.S. stock market. Furthermore, technology stocks in European market plunged following down results from sector giants Microsoft and IBM stocks fell down (CNN.com). This is because of everyone is negative on Iraq and in combination with the darkness surrounding of technology. However, IBM Company is strong enough to fight with this pressure as its revenue more than 50% is from outside U.S.

Environmental factor

All computer technology manufactures are the global companies, thus, they can be affected by some environmental factors that happening around the world. For example, in 2002 and 2004, there were widespread outbreaks of an illness such SARS and bird flue respectively (BBC News). These situations could adversely effect to all businesses that operate especially in China. These crises also effect to IBM in terms of ability to source and deliver products and services to its customers and customer demand since IBM has many suppliers in China and Asia countries (IBM Company)

Technology factor

Technology affects directly to computer technology industry because computer technology can be used as a tool to invent many technological products such as x-ray machine, aeroplanes, talking dictionary, video game and etc. Moreover, computer technology has been continuing developed in order to use in many fields such as business, design, contracture, science, manufacturer, military and etc. For instance, U.S. military deployed IBM’s speech to speech translation software to help U.S. serving in Iraq for better communication with local security forces and Iraqi citizens (Networkworld.com)

1.2. Five Forces Analysis

Porter (1980) stated that the essence of formulating competitive strategy relates to a firm’s environment and companies that can adapt their strategy along changing environments may be able to stay compete with others. Therefore, it is important to consider micro environments factors before conducting corporate strategies.

The Threat of Entry: Low

The high capital investment, high budget for research and development, and high technology of production can be seen as factors that prevent new competitors to enter into computer technology industry. Base on the first mover theory, the new entrants may face a difficulty in order to meet economies of scale and experience curve when there are already many well-establish brands in the market (Hill, 2005). Thus, in computer technology industry where are full of well-know brands such as IBM, Sun, Dell, EDS, and Hewlett-Packard, it was difficult for new competitors to be able to get into the market. The threat of new entrants for the market is considerably low.

Intensity of Rivalry: High

There are many computer software manufactures in today global market. Each manufacture tries to differentiate its product by creating new programmes that make a computer more powerful. Moreover, each manufacture also tries to build brand image and create customer loyalty by taking good care of customer with service after sale. Therefore, the intensity of rivalry in computer technology industry is quite high.

Bargaining Power of Suppliers: Low

IBM’s business employs a wide variety of components, supplies, services and raw material from a substantial number of suppliers around the world. Therefore, the manufactures can switch to the new suppliers if the suppliers cannot meet the requirements. In this case, IBM is the large global company which has high bargain power to the suppliers. They can force the suppliers to reduce price with the large amount of orders and meet the standard of requirement, otherwise, the will move to other supplies. Thus, suppliers’ power is particularly concerned low

Bargaining Power of Buyers: High

As IBM operates business in B2B market, most organizations always buy in large amount per one time. Therefore, customers have power to negotiate with the company. Moreover, IBM faces with a significant number of competitors who can be a choice for customers. This could effect to IBM as customers have more alternative to choose. Hence, the bargaining power of buyer is high.

Threat of Substitutes: low

Recently, computer becomes essential equipment in which people and organizations need to have its in order to help them to manipulate data, calculation and communication. Software is the main component of the computer which used to enable a computer to perform specific tasks (Wikipedia). Nowadays, there is no product to replace or substitute computer software. Therefore, the threat of substitute for computer software is noticeably low.

Figure1: Micro External Force of IBM Company

Source: adapted from Porter, 1980

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