Balancing the Future and the Quarter

Sometimes you just seem to have the wrong people.  Not bad, not incompetent, but just not right for the times or their role.  In the last couple of weeks, we’ve had IBM release another lackluster quarter, and GE rumored to be selling its GE Digital division, once seen as the point of light in the company’s transformation.  I’ve tracked IBM for ages, and followed GE Digital’s once-promising foray into IoT, and the common thread is bad execution.  It’s not a problem limited to these companies, and it may not be their “fault” in a sense.  On one hand, we live in tumultuous times, difficult times.  On the other, leadership is charged with working well within the current environment.

I’ve surveyed companies for three decades, and through most of that period IBM has been a standout at something I’ve called strategic influence.  Selling technology isn’t like selling apples, it’s something that users have to plan just to get to a point where they have a rational thing to do with the technology, and only then can they undertake to buy it.  Vendors who have the credibility and influence to guide the planning can make sure the user gets to a buying decision, and then of course steer management thinking toward something the vendor can sell.  Some call it “account control”, and IBM had it…for a while.

Starting in early 2011, my surveys showed that IBM’s strategic influence, which had risen almost steadily for 20 years, suddenly started to decline.  Since then, while its decline has stabilized for a year or so here and there, it’s never again gained influence.  That’s almost unique in my survey, and I think it says a lot about IBM’s challenges, but not everything.

IBM of old had control over accounts representing 85% or more of IT purchasing at its peak, and its influence with these accounts are what kept IBM on track.  From about 2000 onward, there was a slow decline not in IBM’s influence but in how many they were influencing.  It wasn’t that companies were rejecting IBM’s advice, but that they were leaving IBM because they’d picked a different computing strategy.  In most cases, it was the growth in Linux and servers versus mainframes that caused the shift.  In any event, IBM was able to influence, by 2005, less than two-thirds of IT purchasing, and by 2010 it was down to less than half.

According to my surveys, this problem was created because IBM did not promote its own server-farm solutions to computing as much as try to defend against it.  They saw this new paradigm as a threat and so tried to lead customers back to the True Way.  When that failed, they lost the customer.  The problem of loss to another paradigm was compounded by the fact that nobody was likely to be a “new mainframe prospect”, and IBM could hardly market the alternative approach while trying to sell the old way into accounts.  Thus, IBM’s marketing became disconnected, then itself went into decline.

What happened in 2011 was just an extension of this.  IBM’s customers took IBM’s advice for their classic applications and went somewhere else for the rest of the stuff, and that residual part grew over time, until there was so much that wasn’t under IBM’s influence that their net influence fell.  The market changed underneath IBM, proving that while you can build seawalls to stave off high tides, eventually plate tectonics will do you in.

IBM markets today primarily to who it sells to.  It’s not an evangelistic, inspirational, firm any longer, and that means it can’t easily make up its losses.  If that doesn’t change, IBM will never regain its old glory and may have a difficult time not becoming the victim of consolidation.  All because inside IBM, they’d gotten stuck by the culture of old, the people of old.

What about GE?  Once this was one of the most admired American companies, and when GE Digital was formed many believed they’d revolutionize software.  This seemed to be coming along when, in November of 2015, I looked at the GE Digital IoT framework, Predix.  It seemed to be the absolute best approach to IoT that I’d seen, the first realistic architecture.  A lot of GE Digital people who read the blog post I referenced really liked it, and one said they should post it on their homepage.  They didn’t, and in fact didn’t do much at all with Predix.

Why?  Because when GE Digital said “IoT” they really meant industrial IoT.  They came up with a grand architecture that they applied to a mission so specialized that probably 99% of businesses could have done nothing with it.  Who could?  GE’s current industrial customers, at most, so we’re seeing again a targeting so narrow that no loss could hope to be replaced, and everyone loses a few.  Not to mention that the barrier to adopting IoT was perhaps the very highest in the target areas GE identified.  That spells a very complex value proposition, meaning a long sales cycle.  Salespeople generally make about six or eight calls on a technology to see if they get any traction, then start calling on new prospects for employment.

Some of the key GE Digital people on Predix were, frankly, insufferable snits.  They understood process automation, and if everyone didn’t need it, that was their loss.  Some also admitted that they had taken Predix into traditional GE markets to “avoid making people nervous”.  Is that worse than making them unemployed?  Most of all, few in the organization had any broad vision of IoT, and the view of management was narrower still.

This isn’t a universal problem in tech, in my experience, but it’s probably a factor in many firms.  Wall Street’s “one quarter, right or wrong” approach to business planning doesn’t encourage risk-taking, and risk avoidance is easy to turn into product planning and positioning inertia.  Cisco’s approach, always called “fast follower” to indicate a wait-and-see attitude about new tech ideas, is actually smart as a business planning approach, but it’s easy to morph that to mean “reluctant follower”.  If you are prepared to follow fast, you’re prepared to go in the right direction at the drop of a hat.  If you’re reluctant, you probably don’t do much of anything till the market signals are clear, by which time it may be too late.

OK, how do you solve the problem?  There are, today, two very distinct constituencies in any company.  One is the financial mavens, the CFOs and their direct reports and the other is the R&D or product management people.  I think that too many companies try to harmonize these two groups by creating a single collective behavior.  The best approach would be to let each group do their thing instead.

Somebody in any organization has to plan for disruption.  What are the most disruptive factors that the market could experience over the next five years?  How will my company, my products or services, respond?  All tech companies should have a five-year plan for technology evolution, and they should also have taken the necessary developmental steps to ensure they can execute on one of their trend-plans in a year’s time.

Somebody also has to plan for the next quarter.  Just because R&D and product management has the next big thing in mind doesn’t mean you immediately overhang the market with it.  You need to be positioning for transformation not necessarily driving it, but just how aggressive you are depends on how much you have at stake with the status quo.  Transformation equals revolution, which equals a churning of the industry power structure.  Those on the bottom might expect a shot at a better position, while the one at the top has nowhere to go but down.

This latter factor is the only thing that seems to be operating in tech today.  We see the incumbents papering over old technology that’s long past prime, and we see the innovators talking up things that couldn’t possibly be accepted in the near term.  Instead of separating companies into progressive and regressive, we need to separate teams within the companies, and let each company push the limits of the current market.  IBM used to do that well, and so did others like Cisco.  I’d like to see them get their mojo back.