IBM Losing its Relative Leadership Position in IT
IBM Losing its Relative Leadership Position in IT.
IBM is a multinational technology firm that has its headquarters in New York in the United States. The company has subsidiaries in over one hundred and seventy countries all over the world. The company was created in 1911 by its founder Charles Flint. The company is in the information technology, cognitive computing, and the cloud computing industry. The company specializes in the manufacture of computer hardware, software, and middleware. It also offers to host and consulting services in the areas of mainframe computers up to nanotechnology. The company also serves a research organization where it is known for generation of most patents of businesses for the past twenty-three years. Some of the company’s inventions include ATMs, magnetic stripe card, UPC barcode and many others. In spite of these successes, the company has been losing its relative position in IT to Apple and Amazon. The objective of this essay is to match IBM with Apple and Amazon to determine the change in the leadership in IT.
IBM is a company that has been undergoing some transformations, and it has caused its revenues to decline since it has started to sell off its assets. This company has been investing in the cloud which is a lower margin business, and this has been a source of problems for this company since profits obtained are less compared to when the company was selling mainframes and software. Investors are beginning to worry about the future of this company.
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IBM’s revenues have declined at a rate of 1% per annum for last decade. The company has shown a quicker decline in revenues over the recent years. The organization seems to be preparing to sell its IT business services. The business unit has been unable to make enough profit for the company, and there is pressure for the company to sell of this business unit (Grönfeldt 23).
IBM has not been innovative enough, and this has contributed to its loss of its leadership position in IT. This company has been resting on its achievements for many years. This situation has made this company to be overcome by companies that are innovative and creative to come up with answers to help customers in the area of IT. On the contrary, this company has spent its time especially the last few years engineering its financials so that they can be appealing to investors.
The company has been losing its customers to competitors like Microsoft. Microsoft has been competing with IBM on the cloud. Microsoft Azure has been doing greatly in the market. High competition has not been good for IBM since sales decline over the years. Many companies have entered the cloud business, and this has had a negative effect on this company since the profit margins have declined.
IBM’s traditional clients have been having concerns. The company has been losing its top executives, and customers are wondering if they will be receiving personal services from services like they used to. Customers are aware that such services cannot continue and this situation has been causing revenues to decline.
The company seems to have neglected the needs of its most productive employees by failing to give them job security. The company had been performing very well in the past due to its commitment to its employees. However, since the company defaulted this commitment to its productive employees, most of them became disillusioned and also less productive than before. Further, this company made poor strategic decisions in that it decided to do business on its terms and not in agreement with the needs of customers or the marketplace (Hamel 12).
Amazon is an American company that specializes in electronic commerce as well as cloud computing. It is the biggest internet -based retailer globally based on the sales volume and market capitalization. Further, Amazon is the biggest provider of cloud computing services in the world.
IBM may never be in a position to catch Amazon in regards to cloud computing. Amazons AWS is the same cloud computing and the online company retailer in the cloud computing segment is almost ten billion dollars in annual revenue. Small and large companies depend on Amazons AWS and therefore, Amazon has rapidly changed the IT landscape. On the other hand, IBM’s cloud business has greatly reduced. The company generated 10.2 billion in the year 2015, but this figure includes hardware, services as well as the software businesses. IBMs IT is, therefore, incomparable to Amazons AWS. AWS overcomes SoftLayer which is considered infrastructure-as-a-service(IaaS) (Mills 5). IBM has a goal of attaining one billion in sales in cloud computing business this year but even with this goal Amazon’ cloud computing business is ten times larger. The sources of revenue for IBM are many, and they include global technology services, global financing and the provision of software. The company also sells system hardware, global business services systems and technologies and others. For instance, in 2015, IBM made revenues totaling 81 billion dollars from these sources. It is difficult for IBM ever to catch up with Amazon in the cloud computing business. It is certain that IBM will never be the biggest IaaS provider. IBM is spending most of its time advertising Open Stack, SugarCRM and others that are offered for free. This company has to ensure that most of its activities make sense financially to help in regaining its leadership position. The company also needs to concentrate on assisting firms to transition to cloud computing which will help this company to survive in the future.
Amazon had 240000 employees by 2015. This number surpasses the headcount for Apple and Google. On the other hand, statistics reveal that in 2012, IBM had employed 434 000 people but by 2015, the number of workers had reduced to 378 000. Apple has a total of 110000 employees.
IBM has spent 6.3 billion dollars from 2005 to 2015 on research and development. Conversely, Apple had spent about 782 million dollars from 2007-2015 on research and development while Amazon has spent over 10 billion dollars on research and development.
In regards to innovation, IBM has lagged behind for many years compared to Amazon and Apple. Apple has been extremely innovative especially during the time when Steve Jobs was the CEO. Apple has invented various products that have attracted a lot of customers. Some of these products include iPhones, Smartwatches, iPod, iPad and many other products. Today Apple is worth more compared to IBM. Apple’s innovative strategy has made it surpass IBM regarding market capitalization which is at 562.07 billion dollars. Amazon has a market capitalization of 337.73 billion dollars. IBM has a market cap of 158.70 billion. Market capitalizations show the value of a company. In this case, Apple is the most valued company since it has the highest value. The second company regarding value is Amazon and lastly IBM.
