MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY IBM: Reinvention of a Tech Titan IBM is currently struggling through a rough patch. Rapid changes in the information technology sector have wreaked havoc on IBM's core operations. Their falling revenue can be linked to the shrinkage of their mature legacy businesses and their divesture of commodity, low-margin hardware businesses such as x86 server business. Their long established business model of high margin hardware coupled with long-term service contracts is under fire as companies move away from an ownership model to a subscription based service model. Hardware and Services are not the only segments under fire. IBM's dominance in Information Technology (IT) services is being eroded by Accenture and other technology consulting firms. Competition in IBM's most profitable segment, Software, is increasing. In addition to these challenging industry conditions, the weakened global economy, particularly in emerging countries where IBM does business, has lowered IT revenues derived from global operations. The impact of these challenges is evidenced by fourteen straight quarters of revenue decline. In response to these challenges, IBM is altering its business model of being hardware, software and services company. Over the past decade, IBM has been building its portfolio of cloud, analytics, mobile, social and security services. IBM's strategic investment have been geared towards transforming IBM into a cognitive solution, cloud platform based, service company. In 2015 alone, IBM spent $4 billion on their analytics, cloud, mobile and social security businesses. These initiatives have garnered double digit growth and generated $28.9 billion in revenue in 2015. Cloud computing, Software as a service, business analytics, security and engagement revenues increased by 43%, 50%, 7% and 64% respectively. Despite this progress, divisional revenue fell across the board. Systems hardware suffered the largest decline at 24%, followed by Global Business Services (12%), Global Services (10.5%), Software (9.8%) and Global Technology Services (9.7%). From a geographic perspective, revenue has also declined. As a result, revenue fell 12% in 2015, IBM's worst performance in over three decades. (see Exhibit 1) Industry Overview The information technology (IT) sector consists of three main groups: software and services (60%), technology hardware and equipment (28.1%) and semiconductors and semiconductor equipment (11.9%). Worldwide spending on information technology was about $3.7 trillion in MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY 2015.1 Of which $900 billion was spent on IT Services and $308 billion was spent on Enterprise software.2 While this sector is largely mature, newer technology platforms and applications (cloud, analytics, mobile, social and security) are driving double digit growth. As a consequence, consumer preferences are shifting to these newer technologies allowing newer companies to emerge that challenge the existing business models of the incumbent players. In 2014, 59% of the sector's revenues came from foreign sources. This sector overall profitability hinges not only on the intensity of competition between its players but on state of the global economy. As the global economy show signs of weakness, particularly in China, this has negative impact on this sector. (see Exhibit 2). Expenditures on information technology are driven by three main factors: corporate profits, regulations, and of particular importance, advancement in technology. When corporate profit is high, firms are more likely to increase their capital expenditure on goods such as enterprise software. Thus, the demand outlook for this sector is linked to the state of corporate profits. Regulations are the second driver of demand. As an example, new legislative requirements in healthcare and investment management industries have increased the need for information technology. Healthcare companies are required to computerize records and to improve the quality and quantity of their financial reporting. In the investment management industry, new legislation requires a more expansive record keeping on their financial activities. As regulations regarding compliance change so does the need for information technology solutions to handle the additional complexity. Finally, rapid changes in computer, telecom and software drive advancements in technology that provide the backbone of services and products offered in this industry. Companies need to stay abreast of these changes and how they may apply to their customer base. Companies also run the risk of their technological solutions become obsolete as companies migrate to newer technology. This is becoming more and more apparent as companies are limiting their tradition IT investments, particularly when it comes to hardware, as they shift to newer technology and services that reduce their operating costs. The IT sector is going through a major transformation as more and more businesses are moving towards cloud based solutions. Cloud based solutions enable IT firms to deliver software applications, data management