IBM Case Study: PEST Analysis of Factors Affecting Business Strategy

This case study provides a PEST analysis of IBM, examining the political, economic, social, and technological factors that influence its business strategy and international decisions. It references IBM's mission and vision statements, highlighting the importance of leadership in the information technolog...Read More

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PEST ANALYSIS OF IBM
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Table of Contents
Introduction................................................................................................................................2
Socio-economic factors affecting IBM:.....................................................................................5
Impact of technology on IBM:...................................................................................................6
Effect of political environment on IBM:....................................................................................7
Impact of ecological factors on IBM:........................................................................................8
Conclusion..................................................................................................................................9
REFERENCES.........................................................................................................................11

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Introduction
International Business Machines Corporation is also known as IBM and is one of the
best company typically known for producing the best computers in the world. The company
was established in the late 1800s and was more into computing, doing tabulation and was
basically a recording company (Ibm.com 2020). The company was founded by Herman
Hollerith, and the name was changed in the early 20s to IBM, which soon became the leading
computer provider in the world (Ibm.org 2020).
There are many CSR activities undertaken by the company, and many positive things
are also done for the sake of the environment (Ibm.org 2020). The main concern for IBM is
to maintain the core values that build trust and responsibilities for all the stakeholders
(Ibm.org 2020).
IBM CSR REPORT. Source: https://www.ibm.org/responsibility/reports

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IBM ENVIRONMENT REPORT 2018. Source: https://www.ibm.org/responsibility/reports
Many external factors influence the operations and competitiveness of any business,
and this can be analyzed by a management tool that helps in understanding the macro-
environment where the organization is operating and provides a solution that is required to
make (Anon 2020).
Through this tool, the external factors can be easily identified, which results in the
performance of the organization. The major factors responsible are: political, economic,

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social and technological (Gupta 2013). PEST analysis helps in understanding the position of
the organization in the market, making plans to increase the ability to capitalize and to make
changes wherever necessary in order to stay ahead of the competitors present in the market
(Anon 2020).
Socio-economic factors affecting IBM:
This factors deals with the economic portion of the country as well as the region that
may or may not help the organization.
This factors helps in formulating strategies depending and making anticipation about
the economic conditions for various regions (Wiig 2015).
There are many socio-economic factors that has an impact on the business and helps in
making a decision that is better and that will direct the business in future. Some of the factors
are:
 Rate of interest
 Exchange rates
 Physical environment
 Social income and status
Rate of interest: this effects the business in many ways. If the customer is in debt he will not
make a purchase and consequently the sale of the product will decrease. Hence, this would
affect IBM as the sale will go down making profitability low for the company.
Exchange rates: this factor effect the import-export of the business and is considered to be
very important. This factor has affected the ability of IBM to satisfy the suppliers that are

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international thus resulting in a downfall of the profit margin of the company. Also they
lacked the amount of the resources they needed.
Social income and status: it is very important that this factor must be considered. As the gap
between the rich and poor is continuously increasing it becomes important that the gap is
maintained which would help IBM to make profits and the margin can be achieved.
Physical environment: this factor refers to the surrounding or the environment where the
organization is operating. It helps in getting a detail of the surrounding as it helps to make
strategies for change that would help the organization in making change with the changing
environment making better ways for the organization to perform.
There are many other factors including capacity of income, occupation, level of
education, growth of the economy and many more. These factors have a huge effect on
businesses as the quality of life, taste attitude, culture depends on the economic growth and
capability of any individual and also the business. It also helps in making improvement in the
business, making the value chain strengthened, making innovations that would help in fueling
the products and services of the business.
It is important to manage these factors as it would help in shaping up the business and
would provide a better competitive advantage and position to the organization in the market.
It would also help to mitigate the risks associated with the organization and the one which are
too complex to solve (Sammut‐Bonnici and Galea 2015).
Example: at the time of recession in the year 2007-2009, there was a severe clash I the market
which resulted the decrement in the buying-ratio of the customers. To maintain it, IBM had
made a cost cutting factor that was lessening the employess.

