Case Of Ibm's Laptop Computers example essay topic

Introduction To perform the Industry Analysis it is better to follow Michael Porter's five forces model. This analysis framework was created so that it helps managers in their task to analyze competitive forces to the company. (Hill & Jones 80) This model is only one of the models that can be used for this task but it is one of the more popular models. The five forces that we will have to look at for this model are (1) the risk of new and potential competitors; (2) the bargaining power of suppliers; (3) the threat of substitute products; (4) the bargaining power of buyers; and (5) the degree of rivalry among established companies within an industry. (Hill & Jones 80) Barriers to Entry The first force in Porter's Five Forces Model is Entry Barriers. These factors are those that make it harder or easier for another company to enter into the industry.

High barriers to entry will keep potential competitors out of the industry and low barriers to entry will give an opening for competitors to enter into the industry if the industry returns are high enough. (Hill & Jones 82) The fewer competitors in an industry the more the existing companies can take advantage of higher prices and better returns. One barrier to entry is brand loyalty. Brand loyalty is very important for the sales of IBM.

When personal computers first came out you had to choose from IBM or Apple. Both computers were great machines but when IBM became a better-known computer the name was very recognizable. Today your choice in computers is much more extensive. Even though there are many more brands to choose from IBM is still a popular name. If not for it's own products it is for their platform it has. IBM compatible is a widely used term when talking about computers.

Many people when looking for a new notebook computer will then think about the name first. You may think well if the other computers are compatible then why not just get something that is cheaper? This is an option but the other way of looking at it is the name brand will be a better product. A second barrier to entry is switching costs. When IBM and Apple were the only computer systems to choose from people had to make a choice. When you went to buy one system then you had to buy all the software that went along with that system.

Ultimately, IBM became the more popular system and there was more software produced for IBM computers rather than Apple. (Hill & Jones 105) So now when consumers are searching for notebook computer that will help you out in the new work environment you are more likely to stay with the brand that they picked originally or another brand that is compatible to that system. Since IBM became the more popular computer to start with, switching cost became much higher if you wanted to switch to a Macintosh, an Apple operating system. All the software that you owned for the IBM computer would be useless for an Apple computer. That means along with purchasing the new computer itself you would also have to repurchase all the software that you had on the old computer in the new Macintosh format. Also the two computers work slightly different, so you may have to take a class or two to help you understand how to work this new computer that you purchased.

Overall that is much more money then it would be just to buy another computer compatible with the same system that you already own. A third barrier to entry is one of imitation and absolute cost advantages. This is were IBM has lost it's advantage. IBM has created a computer that is very open for imitation. There are many different computers that are compatible to the IBM format. Each new company that has entered the market has realized that IBM had the more popular system and then tried to copy it.

These new companies were producing very similar computers at the same cost but charging less. (Hill & Jones 207) This in turn caused IBM to loose their advantage over new competitors. However when IBM went into the notebook computer industry it became innovative and produced computers that were similar to their normal PC. They offered many features that most companies could not put on their laptop because of lack of room. IBM also is able to make one of the smallest and lightest notebook computers. The Think Pad 560 comes with a 100-MHz Pentium processor, 8 MB of RAM and 810 MB hard drive also with an 11.3-inch screen.

This is all packed into a package that is 1.2 inches thick and about 3 to 6 pounds, depending on your attachment setup. The best features that many like about this version are there is a full size keyboard and screen. It can be hooked up to other hardware or connected to a PC, network or printer. (web) Most other competitors cannot come and make a notebook computer at that weight with so many of the features that IBM is offering. Bargaining Power of Suppliers The second of Porter's competitive forces is the bargaining power of suppliers. Suppliers can become severe threats to any company when the business depends on them for their products, but the supplier does not depend on the company for business. Suppliers are a threat when 'they are able to force up the price that a company must pay for its inputs or reduce the quality of inputs they supply, therefore depressing the company's profitability.

If suppliers are weak, this gives a company the opportunity to force down prices and demand higher input quality' (Hill & Jones, 2001). IBM has numerous amounts of suppliers for their laptop computers. A major supplier is Intel, the world's largest manufacturer of microprocessors. The industry standard for computers runs on Intel's microprocessor family such as the Pentium series microprocessors.

IBM has little choice but to use an Intel microprocessor for their laptops. Intel currently possesses about 85 percent of the market so they have supplier power over IBM. This puts Intel in a very powerful position in this situation. There are very few substitutes for Intel's microprocessor, so IBM has little choice but to deal with Intel. Intel has the ability to raise prices to any level that satisfies them. This level would not prevail in a highly competitive market for microprocessors (Hill & Jones, 2001).