services as well as other services from a central source. There are several different business models. Some cloud companies offer Software-as-a-Service (SaaS) where businesses access applications over the internet (Salesforce.com). Others (Google's App Engine, Red Hat's OpenShift) offer Platform-as-a-Service (Paas) where a business can create custom applications for use. There are also companies (Amazon's WebService, IBM's 1 2 Hoover Online, Information Technology Services Report Statista, Worldwide Spending on Enterprise software MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Softlayer, VMware's vCloud) who provide Infrastructure-as-a-Service (IaaS). These providers supply a technology platform that can be rented out by other companies. As the cloud's server and other related equipment are housed offsite, it costs a fraction of the cost of onsite IT services. There are three deployment methods: private, public and hybrid. A private cloud environment exists when a client or its vendor manages a cloud infrastructure and makes use of a shared but exclusive (available to the client only) technical resources. On the other hand, a public cloud is accessible to the general public where the public pays a fee to utilize its services. A hybrid is a combination of both. Using a cloud platform helps with scalability, mobility, security all at a lower cost. The impact this has had on the sector is that all players will need to be cognizant in cloud based technology if they expect to be successful in the long run. John Hagel, chairman of Deloitte Center for the Edge, stated in the Wall Street Journal that\" Cloud computing has the potential to generate a series of disruptions that will ripple out from the tech industry and ultimately transform many industries.\"3 One interesting implication of this technology is that emerging countries that do not have the same level of IT infrastructure, will be able to embrace cloud based technologies without having to take into account the legacy systems already in place. Software While the software segment consists of several strategic groups, our focus is on the Enterprise Software. Enterprise software helps management make more informed decisions. As organization's become more reliant on information technology to help make decisions, the potential improvement from using analytical software increases. Technological developments are a major source of growth in demand for this segment. Data mining and predictive analytics are key driver of research and development in this industry. Data mining is the process of identifying patterns from data sets through the use of statistics, artificial intelligence and database software. Predictive analytical software can make inferences and forecasts based on the information gathered from data mining. This is emerging segment reflects the sheer amount of data available in the Internet of Things (IoT). Software as a Service is another growing segment. The shift towards software solutions delivered online as a pay as you go delivery model versus the traditional licensing model is changing the way software is deliver and utilized. Software companies are moving towards cloud computing as the primary delivery vehicle for their solutions. This allows customers access to extremely powerful platforms without the customers having to purchase, maintain and upgrade the hardware themselves. If this trend continues, the industry players will be able to develop more sophisticated solutions that are not limited by the previous limitation of each customer's 3 Wall Street Journal, 16 ways the Cloud will change our Lives, 2011 MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY hardware installations. One outcome of this shift is that to meet the need of their corporate customers, software publishers will need to offer services instead of products. Competition within this segment is driven by the constant emergence of new technology. This triggers a reciprocal emergence of new entrants who utilizing new and often alternative business models forcing the incumbents to be competitive not just on their value proposition but also with their pricing strategies. The most successful software vendor firms offer a constellation of related products and services. (see Exhibit 3) To be successful in this market requires skilled programmers, consulting staff and powerful hardware in order to develop, deliver and maintain software that meets the ever increasing complexity of their many customer needs. Key consumers for this industry are government institutions and a wide variety of businesses in multiple industries such as banking, retail, logistics, telecom and healthcare. Industry players tends specialize in different verticals (industry) limiting the amount of choice the buyer has. In addition, software plays an integral part of many businesses thus reducing consumer power. Traditionally, switching costs have played a major role in how the industry operates. However, as the industry shifts towards interoperability, driven by the increasing number of partnerships as well as access to open source products, customers are having an