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Impact of technology on IBM:
The most important and the key factor that decide the strength of the company as
there is a technological development going throughout the world. It includes roles that are
specific and development of the organization within and outside (Paroutis, Bennett and
Heracleous 2014).
The tool helps in giving a deeper understanding of the business, gives an alert
indication in case of any threats, helps in exploiting the opportunities prevailing and is a very
cost effective method.
This tool helps in better decision making as it gives a knowledge much ahead of time.
This tool also helps in getting a wider aspect of the business and mitigate risks associated.
There is a technological change every now and then which could also bring in many
advantages to the business also many opportunities can also be grabbed using this factor. This
would again help the company to prove its metal in the market and sustain many changes
occurring.
Technology can help in creation of the products that is new, and then can enter new
markets and attract a new segment of customers. This will result in reducing the cost of the
business and will also help in increasing the productivity of the organization which is a
necessity. Technological change can be defined as the process of making improvements in
the products and services of the company.
The development of technology is very important as it helps in making a business aligned
with that of the environment and thus development of technology can also be described as the

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innovations made in the technological part of any business. The factors that influence the
technological change of IBM includes:
 Technological integration initiatives
 Adoption of cloud services
Technological integration initiatives: this technique helps in aligning the business to that of
technology so that better and successful strategies can be made and implemented. It can also
be used to refine as well as redefine the technologies that is already applicable in the business
and this could help in getting the knowledge of competitive strength (Paroutis, Bennett and
Heracleous 2014).
Adoption of cloud services: this strategy is used by the companies as it helps in improving
the scalability and measurability of the database that is based on internet.
There are many benefits associated to that of the development of the technology and it
helps any business to have a better demand for the product thus bringing in more money to
the business.
Example: IBM computer are one of the innovative computers meeting all the requirements
and also developing super computing technology.
Effect of political environment on IBM:
This factor focuses on the key areas where the policy set by the government affect the
organization and low the legislation effect the economy.
It also tells about the international relationship and the climate of the region as well as
the nation (Ho 2014).
All the organizations that are operating must follow the rules and regulations set by
the government and hence these factors are given a lot of preference and importance at the

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same time. The political environment can have great impact on the organization and the
market it us operating in. It can be observed that there is an addition of risk that could finally
lead to loss for the company and then the company will have to face many loses and the
profitability will decrease likewise (Sammut‐Bonnici and Galea 2015).
Factors effecting IBM are:
 Economic impact
 Regulatory changes
 Risk mitigation
 Political stability
Economic impact: the performance of the organization is dependent on the development of
economy and this is again dependent on the political factors associated. It also effect the
economic setting of the country and the company IBM itself.
Regulatory changes: the government can anytime change the rules and regulations and the
companies has to follow it. This has a huge impact on the business of IBM as there is no
regularity or consistency in the regulations causing a harm to the performance of IBM.
Risk mitigation: the best thing that IBM can do is, to buy a political insurance as it would
help in managing the risks related to political factor. As the business is internationally
operated it would help in reducing the exposure of the risk.
Political stability: if the business lack political stability there is a major effect on the
operations of the business. This is more in the case if the business is operating internationally.
These could also result in disruption of operations of IBM.
These factors effects the profitability of IBM and then the company strives for survival in the
market. The level of stability is equally important as it would help in maintaining a

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consistency within and throughout the company. It is very important to know the form of
government existing in the country and then there is a way of mitigating the risks associated
with the company.
Example: the price of the web server products increased due to the taxation system which led
to a major issue for IBM.
Impact of ecological factors on IBM:
This factor focuses on the areas which include age, methods of distribution, workplace,
culture and also the shifting trends in lifestyle.
This factor is a major concern as the taste and preference of people changes with the
time and organizations needs to customize accordingly (Babbie 2018).
This factor identifies the resources available for the organization to operate and then
formulate strategies that addresses the effects of several ecological factors that are external.
For IBM there is an availability also opportunity in increasing its effectiveness using these
techniques.
There are many ecological factors that affect the business of IBM:
 Environmental policies
 Availability of resources
 Green-agenda
Environmental policies: these are one of the major external factor which has a huge impact
on the business strategy. It is basically the commitment made by a business in order to follow
the rules and regulations. IBM must look into these factors and draw mechanisms that would
help in will be in concern with that of the environment.

