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