INTERNATIONAL BUSINESS MANAGEMENT ANALYSIS

Firms and their employees don't often acknowledge the current business environment as being particularly dynamic and difficult. Among the many factors that force businesses to swiftly catch up in efficiency, pricing, innovation, quality, and profitability are quick changes in technology, shifting markets, shifting consumer needs, increasing global competition, and investor challenges. In the twenty-first century, developing a competitive business strategy requires maximizing people, services, and products (Subramanian and Gunasekaran 2015). In actuality, an outstanding global business model comprises maximizing a global environment that is integrated to produce a portfolio that satisfies changing consumer demands. IBM is the leading diversified company in the IT industry offering a wide range of IT hardware, software, services, and other business segments. To others, IBM is recognized as a company of companies as it combines a variety of capabilities in a bid to provide integrated solutions and platforms to its consumers. Founded in 1911 by Charles Flint, the firm generates an annual revenue of 79.919 billion with a net income of 11.87 billion. IBM has its headquarters in New York and operates in 177 countries with over 380,000 employees (Revenues and Profits). Working in five business segments, each segment is well fitted with its unique process of making money.
The paper will give a brief summary of business models with possible risks that may affect them. Looking at IBM, the case analysis will provide an in-depth approach to the firm's business model and potential environmental risks that are likely to change the model.
Business Model Theory/Risk Analysis
Essentially, a business model theory revolves around the framework of how value is created and appropriated within a firm (Subramanian and Gunasekaran 2015). Therefore, the success of any company largely depends on how a business model is crafted on what customers want and how an enterprise will best meet those needs and get paid for doing so. A business model is how you plan to make money. In the same regard, Drucker's theory of business defines a business model as the assumptions in which businesses get paid for (Drucker 2017). Drucker's approach draws that the assumptions are about identifying clients and competitors, behavior, and values.
The venture cash flow, described as the difference in revenues and costs, becomes an indicator in assessing value creation and appropriation. Positive cash flow is termed as economic profit while negative cash flow is a loss. Value will be determined by the cash flow generated; it's timing, as well as the risks involved. A business model provides a way to sustain cash flow by identifying avenues of revenue creation, synchronization cash flow as well as managing uncertainties that may affect the various avenues (Carayannis, Sindakis and Walter 2015). According to the Entrepreneurial value creation theory, the longer it takes to get a positive cash flow and the more the risks involved, the lower the value of the venture.
Each business model includes the entity that offers the service or product, the value of products and services provided, the target market, distribution channels, consumer relations, resource configuration, core competencies, network, as well as cost and revenue structures (Carayannis, Sindakis and Walter 2015). In this regard, value is created through mixing and integrating core components in a business model. In other words, the value generated by business models is the summation of values appropriated in each element. In turn, a venture creates value to the customer who will subsequently pay the investment. Benefit is also accrued to management, suppliers, partners, investors, and employees in terms of operating expenses. Therefore, a business model explains how costs are incurred and risks mitigated to generate revenue within a venture.
On the other hand, value proposition refers to the products or services that create value by meeting a consumer's need. Value proposition can be quantified in terms of price and speed of services or qualitatively remain in the form design, brand status, or customer experience (Osterwalder, Pigneur, Bernarda and Smith 2014). Globalizing means integrating globally integrated business aspects to compete with worldwide competitive customer needs. Business models are now embracing diversity, expanding their supply chain and skill sets (Zhao, Huo, Sun and Zhao, 2013). However, assumptions used to create a business model may be wrong inviting risks such as adverse customer response, competition with regards to lower prices, incorrect cost estimation, as well as a dynamic business environment that is difficult to keep up with.
