Week 2 Dynamic Capabilities at IBM Case Study Discussion

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This is the MBA Strategy Management - master level course.

Read the case carefully and answer the 5 questions. ( Check the uploaded file below)

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Read the case and answer the following 5 discussion questions. MiniCase 7 Dynamic Capabilities at IBM “You make the right decision for the long run. You manage for the long run, and you continue to move to higher value. That’s what I think my job is.”1 LED BY CEO Virginia Rometty, the IBM of today is an agile and nimble IT services company. Rometty was promoted to CEO in 2012 from her position as senior vice president of sales, marketing, and strategy. Rather than facing just one technological transformation, IBM and its clients are currently facing three disruptions at once: 1. Cloud computing: By providing convenient, on-demand network access to shared computing resources such as networks, servers, storage, applications, and services, IBM attempts to put itself at the front of a trend now readily apparent in services that include Google Drive, Dropbox, or Microsoft 365. Increasingly, businesses are renting computer services rather than owning hardware and software and running their own networks. One of the largest cloudcomputing providers for businesses is Amazon Web Services (AWS), which beat out IBM in winning a high-profile CIA contract. This was seen as a major embarrassment given IBM’s long history of federal contracts. Microsoft with its Azure cloud offering is another potent competitor, especially after CEO Satya Nadella focused Microsoft on a “cloud first, mobile first” strategy. 2. Systems of engagement: IBM now helps businesses with their systems of engagement, a term the company uses broadly to cover the transition from enterprise systems to decentralized systems or mobility. IBM identifies the traditional enterprise system as a “system of record” that passively provides information to the enterprise’s knowledge workers. It contrasts that with systems of engagement that provide mobile computing platforms, often including social media apps such as Facebook or Twitter, that promote rapid and active collaboration. To drive adoption of mobile computing for business, IBM partnered with Apple to provide business productivity apps on Apple devices. 3. Big data and analytics: IBM now offers smarter analytics solutions that focus on how to acquire, process, store, manage, analyze, and visualize data arriving at high volume, velocity, and variety. Prime applications are in finance, medicine, law, and many other professional fields relying on deep domain expertise within fast-moving environments. IBM partnered with Twitter to provide IBM’s business clients big data and analytics solutions in real time based on the vast amount of data produced on Twitter. IBM’s Core Competency: Providing Solutions At its core, IBM is a solutions company. It solves data-based problems for its business clients, but the technology and problems both change over time. As an example, Page 467 IBM helped kick-start the PC revolution in 1981 by setting an open standard in the computer industry with the introduction of the IBM PC running on an Intel 8088 chip and a Microsoft operating system (MS-DOS). Ironically, in the years following, IBM nearly vanished after experiencing the full force of that revolution, because its executives believed that the future of computing lay in mainframes and minicomputers that would be produced by fully integrated companies. However, with an open standard in personal computing, the entire industry value chain disintegrated, and many new firms entered its different stages. This led to a strategic misfit for IBM, which resulted in a competitive disadvantage. Rather than breaking up IBM into independent businesses, Lou Gerstner, installed as CEO in 1993, refocused the company on satisfying market needs, which demanded sophisticated IT services. Keeping IBM together as one entity allowed Gerstner to integrate hardware, software, and services to provide sophisticated solutions to customers’ IT challenges. IBM was quick to capitalize on the emergence of the internet to add further value to its business solutions. The company also moved quickly to sell its PC business to Lenovo, a Chinese tech company, in 2005 when substitution from tablet computers was just beginning to impact demand. In 2014, IBM followed up on this transaction with the sale of its server business also to Lenovo. Exhibit MC7.1 shows IBM’s dynamic capability to successfully transform itself multiple times over its more than 100-year history—a history with periods of major disruptions in the data information industry, from mechanical calculators to the internet. In contrast to IBM, note how at the bottom of Exhibit MC7.1, strong competitors in one period drop from significance when a new wave of technology emerges. Page 468 EXHIBIT MC7.1 / IBM Navigates Wave after Wave of Technological Change Source: IMB Prospectus (2004), “Evolution of the IT industry, Understanding Our Company,” 5. Vertical axis shows total industry revenues. IBM relied on industry growth data from IDC (2004), 40 Years of IT: Looking Back, Looking Ahead, An IDC Special Edition Executive Whitepaper, John Gantz, chief research officer, and IBM’s own records. Information in the last column to the right derives (research and depiction of 2018 wave) from author’s analysis and estimate of industry growth from various industry sources. Visual emphasis added to IBM to show its ongoing competitive standing. Challenges Ahead Critics of Rometty’s strategic approach, including the activist investor Mark Cuban, point out that IBM was slow to take advantage of these mega-opportunities, and they continue to watch IBM’s stock performance with skepticism. The critics grew louder when Rometty received a pay increase and a $3.6 million bonus for her 2014 performance, during which revenue dropped about 6 percent and net income 27 percent. Overall, IBM’s market cap plummeted by 50 percent: from a high of $240 billion in the spring of 2013 to some $120 billion early in 2016. And revenues for IBM have fallen for five straight years, from a high of $107 billion when Rometty became CEO to $78 billion in 2017. During the same period, IBM’s (normalized) stock price fell by more than 30 percent, while the tech-heavy NASDAQ-100 index rose by over 110 percent during the same period. Thus, IBM is clearly underperforming the wider market by a huge margin and has done so for quite some time. Some critics even go so far as to call for a replacement of Rometty. Rometty, however, stays committed to IBM’s new strategic focus and argues that she is transforming IBM for the long run. She views the most recent waves of technology disruptions as creating major business opportunities and has made sure that IBM invests heavily to take advantage of them. IBM has trained all of its consultants—over 100,000—in these three areas to help its business clients with their own transformation. Moreover, Rometty ended the option of IBM employees to work from home. In an attempt to foster innovation through co-location, she gave all IBM employees a choice: Start working from a regional office Monday through Friday, or leave the company. This came as a shock to many IBM employees as it has been a pioneer in providing telecommute options for its employees for decades. Indeed, IBM’s strategic initiative of “the anytime, anywhere workforce” was extremely popular among its employees. Until recently, IBM believed that a distributed workforce, with many employees working from home, allowed it to further perfect the technology solutions it was providing for its customers with similarly distributed workforces. DISCUSSION QUESTIONS 1. Why has IBM been underperforming the broader technology market for several years now? What are the reasons for its sustained competitive disadvantage? 2. Describe the three current transformations that IBM is facing. What causes these transformations? Who are the main competitors? 3. What are dynamic capabilities? Explain. Looking at IBM’s track record of technological transformation depicted in Exhibit MC7.1, which role did dynamic capabilities play in these successful transformations? Page 469 4. Do you believe that IBM is likely to master the current threepronged tech transformation as identified? Why or why not? Explain. 5. IBM’s decision to end greater work flexibility and require colocation of employees in the office was met with some consternation. How do you see IBM’s decision, and what are likely positive and negative consequences? Sources: Simons, J. (2017, May 18), “IBM, a pioneer of remote work, calls workers back to the office,” The Wall Street Journal, McMillan, R. (2016, Jan. 28), “IBM CEO Rometty getting $4.5 million bonus for 2015,” The Wall Street Journal, Langley, M. (2015, Apr. 20), “Behind Ginni Rometty’s plan to reboot IBM,” The Wall Street Journal, “Systems of engagement and the enterprise,” IBM website; Hiltzik, M. (2015, Feb. 2), “IBM redefines failure as ‘success,’ gives underachieving CEO huge raise,” Los Angeles Times, February 2; Belvedere, M. (2014, Oct. 22), “IBM no longer a tech company: Mark Cuban,” CNBC, Goldman, D. (2011, Oct. 25), “IBM CEO Sam Palmisano to step down,” CNN Money, Harreld, J.B., C.A. O’Reilly, and M. Tushman (2007), “Dynamic capabilities at IBM: Driving strategy into action,” California Management Review 49: 21–43; Gerstner, L.V. (2002), Who Says Elephants Can’t Dance? (New York: HarperBusiness); Grove, A.S. (1996), Only the Paranoid Survive: How to Exploit the Crisis Points that Challenge Every Company and Every Career (New York: Currency Doubleday); and various resources at ibm.com and IBM annual reports (diverse years). Frank T. Rothaermel prepared this MiniCase from public sources. This MiniCase is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, all errors and omissions are entirely the author’s. Revised and updated: July 31, 2017. ©Frank T. Rothaermel. Endnote 1. As quoted in: Lohr, S. (2014, May 13), “IBM’s Virginia Rometty on leadership and management,” The New York Times. ...
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Question 1

