Q 1.

Outline briefly the key trends in IBM's International Business Environment

and its Competitive Context in January 2003 which would have prompted the then
CEO of IBM- Samuel J. Palmisano to change significantly IBM's Horizontal Scope.
Explain the strategic rationale for your answer.
The Key trends in IBMs International Business Environment are elaborated below.
1: Expanding beyond selling service and technology
IBM is putting to use immense resources it has in-house from its software programmers
to its 3300 research scientists to help companies like P&G to rethink, remake and even
run their businesses and everything from accounting and customer service to human
resources and procurement.
2: Increase in commodity business
Dell Inc fresh from its conquest of the PC market is climbing up servers and tech
services. Dell services which focus on setting up personal computers are still small
compared to IBMs $46 billion service business, but they are growing at more than 30%
annually and is expected to hit $4billion this year.
3: Take advantage of low-cost technology
Instead of battling in cut-throat markets, Palmisano takes advantage of low-cost
technology by packing it, augmenting it with sophisticated hardware and software, and
selling it to customers in a slew of what he called business transformation.
Q 2. What were the major changes Sam Palmisano made in IBM's Horizontal Scope
in April/May 2003? WHY?
Step 1: Craft the strategy and organization to implement the vision.
Bold step by bold step, IBM was transformed into a single globally-integrated enterprise
that focused on serving the need for processed information in the form of solutions for
enterprises in 170 countries. The CEC was dissolved. That council of barons was
replaced by teams for strategy, technology, and operations whose members included the
next generation of operating leaders.
Palmisano and his team had a new vision: a world in which trillions of bits of information
generated by everyone everywhere had to be analysed so that it could be used to solve
problems facing modern business and governments everywhere. That demanded a fastermoving widely dispersed organization where decisions could be made quickly. The team
members had jobs leading parts of that dispersed group. The teams didnt review and
discuss; their members made things happen.
Step 2: Get rid of the businesses that dont fit and acquire the capabilities that you
do
need.
The PC business and low margin hardware businesses were sold over the protests of key
leaders who argued for their strategic essentiality. The consulting arm of
PriceWaterhouseCoopers was bought to provide thousands of professionals who
understood the process needs of key industries. In a near-miraculous feat of management,
those consultants were partnered with technologists and successfully integrated into the
company.

Step
3:
Make
sure
the
economic
model
is
profitable.
Dozens of software companies were acquired so that those industry-focused teams could
leverage their efforts profitably and repeatedly. Otherwise growth would just mean more
headcount. In effect, service was productized, which showed up in the higher margins
earned. Centres of excellence were built around the world that included the full range of
IBM capabilities, beginning with R&D. The workforce in India, China, Brazil, and other
growth markets exploded in just 36 months.
Step 4: Empower the teams that can deliver for the customer but hold them
accountable.
In the process the center of gravity in IBM was lowered. Customer-facing teams
around the world were asked to deliver IBMs solutions in myriad markets. To help frame
the thinking of these dispersed IBMers, a three-day, 24-hour on-line town hall was held
for some 150,000 employees IBM called it a Jam to define the values by which
IBM would be operated and its people held accountable. (Think Tahrir Square as a
corporate process.)
The same process was used to help bring the best ideas of its scientists out of the lab and
into the markets. Equally bold, IBMs financial road map for four years was shared with
investors and analysts. Its ambitious goals were met early despite the economic crisis
beginning in 2008, and a new road map set.
Step
5:
Take
care
of
succession
from
within.
The financial results were magnificent: profits in 2010 were $13.06 per share and return
on equity was 70%. Equally impressive, a highly-regarded internal succession was
managed so that as Palmisano stepped into the chairmans seat, he was followed as CEO
by Ginni Rometty, the woman who had built the service organization and integrated the
PWC consultants. In an era where numerous giants have had to go outside for help, and
then stumbled, IBM passed the baton to an insider with an outsiders perspective.
Q 3. Using the relevant strategic framework for determination of a company's
Horizontal Scope, apply the Better off Test and Best Alternative Test to the following
2 Businesses in April 2003:
a. Technology Services
b.Business Consulting & Outsourcing Services.
State clearly the outcome of both these Tests and your conclusions. Explain in detail
the strategic rationale for your answer.
Based on the outcome of your above mentioned analysis, apply separately the Best
Parent Test and Good Parent Test to IBM as a Corporate Parent and state clearly
whether IBM in 2003 would have been the Best Parent Or Good Parent or neither
for the above mentioned 2 Businesses. Explain in detail the strategic rationale for
your answer.
Better off Test:
Technology Services
Yes, it passes this test
Strategic Rationale:

Because technology services together with consulting create more value for IBM than
independently when IBM was only into hardware business and technology services.