easier time switching between industry players. Software development is labor and time intensive. Being able to hire and retain talented employees is critical to the success of firms within this segment. Technological advances have lowered the cost of entry especially in the distribution arena. This has allowed for software and services to be developed, delivered and disseminated much more rapidly and with a broader reach. IT Services IT services industry is highly competitive. It is composed of firms providing consulting, systems integration, customer software program and outsourcing. In 2015, global spending on IT services reached $910 billion. Most firms in this segment offer customized services solutions, the assembly, installation and utilization of technology based on customers' specific needs. To compete effectively in this segment, companies search for ways to differentiate their offerings, streamline their operations and manage risk. The four primary activities are: (a) providing information technology expertise, (b) writing, testing and supporting customized software, (c) planning, designing, and integration of computer or network systems, and (d) on-site management and operation of IT functions. The scope of IT Services is broadening with the advent of social networks, mobile, analytic and cloud technologies. Two key trends are changing the nature of competition in this segment. Over the past decade, both computer and MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY communication software products have become more and more commoditize leading to much lower margins. As a result, manufacturers of these products are moving towards a more service oriented strategy in direct competition with the traditional IT companies. Furthermore, as the result of advancements in technology, this segment going through the evolution of services that traditionally were geared to improving productivity and efficiency towards implementing solutions that are geared towards value-added services such as analytics or big data consulting. The four major opportunities for this segment are cloud computing, security systems, IoT and wireless network systems. Businesses across all industries use external IT services to help them operate more effectively. Large companies' main advantages are broad offerings, global reach and the ability to provide outsourcing services to large multinational firms. Small and medium size companies tend to compete primarily in specialized niches or in conjunction with larger firms. While the IT services market is in the midst of consolidation, large companies are acquiring smaller firms to gain expertise or market share, the increase in offshoring is driving market fragment and is increasing the extent of rivalry in this sector. As a result, the level of concentration of IT services revenue is becoming less pronounced. For example, in 2009, IBM accounted for 69% of the total revenue. As of 2015, it accounts for only 30% (see exhibit 4). This consolidation is causing IT service providers to become more undifferentiated. This lack of differentiation has increased the amount of price competition. The increasing price competition has led to a movement towards cost reduction. Many large players are relocating a substantial part of their employees to low-cost locations. Technology Hardware and Equipment4 The volatility in the Technology Hardware, storage and peripherals segment is driven by several major trends including the decline in the PC market, uneven software spending, and the ongoing technology transition with the emergence of the cloud. (see Exhibit 5) Technology used to buildout cloud infrastructure is experiencing a period of double digit growth while other areas of hardware are suffering from slow to non-existent growth. IDC's CloudTrack Survey indicated a clear shift from Traditional IT to the Public and Private Cloud over the next 5 years. 5 The PC market has been in a steady decline since 2011. With the majority of revenue coming 4 While this segment encompasses communications equipment, technology hardware, storage and peripherals, electronic equipment & instruments, electronic components, electronic manufacturing services and technology distributors, this case focus on the overlap with IBM businesses. 5 For more information on Emergence of the Cloud see: https://www950.ibm.com/events/wwe/cif/ibmcif12.nsf/lookupelementspdf/overview/$file/CIF_Cloud%20Strategies%20for%2 0the%20CIO_Preparing%20for%202013%20and%202020_Frank%20Gens.pdf MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY from replacement PCs, this market is predicted to decline by 1 to 3% in the coming years.6 This has caused a ripple effect in all the supporting industries such as storage, memory and processors. The Server market is experiencing mixed results as companies migrate from a legacy server environment to a managed blade or hybrid environment. Low end servers have become a commodity product and are declining in popularity. High end servers such as blade servers are in greater demand as organizations look for a modular, cost effective way to manage their IT needs. Company Background