IBM is focusing on Global Services business since ten years but the company is now making a lot less on its contracts, and the turnover of business is brisk. IBM’s plan to grow earnings-per-share (EPS) to $20 by 2015. The primary method for accomplishing this will be by reducing US employee head count by 78% in that time frame. In my opinion, reducing employees by more than three quarters in three years is a difficult task.
Major issues that led to IBM’s crash are:
- IBM shifted most of its jobs offshore but the problem is the offshore teams often lack the skill and experience to do the work.
- The latest major transformation IBM went through is connecting the company to the decision makers so they would make better business decisions faster and more effectively, this step created more layers of management and coasted the organization more money.
- IBM’s Executive Compensation is Misaligned. IBM has aligned executive compensation to its earnings per share targets, and if the executives achieve their targets, again by applying the offshore model (moving labor from the USA to lower cost countries), this will kill the ability of the company to innovate.
Has IBM put a robust risk plans for the above issues?
Now industries and businesses change all the time to better adapt to new opportunities and compete with the market. I believe IBM got confused, when they started getting bigger, they kept replicating their initial success with the great process people they have to a certain extent that they forgot about their content .. or precisely, the deliverables, whether a product or service!
Lenovo has proven history of successful mergers and acquisitions; # 1 in PCs, #3 in Smartphone, and soon to be #3 in x86 server business (through the acquisition with IBM).
Now Lenovo is acquiring a complete x86 portfolio: All IBM x86 Product Lines, Skilled x86 Sales force and support capabilities, and R&D labs & manufacturing resources. Lenovo is buying IBM’s x86 server business intact and is committed to flowing IBM x86 product roadmap
The $2.1 billion acquisition of IBM’s x86 server line gives Lenovo immediate standing as the world’s third-largest vendor in this market after Hewlett-Packard and Dell.
Acquisitions can generate cost efficiency through economies of scale, can enhance the revenue through gain in market share and can even generate tax gains.
I think the added value for IBM is that, by partnering with Lenovo, it gains better access to the market for services in China. In addition, stronger relations with the Chinese government can only boost IBM’s standing.
I see the deal for Lenovo is a success as globalization will improve the company’s economies of scale and allow them to compete both in China and abroad but they might be at risk in different areas: whether the new Lenovo will be accepted by IBM’s clients and the PC market, whether IBM employees will still be proud [employees of the new company], whether the two corporate cultures can be successfully consolidated and whether they will manage highly complicated logistics and supply chains!
Do you think that this deal is a good indicator that shows how resilient IBM is?
Do you think that this is a good move to both IBM and Lenovo?