Reference no: EM133189419

IBM: Loss of Market Share and Revenue, but Valuation is Cheap. IBM's (NYSE:IBM) revenue has declined over the last decade in spite of strong industry tailwinds as it lost share to best-in-class competitors across its segments. The company's stock price has dropped, its valuation is cheap, and the 4.7% dividend yield is attractive for income-oriented investors. However, unless there are clear signs of a turnaround, the stock price could continue to deteriorate. Over the last decade, the tech industry has grown significantly and most big tech companies have benefited handsomely from the strong tailwinds of digitization. In stark contrast, IBM's revenues actually contracted by 25% over the same period. The revenue decline over the last decade can be partially attributed to the sale of a number of non-core units. Former Chairman and CEO Ginni Rometty called these units "empty calories producing revenue but not profits". One would have expected the company to deploy proceeds from these divestments to create shareholder value through re-investments, acquisitions, or share buybacks. However, per share revenues have remained flat over the last decade, and IBM's per share earnings have declined steadily since 2014. This is all the more disappointing as competitors have experienced significant growth over the same period.

IBM's stock price has similarly been on a slow decline and is down about 15% since 2015, far underperforming the S&P500 which was up 105% over the same period. This is all the more frustrating for shareholders who have seen other big tech companies appreciate significantly over the same time frame. The company pays a dividend, but that barely brings investors to breakeven after taxes.

Question :  Management theories were developed by management gurus from 1890s starting with scientific management theory. The theories aim at improving management practices so that organisations become more effective and efficient in competitive turbulent environment. Organisations hire managers to steer the businesses and achieve the intended objectives in short and long term.

(a) Using IBM case , discuss why managers have failed to apply the management theories (fromScientific management to Organisational environment theories) effectively to address management issues that affects the company?

(b) Advise how IBM management can be effective in applying scientific management theories up to organisational environment theory to remain competitive.