International Business Machines Corp (IBM) is an information technology (IT) company which offers integrated solutions that focus on leveraging IT to enhance the efficiency and effectiveness of business processes. IBM is comprised of five segments. The Global Technology Services segment provides IT infrastructure and business processing services. Strategic Outsourcing Services, Global Processing Services, Integrated Technology Services, Cloud Service and Technology Support services are all housed with this segment. The Global Business Services segment provides Consulting and Application Management. Consulting Services consist of Strategy and Transformation, Application Innovation Services, Enterprise Applications and Smarter Analytics. The Application Management Services delivers application management, maintenance and support for pre-packaged and customized software programs as well as legacy application. The Software segment focuses primarily on middleware and operating systems software. Middleware enables clients to integrate systems, processes and applications across a standard platform. A key capability is their Information Management Software featuring Watson. Watson is the first commercially available cognitive computing platform capable of processing vast amount of data as well as interacting and learning from both people and computers. The Systems and Technology unit delivers business solutions that require advanced computing power and storage capability. The three key areas in this segment are Systems, Storage and Microelectronics. Microelectronics houses IBM's semiconductor businesses. The Global Financing unit acts as a financial lender that facilitates their client's acquisition of IBM products and services. Global Services consists of two segments, Global Technology Services and Global Business Services, account for the lion share of the revenue. IBM's software contributes about 25% of sales with Systems and Technology and Global Financing the remainder. Of these revenues, roughly two-thirds are from IBM clients in 172 countries outside of North America. IBM's mission is to help enterprise clients become more innovative, efficient and competitive through business insight and IT solutions while delivering long term value to its shareholders. 6 www.netadvantage.standardandpoors.com MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY To achieve these goals, IBM focuses on creating a foundation of global capabilities consisting of services, software, systems and fundamental research. A key element is IBM's Watson, their cognitive computing system. Watson is the lynchpin for the data analytics strategy. IBM is also focused on emerging markets as a source of growth. Emerging markets are embracing mobile, cloud, social and big data trends at a higher rate than most mature countries. Brief Overview of IBM's Key Transformations The Watson Era (Thomas J. Watson, Sr., 1914-1956 and Thomas J. Watson, Jr., 1956-1971) When Thomas Watson became the CEO in 1914, he set IBM on a path to become one of the key players in the evolution of the IT industry. Watson was responsible for developing the management brand and a unique culture that still exists over a hundred years later. Watson management philosophy, THINK, is the foundation of IBM's strategy. His philosophy was based on an epiphany he had while working at National Cash Register Co... Frustrated by the lack of ideas about how to improve the business, Watson stated \"The trouble with every one of us is that we don't think enough. Knowledge is the result of thought, and thought is the keynote of success in this business or any other business.\" 7 Watson's strategic vision of IBM was one of limitless potential building machines that could help people think and work more precisely. A company that employed smart people who could design, build and sell such machines would never go out of fashion. Moreover, a manager who encouraged everyone, from the lead scientist to the salesperson to the secretary, to think about this limitless potential, would create a culture of collaboration and belonging. Overtime this philosophy has been embedded into the culture and is clearly immortalized whenever someone states the term, \"IBMer\". Under Watson Jr.'s leadership, IBM grew from a medium size firm to one of the largest industrial firms in the world. Watson Jr. built on his father's premise by ushering IBM into the computer age. In the 1960s, IBM launched its first series of mainframe computers, the System/360. The mainframe was IBM's solution for their customers increasing need for internal data and information processing. In speaking about this milestone event, Watson noted that IBM \"allocates important resources for the trends of high potential\" 8 a strategy that still exists today. During Watson Jr.'s tenure, IBM perfected the ability to be the main source of all information technology. Using a vertically integrated strategy enabled IBM to imagine, design and implement solutions to become the preferred supplier of mainframe computers and its peripherals. 