Introduction
Large companies have different external environment depending on their location. For instance, IBM Corporation, a company that manufactures computers, is based in Armonk, New York, in the United States (IBM – the United States, 2018). IBM stands for International Business Machines, and it carries out its operations in more than 170 countries in the world while employing over 330,000 employees.
IBM majorly deals with software, hardware, hosting services, and consultancy services. On the other hand, Microsoft Corporation is a technology company with its headquarters being in Redmond, Washington. Bill Gates and Paul Allen founded it on April 4, 1975 (Microsoft – Official Home Page, 2018).
The work of the company is majorly to develop, manufacture, and sell consumer electronics and computers. It also sells computer software and provides supportive services among other computer services. Microsoft employs over 125, 000 employees worldwide and has a huge capitalization. Notwithstanding the fact that both companies operate in the same industries and expanded their business to the international market, they apply different strategies and follow diverse organizational structures to remain competitive and achieve growth.
The External Environment of IBM and Microsoft Corporation
IBM Corporation
External environment factors of a company are those aspects that affect the performance of the company either positively or negatively. The external factors of IBM Corporation include suppliers, competitors, customers, intermediaries, and public (Kralingen, 2010). In addition, some of the external factors of the company are technological, political, economic, and socio-cultural factors. For instance, suppliers influence IBM depending on their commitment to supplying raw materials to the company. Besides, when it comes to customers, satisfying every customer may be challenging, and it requires a lot of marketing to attract different customers.
The higher the number of customers, the greater the success of the company. Moreover, due to the intense competition in the market, IBM Corporation has to master the strategies formed by its major competitors (Kralingen, 2010).
In reference to the key aspects of the company’s external environment, it needs to be said that the performance of IBM Corporation is inextricably connected with technological factors. The given term is used to denote numerous variables that are connected with the degree to which technology is developed and available. IBM is highly impacted by the popularization of technology integration in many fields of activity.
One company cannot meet the needs of all clients all over the world even if it possesses enough resources, and this is why the above-mentioned trend increases competition. Another technological factor peculiar to IBM is the development of new hacking techniques that can be used to access information illegally and, therefore, pose a threat to the company’s economic success.
Political and economic factors that need to be analyzed to better understand the company’s external environment are numerous. Taking into account that authorities have enough power to define the path of development, the political agenda of any country affects businesses. In particular, many countries aim at digitizing public services, which increases the number of development opportunities for IBM and similar companies.
Also, we live in the age of information, and information safety is extremely important on a governmental level; due to that, the demand for IT safety tools increases and impacts the company’s business opportunities. Among the most significant economic factors are the customers’ paying capacity, market growth, inflation rate, average prices of PC components, and exchange rates (the corporation operates in more than 170 countries).
The external environment of the corporation is also impacted by socio-cultural variables that are closely interconnected with other types of factors since they change with economic and political development. The company’s business opportunities and profit return heavily depend upon social standards of living which define clients’ paying capacity. They are not the same in all countries where the corporation operates, and this fact impacts the demand for different products offered by IBM. The company’s services are available in countries with diverse stages of cultural development and urban/rural population ratios, and these factors have a major influence on the demand and prices.
Based on the large number of external factors of IBM Corporation, it can be concluded that the company’s environment is complex and stable. The complexity of its external environment is also supported by the fact that it operates in countries that face different socio-economic consequences. Despite cyclic economic changes, the situation is rather stable, which allows the corporation to maintain its hierarchical structure and implement standards.
When it comes to the level of uncertainty of the company, the combination of complex and stable dimensions amounts to low-moderate uncertainty. In addition, one of the greatest uncertainty of IBM is that it has experienced small growth over the years due to the implementation of new strategies such as cloud storage, artificial intelligence, and cybersecurity (Peterson, 2018). Another assumption that can be made is that the external factors of the company remain the same or change slowly.
Microsoft Corporation
Microsoft Corporation has many external environment factors that influence its performance either positively or negatively. The external factors of Microsoft Corporation include political factors, economic factors, socio-cultural factors, technological factors, legal factors, demographic factors, and global factors (May & Bihn, 2018). Political factors highly affect Microsoft Corporation. For instance, in March 2004, the European Union fined Microsoft and ordered it to out its media player software from the European market, which affected the potential markets of its products (May & Bihn, 2018). Moreover, economic factors that affect Microsoft involve the unemployment rate, personal income, and interest rates, which influence the purchasing power of consumers.