Case Business Model
Core Features for IBM's Business Model
IBM focuses on trading in IT hardware, software, and services to not only the IT industry but other industries as well. IBM's five segments; Global Technology Services, Global Business Services, Software, Systems Hardware, and Global financing are crucial elements of the firm's business model. IBM GTS provides end to end IT infrastructure and its support services to various industries such as retail, healthcare, finance, and telecommunications (Revenues and Profits). This is done through strategic outsourcing, integrated technology services, support services such as maintenance, as well as cloud. On the other hand, IBM GBS provides consulting and systems integration, application management and global process services. Therefore, IBM global services are a combination of both GTS and GBS are revenue is mainly drawn from outsourcing or maintenance.
IBM software consists of middleware and operating systems software. Middleware connects operating systems to a variety of software applications. Apart from offering maintenance services, IBM provides installation services as part of systems hardware that includes servers and storage. Half of its systems hardware is sold through the firm's business partners while the other half are sold directly to its clients (Revenues and Profits). At the same time, IM global financing enables clients to acquire IT systems, software, and services through providing financial solutions. Global financing offers client financing through leasing and installments, commercial financing through inventory management, as well as remanufacturing and remarketing.
IBM Corporate Level Analysis
IBM operates primarily in a single industry through its five business segments that create value by providing a broad range of solutions. Even though this may seem like a corporate level strategy, there is no single type that best suits the company. Instead, what is clearly defined is a combination of both a separate business unit and vertical integration. Through the SBU approach, IBM concentrates its resources to dominating their area of expertise. Diversification might spread their collective resources out too thin leaving none for newer opportunities. Furthermore, concentrating in their area of expertise creates more value due to their competence and experience. However, IBM has added vertical integration as a corporate level strategy as seen in their acquisition of inputs such as LSG Group Inc., provides application development and IT consultation services (Global market). This upstream integration gives the firm a competitive edge by improving scheduling and product quality to create barriers for new firms.
Also, since the firm gets almost half of its revenue from sales outside the country, they have adopted an international strategy that looks at transferring their skills and products to countries where there is no such competition. Still, their operations are centralized before spreading to other foreign nations (Global market). They also have to adopt country laws and policies in which they are covering their activities too. In the same regard, modifications may take place with respect to new economic and political climates such as recessions and inflation in newer countries.
IBM Value Proposition
IBM has throughout the years being recognized by a high drive for innovation and development which significantly play a considerable role in value propositions (Seifert 2017). The firm has been researching and developing products with recent years' expansion to digital segmentation, cloud services, and virtualization. On top of that, IBM provides high-value solutions based on its model of integrating technology and innovation (Cleverism). IBM also offers IT consulting and implementation services in the setup, design, management, and maintenance levels in the industry-specific processes.
As stated earlier, value is created through integrating business processes in the business model. Therefore, the value creation at IBM depends on the cash flow generated, timing, and risks involved (Seifert 2017). Value creation is what will then be announced or offered at the stock market.
IBM Core Components
Customer Segments
IBM serves large enterprises who are looking to invest in cloud, software and hardware, and virtualization (Seifert 2017). At the same time, the firm targets end-users interested in personal computers and mobile application.
Channels
In a bid to consolidate its sales and marketing groups in all business segments, the firm has a single team that supports the firm's networking. The team improves communication with its clients through points of contact while a single interface made available through the web portal.
Customer relationship
Even though client relationships are self-care, there is a mid-market channel for hardware and software developers for larger enterprises. There is also a designed marketplace on the web page that is used by both individuals and businesses when selecting products and services that best suit their needs.
Key Activities
The firm focuses on the development and distribution of software, consulting services, IT services, and hardware ate enterprise levels. However, recent trends have seen the business venturing towards intelligence, data analytics, security, virtualization, green solutions, as well as cloud computing (Asad and Chaudhry 2017).
Key Partners and Resources
IBM has been striking high-profile partnerships with firms such as Apple Inc. in the mobile industry and Twitter in the integration of social media and cloud computing. They have also been involved in several other mergers and acquisitions reshaping its divisional structure to better position itself in the global market. Additionally, the firm operates numerous research laboratories and installing science centers which are all bundled under IBM research.
