IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
Department
Type
Details
Advantages
Drawbacks
Technology and Innovation
Functional
– Functional departments dedicated to technology research, development, and innovation. Functional managers oversee these areas.
– Specialization in technology development and innovation. – Efficient research and development processes. – Technological leadership.
– Potential silos between functional departments. – Challenges in cross-functional collaboration and coordination.
Business Units
Divisional
– Divisional structure with separate units for various business segments, such as cloud computing, cognitive solutions, and more.
– Focused management and decision-making in each business unit. – Adaptation to specific market dynamics and customer needs.
– Potential variations in strategies and operations across business units. – Challenges in maintaining consistent global standards.
Sales and Marketing
Functional
– Functional departments responsible for sales and marketing activities. Functional managers oversee sales and marketing efforts.
– Specialization in sales and marketing strategies. – Effective promotion of IBM’s products and services.
– Limited integration between sales/marketing and other operational functions. – Challenges in aligning strategies with broader goals.
Customer Support
Functional
– Functional department responsible for customer support and service operations. Functional managers oversee customer service.
– Efficient handling of customer inquiries and concerns. – Specialized expertise in customer service.
– Limited integration between customer service and other operational functions. – Challenges in ensuring consistent customer experiences.
Finance and Administration
Functional
– Functional departments for financial management and administrative functions. Functional managers oversee financial operations.
– Effective financial planning and management. – Compliance with regulatory requirements.
– Limited integration between financial and other operational functions. – Challenges in aligning financial strategies with business goals.
IBM is an American multinational technology corporation that was founded in 1911 by Charles Ranlett Flint as the Computing-Tabulating-Recording Company (CTR).
IBM is a manufacturer and seller of various products, such as computer software, middleware, and hardware, nanotechnology, and hosting and consultancy services. IBM is also a serious innovator, filing more patents than any other company for a record 30 consecutive years between 1992 and 2022.
Over this time, some of IBM’s notable inventions include the ATM, hard disk drive, magnetic stripe card, SQL programming language, and dynamic random-access memory (DRAM).
IBM has an organizational structure characterized by product-based divisions. This allows the company to carry out its strategy of developing innovative and competitive products across multiple markets.
To that end, the company’s major operations consist of five divisions:
Global Technology Services (GTS) – mostly consisting of IT infrastructure and business process services.
Global Business Services (GBS) – this division focuses on delivering client value via consultancy in areas such as cloud, mobile, social business, enterprise applications, analytics, and smart eCommerce.
Software – middleware and operating systems software.
Systems and Technology (STG) – encompassing any business solution that requires advanced storage capabilities or computing power.
Global Financing – IBM also offers lease and loan financing to end-users and internal clients. This division also includes commercial financing to dealers and remarketers of IT products.
In some instances, GTS and GBS are collectively known as Global Services.
Function-based segments and geographic divisions
To a lesser extent, IBM’s structure is characterized by function-based segments and geographical divisions. These are explained below.
Function-based segments
To support the core global IT business and support each product-based division, there are three function-based segments:
Global Markets (this was previously known as Sales and Distribution).
Integrated Supply Chain, and
Research, Development and Intellectual Property.
Geographic divisions
Like most organizations, IBM’s geographic divisions help it manage a global business despite differences in various regional markets. This is important for IBM since the company has operations in more than 170 countries.
IBM has a total of three geographic divisions:
Americas.
Asia Pacific, and
Europe/Middle East/Africa.
Most company revenue is attributed to the Americas division, with the $28 billion generated in 2021 representing nearly 50% of IBM’s total revenue.
Comparison with Top Related Companies
Microsoft: Microsoft also utilizes a matrix organizational structure but with a stronger emphasis on both product and functional divisions. Microsoft is structured around three main engineering groups focused on Experiences and Devices, Cloud and AI, and more recently, Gaming. Like IBM, Microsoft balances between product innovation and functional efficiency but tends to have a more integrated approach across its different product lines compared to IBM’s distinct product divisions.
Oracle: Oracle’s structure is somewhat similar to IBM’s, with a focus on technology and cloud as well as hardware and services divisions. However, Oracle has streamlined its operations around cloud services more aggressively in recent years. Unlike IBM, which maintains a separate division for legacy hardware and systems, Oracle integrates its hardware solutions more directly with its cloud services, aiming for a synergistic approach to sales and product development.
SAP: SAP operates with a functional and product-based matrix structure, with a strong focus on software solutions for business operations and customer relationship management. SAP is less diversified than IBM in terms of product offerings but maintains a similar structure to support global operations and product development. SAP’s structure is more narrowly focused on software and services tailored to enterprise resource planning, which contrasts with IBM’s broader approach including hardware and financing services.
Similarities and Differences
Similarities: All these companies use a combination of functional and product-based divisions to manage their extensive product portfolios and global operations. This structure supports specialization in product development while maintaining operational efficiencies through centralized functional support.