IBM does set some standards for its suppliers however. Once suppliers enter into a contract with IBM, they must follow specific instructions given to them. These instructions include document requirements (eg: packaging list, billing invoices, etc. ), packaging and labeling requirements, shipping instructions, and even country of origin marking (See Appendix A). IBM also has instructions for exports to IBM corporations in the United States (web). Suppliers to IBM are also instructed to use IBM's global procurement system. With the use of Electronic Data Interchange (EDI), business transactions can easily flow electronically between IBM and suppliers.

Through IBM's EDI services, 'forms exchange' has now evolved. Suppliers can receive electronic purchase orders from IBM procurement and automatically generate an invoice from it. This method of sending invoices electronically utilizing web technology will speed up the invoicing process while reducing the use of paper at the same time. The forms exchange service translates web data into standard EDI format and transfers these messages to and from IBM Information Exchange mailbox. Communication can be made more efficiently and accurately between IBM and its suppliers (web).

Substitute Products The third force in Porter's model is the threat of substitute products. Substitute products can be any products that companies offer to consumers. These substitutes provide needs to the consumer that are similar to the needs served by the industry being analyzed. The existence of close substitutes presents a strong competitive threat to a company. This in turn limits the price that the company can charge for their product and thus profitability is also negatively affected. On the other hand, if a company's products have few close substitutes, then this company has a better opportunity of gaining more profits due to the ability of raising prices.

The company does not have to worry about customers switching to other products. Companies that are not threatened by substitutes should indeed take advantage of such a situation (Hill & Jones, 2001). In the case of IBM's laptop computers, the threat of substitute products is extremely minimal. Since laptops provide an efficient means for mobile computing, there is no other true mechanism that poses as a substitute except for possibly a palm pilot or even nowadays cell phones. Newer technologies are enabling products such as these to perform certain jobs that laptops do. Examples are containing Internet access features, e-mail capabilities, personal organization, etc.

These products can also be easily moved along with the consumer. However, these items do not utilize the capabilities of data processing, or other means that laptops possess. Typewriters, Word Processors, and Personal Computers are the closest substitutes to laptop computers regardless of their portable inabilities. With typewriters, the printing is done through an inked ribbon that is fitted on spools, and travels with the operation of the machine. It then reverses automatically when one spool becomes completely unwound. Electronic typewriters are basically manual typewriters with the typing strokes powered by an electronic motor drive (web).

Word processors use application programs for manipulating text-based documents. They are the electronic equivalent of the paper, pen, typewriter, eraser, dictionary and thesaurus. Depending on the program and the equipment in use, word processors can display documents either in text mode using highlighting, underlining, and color to represent italics, or bold facing and other such formatting. In the graphics mode, fonts can appear on the screen as they will on the printed page.

Some word processors can also check spelling, find synonyms, incorporate graphics created with another program, correctly align mathematical formulas, create and print letters, perform calculations, display documents in multiple on-screen windows, and also enable users to record macros that simplify difficult operations (web). One major manufacturer of typewriters and word processors is Brother. The Personal Computer (PC) or desktop, is a machine capable of repetitively and quickly performing calculations and instructions. Its Design is to be used by a single person; a PC is smaller, less expensive and easier to use than other classes of computers, such as supercomputers, mainframe computers, or workstations. However, it usually has less computational power (web). PC's can most likely be found within office environments, schools, and homes.

Along with typewriters and word processors, their prices are far less than laptops as well. As stated earlier, these products can be considered substitutes for laptop computers if a consumer is no longer striving for the portable qualities of laptops. The word processor, typewriter, and PC can all perform similar functions of a laptop, but for traveling, they are surely not recommended. Buyer Power The fourth force of Porter's model is bargaining power of buyers. There are many different levels of buyers. Two different levels would be the store that you sell your product to and the other level would be the ultimate consumer.

When a buyer can demand certain things from the company then that would give them power. This is a threat to the company's profits when they have achieved a great amount of power. IBM has limited the buyers' power by reducing the amount of levels of buyers. IBM sells a majority of their notebook computers off their corporate website. The buyers of notebook computers are becoming more empowered because of the use of the Internet. There have been several companies that have entered the notebook computer business by offering custom-built computers over the Internet.

These companies offer that they will make a custom computer to the specifics that you need. IBM did not choose to pursue this route. Instead of making their notebook computer custom built to the customer order IBM has chosen to just make a wide variety of computers. IBM has about 190 different notebook computers and one of them has to fit the customers' requirements. Therefore this shows that IBM does not have as much influence by the buyer as does many of its competitors. This reduces the cost for IBM because they do not need someone always figuring out the specific needs of a customer and putting a computer together at that point in time that will fit those needs.

IBM only has to ship the notebook computer that the customer ordered. Nobody knows the customer better then the customer and he is the one that picks out the computer he wants. Competitors The last of the forces in Porter's model is the intensity of competition. If the competition is low then the dominant company will be able to raise prices and earn greater profits. But when the competition is high like it is in the computer market then there is a price war where prices have to be competitive to your competitors or you will have low market share and smaller profits.

