This chapter contains two major sections, conclusions and recommendations.
Section I provides a conclusion of the thesis by integrating the empirical results yielding from the empirical model with the SWOT analysis, resulting in the ESWOT analysis on the three dimensions of the study: The Board, The Stockholders and the Unions. Section II provides recommendations for IBM, as well as recommendations for future research.
Conclusions
Through the introduction of the ESWOT econometrics model developed by Shih and Moldovan, this study successfully emphasizes the extent to which each of regional variables, SBU, Human Resource policies and Institutional Change variables are significant in determining IBM’s performance.
The present study allows us to have a better understanding of what are the strategic revenue sources for the company, as well as where the company should reconsider further investment on the different regions or strategic business units.
The ESWOT analysis will be structured on the three perspectives of the econometrics model: The Board, The Stockholders and the Unions. The strengths and weaknesses are established by examining the significant variables that have a positive or negative quantifiable impact on IBM, like the regional variables, strategic business units and human resources.
The opportunities and threats are set by looking at the institutional change variables, as well as recurring non-significant variables, like the regional variables for the board and stockholders.
The results of the ESWOT analysis are summarized in Table 5.1., allowing us to understand which are IBM’s strengths, weaknesses, opportunities and threats in relation to the econometrics model and each of the hypotheses of the study- hypothesis 1(H1) to hypothesis 11 (H11).
72 Table 5.1.
The ESWOT Analysis
S
trengthsW
eaknessesThe Board Global Services SBU (H1)
Employees (H3)
The Board Hardware SBU (H1) Retirement plan (H3)
The
Stockholders Global Services SBU(H5) Employees (H7)
The Stockholders Hardware SBU (H6)
The Unions Asia and America regional variables (H9) Hardware and Software (H10)
The Unions Europe/Middle East/Africa regional variable (H9)
O
pportunitiesT
hreatsThe Board Gerstner’s Policies (H4) The Board Selling the Hardware (H4) Regional variables (H1)
The
Stockholders Gerstner’s Policies (H8) The
Stockholders Selling the Hardware (H8) Regional variables (H5)
The Unions Selling the Hardware (H11)
Gerstner’s Policies (H11) (retirement plan
beneficiaries)
The Unions Gerstner’s Policies (H11) (employees numbers)
The board’s perspective
For the first dimension of the research, the Board’s Perspective, a comparative analysis of the degree of significance of the independent variables on IBM’s profits and revenue, combined with the four SWOT dimensions, yields the following conclusions:
73 Table 5.2
The ESWOT for the board
S
trengthsW
eaknessesGlobal Services SBU
Employees Hardware SBU
Retirement plan
O
pportunitiesT
hreatsGerstner’s Policies Selling the Hardware
Regional variables Strengths
Firstly, the study of IBM’s strategy shows that the Global Services SBU and the employees are the main strengths of the company. The empirical results of the study prove that what is important to the company’s profits and revenue is the SBU. The four strategic business units are positively influencing the company’s total revenue. However, the only SBU that significantly and positively influences IBM’s profits, thus bringing the plus value and being strength for the company, is the Global Services Unit.
Our findings are supported by Forter (1997), which underlined how a key tenet in Gerstner's credo is that IBM is a customer solutions business. Realizing that software and services will deliver the key value-add to customers in the future, Gerstner decided to unshackle IBM software from its subservient role to hardware.
The human resource component is of great value to IBM. The number of employees is used as an index to measure the human resources. The empirical results show that the number of employees is highly significant and positive to IBM’s revenue and profit. This means that the human resources are a core value and strength for IBM.
74 Weaknesses
Secondly, the study of IBM’s strategy shows that the Hardware Unit and the retirement plan are the main weaknesses of the company. Also, the Software and Global Finance Units may cause a decrease in profits, however they are not significant.
The empirical results show that the Hardware department has a negative significant impact on IBM’s profits, which has led to Gerstner’s decision to sell the unit in 2002.
