ibm turn around strategy
Post on 22-May-2015
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Submitted By Group 7
IBMTurnaround Strategy
IT industry
• Most robust industry• Key driver of global economic growth• Global IT services predicted to grow at a CAGR of 5% to
reach a market value of $1147 billions by 2017
Indian Scenario
• Large dependency on the IT and ITES service providers to make business processes efficient and streamlined
• NASSCOM predicts the IT services sector to increase to grow by 13-14%
Penetration
• Indian manufacturing sector has the highest IT spending, followed by automotive, chemicals and consumer product industries
• India’s total IT industry’s share in the global market stands at 7%
• Large integrated players consisting of both Indian and international service providers dominate the industry.
INDUSTRY OVERVIEW
1960s 1980s 1990s 2000s
PRODUCT
Mainframe S/360
5000 hardware and 20000 software products
Expansion into services
Business IT solutions
MARKET Large Companies; International Expansion
Expansion to Consumers & SME
“Bear Hug” customers
Everywhere, Everyone
CHANNEL
Key Account Sales people to Technical Buyer
VAR & Retailers Executive A/c Leaders, Partners with enterprise software
Consultants sell to business buyers, Flexible Financing and Delivery
Exhibit ICOMPANY BACKGROUND (HISTORY)
Global Technology
Services segment
IT infrastructur
e
Business process
services like outsourcing,
cloud
Consulting solutions
Application managemen
t, maintenance & support
services
Software segment
Middleware and
operating systems software
Information management software
Tivoli software
Rational software
Mobile Software
Systems and Technology segment
Computing power and
storage solutions
Semiconductor
technology, products,
and packaging solutions
Global Financing segment
Lease and loan
financing to end users
Commercial financing to dealers of IT
products
Remanufacturing and
remarketing services for equipment
COMPANY BACKGROUND (PROFILE)
MOST ADMIRED DINOSAUR / HAS-BEEN
•Internal structural Problems•Earnings dropped to -$2.8 billion - a plummet of 146%•Expense to Revenue ratio = 42% (1993)•Cost cutting measures taken
PROBLEMSPRODUCT LIFECYCLE The need for Mainframes shrank as networked computing
was adopted
MARKETING MYOPIA IBM failed to foresee the growing market of PCs. they left microprocessors to Intel and software to Microsoft, preferring to concentrate on other issues.
DEEP HIERARCHY Executives were isolated from ground realities by layers of corporate staff.
CONSENSUS -DRIVEN DECISION MAKING
IBM was steered by lengthy committee meetings in which any one member could overrule general agreement.
REPLICATION OF EFFORTS
The 1990s followed on decades of untrammelled growth. The result was product complexity and organization silos.
CUSTOMER TOUCH Blinded by hubris, IBM was out of touch with its customers.
DECLINE
YEAR STEPS RESULTS
1993 • Louis Gerstner came in 1993• Structural reforms to fight with huge operational costs in IT departments• ThinkPad - marketing team, one development team, shared synergies, and an executive team
• Cost reduction of $7 billion•IBM posted a small profit of $382 million in the 4th quarter
1994 - 1997 • Cost of operating and running IT operations was cut in half• IT leadership was centralized, 128 CIOs were reduced to 1• Networks converted to one common protocol (TCP/IP)• Company decreased internal applications from 16,000 to 5,200 •Increased component reuse by 34%
• Generated over $2 billion in cost savings• Profits rose to $5 billion on revenues of $64 billion
TURNAROUND
STRUCTURAL CHANGES – ONE IBM
Executive Committee (CEC)
Worldwide Management Council (WMC)
Global sales teams
Customer relationship manager and a dedicated sales and service team Product specialists
IBM 2001- 2010
Opportunities
Capture growth in Emerging countries
Tap skilled talent
Identify the imminent change
Remix the business to move to higher value products
Extensive global integration to improve productivity
Higher performing IBM today
Enabled them to invest in resources for the future and provide a record return to investors and focus on long term financial goals
Key Features Deliver value to enterprise clients through integrated business and IT innovation
Build/expand strong positions in growth initiatives
Shift the business mix to higher-value software and services
Become the premier globally integrated enterprise
Key Features
Step 1: Focus on high value technologies and open solutionsStep 2: Deliver Integration and innovation to clientsStep 3: Globally leading and integrated enterprise
Global Technol
ogy Services
Business Transformation through outsourcing