Business Consulting & Outsourcing Services.

Yes, it passes this test

Strategic Rationale:
Business Consulting & Outsourcing Services together with technology services create
more value for IBM than independently when IBM was only into hardware business
and technology services.
Best Alternative Test:
Technology Services
Yes, it passes this test because technology services together with consulting allowed
IBM to appropriate more value than independently when IBM was only into hardware
business and technology services.
Strategic Rationale:
Because technology services together with consulting allowed IBM to appropriate
more value than independently when IBM was only into hardware business and
technology services.

Business Consulting & Outsourcing Services.

Yes, it passes this test because Business Consulting & Outsourcing Services together
with technology services allowed IBM to appropriate more value than independently
when IBM was only into hardware business and technology services.
Strategic Rationale:
Because Business Consulting & Outsourcing Services together with technology
services allowed IBM to appropriate more value than independently when IBM was
only into hardware business and technology services. Now IBM could provide more
holistic and robust solutions to its clients.
Best Parent Test:
No, IBM did not pass this test for technology services and it decided to sell its computer
hardware division to Lenovo because Lenovo turned out to be the better parent.
Strategic Rationale:
The PC business and low margin hardware businesses were sold over the protests of key
leaders who argued for their strategic essentiality. The consulting arm of
PriceWaterhouseCoopers was bought to provide thousands of professionals who
understood the process needs of key industries. In a near-miraculous feat of management,
those consultants were partnered with technologists and successfully integrated into the
company.
No, IBM did not pass this test for Business Consulting & Outsourcing Services as
consulting companies like Accenture were far better parents in this domain.
Good Parent test:

Yes, IBM did pass this test for Business Consulting & Outsourcing Services and decided
to build upon it by developing competencies in this segment.
Strategic Rationale:
Dozens of software companies were acquired so that those industry-focused teams could
leverage their efforts profitably and repeatedly. Otherwise growth would just mean more
headcount. In effect, service was productized, which showed up in the higher margins
earned. Centers of excellence were built around the world that included the full range of
IBM capabilities, beginning with R&D. The workforce in India, China, Brazil, and other
growth markets exploded in just 36 months.
Q 4. Using the relevant diagram and relevant framework for DYNAMIC VIEW,
outline comprehensively IBM's Resource Endowments (Specialized & Generic) and
Capabilities ( Mobile & Rigid) in 2003 and explain in detail how IBM was
developing its Businesses and upgrading its Resources& Capabilities over the next 2
years for its sustained success global market leadership and sustainability. Explain
in detail the strategic rationale for your answer.
Ans 4:- The Dynamic View of a firm is depicted below,
The Dynamic view of the firm integrates the Activity Systems view and the resource
based view together in a way that connects the evolution of firms resource endowments
or opportunities sets to the choices, both activity and resource related, that they make
from their respective menus of opportunities. The two feedback loops running from right
to left in the above diagram emphasizes how the activities that a firm performs and the
resource commitments that it makes affects its future resource endowments or
opportunity set. It also envisages that the activities that a firm undertakes is constrained
by the resources it has at its disposition and that history matters with respect to both long
run resource related choices and short-run activity related choices.
IBM is a global IT manufacturing and consulting company, with 335,000 employees
across nearly every industrialized country in the world. Once largely focused on the sale
of mainframes and related software contracts, IBM has evolved into lucrative technology
and business consulting, supported by a wide range of IBM software platforms and
products. IBM has three Lines of Businesses which are Services, Software and
Systems & Financing. There are variety of resources endowments of IBM which can be
classifies as generic and Specialized. The Generic Resources include Business Process
Outsourcing (BPO) services, Customer Service Operations and Business Consulting. On
the other hand the specialized resources include R & D, Mainframes, Computer
Hardware and Technology services. The snapshot below shows the resources currently
with IBM.
The capabilities which are currently with IBM can be depicted by McKinseys 7s model
which is depicted below.

