Generating Higher Value at IBM (A)

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Case

Reference no. 9-215-058

Subject category: Finance, Accounting and Control

Authors: Benjamin C Esty (Harvard Business School); E Scott Mayfield (Harvard Business School)

Published by: Harvard Business Publishing

Originally published in: 2015

Version: 25 September 2017

Revision date: 17-Nov-2017

Length: 23 pages

Data source: Published sources

Topics: Change management; Dividends; Earnings; Finance; Financial analysis; Financial ratios; Financial statements; Financial strategy; Leadership; Transformations

Share a link: https://casecent.re/p/129091

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Abstract

This case analyzes IBM's financial performance and its capital allocation decisions over a 10-year period from 2004-2013, during which IBM returned more than USD140B to shareholders through a combination of dividends and share repurchases. During this time, CEO Sam Palmisano's created, announced, and then regularly updated a long-term financial 'roadmap' as part of the firm's strategic transformation. The roadmap showed both a destination (a target EPS number) and a detailed path to that destination in terms of revenue growth, margin expansion, and share repurchases. After successfully achieving its first roadmap, the firm announced a second 5-year roadmap known as the '2015 EPS roadmap'. The case is set in May 2014, just after IBM's annual investor briefing. Despite more than 10 years of strong financial performance, IBM reported relatively weak financial results in the first quarter of 2014. Sophia Johnson, an equity analyst, must decide whether to revise her investment recommendation based on what she heard that day.