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Analysis of investment activities and risks management of IBM Company

Introduction

International Business Machines Corporation (IBM) is a multinational company operating in more than 170 countries. It provides technological services across the globe competing. The business function of IBM is to produce and sells computer hardware as well as software. It also provides consultation and hosting services to different business organizations (Strickland, 2019). This paper is going to address the risks faced by IBM Company and how it mitigates those risks to ensure that it maintains its operation. Furthermore, the paper will also cover investment activities undertaken by the company.

Background information about the company

The company started in 1911, and it’s headquarter located in Endicott, New York. The main focus of the company is to produce and sell computer accessories, both computer hardware and software. The primary operations were initially organized in America, but it was later expanded to more than 170 countries coordinated at the headquarter in New York (Ebbers et al., 2016). The company has been the leading technology company that has invested in research and development to develop a better invention in the field of technology as one way of becoming competitive. The earlier invention by IBM company includes the automated teller machine (ATM), hard disc drive being used by the computers to store for the information, dynamic random access memory, and floppy disc.

As the competition intensified in the market, IBM Company paid attention to the high-value market by integrating its services and targeting more customer segments. When different companies entered the market, it made the industry more competitive hence forcing the company to invest in new business ventures such as manufacturing and selling personal computers, which shifted from producing computer parts alone. It started assembling the manufactured parts and make personal computers through ThinkPad. It also stated the manufacturing x86 server that is being used by Lenovo.

The company also expanded its market share by applying acquisition strategy where it acquired companies such as PwC Consulting Company in the year 2002, Statistical Packages for Social Sciences (SPSS) in the year 2009, The Weather Company (2016), and Red Hat Company in 2019. Acquisition of different companies dealing with computer software and hardware provided a complex business environment that exposed IBM Company to many risks. The mission of the company is to be the leading company in the invention, development, and processing of the most advanced technology that cannot be compared by other competing companies in the market. It targets to lead the market by dealing with high-quality computer systems, storage systems, and other software applications that can be used for different purposes such as financial management as well as the overall management of the company. The vision of the company is innovation through the corporation. The company gives its employees the freedom to be creative and share special knowledge with the skills to develop a better technology solution.

Investment activities carried out by IBM Company.

The company has invested in cloud computing services where different business organization purchases clouding services either to be hosted privately by the buying business enterprise or acquire public IBM cloud computing where the servers are controlled by the IBM Company. Public cloud computing option is cheaper than private cloud computing, and it is affordable to most small and medium businesses. IBM cloud services include platform as a service (PaaS), allowing customers to develop, manage, and run applications efficiently without necessarily owning the infrastructure. Building infrastructure, especially those related to technology, is expensive, and it can have a negative influence on the achievement of profit maximization objective, which is the primary objective of most of the business companies.

The next cloud computing services offered by IBM Company are the infrastructure as a service (IaaS) and software as a service (SaaS). The company offers these cloud computing services in three forms that include private cloud computing, public cloud computing, and hybrid cloud computing, which constitutes of elements from different categories of cloud computing. The company uses IMB as a trademark for cloud computing services. An example is IBM Bluemix PaaS, which is a cloud computing service offered by the company that allows the business companies to make complex websites that suites its business activities under pay as you go, model. The servers made by the company to store data through cloud computing are called IBM SoftLayer, which provide both hosting and cloud computing services (Davenport, & Harris, 2017).

It also engages in industry-based cloud computing and mobile technology conferences where different organizations enter into business. The company produces BM's POWER microprocessors, which are the hardware responsible for cloud computing services for specific industries because the activities being carried out by different industries are not the same; hence they need to be managed differently. The company invested over $3 billion starting in 2014 for five years to come up with a better design of the neural chip that will resemble and functions the brain of a human being. The company took the business risk to invest a huge amount of capital in experimental research with the main aim of remaining the leading company in the field of technology.

The company also ventured in IT outsourcing services, where employee experts who are then hired by different business and non-business companies to offer technological issues to their companies. The different software such as the SPSS that is being managed by the company for analysis purposes it requires skilled personnel to be in charge of data entry, management, and analysis. When business companies need to buy the applications from IBM Company and the lack of adequate skilled personnel to run those applications effectively, then IBM provides their experts to go and work for the company. By providing outsourcing services, it has enabled the company to expand its market share because all the categories of companies, both small, medium, and large companies could now afford the services.

The company also focuses on research and development as a key pillar to its success. Technology keeps changing very fast, and for the company to remain competitive in the market, it has to be updated and forecast future changes within the industry. The only way for the company to predict future technological changes is through research and development. The company analyzes its current performance by considering all the variables that relate to its performance and use the result for predictive analysis to predict future changes. Understanding about the future is important because it enables the company to plan for future investments, which will enable the company to retain its competitive advantage in the market.

