Porter’s Five Forces Analysis of IBM
|Name||IBM–International Business Machines Corporation|
|Industry||Information Technology Services|
|Headquarters||Armonk, New York, US|
|Revenues||US$ 57.35 Billion , December 31st 2021
US $ 60.53 Billion, December 31st 2022
|Profit||US$ 5.74 Billion , 2021
US$ 1.63 Billion, 2022
|Competitors||Oracle , Microsoft|
Headquartered in NewYork, United States reaching the 49th place in the Fortune 500 List, also IBM is amongst top 5 leading IT Company by revenue share in global market declared by Statista, with a revenue generation of US$ 60.53 Billion in FY 2022. The Company was founded in 1911 by Charles Flint and Thomas Watson Sr. the IBM is mainly dealing in two major technologies of this era one is Hybrid Cloud and second is Artificial Intelligence (AI).It’s Assets valued at US$ 127.24 Billion as of FY 2022.It is ranked 98th by Forbes “The Global 2000” Year 2022.
IBM involved in marvelous business transformations with the help of AI one of the best example is the automation of McDonald’s drive-thru experience.
IBM claimed that by 2030 AI industry will be standing with a value of US$ 16 trillion in the global economy.
Today we are going over Porter’s Five Forces of IBM.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is used to determine the competition and profit margin in the Industry and guide the company’s to keep strategizing its operations in a better competitive position. It is invented by Professor Micheal E. Porter in 1979,at Harvard Business School.
IBM Rivalry among Existing Competitors
- IBM Business Segmentation : IBM is mainly operating through three major segments which are IBM Software, IBM Consulting and IBM Infrastructure. Only IBM Software and IBM Consulting business comprises more than 70% of IBM’s annual revenues.
- IBM Software This segment is specialized in providing software and data automation, innovation and security solutions also with the help of modern AI.
The segment generated a revenue of US$ 25.03 billion in FY 2022 which is an increase of 6.9% as compared to previous year, while US$ 23.42 billion in FY 2021.
- IBM Consulting This segment provides digital and technical expertise for business operations optimization. The segment generated a revenue of US$ 19.10 billion in FY 2022 which is an increase of 7.1% as compared to previous year, while US$ 17.84 billion in FY 2021.
- IBM Infrastructure This segment provides the shared platforms and services for hybrid cloud platforms.
The segment generated a revenue of US$ 15.28 billion in FY 2022 which is an increase of 7.8% as compared to previous year, while US$ 14.18 billion in FY 2021.
- Financing This segment provides the financial solutions to IBM prospective clients for acquisition it’s services and solution after credit evaluation through Client and Commercial Financing
The segment generated a revenue of US$ 0.64 billion in FY 2022 which is decrease of 16.6% as compared to previous year, while US$ 0.77 billion in FY 2021.
- Other The segment generated a revenue of US$ 0.45 billion in FY 2022 which is a decrease of 59.6 % as compared to previous year, while US$ 1.1 billion in FY 2021.
- IBM Geographical Business Segmentation:The Company is generating highest revenues from America with a record revenue generated of US$ 31.05 billion in FY 2022 with a 9% increase compared to previous year, while the revenues from US were US$ 28.29 billion in FY 2021.
The other regions distributed for reporting purpose are EMEA and Asia Pacific.
The EMEA region generated revenues of US$ 17.95 billion in FY 2022 with an increase of 2.9%, while the revenues from EMEA were US$ 17.47 billion in FY 2021.
The Asia Pacific region generated revenues of US$ 11.52 billion in FY 2022 with a decrease of 0.7%, while the revenues from EMEA were US$ 11.60 billion in FY 2021.
- IBM Strategic Partnership Practices – Neutralizing the Existing Rivalry:IBM due to the nature of it’s services and developed expertise in digital services is practicing strategic and technical partnerships with Microsoft,SAP and AWS which is generating revenues of US$ 1 billion.
- Microsoft As Rival – Main Competitive Segment is Cloud Services and Products:
Microsoft is the top leading company as per revenue share of the global IT Industry declared by Statista,by giving a record revenues of US$ 198.27 billion which is an increase of 18% with a Net Profit of US$ 72.73 billion in FY 2022 while the revenues were US$ 168.09 billion with a Net Profit of US$ 61.27 in FY 2021.
The Business Segment which generate highest revenues are Service Products and Cloud Services with a record revenues of US$ 67.32 billion while Office Products and Cloud Services with a record revenues of US$ 44.86 billion which is altogether 56% of the total revenues in FY 2022.The same Business Segment Service Products and Cloud Services gave a record revenues of US$ 52.59 billion while Office Products and Cloud Services with a record revenues of US$ 39.87 billion which is altogether 55.02% of the total revenues in FY 2021.
The Other Business Segments are Windows, Gaming, LinkedIn, Search Advertising, Devices, Enterprise Services and Other.