77 8 IBM.com/ibm/history/ibm/100/us/en/icon/think_culture IBId MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Gerstner Era (1993 -2002) By the end of the 1980s, IBM was struggling to adapt to the new competitive landscape. As a vertically integrated company, it was being challenged on multiple fronts. The rise of networking technology and introduction of the PC heralded the decline in mainframe demand. Earlier decisions, such as late entry in the PC market and IBM's decision to outsource both the operating system and the microprocessors had hindered IBM's ability to dominate the PC market. Its vertically integrated structure was limiting its ability to respond to these technology advances. In 1993, IBM suffered its biggest lost in company history prompting a change in top management. Unlike his predecessors, Gerstner was not an IBMer. His background was in consumer product, financial services and consulting not, however, in information technology. Being an outsider helped Gerstner bring fresh eyes to the challenges facing IBM. Gerstner embarked on a turnaround strategy geared towards making IBM more market facing. This strategy included winnowing down the workforce by over 30% and a change in the strategic direction of the firm. As Gerstner was taking stock of the marketplace and of IBM's resources and capabilities, he endorsed experiments to investigate ways to more effectively utilize their resources. Two significant lines of business arose from these experiments, licensing its intellectual property and the creation of it service business. Gerstner realized that IBM had a key underutilized capability, their IT expertise. Gerstner believed expanding on this core capability would enable IBM to achieve its goal of being the leading supplier of technology and services for the Internet economy. Gerstner's strategic vision for IBM was to be the main source for companies making the transition to ecommerce. His plan had three stages, survival, putting the e-business strategy in place, and execution. 9 In 2000, two senior VP were promoted to help deliver on this vision. John Thompson's, promoted to vice-chairman, task was to focus on the future by directing IBM's technology development strategy. Samuel Palmisano, promoted to President and Chief Operating Officer, was put in charge of day to day operations. Palmisano Era (2002-2011) Samuel Palmisano joined IBM in 1973 as a sales representative. Prior to becoming the CEO in 2002, he headed several business units, Enterprise Systems, Personal Systems, and Global Services. He also was responsible for building the largest IT services organization in the industry. As CEO, Palmisano' s mandate for IBM was to reorient its portfolio of businesses towards unique, value added offerings that could deliver bigger margins. His strategic vision focused on increasing the amount of services IBM offered. One of his first major moves was the purchase of PricewaterhouseCoopers Consulting (PWC). He merged PWC with IBM's existing Global Business Service unit thereby expanding the range of consulting capabilities IBM could offer. He believed software was the key foundation to growth in this area. Palmisano 9 The New York Times, 25 July 2000, Broad Reorganization at IBM Hints at Successor to Gerstner MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY began an acquisition spree geared towards improving IBM's capabilities by acquiring over 25 data mining and analytics companies. One of his key strategic initiatives was IBMs' Smarter Planet. The genesis of this idea was to apply computer intelligence to create more efficient systems. At the same time, Palmisano started to shed some of IBM lower margin businesses. A key milestone was when IBM sold its PC business to Lenovo in 2005. Under Palmisano' s reign, IBM focused on higher profit margin businesses, embarked on an aggressive overseas expansion, and reorganized to take advantage of low-cost engineering talent. Rometty Era (2011-Present) Virginia Rometty joined IBM in 1981 as a systems engineer. Prior to Ms. Rometty succeeding Mr. Palmisano as CEO, she held a variety of leadership positions. She was the Senior Vice President and Group Executive for IBM Sales, Marketing and Strategy. Her responsibilities included the business results of IBM's 170 global markets. Other roles included Senior Vice President of IBM Global Business Services. During her tenure in this position, she oversaw the integration of PricewaterhouseCooper's Consulting. At the time, this was the largest acquisition in the professional service industry. The result was the creation of a global organization that housed over 100,000 consultants and service experts. In addition to these roles, she was also the general manager of IBM's Global Services, America and IBM's Global Insurance and Financial Services Sector. Since Rometty took over in 2012, IBM has continue to trim its least profitable businesses (commodity hardware) through divesture of multiple business units, the latest being the lowend server unit. While this has allowed IBM to shift resources and focus to new, more profitable areas, it also caused them to shed $6 billion in revenue. In addition to these divestures, IBM has laid off thousands of