The evidence that the company has given research and development fast priority is a high allocation of funds for research and development. In the year 2012, the company allocated around $6.9 billion for research and development to enable the company to continue upgrading its processing as well as service delivery functions. The company further allocated $1 billion for the establishment of a business unit in Wastan that was responsible for managing reach activities. The establishment of the business unit was planned to take place in the year 2014.

The benefits of investing in research and development by the IBM Company

The company made was able to invent different new technology as a result of investing in research and development. A market survey was regularly conducted to enable the company to be updated about the shifting tastes and preferences of the customers. Through the feedback that the company received from the survey, it was now able to make some adjustments in the business operation to adapt to the changes in the external business environment. There is no way the company can operate in a vacuum without considering the external business environment. The rapid changes in technology have to be managed, and the company successfully manager that by allocating more resources for research and development.

Through research and development, the company was able to invent the automated teller machine (ATM) that is currently used widely by banking institutions. The invention of the ATM has helped the banking sector to improve service delivery by reducing the number of individuals visiting the physical teller for money withdrawal. The company benefited from the invention of the ATM because it enjoyed monopoly privileges at its invention stage. Through the invention, the market share for the company increased because more banking institutions were requesting the installation of the ATM, and being the new technology, it was the company to provide the expert that would install and teach other banking staff on how to operate the machine. The machine enables the company to increase its total revenue from the total sales, which eventually enables the company to maximize its profit, which is the major objective of the IBM Company.

Other inventions included the floppy drive as well as the hard disc drive. Because the company was selling different software applications to be installed in computers, the market changed where online business transactions were supported. Some of the companies instead of storing data in the servers of the IBM through cloud computing, they install hard disc for storage of personal information that is perceived as confident by the company which does not require sharing or disclosing to the third party. The floppy disc is being used by computer owners to install different software applications.

The company also invented traffic signal devices that are being used by different states to regulate traffic in the cities. It is the technology that was aimed at solving the challenge of inadequate security personnel to monitor and control traffic in most of the cities where the number of passengers and motor vehicles was very high. The lights were designed to signal and control the movement of motor vehicle and pedestrians to reduce the traffic jam that was being experienced in most of the cities.

Risks and uncertainties faced by IBM Company

The risk of stiff competition from other cloud computing companies and analytics. The IBM company's future is being threatened by strong competitors in cloud computing service providers. Although the revenue for the company in cloud computing is increasing, the competitors are controlling a larger market share, which creates a business threat to IBM. An example is Google Company, which has recently invested well in cloud computing services hence providing services that are competitive in the market. The improvement in its services has led to an increase in the market share as well as the sales revenue obtained by the company. Amazon is another company that provides competition to IBM Company. The revenue for Amazon in 2018 was about $17.4 billion, which is an indication of growth in cloud computing service providers. Another advantage that Amazon has over IBM is that Amazon entered the market of cloud computing earlier hence it had established its customers who need IBM to invest more in the area as well as conducting the market survey to understand the preferences f the customers so that it may design its technological application in a manner that will satisfy human needs. Other companies are still small in the field of cloud computing and analytics. Still, they are posing a future threat to the company because they perform a customer-oriented service delivery by ensuring that they design the product in a manner that will satisfy the needs of the customers. Other companies that possess a future threat to the company include Alibaba Oracle, which provides exemplary cloud computing services.

When the market competition is not managed properly, then the company risks losing its market share. Furthermore, the company will reduce its revenue as a result of a reduced amount of sales volume. When the revenue is reduced, it is difficult for the company to perform its tasks specifically for research and development that require huge capital. Being unable to finance research and development, then it will be difficult for the IBM Company to be operating within its missing of being a leader in the invention in the field of technology which is changing very fast.

There is also a financial risk that is facing the IBM Company following the financial trends recorded by the company. The overall revenue for the company has been reducing, which has negatively affected the financial status of the company. From 2012 to 2019 the total revenue have been reducing as follows 102,874, 98,367, 92,793, 81,741, 79,919, 79,139, 79,598, 77,100 US millions. The reduction in the total revenue expresses how company performance is reducing. The company is focusing on buying other companies through acquisition as a way of increasing the market share and yet it gives minimal attention to the needs of the customer, which is a significant factor for the company to increase its market share. The price per share for the company has also reduced where it was 149.76 in 2017, 139.90 in 2018, and 126.85 in 2019. The reduction in price per share has contributed to a negative public reputation concerning the company, which in turn leads to a reduction in the sales made by the company.

