Question

Global economy has a major impact on a company’s performance. However, it is not only determining factor for the success of the company. In fact, the impact of the economy can vary from industry to industry. Industry dynamics, company’s strategy and operational capabilities are few of the factors which can result in a success or failure of a company. An example of global IT industry (with focus on IBM) is used to understand the various aspects that can impact the company’s performance

PORTERS FIVE FORCES: GLOBAL IT INDUSTRY

HIGH ENTRY BARRIER

•    The IT industry requires high capital investment and thus would require the entrants to commit significant investment
•    Industry players including IBM, commit significant amount in the R&D annually
•    Economies of scale is required to compete with the established players
•    Customers prefer established brand, strong product portfolio and long term relationship

MEDIUM THREAT OF SUBSTITUTES

•    There are limited alternatives to the IT services
•    Large corporate can however, can depend on in-house software development than relying on the IT providers such as IBM

HIGH BARGAINING POWER OF BUYERS

•    IT companies cater to many worldwide enterprises, from small and medium businesses to the world's largest organizations and governments
•    However these companies compete with various players
•    Most of the contracts are for long term and requires significant investment from the clients – thereby, the buyers command superior and reliable services from the players        

HIGH INDUSTRY RIVALRY

•    The global IT industry is highly competitive with presence of large number of players; these company varies by industry segment,  varies industry sizes catering diversified of the services and product offering
•    These players compete on prices, quality, brand, its broad range of capabilities, products and services, client relationships, the ability to deliver business value to clients, and, service and support
•    In order to maintain leadership in the IT industry, a players have to continuously invest, innovate and integrate to sustain in the competitive scenario

HIGH BARGAINING POWER OF SUPPLIERS

•    Leading IT companies including IBM strongly depend on the continued service, availability and integrity of skilled personnel, including technical, marketing and staff resources
•    Experienced personnel in the information technology industry are in high demand, and competition for their talents is intense
•    The IT firms also employs a wide variety of components, supplies, services and raw materials from a substantial number of suppliers around the world
•    For various services/components, IT businesses rely on single or a limited number of suppliers
•    A failure of procuring components, supplies, services and raw materials in sufficient quantities and in a timely manner could adversely affect the IT players
Because of the various parameters which effects a company’s performance, various companies adapts balanced scorecard to evaluate the past performance and evaluate what could be the likely performance in near future

BALANCED SCORECARD

Balanced Scorecard includes the following parameters:
•    Financial Perspective – IBM evaluates factors such as operating income, return on capital employed, and net profit margins.
•    Customer Perspective – IBM considers factors such as customer satisfaction, customer retention, and market share across various segments
•    Business Process Perspective – The IT Company considers the cost, the quality of services, R&D and success in product development. The company also evaluates factors such as procurement of components
•    Learning & Growth Perspective – it includes factors such as employee satisfaction, attrition levels, training and development of skills of the workforce
•    Conclusion: Across the globe, various companies, despite the strong economic, fail to succeed because of factors such as high competition in the industry, poor financial management, failure in client satisfaction, poor corporate governance and high attrition.
Therefore, it would be incorrect to assume that a company’s performance is solely rely on the economic conditions
Reference
•    IBM, 2008, ‘Annual Report 2008’, IBM Corp, New York

Summary

The question belongs to Corporate Strategy. This question is about the impact of corporate governance on corporate strategy. The example given here is about IBM, one of the leading IT companies in the world. This study is a literature review about the impact of corporate governance on the various facets of business.

Total word count is 4156

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