When we examine the human resource policies, the number of employees benefiting from a retirement plan has a significant negative impact on the company’s revenue and profits. This empirical results show that IBM pays too much money for the retirement plans, which weakens the company’s financial condition. What this weakness shows us, especially in today’s global financial crisis, is that companies should consider reforming their retirement policies. In 2006, IBM announced a change in its US retirement plan, effective in 2008, as part of ongoing global retirement plan strategy shift (http://www-03.ibm.com/press/us/en/pressrelease/19090.wss).
Opportunities
Thirdly, the study of IBM’s strategy shows that Gerstner’s policy is the main opportunity for the company. Gerstner’s policies prove to have been highly significant in improving the company’s financial performance. This underlines Gerstner’s importance in putting IBM back on track. The role of a visionary CEO is highlighted by the fact that his policies have led to a slight increase in total revenue, but a very significant increase in profit. One of these policies, shifting focus to services, at a time when increasing sales seemed to be important, emphasizes the importance of a visionary CEO within the company. The strength of this model is that the later highly praised (Gerstner, Herrmann, 2002) strategic planning of Gerstner, becomes quantifiably proved.
The implication of this finding from the management perspective is the fact that it quantitatively justifies the correctness of IBM’s controversial hiring of Gerstner as an outsider to the IT industry. The board of director’s choice of Gerstner as the company’s
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CEO supports the management views of the need for a professional to “do the right thing” (Robbins, Coulter, 2005). The right thing translates in our case by achieving effectiveness through attaining the organizational goals necessary for putting IBM back on track. The reason why Gerstner was the right man for the job is because he is a T-shaped professional, thus being able to have a broader view of the industry and the strategic changes needed in order to help IBM shift from slow hardware giant to a successful solution provider. Fully understanding the implications of his strategies is an opportunity for the company to direct and assess future strategies.
Threats
Lastly, the study of IBM’s strategy shows that the regional variables and selling the hardware department are the main threats of the company. One highly important finding is that the regional variables have no significance in determining IBM’s profits and revenue. None of the three main strategic regions, Europe/Middle East/Africa, Asia Pacific or America led to either an increase or decrease in profit or revenue. Traditionally, companies focused their strategies on the development of geographical markets; however, the empirical results of this study show no significant difference to IBM’s regional markets’ profits and revenue. This implies that, in a world facing globalization, IBM’s case teaches us that the Earth is flat, as the markets you do business in are not significant.
An interesting finding is regarding the selling of the Hardware department, move that has a negative impact on the company’s profits, and no impact on IBM’s total revenues. However, since the strategic decision has been made rather recently, the time until the conducting of this study is to short, so an explanation for this may be the little number of observations available. The true nature of the impact that the selling of the Hardware department has had on IBM’s profitability may be studied in future research, when more observations will be available. If the strategic move does negatively impact the company’s profits, then this kind of decision-making may prove to be a potential threat to IBM.
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The stockholders’ perspective
For the second dimension of the research, the Stockholders’ perspective, the ESWOT analysis, the combination of the study of the degree of significance of the independent variables on IBM’s EPS and the four SWOT dimensions, yields the following conclusions.
Table 5.3.
The ESWOT for the stockholders
S
trengthsW
eaknessesGlobal Services SBU
Employees Hardware SBU
O
pportunitiesT
hreatsGerstner’s Policies Selling the Hardware
Regional variables Strengths
Firstly, the main strengths of IBM, derived from the study of the empirical results, are identified as the Global Services SBU and the employees. The empirical results of the study prove that what is important to the company’s stockholders is the Global Services SBU. The other three SBU have negative impacts on IBM’s profitability, although only the Hardware department has a statistically significant negative influence on the company’s earn per share. Hence, the only SBU that significantly and positively influences IBM’s profitability, thus increasing the value and being strength to the company, from a stockholders’ point of view, is the Global Services Unit, as supported by Forter (1997).
The employees’ independent variable has a significant and positive impact on the company’s earn per share, making the human capital a core value and strength for IBM’s stockholders.