Cost and Revenue
The firm's cost structure is driven by investment and customer acquisitions with majority of its earnings coming from maintenance and services. However, there has being a significant decline in sales from software that has shifted focus towards cloud and data services.
Risks
Through the PESTLE framework, the identification of relevant eternal factors to the firm help in reshaping and determining strategic options for IBM. At the same time, addressing external factors increases IBM's rate of success while boosting its global performance. The political, economic, social-cultural, and technological factors demonstrate a number of opportunities in the IT industry. For instance, the firm has opportunities to develop products in meeting the growing demand of digitalization as governments and related organization push for a new digital era (Rowland 2017). Similarly, technological integrations and the changing needs of the society towards innovation is continually providing IBM with an opportunity to diversify which is line with its current business model.
However, the PESTLE framework has recognized significant threats that may affect the business model. Technologically, the number of cybercrimes rapidly continue to increase. As technology evolves bringing more opportunities, so do cyber thieves who are always looking to disrupt innovations particularly when financial gains are involved (Chawki, Darwish, Khan and Tyagi 2015). In the same regard, technological integration further opens more room for new entrants to enter the market (Rowland 2017). As a result, competition will be stiff thereby reducing the firm's market share.
On the other hand, improving intellectual property protections enable IBM to expand. However, despite this growing positive trend, developing markets are still proving difficult for IBM to penetrate. Despite having numerous economic opportunities in Asia, countries are again facing significant loopholes in intellectual property protection (Rowland 2017). In turn, the firm faces challenges in generating revenues in these newer markets limiting their growth.
Effect on Value Creation
Through the value creation, cybercrimes affect IBM's GTS, GBS, software, and Hardware which are the primary focus of operations and source of revenue. In 2015, GTS generated 39.2% of the total revenue followed by 21% in BGS, 28.1% in software, and 9.3% in the hardware segment. This means that operations will be slowed down due to the constant changes in combating cybercrime. More time consumption and increased costs will ultimately result in weak revenue growth given the already stiff completion from firms such as Microsoft and Oracle. In fact, according to Shields (2017), IBM's price performance is significantly declining as of July 2017.
Similarly, the increasing technological innovation does not only pose threats of new entrants but stiff competition from existing firms as well. Shield 2017 keenly points out that cash is declining as debts are mounting as IBM is trying to retain its investors by offering them substantial dividend payments. IBM dividend yields are more than 4% of its peers. If this high payout continues, the firm will find it hard to grow, invest, and expand. Microsoft and Oracle in the software industry are giving IBM's software business segment a run for their money (Shields 2017). The increase in technological integration is making other firms such as HP and LG to thrive well in personal computers and hardware further reducing IBM's market share.
In a different perspective, loopholes in getting intellectual property rights in new countries hinder all segments of IBM's business model. This is because no operations could take place if they are not legally protected. Given the growing market demand in Asia where competition is not stiff, the firm's opportunity to grow continues to shrink. According to Rivette et al. (2000), managing intellectual property creates value to a corporation. Having patent rights is a rich source of competitive intelligence that improves financial performance by establishing a proprietary market. Without intellectual property protection, IBM will fail to protect its core technologies and business methods thereby failing to lock out competition and theft. Intellectual properties enable firms to gain favorable partnerships such as CISCO and licensing tapping new revenues (Seifert 2017). The aggressive intellectual property protection boosted IBM's revenue from $30 million in 1990 to $1 billion in 2000. It managed to leverage its patent rights for strategic and economic benefits. The hidden financial value of patent rights is often demonstrated by the growing gap between book and market values (Rivette, Nothhaft and Kline 2000). In this regard, IBM's opportunity slowly fade away with the increasing challenge of securing intellectual property protection in Asia.
