IBM Case Study

¶ … IBM Competitive Forces Competitive Forces Analysis There are a number of potential factors that increase the competitive rivalry for IBM and other competitors in the field when looking specifically at cloud computing. There are a wide variety of both large and small companies providing cloud services. In addition to major companies like Microsoft and AT&T, there are also new entrants like Amazon, Rackspace, Google, and Salesforce.com (Konstantinos et al., 2009).

These new entrants or offering limited cloud storage, but much cheaper prices, sometimes even free as in the case with Amazon and Google. IBM could have the choice of purchasing smaller players that were or the working within the cloud computing market. However, "acquisitions could also delay IBM's response because of the time needed for integration and coordination purposes. Going it alone would keep the bulk of value created in-house," (Konstantinos et al., 2009, 207).

However, in 2008, IBM made a deal with Google "declaring their joint intention to promote commercial cloud-based services" (Konstantinos et al., 2009, 223). This was a huge step for IBM, as it did manage of one of the new entrants in order to generate mutually beneficial results. According to the research, "IBM's reputation could help drive sales of Google apps (Google's cloud offering), while IBM would provide the infrastructure and services to offer an integrated solution for customers around the globe" (Konstantinos et al., 2009, 224).

Still, IBM has long been the leader in developing new products. The company has an incredible number of patents held above competitors. This illustrates how the company can easily bounce back from new developments of substitute products because it has the innovation and capability to continue to create and patent even newer and more creative products than what the competitors are coming out with.

Also, the sheer number of Limit the capabilities of competitors developing new products because they have to follow the laws and respect the patents that IBM has. Additionally, IBM has great relations with its suppliers and authority capable of producing consumer electronic products on a massive scale, both for personal and business use. As such, it is in a fixed stand in order to capitalize on the new development of such technologies.

"The cloud could be accessed through a greater variety of user interfaces, such as low-priced netbooks, tablets, or smart mobile phones with web access. Freed from the need to house applications that required large amounts of internal memory, these devices were smaller, more portable, and provided a more interactive computing experience" (Konstantinos et al., 2009, 218). Since IBM is already one of the top manufacturers of consumer electronic products, they can easily integrate cloud computing systems within these smaller computing devices.

This gives them a competitive advantage above smaller new entrants, like Google and Amazon. Their sheer production capabilities help provide them a clear competitive edge. Here, the research suggests that "at the infrastructure level, cloud computing allow data centers to achieve higher utilization rates by providing services to a larger and more dispersed client base, resulting in enormous economies of scale" (Konstantinos et al., 2009, 216). Thus, the company is in a prime position to develop new products and market them efficiently to these new potential consumers.

Moreover, the company is forecasting a growth in market share that will continue strong into 2014. According to Delta Consultants (2010) the company expects to see constant growth and market share with about a 3% growth percentage in 2014, netting in close to $600 billion dollars of the current market share. This does also provide a competitive advantage above IBM's competitors.

Delta Consultants also suggest that "new software in video game development will receive an additional 20 million per year into research and development," which will ultimately ensure the continual growth of cloud systems within the company (Delta Consultants (2010). Growth is always excellent for a company, and with the introduction of more products using cloud computing systems, this growth will only continue. CPM (Asif, 2013) The CPM is meant to "identify strengths and weaknesses of our competitors critical to success in the industry.

A weight is given to each of the external and internal factors" (Delta Consultants, 2014). The weight ranges from one being a major weakness, to being a slight weakness, three being a strength, and for being a major strength. As such examining the competitive profile matrix shows strength above Microsoft and HP. The total score compared to Microsoft is at 3.36, showing a significant strength above competition. HP has a slightly lower strength rating, at 3.02.

Competitor's Ratios and Analysis (NASDAQ, 2014) Clearly, one of IBM's major competitors in the cloud computing industry is Microsoft. Even know the CPM suggests that IBM has a strong advantage over Microsoft, there are still issues in regards to the financial ratios. When comparing the financial ratios, it is clear that Microsoft actually has a higher competitive standing. They have a higher current, quick, and cash ratio that IBM does. The financial ratios of IBM are discussed further down in this report.

The gross margin ratio of Microsoft IBM is almost double, setting the bar high for IBM to make strategic decisions in order to better compete with Microsoft. Current and Historical Financial Statements (NASDAQ, 2014) (NASDAQ, 2014) (NASDAQ, 2014 (NASDAQ, 2014) According to the income statement the net income has been increasing yearly. In 2009 it was about $13.5 billion, yet this number has increased to $16.6 billion in 2012. This shows incredible growth, that is steady and a positive indication for IBM's work with cloud computing.

According to the research, "net income is expected to increase by 6% each year" (Delta Consultants, 2010). This is another positive indication that the company will increase its competitive stance that the cloud computing industry. If the company continues to increase its net revenue, it can ultimately spend more money in researching and developing cloud computing products, both for business and consumer applications. It may also want to continue its strategy of acquiring or dealing with other smaller competitors, like it did with Google.

Increases in revenue will help increase leverage power from IBM. However, the net cash flow has stayed at a steady rate for the past few years. It has continued to hover around $19.5 billion. The company doesn't need stronger strategies to increase its cash flow in order to capitalize on.