CASE STUDY: IBM Closely Watches Its Competitors to Stay at the Top of Its Game

It is critical for companies to study their major rivals to help them shape and implement their strategies to counter
competitors strengths and to exploit their weaknesses. Armed with effective analyses of competitors, companies
can enhance their market position and increase returns on their investments. International Business Machines
(IBM) is the worlds top provider of computer products and services. IBM makes mainframes and servers, storage
systems, and peripherals, but also has the largest computer service unit in the world; it accounts for more than
half of IBMs total revenue. To remain competitive in its various markets, IBM established a competitive analysis
team with the sole purpose of observing and analyzing competitors such as Hewlett-Packard (HP) and Sun
Microsystems. IBM uses the data from these analyses to adjust its strategies and business plans accordingly to
ensure that the firm effectively competes with its major rivals. IBMs competitive analysis team found that Suns
direct sales team focuses on the top 1,500 accounts in its installed base, and that its remaining customers are
being serviced by business partners. The IBM team also found that Suns sales reps primarily emphasize selling
hardware instead of solutions, a definitive weakness that provided opportunities for IBM to take away customers
from Sun. In addition, IBMs team carefully analyzed a large number of HP announcements for its e-business weak
points in its high availability campaign. IBM said that the 5Minutes campaign is only a vision that has little business
value for its customers, but the campaign has strong marketing value for HP.

The analysis showed that HP has low software and services revenues and thus is primarily a hardware company. HP
lost approximately 15 percent of its potential customers because it lacked its own support and consulting services
and is too reliant on EDS, Accenture, Cisco, and HP resellers.

IBMs competitive analysis teams observe and analyze competitors such as Hewlett-Packard and Sun Microsystems.

IBM was a pioneer of the multinational business model. It created mini-IBMs in each country each with its own
administration, manufacturing, and service operations. Based on the analyses of rival Indian technology
companies, IBM identified that a flatter structure and leaner organization was needed to compete effectively.
Likewise, the competitor analyses discovered that Chinese competitors provided high-quality goods and services
for a much lower price. These competitor analyses led IBM to develop global integrated operations. IBMs global
shift makes it possible to use lower-cost talent in India to manage machines and software in data centers. In
addition, the data centers are interchangeable, so if India has problems, IBM can reroute computing jobs and calls
to other locations. Eventually, international competitors will build global delivery hubs, but they will be unlikely to
compete with IBMs scientific research capabilities. IBMs integrated global services and research organizations
enable it to design innovative services. The cost savings achieved through its global integration efforts lead to a
higher earnings growth. The overall goal of this global integration plan is to lower costs while simultaneously
providing superior services to customers. In doing so, IBM can enhance its competitiveness, increase its market
share, and drive revenue and profit growth.

Based on the information obtained from recent competitor analyses, IBM decided only a few adjustments were
needed. For example, IBM decided to emphasize its higher margin business consulting services, which help
companies change the way they operate, and to focus less on technology integration. IBM also changed the
strategy of its software division. Because software is the fastest-growing and most profitable segment of the
company, IBM has made several acquisitions of software companies, including FileNet, MRO Software, and Webify
Solutions. These acquisitions fill holes in IBMs product portfolio and increase its ability to compete effectively with
Sun Microsystems and similar rivals. IBMs strategic actions are creating positive results. Total revenues for the
first quarter of 2007 reached $22.0 billion, an increase of 7 percent from the first quarter of 2006. First quarter
2007 income increased 8 percent over 2006 to $1.8 billion. And, its first-quarter 2007 earnings of $1.21 per share
represented an increase of 12 percent over the first quarter of 2006.