IBM's Fight for Market Dominance in Global Data Era - Essay Sample

Introduction

International Business Machines (IBM) is among the largest information technology companies in the world; the company has its operations in over 170 nations and has continuous revenue streams from long term maintenance and outsourcing agreements (IBM, 2019). Despite the long term market dominance, new companies are emerging and proving to be serious competitors to IBM. The need to reinvent itself shed the lower margin businesses and invest in big data is some of the strategies to help enhance shareholders value at the company. Currently, enterprise IT, cloud computing, mobile technologies, and emphasis on security are some areas that the company is working on to improve its value (IBM, 2019). However, the paper intends to take advantage of the strong financial position of the company, and from a financial engineering perspective, device ways through which shareholders value will be increased.

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Proper analysis improves the usefulness of the available data; well-analyzed information has proven to be the new resource of most businesses. Global organizations are seeking ways through which to convert the existing data into insights and actions that increase their value. With an understanding of this, IBM is spending billions in research and more acquisitions to have a significant share in the growing segments. An essential part of this is the IBM Watson. IBM states that the segment makes use of technology and natural language processing to create insights from large amounts of unstructured data (IBM, 2019). IBM makes use of the IBM global capabilities, expertise, and innovation to offer integrated services and right solutions to their customers. Currently, IBM has a mission to provide clients with the required technology to help them interact, engage, and analyze data (IBM, 2019).

Current Market Situation

With the current increase in demand for safety and current threats becoming more complex, current intelligence organizations are tasked to respond efficiently and precisely to the issues. Security threats are compounded by a shortage of resources, changing missions, and an ever-changing landscape (IBM, 2019). Moreover, today's analyst is forced to interpret large quantities of data from more sources, signals, and open source information, thus more work for the company. With this, the risk failing to handle the security issues arise comprehensively.

The market demands that the decision-making process is accelerated, efficiency is increased, and better analysis capabilities are applied in organizational decision making. With the capacity to perform multidimensional analysis, it is easier to uncover patterns and underlying relationships in dissimilar data. Currently, IBM is working to provide flexible and agile missions with a broad range of analytic equipment that can be customized to fit the need of the organization (IBM, 2019). Moreover, IBM is providing more add on capacities to enhance modular designs and extensions; thus, value is created for IBM clients. IBM software is ideal as it reduces training, requires lower maintenance, and a low deployment cost (Luna, 2019).

As per IBM cyber security market watch, there has been a steady increase in cyber threats in the previous years (IBM, 2019). The threats are expected to rise between the years 2019 to 2024 as factors that contribute to the threats increase. Security demand, product awareness, market consumption patterns, current trends, and increasing population are some of the factors that are bringing about development in the market. Cybersecurity market also brings out changes in global revenue generation and changes in the economic structure simultaneously. Dominant players in the cyber security industry in the United States are Webroot, trend micro, F-secure, and Sophos Ltd (IBM, 2019).

The market reveals that market players are focused on improving customer satisfaction. With a high number of players, it is evident that some of them may be providing better services in some sectors as compared to IBM. Proper understanding of all market participants is essential organizational financial, technical, environmental, and development planning. IBM may not boast of the dominant market position that it had years ago; it is rather faced with an intense rivalry that requires it to act fast (IBM, 2019).

To better its position, opportunities for the company exist in areas such as an improved production process, change in methodologies, plant locations, sourcing of raw materials, improved product specifications, company brands and patents, the creation of a global presence is also essential for the company. For all the sectors to be improved, assessment on capital investment, sales volume, the current revenue model and growth rate are essential for an analyst to help improve the shareholder's value (IBM, 2019).

Subjective Impacts

Threats

Fall in Brand Value

IBM was faced with a huge drop in its brand value ore, especially between 2014 and 2016; the value fell to $35, 428 billion showing a decline of $3,642. The initial mainframe business of the company has been on a decline (Yahoo Finance, 2019). In the past ten years, revenue growth is negative, and cash from operations (CFO) is also not as high as expected. Experts state that the earnings per share are positive since the company bought back many shares (Luna, 2019).

Litigations

The sensitive nature of IBM products has brought about legal issues. For instance, in April 2014, the company was sued by Lusacell that IBM made fraudulent misrepresentation making Lusacell get into an agreement. Bridgestone America sued IBM over a defective system demanding compensation of up to $600 million (Luna, 2019).

Global Economy

The global economy means that the company has to keep prices competitive to easily operate. For instance, raw materials, labor, and shipping are some essential cost factors; price fluctuations are also a threat to the company operating in the global economy; therefore, there is a need to hedge the dangers associated with operating in such an environment (Luna, 2019).

Opportunities

Innovation and the creation of new products is the norm at the company, IBM has consistently topped in the list of annual US patents and associated benefits. The long term customer relation, reputation for quality products and services, and the company's ability to deal with complex systems make it easy to maintain high margin and lasting relationships (IBM, 2019).

Another opportunity is in data analytics, there is an increasing need for well-analyzed data, and IBM is in the best capacity to do so. The market is estimated to hit $125 billion after evaluation. With $1 billion investment into Watson and $100 million into venture startups that create cognitive apps, it shows that the company is in a position to take advantage of the data market and expand on it (IBM, 2019).

The offering of cloud-based solutions remains to be an ever-expanding opportunity, governments, institutions, and NGO need secure places where they can store their data and retrieve it at any time. By maximizing on data storage, it is possible to expand the business operations through engagement solutions. Partnerships with major companies give it an increased arena to perfect what it does.

Competitive edge

One of IBM success factors is customer satisfaction and relationships; the right relationship has seen revenues stream in like annuities. Therefore, it is in a position to transits the large customer base from low margin to higher margin business. With huge margins, the company can heavily invest in research and development, acquisitions, and repurchase of stock. Therefore, it can compete competitively in the market.

The company business model focuses on long term growth. First, IBM defines ways through which it will make the clients more competitive in the market; this is through making the client more innovative and efficient. The desires to provide long term value to shareholders through superior commodities makes the company business model perform better.

IBM, as a market leader, the company conducts its business aggressively and thus innovates, or it can keep up with the changing technological demands. Diversification and acquisitions have been essential in helping the company do this; on the other hand, businesses with low margins are disposed of or outsourced. Thus, IBM has been able to establish itself as a big data analytics company. Currently, IBM spends nearly a third of its budget on research and development. With data analytics contributing around $17 billion, it is evident that they take the market leader in the area (IBM, 2019).

Financial Ratios Analysis

IBM nearest competitor is Hewlett Packard (HP); it focuses on the manufacture and sale of personal computers, IT services, and software's, both to small and large enterprises and individuals. Ratio analysis will be done focusing on current ratio, debt to equity ratio, return on equity ratio, dividend yield, EPS, P/E, and market to book ratio.