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Availability of resources: this is basically the physical environment of the business where
the business is operating. While collecting raw materials it is very important that IBM keeps
in mind that any scarcity of the resource would cause a great impact that is bad for the
business.
Green-agenda: a business operating must always keep in mind the effects and causes it has o
the environment, only then it would be able to perform in a better way than its competitors
and would also create a position that is higher than that of its competitors.
The companies which faces a high pressure from the government as they have addressed
various environmental issues would cause a bad effect on the business (Schafer 2018). As the
only natural thing present with us is the environment itself, therefore, there must be a give
and take relationship between the two that would help in keeping a balance and help in
increasing the efficiency and performance of the business (Pan, Chen and Zhan 2019).
Example: IBM has developed technologies for NASA for many astrological factors which
includes monitoring of environmental changes and tracing of weather.
Conclusion
Thus, from the above discussion it can be concluded that when any business is
operating, all the factors that is the political, economic, social and economic must be kept in
mind and considered into order to have a stability and consistency in the business. And for
this, the best tool that can be used is the PESTLE analysis as it helps in covering all the
factors at once and knowledge of a better macro and micro environment is provided through
this. However, there are certain factors which this tool lacks to provide which includes
change in factors, it may not always deal with the problems that requires to be considered
eventually, sometimes it comes up with a more complex stuff ad hard to evaluate, there may
be some loss of data as well.

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Despite, all these this analysis helps in giving an idea that is more certain and all these
could be done in a very cost effective way with a deeper understanding of the situation and
then analyze it accordingly, more alternatives can also be found and based on that new
strategies can be developed.

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REFERENCES
Anon, 2020. [online] Available at: http://panmore.com/ibm-vision-statement-mission-
statement-analysis-recommendations and IBM PESTEL/PESTLE Analysis &
Recommendations [Accessed 1 Mar. 2020].
Babbie, E., Wagner III, W.E. and Zaino, J., 2018. Adventures in social research: Data
analysis using IBM SPSS statistics. Sage Publications.
Gupta, A., 2013. Environment & PEST analysis: an approach to the external business
environment. International Journal of Modern Social Sciences, 2(1), pp.34-43.
Ho, J.K.K., 2014. Formulation of a systemic PEST analysis for strategic analysis. European
academic research, 2(5), pp.6478-6492.
Ibm.com. 2020. Why Choose IBM Security for Your Cybersecurity. [online] Available at:
https://www.ibm.com/security/why-choose-ibm-security [Accessed 1 Mar. 2020].
Ibm.org. 2020. IBM.org - Reports. [online] Available at:
https://www.ibm.org/responsibility/reports [Accessed 1 Mar. 2020].
Ibm.org. 2020. IBM.org. [online] Available at: https://www.ibm.org/ [Accessed 1 Mar.
2020].
Pan, W., Chen, L. and Zhan, W., 2019. PESTEL analysis of construction productivity
enhancement strategies: A case study of three economies. Journal of Management in
Engineering, 35(1), p.05018013.

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Paroutis, S., Bennett, M. and Heracleous, L., 2014. A strategic view on smart city
technology: The case of IBM Smarter Cities during a recession. Technological Forecasting
and Social Change, 89, pp.262-272.
Sammut‐Bonnici, T. and Galea, D., 2015. PEST analysis. Wiley Encyclopedia of
management, pp.1-1.
Schafer, T.M., 2018. Strategic Analysis at IBM. Strategic Analysis.
Wiig, A., 2015. IBM's smart city as techno-utopian policy mobility. City, 19(2-3), pp.258-
273.