workers and hired thousands of others with new skill sets.10 In 2014, Rometty outlined IBM's vision for the future. This vision is anchored on the premise that the future is not about being \"digital\" it is about the harnessing the power of technology to create truly cognitive enterprises. To do so, IBM must focus on the three main forces behind digital: big data and analytics, cloud computing, and engagement.11 With Rometty at its helm, IBM is doubling down on cognitive systems, cloud technology and interdependent solutions that bring together the right people, the right technology and the right systems to harness the massive amount of data is now available in the digital age. 10 11 Business Insider 2016 IBM's 2015 10k MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Say Hello to Watson The cornerstone of this strategy is Watson, IBM's artificial intelligent computer system. As you may recall in 2011 Watson beat two Jeopardy legends, Ken Jennings and Brad Rutter, during a weeklong tournament. The Jeopardy outing highlighted the start of a new computing age, one where computers can engage with humans, make decisions and discover new interactions. Deborah Dahl, of Conversational Technologies and chair of the WWW Consortium's Multimodal Interaction Working Group states \"IBM Watson is a revolutionary natural language understanding engine with sophisticated abilities for processing language and learning from existing texts.\"12 This type of cognitive system can inject a kind of thinking ability into every digitalized object, process and/or service. Since 2011, IBM has announced more than a dozen partnerships in multiple industries working on developing new big data analytics solutions using Watson's technology. For example, in the medical industry, IBM is working with Memorial Sloan-Kettering Cancer Center in NY, The University of Texas' MD Anderson Cancer Center, Cedars-Sinai Medical Center in Los Angeles as well as several other prominent hospitals. These collaborations are geared to help doctors design the best course of treatment based on integrating data from both the latest clinical research as well as patient data. CVS is working with IBM to develop a system that will help predict health declines prior to the event actually happening. The pharmacy will use IBM's cognitive computing to predict chronic disease patients' behavior patterns and apply the findings in a proactive manner. In 2013, Rometty stated publicly that new builds, Watson 2.0 and Watson 3.0 were in the pipeline. Version 2.0 would be able to scan and interpret pictures while version 3.0 would be able to debate and reason. With the launch of Watson, IBM has started to build an ecosystem around its core cognitive computing platform. In 2014, IBM dedicated $1 billion dollars to create the IBM Watson Group. This new unit is focused on developing and commercializing cognitive computing systems via the cloud. $100 Million of this has been set aside to fund new ventures that create and support businesses, solutions and applications with IBM's cognitive ability at the heart of this developing ecosystem. IBM is working with multiple machine learning resource groups such as the Montreal Institute for Learning Algorithms to remain on the cutting edge of this new, potentially disruptive technology. To support its adoption and further its commercialization, IBM has used its Bluemix cloud computing platform to make the core machine learning technology available to third party developers. In addition to these research collaborations, IBM launched the Watson Developers' Cloud. The Developer's cloud consists of a developer toolkit, educational materials and access to Watson's 12 IBM's Watson bring Cognitive Computing to Customer Engagement, Speech Technology Spring 2014 MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY application programming interfaces. Entrepreneurs and established companies are exploring new and exciting ways to leverage Watson's capabilities. For example, the internet start-up Fluid is utilizing Watson's capabilities to power their Expert Personal Shopper (XPS) app. The goal of this app is to provide users with a highly personalized shopping experience as they make purchasing decisions by leveraging data from a variety of sources such as product reviews, user reviews, blogs and the like. IBM also announced the Watson Engagement Advisor. This solution is organized around the Ask Watson tool. This tool allows customers to ask Watson questions via a multitude of platforms - voice, email, instant messages, chat function or via an app. As Watson can listen, analyze, respond and make decision, this tool can take the place of a human operator. More importantly, Watson compiles the queries, its replies and it decisions, thus allowing Watson to learn from its interactions and its decision making not just by analyzing the data. Watson is also the centerpiece of IBM's new unit, The Watson Internet of Things. This new unit, backed by a $3 billion dollar commitment, was created to help client integrate IoT data with data from other sources. A cognitive IOT has advantages over traditional systems because it is