Differences: IBM’s structure is unique in its clear separation of product divisions such as Global Technology Services and Global Business Services, which allows for focused management of each business unit but may lead to silos between divisions. In contrast, companies like Microsoft and Oracle exhibit more integration across product and service lines, potentially enhancing collaboration but also complicating the management of distinct business needs.
Implications
Innovation and Specialization: IBM’s product-based divisions allow for deep specialization and innovation within specific technology areas, which is crucial for maintaining competitiveness in areas like cloud computing and cognitive solutions. However, this separation can sometimes slow down cross-divisional innovation compared to more integrated structures like Microsoft’s.
Operational Efficiency: The functional segments in IBM’s structure, such as Integrated Supply Chain and Global Markets, help optimize global operations and adapt strategies to local markets efficiently. However, this can also create challenges in aligning diverse product strategies and operational practices across the company.
Market Responsiveness: IBM’s geographic divisions facilitate responsiveness to local market conditions and customer needs, similar to Oracle and SAP. This structure supports global reach but requires effective coordination to ensure consistency in global branding and customer experience.
Key takeaways
IBM has an organizational structure characterized by product-based divisions. This allows the company to carry out its strategy of developing innovative and competitive products in multiple markets.
IBM’s structure is also characterized by function-based segments that support product development and innovation for each product-based division. These include Global Markets, Integrated Supply Chain, and Research, Development, and Intellectual Property.
Like organizations with a similar global reach, IBM’s geographic divisions help it manage operations despite differences in various regional markets. The Americas division is by far the most lucrative for IBM in terms of revenue.
Key Highlights
Product-Based Divisions: IBM’s organizational structure revolves around product-based divisions, enabling the company to execute its strategy of creating innovative and competitive products across various markets. The major operational divisions include:
Global Technology Services (GTS): Focused on IT infrastructure and business process services.
Global Business Services (GBS): Providing consultancy services in areas like cloud, mobile, analytics, and more.
Software: Engaged in developing middleware and operating systems software.
Systems and Technology (STG): Handling advanced storage solutions and computing power requirements.
Global Financing: Offering financing solutions for clients and commercial financing for IT product dealers.
Function-Based Segments: IBM’s structure also incorporates function-based segments that support the core IT business and the individual product-based divisions. These segments include:
Global Markets: Formerly known as Sales and Distribution, responsible for sales operations.
Integrated Supply Chain: Deals with supply chain management.
Research, Development, and Intellectual Property: Focuses on innovation, product development, and intellectual property management.
Geographic Divisions: IBM employs geographic divisions to manage its global business presence effectively, considering regional market variations. The company operates in more than 170 countries and has three main geographic divisions:
Americas: Contributing a significant portion of IBM’s revenue, nearly 50% in recent years.
Asia Pacific: Managing operations in the Asia-Pacific region.
Europe/Middle East/Africa: Overseeing activities in Europe, the Middle East, and Africa.
Global Reach and Revenue Distribution: IBM’s wide global reach necessitates a structure that accommodates the complexities of various regional markets. The Americas division stands out as the most revenue-generating division, contributing substantially to the company’s overall revenue.
Innovation and Patents: IBM’s commitment to innovation is highlighted by its extensive patent filings and notable inventions over the years, including the ATM, hard disk drive, and more.
In 2018, revenue was $80 billion.
Revenue decreased to $77 billion in 2019.
In 2020, revenue dropped further to $73.62 billion.
The revenue saw a significant decline in 2021, reaching $57.35 billion.
In 2022, revenue experienced a slight increase, amounting to $60.53 billion.
2019: Net income increased from $8.73 billion in 2018 to $9 billion, resulting in a 3.09% increase year over year.
2020: Net income decreased to $5.59 billion, reflecting a -37.89% change compared to 2019.
2021: Net income slightly increased to $5.74 billion, indicating a 2.68% increase year over year compared to 2020.
2022: Net income decreased significantly to $1.64 billion, showing a -71.43% change compared to 2021.
IBM Revenue Breakdown
Software revenue increased from $23.42 billion in 2021 to $25 billion in 2022, resulting in a 6.73% growth year over year.
Consulting revenue grew from $17.84 billion in 2021 to $19.1 billion in 2022, reflecting a 7.08% growth year over year.
Infrastructure revenue rose from $14.2 billion in 2021 to $15.3 billion in 2022, indicating a 7.75% growth year over year.
Financing revenue declined from $0.774 billion in 2021 to $0.645 billion in 2022, showing a -16.67% decrease year over year.
Other revenue experienced a significant drop from $1.12 billion in 2021 to $0.453 billion in 2022, resulting in a -59.55% decrease year over year.
Software:
Generated $25 billion in revenue.
Contributed $19.94 billion in gross profit.
Consulting:
Produced $19.1 billion in revenue.
Accounted for $4.86 billion in gross profit.
Infrastructure:
Brought in $15.3 billion in revenue.
Generated $8 billion in gross profit.
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IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
