At International Business Machines Corporation (IBM), strategic choices of top executives are focused on global expansion and increased outsourcing. In global expansion, the company aims to penetrate developing markets. For example, the firm outsources some of its material processing to China to take advantage of the low labor cost of Chinese workers. The company also outsources software development to India. Thus, IBM’s strategy is the combination of global expansion and increased outsourcing. This strategy is competitive. The lower production costs help optimize profit margins. Global expansion enables the company to have higher stability. These strategic choices contribute to the firm’s competitive advantages.
The strategic choices of IBM for competitiveness relate to Porter’s generic strategies and the SWOT perspective. The firm’s strategies capitalize on organizational strengths, shore up the company’s weaknesses, exploit opportunities in the business environment, and protect the business against threats.
IBM’s Strategy in Following Porter’s Generic Strategies
IBM’s strategies are a combination of outsourcing and global expansion. Cost is an underlying factor in choosing to outsource business processes. Outsourcing leads to reduced operations costs by exploiting lower labor costs in countries like India and China. Thus, IBM uses cost leadership strategy, which is one of the four generic strategies in Porter’s model.
In using the cost leadership strategy, IBM’s goal is to reduce the cost of producing its goods. These goods include computer hardware and software. The cost difference enables the firm to minimize selling prices so make its products more attractive. Also, the lower costs allow the company to keep a higher profit margin if product prices are maintained.
IBM Strategic Success based on the SWOT Perspective
Capitalizing on IBM’s Strengths. From the SWOT perspective, the firm’s strategy successfully capitalizes on the organization’s strengths, such as the company’s global supply chain. IBM also has financial capacity to support its global expansion. Thus, it is easy to apply the combined strategic choices of global expansion and outsourcing.
Shoring Up IBM’s Weaknesses. The company’s strategy is successful in shoring up the organization’s weaknesses. One of these weaknesses is the relatively high price of IBM products. Through the strategic choice of outsourcing, the company addresses this weakness. Outsourcing enables the firm to keep a more competitive pricing strategy.
Exploiting Opportunities in IBM’s Environment. The company’s strategy of outsourcing and global expansion is successful in exploiting opportunities in the organization’s environment. In the strategic choice of global expansion, IBM takes advantage of developing markets. Also, in using outsourcing, the firm exploits the opportunity to use cheaper labor costs in countries like China and India.
Protecting IBM against Threats. Competition is the main threat to the company’s business. The strategic choices of outsourcing and global expansion directly address this threat. The outsourcing strategy allows the firm to offer competitively priced products. The global expansion supports IBM’s efforts to secure bigger market shares compared to its competitors.
- Bharadwaj, A., El Sawy, O. A., Pavlou, P. A., & Venkatraman, N. (2013). Digital business strategy: toward a next generation of insights. MIS Quarterly, 37(2), 471-482.
- Capek, P. G., Frank, S. P., Gerdt, S., & Shields, D. (2005). A history of IBM’s open-source involvement and strategy. IBM systems journal, 44(2), 249-257.
- Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
- Gingerich, E. (2012). Smart Change in Strategy: IBM‘s Response to Challenging Times. The Journal of Values-Based Leadership, 4(1), 2.
- Harreld, J. B., O Reilly, C. A., & Tushman, M. L. (2007). Dynamic capabilities at IBM: Driving strategy into action. California Management Review, 49(4), 21.
- The IBM Strategy.
- International Business Machines Corporation (IBM) – Form 10-K.
- Kasanoff, B. (2015, January 29). IBM Strategy: Protect The Machine, Not The People. Forbes.
- Steffen, B. (2017). The physics of software tools: SWOT analysis and vision. International Journal on Software Tools for Technology Transfer, 19(1), 1-7.
- Verbeke, A. (2013). International business strategy. Cambridge University Press.