Integrated Technology
Services
Maintenance
Global Busines
s Services
Leveraging business process
expertise
Middleware for efficient integration
Launch Websphere
on SOA platform
Sales and
Distribution
Dedicated operating
units
Helped improve clients’
business performanc
e
Address new market opportunitie
s
R&D
Spends $6 billion
Most US patents
SOA – Cloud Computing
Integrated
Operations
Integrated Supply Chain
Integrated technology
delivery
Integrated business process delivery
BUSINESS SEGMENTS AND CAPABILITIES
COMPETITOR ANALYSIS
IBM
MIC
ROSO
FT
HP-
Com
paq
10078
112
16.5 22 5
Revenue - Income in billion USD
Revenue Net income
IBM
Systems Technology services
Business services
Software Manufacturi
ng
IBM
MicrosoftHP
Key Drivers
Revenue Growth Operating leverage Share Repurchase
ROAD MAP 2015
Growth Market
• Attain 30% of IBM Revenue by 2015
• Focus on Geographic Expansion and creating new markets
• Invested more than $ 1Billion
Cloud
• Generate $ 7 Billion in revenue in 2015
• Clients such as banking, health care, government
• Cloud based infrastructure, integration services and security
Business Analytics
• Generate $ 16 Billion revenue in 2015
• Helps clients see patterns and trends, understand exposure to risk
• Acquisition of over 25 companies
Smarter planet
• Generate $ 10 Billion revenue in 2015
• Use of digital intelligence
• It highlighted company’s differentiated capabilities
•Software services contributes about half of the segment revenues•Growth initiatives deliver about $20 billion in revenue growth•Growth markets revenue approaches 30 per cent of IBM’s geographic total•Enterprise productivity delivers $8 billion in gross earnings•$20 billion in spending on acquisitions•$100 billion in cash flows•Return $70 billion to shareholders over the roadmap
2000 2002 2010 2011 2012 2013 2015F0
5
10
15
20
25
3.32 1.81
11.6713.44
15.25 16.2820
Operating EPS ($)
Changes business mix to provide higher value and more profitable technologies Focus not just Hardware but also on Software, particularly on cloud based offerings Generate significant amount of cash and profit – invest in other sources and markets Net acquisition worth $32 billion ; Dividends worth $30 billion ; Share repurchases worth $123 billion
STRATEGY TO ATTAIN $20 EPS
2012
2000
14%
35%
41%
38%
45%
27%
Segment Wise: Proportion of Pre-Tax Income
Hardware/Financing Services Software
Year
2010 2013 2015 (target)
1116 16
Analytics Revenue
Analytics
2012 2013 2015 (target)
2.64.4
7
Cloud Revenue
Cloud
ROAD MAP 2015
2007 2008 2009 2010 2011 2012 2013
36.59
91.6
59.31 64.3678.73
88.0472.31
RoE (in %)
FINANCIALS
2007 2008 2009 2010 2011 2012 2013
8.6511.26 12.31 13.07 13.62 13.93 13.06
RoA (in %)
2007 2008 2009 2010 2011 2012 2013
13.68 15.3817.77 18.17 18.97 19.56 18.82
Operating Margin (%)
2007 2008 2009 2010 2011 2012 2013
1.24
2.52
1.15 1.241.56 1.76 1.74
Debt/Equity
2007 2008 2009 2010 2011 2012 20130.2
0.21 0.21 0.21 0.210.22
0.24
Dividend Payout Ratio
2007 2008 2009 2010 2011 2012 2013
10.55 11.914.02 14.85 14.83 15.89 16.52
Net Margin (%)
FINANCIALS
Fiscal PeriodDec-
07Dec-
08Dec-
09Dec-
10Dec-11
Dec-12
Dec-13
Revenue per Share ($) 68.1 74.67 71.39 77.58 88.09 90.45 90.43
EBITDA per Share ($) 14 16.46 17.54 19.36 21.61 23.4 22.31
EBIT per Share ($) 9.32 11.48 12.68 14.1 16.71 17.69 17.02
Earnings per Share (diluted) ($)
7.18 8.89 10.01 11.52 13.06 14.37 14.94
Free Cashflow per Share ($)
7.9 10.55 12.92 11.49 12.97 12.87 12.1
Dividends Per Share 1.5 1.9 2.15 2.5 2.9 3.3 3.7
Book Value Per Share ($)
20.57 10.06 17.34 18.77 17.31 16.88 20.99
Month End Stock Price ($)
108.1 84.16 130.9 146.76 183.88 191.55 187.57
REASONS OF DECLINE
Decline in Performance in Growth MarketsRevenue from this segment declined by 9 per centChina accounted for almost half of the revenue declineIBM missed its revenue expectation by $1 billion
The decreased hardware sales are cited as the main reason behind the decreased revenues.
The Systems and Technology segment generated $3.2 billion in revenue, down by 17% from 2012.
Much of the hardware decline came from China as the government waited for the new economic policy. Even the revenues in other parts of the world in all other segments also decreased slightly.
IBM started looking at the cloud for its growth. And started laying off a part of the workforce especially from the Systems and Technology segment to concentrate on Cloud and analytics.
Growth Markets
Hardware
FUTURE
Investors should still trust IBM management and Business model?
Ambitious goals
Strategic initiatives of $20 EPS by 2015
Clear roadmap to 2015
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