The world turned upside down? IBM in the 1990s

Business Horizons, Nov-Dec, 1990 by Eugene F. Bryan

Furthermore, IBM has been an industry leader for decades. Buying IBM products is simply business as usual for thousands of customers. Around the world, in the public mind, the name IBM is synonymous with the word computer."

IBM is the only foreign enterprise ranked consistently among japan's ten best companies in polls of japanese managers. When asked to name his most respected opponent, Matsuro Umezu, a managing director of Fujitsu, replied, IBM and only IBM. No other company has the depth" (Fortune 1988).

Information technology is an industry in which networks are beginning to span the globe and multimillion dollar decisions are routine. Global position and prestige count. IBM has both. Economies of Scale and Scope IBM's 1989 balance sheet shows a gross investment of $44.9 billion in plants, warehouses, research laboratories, and office complexes. That's a stupendous sum, roughly equivalent to the purchase price of a fleet of eight Nimitz-class aircraft carriers with embarked air wings. Value Line Investment Surveys (1990) estimates average plant age at only five years, giving IBM one of the world's most modern manufacturing infrastructures. And IBM's manufacturing operations are integrated and rationalized on a worldwide basis. More than three-fourths of all products manufactured outside the U.S. are traded across national boundaries.

Figure 4 is a schematic representation of the information technology industry's value chain. Sectors start with raw materials (silicon wafers and so forth) at the bottom, and progress upward through tools (masking equipment, X-ray lithography) to semiconductors, communications equipment, computers, software, and services at the very top. Representative companies participating in each segment are indicated. Figure 4 gives each segment's average return on assets, size in billions of sales dollars, and forecast annual growth percentage.

Figure 4 also shows that either by direct participation or alliance, IBM maintains a presence in almost every industry segment. Through financial assistance to domestic U.S. manufacturers and its own X-ray lithography project, IBM seeks autonomy in tools. IBM manufactures about 50 percent of its own semiconductors and components. It is the world's largest computer equipment manufacturer. A strategic alliance with Siemens positions IBM in communications equipment. With 1989 revenues of $8.4 billion, IBM leads the field in software. Its 1989 revenues of $9.8 billion make it number one in the world in equipment maintenance services.

All this gives IBM the potential for advantages in economies of scale (high volume leading to low costs) and scope .synergy in production of a variety of products and services). Combined with worldwide presence these economies give IBM the opportunity for tremendous competitive advantage. IBM is positioned to offer its customers a total systems solution anywhere in the world.

Leading Edge Technology

Throughout the 1980s IBM invested in research and development at a rate equal to about 10 percent of total sales revenue. In percentage terms that's about par for the industry, but because of the company's size, the amount for 1989 stood at $6.8 billion; total investment for the decade comes to a stunning $43.6 billion.