The reasons that may explain why the IBM is underperforming in border technology is
due to the following reasons: IBM has been slow in adopting, dealing, or coming up with new
technologies that have reinvented them daily. The primary purpose of the IBM Company is to
provide service and solutions to issues in relation to information to its clients. However, the
technology and concerns have been changing rapidly over some time, thus, with slow nature of
IBM in adopting and dealing with new technology makes it difficult for the IBM Company to
perform effectively and efficiently in the market place. Also, IBM has been having issues with
executing decisions. The ability to implement decisions has been seen as wrong judgment
thereby making the executives been in doubt. Thus, this has made it difficult for the company to
meet with the demands of the market competition.
Question 2
IBM Company has been facing three major current transformations such as cloud
computing, systems of engagement, and big data and analytics. IBM is at the forefront of a trend
to make sure it has provided convenient network access such as applications, storage, services,
servers, and networks. However, it is advancing its cloud computing to services such as
Microsoft 365, Dropbox, or Google Drive to its business clients. IBM has transformed the
system of engagement to decentralization of systems or mobility. IBM has collaborated with
organizations that provide mobile computing platforms such as Apple to offer its clients
productive apps on Apple devices. To arrive at the variety, velocity, and high volume, IBM
provides analytics data solutions that focus on data, storage, manage, and process. These
transformations at IBM are to provide better services and meet the needs and requirements of its



clients and market competition. The primary and biggest competitors of IBM are Microsoft and
Question 3
The term dynamic capabilities in organization theory can get defined as the ability to
attain new forms of competitive advantage thereby purposely adapt to the resource base of a
company. This concept has helped IBM Company to evolve in terms of change rapidly.
According to Exhibit MC7.1, it is evident that dynamic capabilities have successfully
transformed IBM from electromechanical tabulating tech...

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