not a pre-defined program. A cognitive system can make sense of all types of data; it can choose its own data source and pick which patterns/relationships it focuses on. Using machine language, it can generate insights by making sense of thousands of interactions not normally analyzed. Furthermore, the application is continuously improving as it evolves and adapts through self correction and adaptation. The portfolio of services offered include connecting and managing devices across multiple platforms, building IoT apps, solving specific business problems. As IBM puts it, their \"Build, Solve, and Transform\" solutions will transform how companies access and utilize data which will impact how they run their companies and create value for their customers. Introducing the Cloud In 2013, IBM spent $2 billion to acquire SoftLayer. Since then, IBM has spent an addition $1 billion to expand it cloud footprint. Despite these investments, IBM is still lagging behind AWS and Azure in terms of revenue growth. During the first quarter of 2016, Azure's revenue grew 120% while AWS revenues grew at 64%. IBM's cloud revenue grew at 36%. Despite these numbers, UBS Global Research stated that IBM's positioning as a hybrid cloud computing solution provider makes it's a top contender for being an emerging leader in this space.13 In additions to these acquisitions, IBM is continuing its trend of forming symbiotic relationships with key players in adjoining and overlapping markets. Their partnership with Box is a key 13 NetworkWorld,16 May 2016, Deutsche Bank says IBM has \"no chance\" of catching AWS; UBS calls IBM one of the Big 4 in the cloud. MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY example of this strategy. In December, IBM deepened their relationship with Box. This relationship has garnered a wide set of cloud applications that can work in sync with each other. This relationship is an example of the burgeoning interoperability between multiple software and service solution providers. IBM has made key investments in the areas of social, mobility, analytics and cloud technologies. Much of IBM Research and Development has been geared towards the intersection of data, analytics and cloud. To shore up their footprint in these areas, IBM has been actively acquiring companies. In 2015 alone, they acquired over 15 companies in these strategic areas (see Exhibit 6). These actions are helping IBM cement their position as a premier player in the IT sector. (see Exhibit 7). The Future of IBM Looking at the impact these initiatives have had on IBM's performance in 2015 paints a clear picture of the challenges they still face as their transformation continues. (see Exhibit 8). IBM's hardware business is still faltering. Having been the perennial market leader, IBM is steadily losing ground to it peers. Competition in Cloud Computing is intensifying as Amazon, Google and Microsoft have quickly established themselves as leaders. Even their Software business has fallen under attack. While it is clear that IBM's strategic initiatives are a step in the right direction, it is not so clear whether this step is large enough or fast enough to combat the decline in its core businesses. It is now 2016, IBM has just reported its 15 straight quarter of revenue decline. Having just finished the annual investor meeting, Virginia Rometty wondered how much longer her Board of Director would continue to support her as CEO of IBM. Looking at the positives, her focus on key strategic initiatives has begun to bear some fruit. Cloud computing revenue was up 65%. Mobility revenue had quadrupled. Analytics revenue is growing at 20%. All in all, the results indicate that the strategic initiatives are moving in the right direction, margins are up and revenues from the strategic initiatives are growing. However, overall revenues were still shrinking. Had Rometty done enough to garner more time to complete IBM's transformation? MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Exhibit 1 Exhibit 2 MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Exhibit 3- 14 Exhibit 4 14 http://www.statista.com/statistics/267971/global-revenue-of-aim-software-vendor/ MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Exhibit 5 15 15 http://www.statista.com/statistics/443183/vendor-revenue-of-global-cloud-it-infrastructure/ MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Exhibit 6 2105 Acquisitions (Selected) ClearLeap Inc. Merge Healthcare Inc. Strong Loop, Inc. Compose Inc. Phytel Alchemy API Gravitant Cleversafe, Inc. Metoerix LLC Blue Box Group, Inc Explorys Blekko The Weather Company digital Assets Exhibit 7 Source: IBM Investor Relations Business Area Cloud Based Video Management Healthcare Imaging Software Mobile API capabilities Database as a Service Health Management Software Natural Language Processing, Big Data Cloud Brokerage Software Object-based Storage Software Consulting Services for Workday Application Private Cloud as a Service Healthcare Analytics Web Search Engine, Cognitive Computing Weather data sources and analytics MAN 3025 CASE: USE FOR CLASS PURPOSES ONLY Exhibit 8 Source: IBM Investor Relations