The impact of unemployment rate on the external environment of Microsoft can be explained in two different ways. On the one hand, the decision to provide services in areas with high jobless rates affects the company’s economic development since people’s purchasing capacity is low. On the other hand, some decisions taken by Microsoft also lead to changes in unemployment rates; for instance, job slashing initiated by the company in Finland had a significant impact on the location’s economic situation (Maguire, 2015).
In terms of personal income, this factor has a major influence on clients’ purchasing decisions. Providing services in different countries, the corporation has to consider wage levels to define the range of products that local customers can afford. For instance, it is unlikely that its Xbox consoles will be in demand in low-income rural areas. With the growth of interest rates for natural and legal entities, many clients become unready to purchase products and services offered by Microsoft, and it has an important impact on its profits.
Socio-cultural factors change depending on available resources. For instance, the increase in the use of computer technology such as the Internet gives Microsoft an opportunity to promote MSN and Skype, which offer convenient ways of keeping in touch with family and friends (May & Bihn, 2018). In addition, legal factors include affirmative action cases, anti-trust cases, and safety regulations, which enable the corporation to act responsibly.
Based on these external factors of Microsoft Corporation, one can conclude that the company is complex and unstable. The environment is complex because it is impacted by many heterogeneous factors, and, therefore, it is possible to develop a few effective strategies to boost further development. In terms of instability, it is created by product distribution limitations (the conflict with the EU) and changes in viability leading to mass job cuts. When it comes to the level of uncertainty of the company, the combination of complex and unstable dimensions of the organization amounts to high uncertainty. One of the assumptions to be made is that the external factors of the company change frequently and they are unpredictable.
The Stability of the External Environment of IBM and Microsoft Corporations
IBM Corporation
As it has been already mentioned, the external environment of IBM can be classified as stable. The company offers a variety of modern and in-demand products, such as analytical solutions, blockchain technologies, cloud services, and the Internet of Things (IBM – the United States, 2018). By investing in the development of diverse technologies, the corporation seeks to counteract dynamic changes in the market of information technologies, ensuring that at least some of the offered products and services remain needed and wanted.
Furthermore, such diversified focus helps the company to thrive in the face of high competition as it can easily switch between different initiatives in case a competitor becomes the dominant supplier in a particular area.
Another distinctive feature of IBM that promotes its environmental stability is the corporation’s active engagement in research. The company employs more than 3000 researchers worldwide, with its scientific investigations focusing on the promising fields of artificial intelligence, blockchain technologies, and quantum computing (IBM – the United States, 2018). In this way, IBM is able to gain insights into future trends and offer its customers cutting-edge scientifically-driven solutions. In addition, high quality marketing research helps the corporation to trace shifts in demand for various products and identify its main competitors in the industry. Armed with this knowledge, the IBM company can plan effective business strategies that address the issues associated with the instability of the market.
Microsoft Corporation
In contrast with IBM, Microsoft is characterized by an unstable external environment, which is mainly caused by the turbulent nature of information technologies market. For a long time, the company relied on its personal computer services and products as the main source of its revenue, causing a significant decrease in the competitiveness of the firm (Nowak, 2018). Unaddressed market changes not only destabilized Microsoft’s external environment but also forced the corporation to enter new areas of technology industry without having prior experience and being significantly behind its competitors.
Taken together, these factors indicate that the company does not possess necessary mechanisms for addressing changes in demand in a quick and effective manner, which means that it is likely to remain unstable in future.
While Microsoft also invests in research and development (Microsoft – Official Home Page, 2018), its business decisions often lack the insight into the needs of its customers. For example, Windows 7, which was created almost ten years ago, remains the most popular version of the operating system despite three later revisions. Given the close association between Windows platform and other Microsoft products, such as Office 360 or Azure, this decrease in demand poses a serious threat to the future stability of the corporation. Moreover, Microsoft products are known to be more defective than those of their competitors (e.g., Apple software), which means that the company will continue to lose its clients unless major changes are made.
Overall, the Microsoft corporation seems to be exacerbating its environmental instability by failing to spot new trends in the technology industry. As a result, the company does not react to market changes in a timely fashion and creates products that are not popular among its current and prospective customers. This inability to adapt to new demands alters the balance of forces in the industry, destabilizing the Microsoft corporation and reducing its share in the market.