The other risk is a trade war and economic policies championed by the United States administrations. There was a trade war between the USA and China, where President Trump accused China of abusing intellectual property rights for the products of the American companies. In March 2018, the United States raised the tariffs for the products coming from China. Considering that China is the major market for technological applications following Trump directives, China also retaliated, which most affected the sales of IBM products because China formed the largest market share for its products.

There is also a challenge of sluggish growth for the core business units for IBM. The core business units are technology services, global business service, global financing, software, and hardware services. Due to stiff competition, the company is unable to develop better strategies that will make its product competitive hence reducing its market share. For the company to regain its competitiveness, it has to shift to the digital space.

There is a lack of confidence in the company’s value by the shareholders. Following the current reduction of the total revenue as well as the price for the share, the shareholders have lost confidence in the operation of the company. The growth of the company depends on the confidence the shareholders have because the expansion of the business activities requires additional capital, which has to be provided by the shareholders. When the company does not perform well financially as what is happening with IBM, then it becomes difficult to convince the shareholders to contribute more resources for the improvement and expansion of the activities of the company.

Risk management approach being used by IBM Company

As a way of solving the risk of reduction in the total revenue, the company has applied the acquisition strategy as a way of expanding the market share to increase the sales. The company has acquired companies such as PwC Consulting Company in the year 2002, Statistical Packages for Social Sciences (SPSS) in the year 2009, The Weather Company (2016), and Red Hat Company in 2019 Although the company had acquired other firms as a way of strengthening its performance, what it has not considered is the preference of the customers. Apart from acquiring new firms, the company needs to conduct a market survey about the current products to understand the needs of the customers. When customer needs are addressed, then the demand for the product increases, which helps the company in raising its revenue (Woodside, Augustine & Giberson, 2017).

The company is also using a product diversification strategy to prevent the company from the negative impact of the risks. The company deals with different products and services, ranging from computer software applications, hard disc drive, floppy discs, weather forecasting services, cloud computing services, and data analytics services. By diversifying the products, it means that when one product is not performing in the market, the company will have another product that performs well in the market. Diversification is a better strategy of mitigating the impact of the risks that cannot be internally managed by the company.

The company is also investing more money in research and development as a way of coming up with better products that can be able to compete with its competitors, such as Google and Amazon. For the company to succeed in the market, it has to ensure that it improves its manufacturing process to assure the customer's high-quality products. The fact that IBM company is increasing the amount allocated to research and development is a clear indication that one way the company needs to control the risk of stiff competition is by leading the technological space by providing high-quality products as compared to that of the competitors. Through research and development, the company was able to invent automated the teller machine (ATM) that is currently used widely by banking institutions. The invention of the ATM has helped the banking sector to improve service delivery by reducing the number of individuals visiting the physical teller for money withdrawal. The company benefited from the invention of the ATM because it enjoyed monopoly privileges at its invention stage. Through the invention, the market share for the company increased because more banking institutions were requesting the installation of the ATM, and being the new technology, it was the company to provide the expert that would install and teach other banking staff on how to operate the machine. The machine enables the company to increase its total revenue from the total sales, which eventually enables the company to maximize its profit, which is the major objective of the IBM Company (Zlamparet et al., 2017).

The company is also practicing risk avoidance strategy, especially when the company has no control over the risk it is likely to face. For example, when Trump administration passed an economic policy that was later retaliated by China, the IBM company have no control over that, and it kept its focus on dealing with other products such as analytical application like SPSS which can be sold well in other areas even if the China market was disturbed. There are some risks in which companies have no control over them, and it becomes difficult for the company to prevent them; hence the best option becomes risk avoidance by shifting the market attention to other parts.

References

Davenport, T., & Harris, J. (2017). Competing on Analytics: Updated, with a new introduction: The new science of winning. Harvard Business Press.

Ebbers, M., Bosch, W., Ebert, H. J., Hellner, H., Johnston, J., Kroll, M., ... & Schmidbauer, J. (2016). Introduction to the New Mainframe: IBM Z/VSE Basics. IBM Redbooks.

Strickland, E. (2019). IBM Watson, heal thyself: How IBM overpromised and underdelivered on AI health care. IEEE Spectrum, 56(4), 24-31.

Woodside, J. M., Augustine Jr, F. K., & Giberson, W. (2017). Blockchain technology adoption status and strategies. Journal of International Technology and Information Management, 26(2), 65-93.

Zlamparet, G. I., Ijomah, W., Miao, Y., Awasthi, A. K., Zeng, X., & Li, J. (2017). Remanufacturing strategies: A solution for WEEE problem. Journal of Cleaner Production, 149, 126-136.