Amazon’s stock prices (NASDAQ)is 739.01, Apple (NASDAQ)108.4 and IBMs stock prices NYSE is 161.27. Earnings per share can be used in determining the profitability of these companies. Apple has ($13.48) earnings per share, Amazon has ($178.72) earnings per share, and IBM has ($13.22) earnings per share. Amazon is, therefore, the most profitable company compared to the rest of the companies.
IBM has been losing its leadership in IT due to various reasons. The company has shifted to cheaper expertise from India instead of expertise from the United States. This situation has made the company acquire less productive employees only because it wants to reduce the cost of labor. The company has reduced its US employees and therefore increased the Indian employees as well as operations. The company’s decision to seek for cheap alternatives have caused this company to land in problems. Further, managers of the various departments within the company has been forced to get rid of a certain percentage of employees within a certain duration regardless of their performance. This situation has caused this company to lose individuals with talents and capacity to contribute greatly to the growth of this company. Additionally, various steps have been taken to cut down the cost of operation, and this has greatly affected IBMs performance since this cost cutting affects the company’s bone as well as other vital organs.
The company is also affected by the strong bureaucracies and lack of agility within the company. The company has thirteen layers of management, and this tends to reduce the fastness of this organization especially in making decisions.
Additionally, this company has been focusing more on acquisitions instead of innovating. The company has been approximately six billion dollars on research and development, but it still falls behind its main competitors, that is, Apple and Amazon. The company has been making the wrong decision of acquiring companies with the expertise that it needs instead of being creative so that it can innovate its solutions to a problem being faced. Some examples of this situation are the acquisition of Aspera, Cloudant, Tealeaf and SoftLayer Technologies (Simon 17).
The company has been relying more on financial incentives which are not recommended for such an organization. When the incentives are purely financial motivation is affected so much since motivation relies on other things that are non-financial so that it can be positively impacted. IBM is a company that relies on financial incentives and are therefore skewed to the top, and this has affected the employees’ motivation in a negative manner.
IBMs staff morale has been declining at a very high rate. Layoffs are considered a part of the company’s business model. The company has been firing workers claiming it for the purpose of business positioning. For this reason, employees have been dissatisfied with their jobs. Even though the company has many talented and committed employees, the complicated bureaucracies, a lack of agility in making decisions and other factors have affected the staff’s ability to be innovative and unable to satisfy customers.
The company is also facing a crushing business model. IBM is a company that has three central businesses. They include services, hardware as well as software. When the company was healthy, it used to ensure that all these areas perform uniformly. A decline in any of these core areas can hamper the growth of this company. IBM is struggling to break this condition since it has been focusing more on cloud and therefore it is now selling less hardware which tends to affect the company’s provision of software products. It is hectic for clients to seek this company’s advice on anything since it lacks grounds.
IBM has a future strategy that is deemed unhealthy since it intends to compete with Amazon as well as other cloud competitors. It is difficult to do this since Amazon, and other competitors are willing to exist in a place where they decrease the cost of cloud computing even up to zero. IBM cannot compete with such companies since it is not stable in other sectors of its businesses. IBM needs to make a profit and therefore competing with its competitors it will be outperformed and forced to close down (Simson 31).
Quality is a problem with IBM. The company has been focusing on increasing its earnings and neglecting customer’s needs and delivering goods and services that are better, cheaper and faster. This situation is dangerous for this company as it will be history once a competitor implements quality measures.
The company is also facing a leadership struggle since its CEO has no idea of fixing the company’s problem which is a big challenge to deal with. Even though they could be aware of the problems that are facing this company, the company’s leadership is not willing to take a step to solve these problems.
In spite of its big size IBM has not been able to prove its goods and services at low cost. This company needs to repair and reconstruct so that it can be able to go up again. There is a necessity for the organization to reinvest in employees as well as other improvements. Each of the company’s business should strive at being the best, the cheapest and the largest supplier of the products being supplied so that in the next five years it can be a business conqueror.
In conclusion, IBM has been losing its leadership in IT to Apple and Amazon. There are many issues that have caused this including poor leadership, neglect of customers and many others. Apple and Amazon which are its main competitors are doing well than IBM in the IT since they innovative and have working business models. IBM needs to restructure and improve its business units so that it can retain its initial position in IT.
Grönfeldt, Svafa, and Judith B. Strother. Service Leadership: The Quest for Competitive Advantage. Thousand Oaks: SAGE Publications, 2006. print.
Hamel, Gary. What matters now: How to win in a world of relentless change, ferocious competition, and unstoppable innovation. John Wiley & Sons, 2012.
Mills, Daniel Q. Broken Promises: An Unconventional View of What Went Wrong at IBM. Boston, Mass: Harvard Business School, 1996. Print.
Simon, Phil. The age of the Platform: How Amazon, Apple, Facebook, and Google have redefined business. BookBaby, 2011.
Simson, Ernest. Limits of Strategy: Lessons in Leadership from the Computer Industry. New York: iUniverse Inc, 2010. Print.
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