We are confronted now the need to talk about IBM, not for the first time. The company beat estimates on EPS slightly, with a set of one-time moves that the Street didn’t like much. They missed yet again on revenue, and their shares took a hit (again) as a result. Here is a company who has weathered more technology storms than any other, has pulled victories out of every defeat. Why is it unable to do that this time? What should be done now? I don’t want to reprise past blogs on how they got into their current mess, but focus instead on getting out.
The best place from which to launch a recovery is usually a place where you have your greatest strengths. In IBM’s case, that greatest strength is strategic influence. Back in 2013, IBM was a runaway winner in strategic influence on enterprise buyers, scoring between double and triple its rival computer vendors. Since then, IBM’s influence has fallen by half, but so has the influence of its competitors and so IBM still leads the IT pack in terms of its influence on enterprise buyers. The question is how to play that card effectively.
I hinted at what’s probably the best answer to this a couple of blogs back. IBM has the direct account influence needed to launch that elusive next productivity wave that could create an IT investment explosion the like of which we haven’t seen for decades. The problem, I think, is that IBM doesn’t seem to have any better idea of what might drive that wave than anyone else, or perhaps has no ability to communicate what it knows.
Watson, or AI-linked analytics, isn’t the answer—it’s too indirect. Knowledge may be power eventually, but worker empowerment gets you to the finish line immediately. Watson holds out to senior management the promise that somehow getting better information will make them successful. Empowerment of workers makes you successful, period. IBM actually took some steps in that direction with its deal with Apple, but if there was a new paradigm in the deal I didn’t see it, nor did the enterprise buyers I’ve talked with since.
If there is a company that has all the tools needed to create contextual point-of-activity empowerment of workers through exploiting mobile broadband, IBM is that company. Given that they also (still) have the influence, I think it’s clear that this should be IBM’s strategic priority. Watson is useful only in that context.
The next answer in how to play their assets comes from the financial community’s criticisms of IBM. According to the Street, IBM is in trouble because of mainframe exposure and cloud impact. The implication is that cloud computing is eating up IBM’s sales of mainframes. In point of fact, mainframes have been a sweet spot for IBM and mainframe accounts are the places where IBM retains the most strategic influence. Further, the cloud has had less than a 4% impact on IT spending overall. Most cloud revenue comes from web startups and web-front-ends to current applications, so it’s money that was never spent in house. The cloud, in fact, could be an incremental asset to any vendor at this point, because it could be the largest source of new server deployments. How does IBM get the benefit of that shift?
Acknowledging it might be helpful. IBM hasn’t articulated a differentiated vision of the cloud. If we were to totally fulfill cloud potential across all possible markets, we would raise net IT spending by almost 90%. Just getting on the right path to achieving full cloud transformation of business could, in the next five years, raise spending by over 30%. You need to have three things to get that money—position, an ecosystemic story, and a product set that realizes the goals. IBM has two of the three; what it lacks is the story. Well, gosh, IBM—how much inertia does a story represent? How long would it have taken the IBM of the past to sing a pretty song about the future?
That brings is to the final point in playing IBM’s cards effectively; marketing. If you’ve read my past blogs on IBM, you know that I’ve painted their current problem as arising largely from a lack of marketing. I know from many of my friends and contacts in IBM that there’s support for that view internally. OK, then, if you needed marketing in the past and didn’t have it, need it in the present and future and still don’t have it, what do you now need? Answer: marketing. I would bet that IBM has people who know exactly what to say to enterprise buyers about that next wave of productivity improvement. They are just not allowed to say it.
Marketing isn’t about telling a simplistic story to get the attention of a reporter or a click on a URL. It’s about telling a compelling story. Compelling enough to force reporters to pay attention, and to induce buyers to read about it even if it’s not packaged in 140 pithy characters or a 500-word article. Does anyone out there seriously believe that a company who found a strategy that could boost their productivity by thirty or forty percent would refuse to learn it because it was too wordy or complicated?
Selling is all about trajectory management, as my research has shown for thirty years or so. Media mention sells web site visits, web site visits sell sales calls, sales calls sell products—a trajectory. IBM could surely package a compelling story to start that flow off, but remember that they have account presence in the largest enterprises, who spend the most money. They can shortstop the trajectory early on, and build on that success to then generate new stories that engage those IBM isn’t directly influencing.
There are almost certainly people in IBM who see all of this, but somehow they don’t seem to get things moving in the right direction. Is IBM content to focus on cost-cutting, admitting it will never turn revenue around? Does IBM think that the opportunities and technologies will somehow come together on their own? Or does IBM think that the Street rewards the current quarter, not the long haul? It may be that some people think all of these things, and that the combined disorder is enough to stall meaningful progress.
Progress is clearly needed. IBM got beat up rather badly in the markets after their quarterly earnings were announced. Certainly you can’t justify taking a short-term view to please the Street when the result isn’t Street-pleasing. It’s also hard to keep hoping that somehow natural forces will fix all your problems, when that hasn’t happened up to now, for almost three years. That leaves accepting failure. The IBM I’ve known would never do that. Will they now? I don’t know.
But there’s another option, even worse. Is IBM simply the leading edge of a negative IT trend? Have we, as an industry, broken those cycles of productivity-driven IT investment forever, and we’re now doomed to commoditization? I think there’s a risk that will happen, and the most important lesson we may be learning from IBM’s problems is what happens to anyone in an industry that’s lost its mojo.