77 Weaknesses
Secondly, the study of IBM’s strategy shows that the Hardware Unit is the main weakness of the company. Also, the Software and Global Finance Units may cause a decrease in profits, however they are not significant. The empirical results show that the Hardware department has a negative significant impact on IBM’s EPS. From a stockholders’ perspective, this reinforces the correctness of the decision to sell the unit in 2002.
Opportunities
Thirdly, the main opportunity for IBM from the stockholders’ perspective is Gerstner’s policies, which prove to have been highly significant in improving the company’s profitability.
When Gerstner came as CEO of IBM, the EPS has reached an all time low, resulted in a loss in confidence on the stockholders’ behalf in investing in the company. His strategies in implementing institutional changes have led to a significant increase in the company’s profitability.
As the stockholders’ primary concern is the company’s profitability, the choice of the right CEO is an opportunity that needs to be exploited by IBM.
Threats
Lastly, the study of the empirical results shows that the regional variables and selling the hardware department are the main threats of the company as far as the stockholders are concerned. One highly important finding is that the regional variables have no significance in determining IBM’s EPS. None of the three main strategic regions, Europe/Middle East/Africa, Asia Pacific or America led to either an increase or decrease in earn per share. From a stockholders point of view, a strategy focusing on geographical markets can be understood as a threat, as regional variables are not contributing significantly to IBM’s profitability.
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As far as the selling of the Hardware department is concerned, the move that has a negative impact on the company’s earn per share. Since the stockholders’ primary interest is in IBM’s profitability, any decisions that lead to a decrease in EPS may be detrimental to the confidence level that they have in the company.
The Hardware department was however a weakness. This can lead to two conclusions. Firstly, if the decision to sell this SBU is negatively affecting the company’s profitability, as our results have shown, maybe a strategy to save the department and improve its results would have been more appropriate, and must be taken into consideration for similar cases. On the other hand, the decision to sell the Hardware department was taken in 2002, and the financial results for this study span until 2007.
When a larger number of observations will be available, empirical results yielding from future research may support the decision to sell the SBU.
The union’s perspective
The ESWOT analysis for the third dimension of the research model, the Union’s perspective, the four SWOT dimensions integrated with the comparative analysis of the degree of significance of the independent variables on IBM’s human resource policy, yields the following conclusions:
Table 5.4.
The ESWOT for the union
S
trengthsW
eaknessesAsia and America regional variables
Hardware and Software
Europe/Middle East/Africa regional variable
O
pportunitiesT
hreatsSelling the Hardware
Gerstner’s Policies (retirement plan beneficiaries)
Gerstner’s Policies (employees numbers)
79 Strengths
Firstly, the study of IBM’s strategy shows that the Asia and America regional variables and the Hardware and Software SBU are the main strengths of the company.
The empirical results of the study prove that the regional variables are important to the company’s human resources policy. The America regional variable significantly and positively influence both IBM’s employees and retirement plan beneficiaries, thus adding value and being strength to the company from a union’s standpoint. The Asia variable has a significant and positive impact as far as the retirement plan beneficiaries are concerned, but is has no significant influence on the number of employees.
When taking the strategic business unit component into consideration, the Hardware independent variable has a highly significant and positive impact on employee numbers. The Software SBU significantly and positively influences the retirement plan beneficiaries. This means that the Hardware and Software strategic business units are an important asset to IBM’s human resources.
Weaknesses
Secondly, the study of IBM’s strategy shows that the Europe/Middle East/Africa regional variable is the main weakness of the company. The financial results from this region have a significant negative impact on IBM’s retirement plan beneficiaries. This means that the unions in these regions should increase their bargaining power. Also, an improvement in the legal environment might be conducive to better results for the unions.
Opportunities
Thirdly, the selling of the Hardware department and Gerstner’s policies can be identified as the main opportunities of the company. Selling the Hardware department has a significant positive influence on IBM’s retirement plan beneficiaries, as well as a positive but not statistically significant impact on the employees’ dependent variable.
