This document analyzes IBM's strategic shifts to address the emerging cloud computing industry. It examines IBM's history from the mainframe era to its acquisitions of SoftLayer and PWC to become a leader in cloud services. The SWOT and revised Yip's framework are used to analyze IBM's strengths in infrastructure and reputation, weaknesses in business model, and opportunities in government and large enterprise markets. The document recommends IBM partner with other technology companies and focus on cost-effective cloud services to maintain relevance against competitors like Amazon, Microsoft, and Google in the growing cloud industry.

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IBM and the Emerging
Cloud-Computing Industry
Charlie Chen; (Student ID: 00004301)
Global Business Strategies
Ass. Prof. Antoine M J G Hermens
By

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SUMMARY
This business report aims to examine the challenge that emerging
Cloud-Computing brought to IT industry and IBM. The author will use
SWOT and revised Yip’s framework to analyze and identify the
competitive strengths and weakness of IBM. The final section of this
report will provide strategic recommendation and end user expectation.
CLOUD-COMPUTING
What is cloud-computing? Why cloud-computing is a game changer of
IT industry?
The IT industry has been evolved in following 3 stages (as illustrated
in figure 1). In the early days, the client/server environment consisted
of mainframe (large scale) server(s) and terminals. This approach was
simple and effective but lacked of flexibility. Then we have personal
computing era. Leaded by the microchip manufacture giant Intel, the
computer hardware industry made client/server hardware cheaper and
cheaper therefore we have billons of small scale servers and personal
computers almost in every corner of our environment. This gives us
great flexibility however it also brought us complexity and inefficiency
from hardware resources utilization perspective.
Figure 1: IT Industry evolution timeline
Cloud-computing technology addressed the long outstanding
challenges in the IT industry.
In a nut shell, cloud-computing technology provides its end
users/customers with:
1. A network infrastructure which can cost-effectively transfer data
from A to B and vice versa by leverage internet.
2. A cost effective system architecture that can store data, process
data and present data.
3. The information can be accessed anywhere and anytime regardless
where it is hosted.

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4. Software defines IT infrastructure/data center rather than build a
data center with heavily oversubscribed hardware resources and
waiting for software/application to use them
From end user/customer perspective, cloud-computing simplifies IT
service delivery which also enables company to focus their core
business.
By reviewing the success of early adopter’s achieved (i.e. Apple music
download) we can see “cloud has the power to fundamentally shift
competitive landscapes by providing new platform for creating and
delivering business value” (Berman S. et al., 2012)
Here are some statistics in today’s IT industry:
 85% of new software developed for the cloud.
 By 2016, one-quarter of apps will be distributed via cloud.
 There are three-quarters of apps developers are using cloud for
developing.
 By 2017, there will $235 billion spend on cloud-computing.
 The most import is cloud-computing allows company to outsource
its internal data center/server farm and even most of the functions
of its IT department. Therefore company can focus on their core

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business. It will make business more adaptable to rapid market
changes. (Bort 2014).
Figure 2: Cloud Computing Statics
The value distribution, structure and economics of IT industry will
change forever as Sam Palmisano, the previous Chairmen, President
and CEO of IBM cleverly addressed (Grigoriou et al. 2013).
STRATEGIC SHIFTS OF IBM IN LAST 20 YEARS
By analyzing IBM’s strategic shifts over the last 20 years, we can see
the pattern that the “big blue” seems good at playing catch up games
with constant internal transformations. However it appeared to me that
transformation may more successful to be initiated by an outsider
rather than by an insider.
GERSTNER ERA
In early 1990, IBM ignored the client/server platform shifted from
mainframe/terminal to small scale server/PCs (illustrated by Figure
1.1). The result was it posted the largest single year corporate loss in
US history in 1993.

