Wednesday, November 12, 2014

(The Big Disrupt) IBM: What's The Matter With Big Blue?

While the title of this article poses a somewhat leading question suggesting there something wrong with IBM, It's quite obvious that something is clearly not right.

The heart of IBM's problems is not it's dismal performance or even bad management (though it has been woeful as far as strategy is concerned) but the mindset among its leadership which is heavily fixated on chasing returns for its shareholders as opposed to providing top quality services for its customers. This ill advised drive towards boosting bottom line growth was initiated by former CEO Sam Palmisano "roadmap 2015" initiative (then continued until recently by current CEO Ginny Rommety) to boost the company's earning per share which has instead seen the company lose top line growth, make significant cuts to its increasingly frustrated workforce, lose their shareholders money (Warren Buffet among them with his 7% share in the company) and fall desperately behind faster and more agile competitors in markets they should of had a strong foothold in.

This corrosive focus on bottom-line growth has seriously affected the business standing in the tech industry and has led to prominent figures in the tech space to question whether the company has lost the plot. On the surface of things, the answer to that question is a resounding yes as IBM has, on the face of it, forgotten that it's a tech company for the best part of a decade. 

The intense focus on buybacks and on boosting their profit margins at the expense of real investment in the company has left the company seriously behind the curve in markets they could have dominated. Of late,  It seems that penny has finally dropped in the heads of big blue's leadership that a lack of investment in an industry that that's rapidly changing is dangerous as the big bets on big data and the cloud has shown that IBM is realizing that providing quality services for the ever changing needs of it's customers is only way forward.

IBM has made a significant investment in its big data business with $24bn invested so far and 17bn spent on acquisition of big data companies.It has also made a serious commitment in innovating in big data with one third of it current research focused on big data. It's big investment already looking like a sound one as it's data analytics business brings in 16bn in revenue.

The company has also been investing in their cloud services with 7bn invested so far and has already achieved a dominant position with 80% of the fortune 500 making use of the company's cloud services. Its' investment in its cloud service has brought in 4.4bn in revenues and recorded a staggering growth in revenues of 69%. 

However, despite it large investments in big data and the cloud, what could be its most lucrative investment is in the mobile space. Evidence of this can be gleaned from its growth in this space as IBM has already recorded 69% growth in mobile and 45% in social business. However for all this positive growth in areas the company identifies as future sources of growth, all of  these areas are highly competitive and despite the company's considerable investment in skill and talent in these areas, the dynamics in these markets will force the company to move at a clip it's not used to and is likely to make the company's high hopes for all these areas difficult to realize.

But the biggest problem at IBM is currently how the organization is run because of its frankly foolish decision to focus on boosting shareholder value in an industry that has historically punished short term thinking. The strategy of focusing on the bottom line has led to the company not only making cuts to its workforce but alienating the staff it has with middle and lower level employees at the mercy of executives, clearly out of ideas, looking to squeeze every buck it can out of the company rather than address the company's dated business model and avoid the financial Armageddon to come if it doesn't.

In sum, IBM does have major problems but for the most part these are relatively simple to remedy but as things stand, IBM are going to look real shaky if it continues its current course which not only reveals the incredibly bad strategy and overall lack of management savvy among its top executives but the company leadership clearly running out of ideas at a juncture where this damning predicament can be fatal. IBM can be the great company it once was and if the company can scrap its current corporate strategy cooked up in its C-suite in favor of a more customer focused philosophy, IBM will once again be the company setting trends in tech rather than following them

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