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As far as the retirement plan beneficiaries are concerned, Gerstner’s policies prove to have been highly significant. This underlines Gerstner’s importance from the unions’ perspective. Even though the retirement plans have a negative impact on the company’s profits, Gerstner proves a thorough understanding of cost leadership. When he came at IBM, he had to cut cost, and this was done by letting go of the people who did not fit their jobs, and so not adding value to the company. In order to ensure the success of his global strategies, Gerstner had to make sure that he had the right personnel capable of handling the global business and the SBU.
Threats
Lastly, the study of IBM’s strategy shows that, from a union’s perspective, some of Gerstner’s policies can be perceived as a threat to the human resources policies. From an institutional change point of view, Gerstner’s policies have had a significant negative impact on the number of employees. From a HR perspective, prior to Gerstner’s joining the company, for employees, IBM's job security was legendary. Gerstner’s restructuring policies led to massive reorganizations, followed by layoffs. Although positively influencing the company’s profitability in the long term, the HR restructuring policies implemented by Gerstner are perceived as threats to the employees’ component.
To conclude, this paper uses a new perspective on SWOT analysis, through the integration of an econometrics model: ESWOT, in order to measure and assess IBM’s human resource policy through its regional strategy and business units, as well as to evaluate a CEO’s performance. By using the ESWOT analysis we successfully explain the relationships between the board, the stockholders and the unions’ interests. IBM must focus its future objectives on its core business that enables it to create a niche in the market, and recruiting the right staff, especially the right CEO to lead the team in achieving the substantial goals of the company and guiding it through the future challenges brought upon by the global financial crisis.
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Recommendations
Recommendations for IBM
First of all, the present research, through the introduction of the ESWOT econometrics model derives its recommendations for IBM on the structure of the Strengths, Weaknesses, Opportunities and Threats.
The main Strengths of the company from the financial and profitability perspectives, the Global Services SBU and the employees, must be exploited. Focusing on further investment in the Global Services business unit, as well as continuing with policies emphasizing the crucial role of the employees will bring plus value to the company. From the Unions’ perspective, the Asian and American regional variables are an asset to the company. Also, the Global Services SBU could be further exploited.
The Weaknesses of the company must be dealt with carefully, as IBM already proved to have done with by selling the Hardware SBU, which had a significant negative impact on IBM’s profitability. The empirical results show that IBM pays too much money for the retirement plans, which weakens the company’s financial condition. What this weakness shows us, especially in today’s global financial crisis, is that IBM should consider reforming its retirement policies.
As far as Opportunities are concerned, fully understanding the implications of the role of a visionary CEO and his strategies is an opportunity for the company to direct and assess future strategies in order to gain the necessary flexibility to adapt and quickly respond to the challenges of today’s fluctuating market.
The Threats that IBM faces have to be acknowledged and adverted. Strategic decisions such as the selling of the Hardware department have to be thoroughly researched, and the implications fully integrated, in order to maintain competitiveness on the market.
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Recommendations for further study
Second of all, the present study gives way to a number of suggestions for the conducting of future research, which arise from the delimitations and limitations presented in chapter I, as well as from the analysis of results of the ESWOT econometrics model.
As this research provides a novel approach to the SWOT analysis, by introducing for the first time the ESWOT, it can be viewed as a pilot study; hence there is room for further improvement. A future study employing the ESWOT econometrics model on different companies may contribute fruitfully to the development of the model.
The availability of observations for a more extensive time period than the one under analysis (1990-2007), may improve the empirical results, as well as it may found the basis for further research.
A field study conducted at IBM’s headquarters, or regional branches (like Taiwan IBM) might yield more conclusive results.
A future study may be conducted regarding the implications of selling the Hardware department in 2002 once more data is available.
One highly important finding of this study is that the regional variables have no significance in determining IBM’s profits and revenue, nor its profitability. None of the three main strategic regions, Europe/Middle East/Africa, Asia Pacific or America led to either an increase or decrease in profit or revenue. Future research focusing on the geographical markets and their importance to a company may be undertaken. Also, an analysis of the SBU by geographical regions can form the basis for future research.