The basic premise of the model is that there are seven internal aspects of an organization
that need to be aligned if it is to be successful. These seven capabilities or elements can
be bifurcated into two groups i.e. the Hard elements and the Soft elements. The Hard
elements are those which can be easily altered and changed and hence are Mobile. These
are Strategy, Structure and Systems. The Soft elements are those which cannot be altered
and hence are Rigid. These include Shared Values, Skills, Staff and Style.
IBM is foraying into Customer Services , Business Consulting Services such as
accounting, HR, customer service, procurement , after-sales service for consumer
electronics, insurance-claims processing, and supply-chain optimization to develop
Businesses and upgrading its Resources & Capabilities over the next 2 years. To fruitfully
achieve this IBM has set up small SWAT teams to work with a handful of initial clients
and launch businesses. To cite and example, IBM's takeover of the company's customerservice operations helped improve its customer satisfaction ratings from also-ran to top of
the heap. P&G was another success story. In January, 2004, IBM took over part of P&G's
human resources in a 10-year deal valued at $400 million. P&G has so far outsourced
3,500 jobs, including some in computing and customer relations. In HR, it had set 21
standards for speed and accuracy in such categories as payroll and expense management.
The IBM-run operations met them all. In the month before IBM took over, P&G had met
only nine of the goals, according to market researcher Gartner Inc.
Q 5. Using the relevant diagram and strategic framework, indicate clearly IBM's
Corporate Advantage in 2003 and explain in detail how IBM was creating
Corporate Added Value IF ANY for its key businesses then in its Horizontal Scope.
Explain clearly the strategic rationale for your answer.
Till 2003 IBM was operating within the confines of $1.2 trillion computer industry which
was growing at just 6% a year. However, it had immense in-house resource in terms of
software programmers, 3300 research scientists and closet full of patents. It already had a
stable organization and business structure with strong control and cooperative
mechanism. The technology services industry had become too cluttered and was already a
red ocean while an industry shift towards business process outsourcing was looming large
and competitors have already started venturing into the new territory. Through its
research and technical expertise IBM clearly had a corporate advantage over its
competitors in the business process services domain. Its CEO was able to visualize this
trend and thus take the necessary steps to focus on broadening IBMs horizontal scope in
related business domain to offer a wider gamut of business transformation services
ranging from financial accounting and HR to industrial designing. IBM overhauled its
workforce by retraining and redeploying its workforce as required. The loss-making PC
division was hived off and a dozen business-services firms were acquired, including
Indian customer-relations shop Daksh. To top it off, a former Morgan Stanley mergers
head was hired to pick up acquiring pace in order to build up the right capability which
can thrive on IBMs past and strive to build a better future for the company in the rapidly
changing business landscape.
The widening horizontal scope was critical to the creation of corporate added value at
IBM. The transformation of IBM beyond computing and into business process
outsourcing did payoff with revenue of $3billion in 2003, a 45% gain. The annual growth

outlook in the BPO industry was pegged at 9% while the operating profit margin was
estimated at 20%, double that of traditional technology services. To distinguish itself
from its competitors, IBM used its research expertise and turned them into products and
services by creating and selling new software products for different industries and topped
them off with value-added services. It also helped IBM to explore new markets rapidly
and stay ahead of the competition while exceeding client satisfaction.
Q 6. How would you classify IBM in 2003 in terms of its Model of Corporate
Management? Describe and illustrate in detail for IBM the Model of Corporate
Management mentioned by you. Explain the strategic rationale for your answer.