(Hill & Jones 84) Computers are the world's most innovative product. Whether you " re having your groceries scanned at the local supermarket, reading your e-mail messages through a portable phone, or traveling through E-Z pass toll booths, computers are an every and all day occurrence in everyone's life. From the beginning of the computer industry, IBM has led the way and set standards in the computer market today. From computer mainframes to 3 lb. laptops, IBM next to Apple has maintained its supremacy. Aside from Apple, other competitors have emerged into the computer market. Hewlett Packard and Compaq are two primary competitors in IBM's market sector dealing with laptops today.

Since the dawn of the computer era IBM has held its position at the top of the computer industry. Being that IBM has maintained its credibility, it has held its position in the computer world with a lot of market power. This was the case up until about ten years ago. That was when its suppliers broadened their distribution lines and created a larger market for computers. This is a time when IBM needed to implement new computer strategies. The early 80's is when it took hold of the laptop industry.

Realizing that what it's strategy needed was to be very competitive with its competitors, IBM increased its research and development strategies to achieve its superb Laptop technology. (Research Insight) This was a dawn of a new era for portable computers. Apple computer industry was already competing in the market of computers, so along with Compaq and Hewlett-Packard these three companies posed threat and competition to IBM. After going through and analyzing the income statements between these three companies. You can notice a decline in Apple and IBM's revenues over the past ten years. For Apple computer industry it's gross profit has declined form 3.3 billion dollars in 1991 to 1.7 billion in 1999 a 34%decline in revenue for Apple and IBM went from 42 billion in 1991 to 38 billion in 1999 a 4% decline in revenue.

(Research Insight) On the other hand due to computer competition since 1992 and the introduction of new competitors and lower barriers of entry into the computer market, other companies have stolen market share from Apple and IBM. Hewlett Packard and Compaq, revenues have increased by 107% and 714% respectfully over the past ten years. By research in web you can come to find that this has taken place due to competitive advantages in R & D within these opposing companies. Once you " ve conducted a check into the components of laptop computers, you will notice most laptops use similar products within the computer make up, Microsoft and Intel being the two biggest suppliers of programs and hardware to computer production. Many of the main components that go into laptop computers are alike among competition. As you compare IBM, Compaq, Hewlett Packard, and Apple you will notice a lot of hardware similarities.

For instance, all but Apple uses the Pentium processor (web comparison) where Apple uses there own processor called 'PowerPC G 4'. (web) Along with Apple, most Laptops offer different systems to be installed depending on customer's needs for the computer. (web) For instance, whether the customer wants a laptop for business purposes, advertising and marketing, or video enjoyment they get their pick as to what computer will best suit their need. The first and most important decision you " ll make when buying a new computer system is whether to choose a Windows Laptop or an Apple 'Power book'. The decision isn't as easy as it used to be. With the introduction of the low-priced, consumer-oriented 'Power book' and an updated version of the operating system, Apple is on the rebound in both power and price. If you are looking for a computer that is easy to set up and easy to use you can find the 'Power book' to give you the least amount of difficulties. You can find through web that Apple laptops have superb graphics and imaging along with superb Internet capabilities such as connection time.

As for Compaq and Hewlett Packard, and their Laptops, you may have a bit more difficulty of operating. For home and small-business use, a Windows PC, whether it is an IBM, Compaq, or Hewlett Packard, is generally the safest and less expensive than most laptops one can find. Another benefit is Windows software and add-on hardware are more plentiful, generally less expensive, and easier to find than Apple products. Distribution of laptops also plays a role in the amount of sales a company can expect. Hewlett Packard and Compaq laptops are basically available to the general public through diverse distribution channels such as Catalogs, through the Internet, from a computer store, or a computer expo whereas IBM and Apple both conduct sales through their web sites.

This alone has been a major impact on the revenue differences. As we have looked into the Laptop industry we have noticed that IBM's competitors have somewhat taken market share away from IBM due to an increase in the compatibility among its products. Whether you want a laptop with mega memory and great graphics or high power and good Business programs, you must make a choice between many offers in your laptop selection. Because of the dramatic increases in the laptop market IBM has seen some declines in sales yet they haven't taken as hard of a hit over the past ten years as Apple computers have. Because of IBM's high ratings in the computer production market, their competition has had a battle in itself to make up for losses in sales and production due to the current success level of IBM. (Research Insight) From our research we have found that IBM and Apple, who were once the leaders in the computer industries have taken pretty sharp cutbacks in production and prices to stay in competition with the rest of their competitors.

Conclusion Each of these forces in Porter's Five Forces model are all connected in some way. The stronger each force is the more the industry in which the company is in is competitive. When an industry is more competitive this leads to lower prices due to price wars and ultimately lower rate of return. One of the limitations to this way of looking at industry analysis is that the Five Forces model looks at an industry as a whole instead of each individual company.

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