The above risks are environmentally driven with forces way beyond the firm's ability to mitigate. Rapid technological changes are attributed to the growing consumer demand for high-quality products and innovation. This means that technology is significantly influenced by customer needs who in turn fuel competition from firms in trying to meet those needs. Competition will subsequently reduce market share are reduce IBM business model operations and revenue. Furthermore, according to a Forbes article by Jones (2016), IBM's patent revenue is thought to be more than $20 billion accumulated over the last 23 years. However, the value was continuously decreasing from $742 million in 2014 to %700 million in 2015.
Conclusion
Since inception, IBM has been keenly growing and becoming a force to be reckoned with in the IT industry. Still, it largely remains a mystery that the firm is still high and competitive despite facing numerous challenges and significant business risks. Could it be its robust business model, its agility to respond to market changes or its diversified business segments? As critical analysts, I would suggest that there is no single force that keeps the business running. Instead, it's the firm's combination of strategies and efforts. Being the third best in software and facing stiff competition in the hardware, the firm's global service unit is believed to indeed be the anchor to IBM's success over the years. Nonetheless, the growing risks in technology, patent rights in South East Asia, and mounting competition is still posing significant threats towards the future growth of the firm.








References
Asad, Z. and Chaudhry, M.A.R., 2017. A two-way street: Green big data processing for a greener smart grid. IEEE Systems Journal, 11(2), pp.784-795.
Carayannis, E.G., Sindakis, S. and Walter, C., 2015. Business model innovation as lever of organizational sustainability. The Journal of Technology Transfer, 40(1), pp.85-104.
Chawki, M., Darwish, A., Khan, M.A. and Tyagi, S., 2015. Cybercrime: introduction, motivation and methods. In Cybercrime, Digital Forensics and Jurisdiction (pp. 3-23). Springer International Publishing.
Cleverism. IBM. Retrieved from https://www.cleverism.com/company/ibm/
Drucker, P.F., 2017. The Theory of the Business (Harvard Business Review Classics). Harvard Business Press.
Global market. What is IBM's corporate level strategy? Retrieved from: http://wiki.globalmarket.com/what-is-ibms-corporate-level-strategy-33052.html
Jones, C., 2016. If patents are so valuable why does IBM's intellectual property revenue continue to decline? Forbes. Retrieved from https://www.forbes.com/sites/chuckjones/2016/01/19/if-patents-are-so-valuable-why-does-ibms-intellectual-property-revenue-continue-to-decline/#2d2150241433
Osterwalder, A., Pigneur, Y., Bernarda, G. and Smith, A., 2014. Value proposition design: How to create products and services customers want. John Wiley & Sons.
Revenues and Profits. How IBM makes money? Understanding IBM's business model. Retrieved from https://revenuesandprofits.com/how-ibm-makes-money/
Rivette, K., Nothhaft, H. and Kline, D., 2000. Discovering new value in intellectual property Harvard business review. Retrieved from https://hbr.org/2000/01/discovering-new-value-in-intellectual-property
Rowland, C., 2017. IBM PESTLE analysis and recommendations. Panmore institute. Retrieved from http://panmore.com/ibm-pestel-pestle-analysis-recommendations
Seifert, J., 2017. The IM and Cisco value proposition. Business partner voices. Retrieved from http://businesspartnervoices.com/ibm-cisco-value-proposition/
Sheilds, A., 2017. Why IBM stock just fell to a 52-week low. Market realist. Retrieved from http://marketrealist.com/2017/07/why-ibms-stock-just-fell-to-a-52-week-low/
Subramanian, N. and Gunasekaran, A., 2015. Cleaner supply-chain management practices for twenty-first-century organizational competitiveness: Practice-performance framework and research propositions. International Journal of Production Economics, 164, pp.216-233.
Zhao, L., Huo, B., Sun, L. and Zhao, X., 2013. The impact of supply chain risk on supply chain integration and company performance: a global investigation. Supply Chain Management: An International Journal, 18(2), pp.115-131.









Appendix
Table 1: IBM's Business Model












Table 2: IBM Segments' Revenue