What happened to IBM? Things were looking good for the computing giant as recently as last quarter, with the acquisition of Red Hat. Now…well, not so good at all. The most interesting thing is that it may well be that IBM has failed at the test it should have aced, and that is far worse than “not so good”, it’s downright bad. Why that is, and why it’s important, has to be related to my thesis about the impact of COVID on IT.
The quarter that ended in July was a great one for IBM, and I blogged about that HERE. The keynote quote from IBM’s earnings call that quarter was cited in my blog: “One of IBM’s Krishna’s early comments is a good way to start. He indicated that ‘we are seeing an increased opportunity for large transformational projects. These are projects where IBM has a unique value proposition….’” Large transformational projects are IBM’s, said its CEO.
COVID launched such projects, but not in the simplistic way that’s usually assumed. Enterprises I’ve talked with offered an interesting and unexpected insight when they said that COVID’s specific impact on them was largely over by July 2020. That didn’t mean that its effects were over, though. What enterprise planners were saying was that COVID taught them a systemic lesson about their IT strategy, which was that it was hidebound. They’d allowed themselves to be lulled into a rut of sameness, and had been sustaining that rut by having IT spending focused primarily on “refresh”, which tends to perpetuate current IT plans and thinking. Beginning in the summer of 2020, they shifted from band-aiding COVID impacts on WFH to thinking about what it should really look like in 2021 and beyond.
Who do you turn to when you want to rethink the whole basis of your IT? Historically, the answer has been “the vendor with the most strategic influence”, and historically that vendor has been IBM. History is the past, though, and IBM’s strategic influence has sunk over time. Sunk, but not disappeared. IBM still had, in 2020, the ability to punch above its weight because it was seen as a company that thought about IT, really thought about it.
The acquisition of Red Hat improved IBM’s position, not only by broadening its prospect base but also by providing an extension of its software technology to a market that’s far more cloud-centric, the open-source platform-software space. I think that Krishna was right that users turned to IBM when they recognized the need for something transformational coming out of the COVID mess. Where he was apparently wrong was thinking that IBM could do something with the opportunity.
The challenge facing both enterprises and vendors like IBM in 2020 was significant. COVID showed that traditional prospecting, sales, fulfilment, and support had too many steps and people involved, which made them vulnerable to things that reduced or immobilized the workforce. However, traditional flows that were vulnerable to COVID were also vulnerable to competition. COVID retuned buyer expectations as well as seller practices. People are far more likely to order online than before. They rely more on web support than before. Those changes mean that vendors who continued and even expanded the trends COVID created could expect competitive advantage.
The pat strategy for COVID and beyond is the cloud, but as I pointed out yesterday, buyers quickly realized that moving everything to the cloud, or even moving a lot more than they’d moved to date, created significant compliance and cost problems. Thus, simply waving the cloud magic wand over the buyer wasn’t going to cut it.
You could say the same for AI, but perhaps even more so. AI is a broad classification within the even-broader area of analysis tools. Yes, the new age that started the end of last summer needed new analytics to support the new flow of information and ordering, but enterprises generally believed (and still believe) that this is possible within the framework of their current software and databases.
This pair of realizations is the core of IBM’s challenge. They saw themselves as hybrid cloud and AI, and while those strategies could certainly be used to help address the massive post-COVID shift in business-process-to-technology relationships, just having the tools didn’t automatically generate the desired result. IBM, with decades of experience in mapping business needs to IT resources, should have been able to make the connection for buyers, but they couldn’t, for three reasons.
The first reason is that IBM’s knowledge of businesses has always been based on dedicated account teams. I remember my early programming experience, mostly in IBM shops, and I remember that every one of my employers had an on-site IBM team who represented IBM’s interests and worked to engage IBM solutions wherever a problem or opportunity was presented to the user. That kind of account support isn’t the norm today, nor is the level of strategic engagement that IBM used to have with line organizations.
The second is that IBM, like other vendors, tended to evolve to a product-aligned organization. That’s great if the buyer wants a widget, because the widget group can be easily identified and engaged. What about when a buyer wants a different business process? A process that likely cuts across a swath of products? The fact is that “hybrid cloud” and “AI” aren’t even particularly connected in terms of application, but those were IBM’s strategic priorities.
Reason number three is that IBM hasn’t managed to integrate Red Hat strategically, or even lay out a clear roadmap that leads to that outcome. In fact, Red Hat itself hasn’t done a great job of positioning itself strategically. The key line from their website home page is “Clouds that compete can still connect”, which implies that multi-cloud is a strategic goal. Rival VMware does better with “Own Your Path to the Future: Run any app on any cloud on any device with a digital foundation built on VMware,” but even that fall short of addressing that now-pressing need to transform the relationship between IT and business processes.
OK, you can say I’m seeing the same troll under every bridge here, but I think the fundamental issue that links all three of these points is the lack of a top-down sense of the buyers’ own business cases. There is no business drive to adopt technology, there’s a drive to utilize technology to solve business problems. You can’t present the tools in a heap at the buyer’s door and hope they’ll figure out what to use. The IBM of my early days in programming would never have done that. The IBM of today isn’t going to get away with doing it, nor is any other vendor.
We’re on the verge of a real transformation here, one that was launched by COVID but is being sustained by the fact that companies now see their business practices are rooted in a world of handshakes and long supply chains, and we can’t count on that world now. How many other worldviews will businesses have to abandon to face the future? There’s no answer to that, and so the only responsible step to take is to increase information portability and workflow agility. IBM should have known, and so should everyone else.