The Strategies Used by IBM and Microsoft Corporation
IBM Corporation
IBM Corporation employs key strategies to ensure that it remains competitive in the global market. Some of the major strategies that IBM has come up with include integrated solutions, strategic business unit, advancement of technologies with the existing resources, and data analytics (Bhasin, 2018). IBM offers integrated solutions to its customers by receiving support from the broad ecosystems of its existing business.
Besides, coming up with vast business categories has enabled IBM to remain competitive and focused as compared to its major competitors. IBM Corporation has the ability to connect to the latest technologies with its existing systems. Moreover, the company has invested over $30 billion in building data analytics to distribute digital products and services (Bhasin, 2018). Based on Miles & Snow typology, IBM Corporation can be classified as an analyzer. This is because the company maintains current customers and current markets satisfaction with a moderate emphasis on innovation.
Microsoft Corporation
Microsoft Corporation uses strategies such as The Ballmer Email, speed and other key strategies, and global diversity and inclusion (Gleeson, 2018). The Ballmer Email ensures that business and consumers around the globe are connected, which leads to increased operational speed and responsive speed. The rise in speed of the Microsoft software ensures that it experiences increased market-penetration speed. Moreover, is the strategy of global diversity and inclusion creates means for the company to go in line with local markets (Gleeson, 2018). This strategy ensures that the market penetration speed is improved.
The main reason for coming up with these strategies is to guarantee that the company is competitive in the global market. Based on Miles & Snow typology, Microsoft Corporation can be classified as a prospector. This is because Microsoft is growth-oriented and is innovative, encourages risk-taking, and searches for new growth opportunities and new markets.
The Type of Organization Structure That IBM And Microsoft Follows
IBM Corporation
IBM Corporation uses its organizational structure to streamline its delivery in the information technology market and its products development. It uses a product-type divisional organizational structure (Lombardo, 2018). The structure which represents business processes is responsible in handling development, production, supply, and sales of products. The organizational structure enables IBM to align its various aspects with the company’s mission and vision.
Microsoft Corporation
Microsoft Corporation uses its organizational structure to align its strategic direction as a productivity corporation. Microsoft organizational structure can be classified as divisional one (Dudovskiy, 2017). This is because it is divided in to two based on corporation functions and engineering groups. The organizational structure enables Microsoft to focus on innovation.
Non-Financial Aspects of Performance of IBM and Microsoft
IBM Corporation
The quality of IBM’ products is low as compared to that of Microsoft. When it comes to innovation, both IBM and Microsoft are not far from each other. The overall customer satisfaction level is 99% for IBM, which is higher than that of Microsoft. Customer loyalty is based on engaging and maintaining specific clients for a long period of time. IBM has improved customer loyalty due to its deep relationship with its customers. The company utilize customer loyalty program that has all aspects of customer management. The program allow and facilitate maintenance of customer database through data integration (Nowak, 2018). As a result, this gives it an opportunity to maintain its position in the market and ensures high revenues.
Microsoft Corporation
Microsoft products’ quality is high as compared to IBM’s ones. When it comes to innovation, Microsoft and IBM are almost the same. The overall customer satisfaction level is 97% for Microsoft, which is lower as compared to that of IBM. Customer loyalty of Microsoft is low as compared to that of IBM as it does not maintain its relationship with its customers. The main reason for low customer loyalty is because Microsoft lacks customer-centric products and services (Nowak, 2018). Moreover, the performance of Microsoft and IBM is different due to their differences in their environment, strategy, and structure.
Conclusion
The external environmental factors of IBM Corporation and Microsoft Corporation have a great impact on the performance of the two companies. Due to the combination of complex and stable dimensions, IBM enjoys low-moderate uncertainty, while Microsoft’s level of uncertainty is high. Besides, the companies apply different strategies to remain competitive in the market. While IBM can be classifies as an analyzer as it maintains current customers and current markets satisfaction with a moderate emphasis on innovation, Microsoft is a prospector with much focus on innovation and new growth opportunities. Besides, notwithstanding the fact that the quality of the products of Microsoft is higher than that of IBN, the former has achieved higher customer satisfaction due to customer loyalty program.
References
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