IBM Threat of New Entrants
- Growing Global IT Industry with Innovations : The Global IT Industry is standing at US$ 5.3 trillion with a projected spending in 2022 and with an expected annual compound growth rate of 5% till 2024.In such situation with a trending of globalization and digitalization the number of new comers with innovative and invention models are very high.
The American Market is having a share of 35%,while Asia 31%,Europe 22%, Latin America 6% and Africa 5%.
- IBM Absorption of New Entrants-Acquisitions by IBM:One of the best strategy to neutralize the new entrant is absorption or acquisition strategy which IBM adopted. Only in FY 2022 IBM invested over US$ 2 Billion for the acquisition of 8 companies.
The one of the major acquisition is Red Hat in recent years. Other acquisitions included StepZen, Octo, Dialexa, Databand, and Randori.The other major acquisitions In FY 2022 the IBM acquired Neudesic, Sentaca, Envizi.
IBM Bargaining Power of Suppliers
- IBM STEM Initiative – Diversity and Inclusion for Partners (Supplier Industry Leadership) :IBM works with a diverse portfolio of employees, suppliers and partners with the practices of diversity and inclusion. Also for the STEM (Science, Technology, Engineering and Mathematics) Skills shortage IBM took an initiative as “IBM SkillsBuild initiative” which is training over 30 million people through 170 partners by 2030.
Also IBM in FY 2022 trained over 1000 partners in the area of “Technology Ethics”
Compare it to the Microsoft Global Skills Initiative the company trained over 23 million to provide access to digital skills.
- IBM Cognitive Supply Chain: IBM has supply chain network in 40 countries serving over 170 nations with a networks of uncountable suppliers to innovate and deliver services and products with different needs and requirements around the globe. IBM developed a “Cognitive Supply Chain” (Cognitive Supply Chain works through machine learning and analytics) reduced US$ 160 million of cost and scored 100% order fulfillment rate in COVID-19 pandemic duration.
IBM Bargaining Power of Buyers
- Customer Satisfaction and Feedback:Due to the nature of the industry and excessive innovation in the field of AI the customer experience is very crucial to the success of IBM’s products and services. Some of the improvements IBM did in their customer support systems is urgent connectivity with the Technical Experts and inclusion of AI.
TheIBM also won the Bronze 2020 Stevie Winner Award for “Best Customer Feedback Strategy”
- Continuous Innovation and Latest Technological Advancements and Developments:The Global IT Industry is continuously developing specially in the category of 5G with 51% actively research area ,Internet of Things with 37% ,Software defined Networking 32%,Network function visulaization (NFV) with 30% ,SD –WAN with 28% and Desktop Virtualization with 26% respectively.
IBM is leading in fulfilling customer demands and requirements like IBM took the 5G Market Leadership by acquiring Sentaca which was leading 5G Company on February 1, 2022.
IBM Threat of Substitute Products or Services
- Climate Change – Greenhouse Emission Goals:The IBM Company is seriously working on a goal of greenhouse gas emissions by net-zero by 2030 while the company already able to reduce the greenhouse gas emission by 61% by 2010.
- Geo-Political Crises and Global Economy: Due to Ukraine –Russia invasion IBM had to cease it’s operations which cause a loss of approximately US$ 230 million in FY 2022, the future effects are still uncertain.
Global Economy, inflation which raised from 4.7% to 8.8% in Year 2022 also turns the growth rate slow of projects and business which further slowdown the market demands and requirements.IBM business also get affected from such situations.
- IBM Annual Report, Year 20222.Available at IBM
- Forbes, IBM, Available at Forbes
- Fortune 500, IBM, (2/1/2023) .Available at Fortune 500
- IBM,Is Founded
- Statista (August 1, 2023) Leading information technology (IT) companies worldwide in 2022 (in billion U.S. dollars). [Online]Available at Statista
- Statista (April 20, 2022) Microsoft’s annual revenue worldwide from FY 2002 to FY 2022 (in billion U.S. dollars). [Online] Available at Statista
- Microsoft Annual Report FY 2022
- Statista (January 13, 2023) Microsoft’s revenue from external customers from 2016 to 2022, by significant product and service offering (in billion U.S. dollars). [Online] Available at Statista
- IBM Training and Skills Blog, (23rd March 2020) Other, IBM Support takes home Award for Best Customer Feedback Strategy. Available at IBM
- Statista (December 22, 2022) Distribution of the information technology (IT) industry worldwide from 2019 to 2022, by region (in billion U.S. dollars). [Online] Available at Statista
- Statista (February 21, 2022) Current activities for technology initiatives in business and companies worldwide 2020* (in billion U.S. dollars). [Online] Available at Statista
- IBM Takes on the 5G Era with Acquisition of Sentaca , (1st February,2022) Other, IBM Support takes home Award for Best Customer Feedback Strategy. Available at IBM
- IBM builds its first cognitive supply chain, IBM
- International Monetary Fund, April 23 2023,World Economic Outlook