Single
Firm

Dominant
BusinessBusiness
Corporations
(IBM in 2003)

Unrelated
Related BusinessBusiness
Corporations
Corporations

Holding Company
(portfolio
management)

Increasing Horizontal Scope

Clearly, in 2003, IBM followed the Dominant Business Corporations Model of
Corporate Governance. The company at that time comprised only the core business of
selling technology (software programmes) and related peripheral servicing, etc. The
company in 2003 focussed solely on providing pure technology to its clients.
At that time, IBM through its Dominant Business Corporation model, met the Best
Alternative Test and beat the alternatives to joint ownership by investing in specialised
resources, in this case, specialised software programmers and other resources essential
for selling and servicing technology. This was not possible to match for separately owned
companies. IBM had a sizeable corporate staff as the infrastructure required to develop
specialised resources and to coordinate them was extensive.
To be precise, the following points regarding the model of corporate management that
IBM followed are as follows:

Nature of Common Resource : Specialised

Coordination Mechanism : Activity/Resource Sharing

Control Systems : Operating

Corporate Centre : Large

It is to be noted that IBM at that time focused specifically on the computer industry and
not beyond that. However, it was able to outperform its peers in that arena. IBM Systems
Group revenue increased 2 percent to $14 billion in 2003. It outpaced competitors with
double-digit growth in strategic UNIX, blade and Intel-based servers, and storage
systems products. In 2003, IBM earned 3415 U.S. patents, breaking the record for patents
received in a single year and eclipsing the nearest company by more than 1400 patents.
During the past eleven years, the U.S. Patent Office has issued IBM more than 25000
patents breaking the record of nearly triple the total of any US IT competitor during this
time.

Q 7. Explain briefly the reasons for Strategic Outsourcing by companies worldwide

and outline briefly the Advantages and Risks of Strategic Outsourcing by
companies. Illustrate your answer based on the Case Information.
Strategic outsourcing is the process of delegating a company's business process to third
parties or external agencies, leveraging benefits ranging from low cost labor, improved
quality to product and service innovation. Now, globalization, aided by rapid technology
innovation, is changing the basis of competition. Its no longer a companys ownership of
capabilities that matters but rather its ability to control and make the most of
critical capabilities that matters.
A hotly debated topic with pros and cons, strategic outsourcing has a direct impact on a
company's top and bottom line and has become a key component of defining how
successful enterprises are run. Given below, as reflected by companies, are some of the
reasons to outsource:

Lower operational and labor costs are among the primary reasons why companies
choose to outsource. When properly executed it has a defining impact on a
company's revenue recognition and can deliver significant savings Eg : the case
of Marathon Oil corp. where IBM was able to trim costs and provide its
executives up to the minute view into the companys performance

Companies also choose to outsource or offshore so that they may continue

focusing on their core business processes while delegating mundane time
consuming processes to external agencies Eg : in 2004 IBM took over P&Gs
human resources in a ten year deal and managed to achieve all of its 21 goals for
speed and accuracy in payroll and expense management

Outsourcing and offshoring also enable companies to tap in to and leverage a

global knowledge base, having access to world class capabilities. Eg : IBMs R&D
work in collaboration with the Mayo clinic in medical research

Freeing up internal resources that could be put in to effective use for other
purposes is also one of the primary benefits realized when companies outsource or
offshore

Many times stranded with internal resource crunches, many world class
enterprises outsource to gain access to resources not available internally

Advantages
Financial

Cost saving through economies of scale

Cash flow relief, fixed costs either through fixed or usage based price agreements

Costs are known in advance as a contract is signed , thus avoiding the traps of
appropriate or non existent internal cost allocation

Pre decided SLA so there are rebates and damages for non performance of agreed
service levels

Flexibility

Catalyst for organisational change behaviour, restructuring, rationalization

Shifting of expenditure from the capital to the operating budget, which is usually
less rigid.

Access to leading edge, specialised skills.

Access to technology without capital investment

Higher efficiency

With pay for performance, service providers are more responsive to performance
complaints as it affects profitability.

Centralised support with one point of call - the service provider.

More frugal use of IT resources when paying real money, users change their
behaviour.

Risks

Unexpected costs for those that are not explicitly in the scope of the agreement

Leakage of confidential information resulting in competitive disadvantage or legal

cases.