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The board hired strategist and brave transformer Mr. Louis V.
Gerstner, Jr. Mr. Gerstner transformed IBM from Hardware
manufacturer and provider to an Integrated IT services provider
(Grigoriou et al. 2013). IBM Global Technology Service (GTS) was
the largest integrated ICT service provider in the industry. GTS has the
ability to provide customer integrated network, system and application
software solution in a single umbrella.
PALMISANO ERA
2003-2011: IBMer Mr. Sam Palmisano inherited the Grestner’s
strategy and continuing to shift company business from hardware
provider to focus on consulting and software. IBM off loaded its PC
unit to Lenovo but keep server unit and storage unit. Palmisano
implemented the strategy to improve productivity in order to increase
profit margins and to compete with competitors in the global market.
IBM was enjoying constant gross profit margin growth for 8 years.
LAST SEVERAL YEARS
2012- Ms Ginny Rometty became CEO. She has:
 Instigated 3.5 billion PWC acquisition.
 Off load Intel chip based Server unit to Lenovo
 SoftLayer acquisition
 Sold Chip R&D and manufactory
 Instigated 26% staff reduction.
The softLayer equitation seems put IBM in the market leader from web
application hosting perspective (refer figure 3)
A third-party survey of the 100,000 busiest websites revealed that IBM
hosts far more of them than any other provider.

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Figure 3: Web sites hosting (Data provided by HostCabi.net)
IBM CURRENT STRAGETIES
The necessity of offloading those low profit margin and none core
business units means that IBM will more focused on the new core
business: cloud-computing. The staff reduction should make IBM
leaner but agile in order to compete with other players in the market.
IBM will compete with others in all aspects of cloud-computing
technology in the next few years and try harder to establish its industry
leader position in the market space.
INTERNAL AND EXTERNAL ANALYSIS
Internal analysis helps organization to identify its core competences in
the global market space, while external analysis should assists
organization to identify where to apply their competences in industry
or markets. In IBM case the industry is cloud-computing and the
market is integrated Information and Communication Technology
(ICT) services.

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Figure 4: SWOT Analysis
Strengths: the ICT service giant will leverage their rich resource
(globally distributed network and system engineers and existing data
center facilities to provide customer an one stop shop of cloud design,
server farm system integration and migration service (move data center
from customer premises to IBM cloud environment). IBM also can
leverage their leading position in current ICT outsource business to
develop their reputation as “reference point” in this (currently self-
regulated) emerging industry.
Weakness: the business model of cloud-computing is focused on long
term gain rather than shot term gain. It requires relatively high initial
investment and longer lifecycle of return on investment as well as
marginal profit. Historically, IBM was not good at low margin
business due to its higher internal administration cost.
Opportunities: Most profitable market segments in cloud-computing
business are government departments/agencies and large enterprises.
IBM seems doing well with deployed the largest enterprise cloud:
Panasonic messaging cloud service in 2010. In the same year, IBM
started to develop a cloud network infrastructure for US Air Force.
Threats: Google, Amazon, Microsoft and salesforce.com. Those
players have established their market presents. One characteristic of
cloud-computing is long term vendor/customer contract. It is hard for
customers to move from those competitors to IBM since after migrated

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to vendor’s cloud the network infrastructure and system architecture
become part of vendor’s assets not customers’.
Figure 5: revised Yip’s framework
IBM POSITION IN CLOUD-COMPUTING INDUSTORY
IBM should and will be a vertical service integration provider. The
author suggests that IBM needs:
 Partner with telecommunication service provider to provide end to
end solution
 Alliance with Google/Alibaba to deliver web search/e-commence
as a service
 Alliance with Microsoft to deliver back office application as
service
 Alliance with Oracle to deliver database application as service
 Provide data mining services/applications for car/aircraft/retail
business/pharmaceutical development and gambling industries.
Internally IBM needs to make dramatically organization structure as
well as business model changes. The big blue has to focus on cost
effective service delivery and help customer to tap power of cloud
computing in order to become more competitive and innovative in their
marketplace. The big blue itself also need to utilize the full potential of
cloud-computing to transform internal operations, customer
relationship and industry value chains with cloud enable business

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models that promote sustainable competitive advantage (Berman, S. et
al. 2012).
REFERENCES
Bort J. 2014. This Chart from IBM Explains Why Cloud Computing Is
Such a Game-Changer, viewed 29 January 2015,
http://www.businessinsider.com.au/this-chart-from-ibm-explains-
why-cloud-computing-is-such-a-game-changer-2014-4
Berman S., Kestrerson-Townes, L., Marsball, A. and Srivatbsa, R.,
2012, ‘The Power of Cloud, Driving business model innovation’,
IBM Global Service Executive Report, Feb. 2012
Grigoriou, K.,Retana, G., Rothaermel F., 2013, ‘IBM and the
Emerging Cloud-Computing Industry’, Georgia Institute of
Technology, pp. c207.