High exit barriers and irreversibility reduced cost-effective options if

arrangement fails

Service providers inflexibility to economically meet changing requirements on a

timely basis

Q8) Based on your update of IBM, outline briefly IBMs horizontal scope today and
relative global positions today of IBMs key competitors mentioned in the article. Do
you think the strategic shift made by Palmisano in 2003 for IBMs Horizontal scope
has succeeded?
IBMs horizontal Scope:
In 2002, IBM acquired PwC consulting. year 2006 IBM launched Secure Blue, a lowcost hardware design for data encryption that can be built into a microprocessor. In 2009
it acquired software company SPSS Inc.

In 2011, IBM gained worldwide attention for its artificial intelligence program Watson,
which was exhibited on Jeopardy! where it won against game-show champions Ken
Jennings and Brad Rutter. In June 2013 IBM acquired SoftLayer Technologies, a web
hosting service, in a deal worth around $2 billion and in July 2014 the company
announced a partnership with Apple Inc. in mobile enterprise.
On August 11, 2014, IBM announced it had acquired the business operations of
Lighthouse Security Group, LLC, a premier cloud-security services provider.
In August 2015 IBM agreed to purchase Merge Healthcare for $1 billion, incorporating
Merges' imaging management platform with its Watson data analytics tool.

Competitors:
Accenture has beautifully moved into the number-one spot among transformational
service providers. They snatched it from IBM, their biggest competitor for that spot.
How did they do it? Accenture created a significant gap between itself and IBM in two
game-changing aspects: customer access and talent.
Accenture gained a leg up on IBM in customer access because it was better able to access
the emerging business stakeholder groups outside of the IT organization. They were
better able to communicate with the CFOs or business heads and leads, which helped
increase Accentures credibility around transformation services. Discussions with the
business stakeholders also gave Accenture visibility into large transformational
opportunities. In the second aspect, Accenture built a larger and deeper bench for
consulting and systems integration (SI) talent than IBM. Accenture has taken
transformation services to a level thats hard to beat. But IBM has taken the challenge
seriously and has been busily recruiting consulting talent. They started in the ERP arena
and are now extending it to other areas. Were seeing a lot of ex-strategy consultants
showing up at IBM from Booz Allen and other firms. So IBM is closing the gap created
by Accenture in consulting. As they do that, they are starting to win back market share.
As can be seen from the latest updates on the industry and IBM, the estimation of
Palmisano of the industry growing in the services segment has proven true. Moving
beyond the blue was beneficial in the company;s survival and success. IBMs Global
Technology and Global Business Services combined form Global Services. Jointly, they
contribute 57% of IBM Corp.s (IBM) consolidated revenues.

Q 9. Outline briefly your key learning about Corporate Strategy and a CEO's Role
from this Case "Beyond Blue ".

There are nine learning points for Corporate Strategy and a CEOs Role from Beyond
Blue

The central role that the Chair, Board and CEO plays in the brand and profile
raises the need for Beyond Blue to consider succession planning for the future to
ensure it is able to continue a high level of visibility.
Beyond Blues strong brand and independence position it well to expand its role
in developing and piloting innovative programs, including new models of service
delivery that complement its awareness raising activities.
That Beyond Blue take a fresh look at how it might deliver more value for the
community by placing a stronger value on collaboration with other major players
who share its mission of reducing the impact of depression and anxiety.
Given the critical role evaluation plays in a dynamic cycle of organization
learning, Beyond Blues approach to evaluation could be strengthened by closer
collaboration with evaluation experts to determine the most rigorous approach to
evaluation of its major programs.
A further tightening of the criteria for prioritizing research is warranted,
particularly to increase the evidence base about effective interventions for
behavior change.
There is an opportunity for Beyond Blue to work more closely with all
governments to align priorities and coordinate action.
Beyond Blue could enhance its effectiveness by exploring with member
governments ways to increase the involvement of state-based and local
organizations in the planning and implementation of its activities.
A stronger focus on determining the impact of its activities on actual behavior
change (not just intentions) could be assisted by considering the introduction of
other measures (such as the global measures trialed internationally) in addition to
or as an alternative to the Depression Monitor. Beyond Blue could also
consider collating and publishing on its website data on the long term reduction in
the burden of disease.
It is timely for Beyond Blue to prioritize the development of further activities
which target a reduction in stigma and discrimination, drawing on and expanding
the growing evidence base of what works for behavior change.