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Top 10 Reasons Why Ginni Rometty Will Fail as IBM’s New CEO
Author: Steven Zolman
IBM’s first female CEO, Virginia “Ginni” Rometty, is in after Sam
Palmisano parachutes out with $127 million, but not until he leaves a wake of wreckage in his trail. Ginni will have big challenges to overcome if she is to be successful leading IBM, and in this blog, I will outline the Top 10 Reasons Why Ginni Rometty Will Fail as IBM’s new CEO.
1. IBM Forgot Who They Were. The “M” in IBM is for Machines. Machines for International Businesses; that is who IBM was. Who is IBM today? Somewhere along the way, IBM figured out that it was much cheaper to sell services than it was to produce goods, and so they focused their efforts on these “high margin” services instead of equipment that was capitally intensive, was quickly commoditized, and was not able to sustain such a strong business model. What has happened since is that the services business is now impaired, not able to generate the kinds of profits IBM wants, and is now the source of huge cost cutting measures to try to save it (or prepare it for sale). Ironic to be sure, but IBM used to build things, they used to build things of high quality, and they used to service those things extremely well. Now, they are increasingly focusing their business around sales guys who sell services, and services people who are increasingly low skilled because they are cheaper than highly skilled resources. Hmmm, something may be wrong with this strategy. If Ginni’s not able to create a new understanding of who IBM is, she will fail as its new CEO.
2. Ginni Has No Vision for the Future of IBM. Or if she does, she hasn’t told anyone yet. Since becoming CEO, Ginni only promises more of the same from IBM — continuing to pursue more “high margin” areas in the business — YAWN! IBM needs a new vision for the future, not the same old boring rhetoric. What will *her* vision be for IBM, and how will she make that a reality? When Gerstner devised this high margin pursuit strategy, it was a tactic to save a dying company, not a complete vision for the future. IBM hasn’t been able to move beyond this temporary fix to the next evolution of what it will become in the future. If Ginni’s not able to clearly articulate her vision for the future of IBM, and if it’s not substantively different from what it is today, people won’t believe in it and won’t rally around her, and she will not be able to save IBM, and will fail as its new CEO.
3. IBM Executives are out of Touch. IBM has gone through major transformations before, and the last major transformation was designed to make the company more lean, more efficient, and able to make better decisions. One of the stated objectives of that reorganization was to reduce bloat, simplify management, and connect the company to the decision makers so they would make better business decisions faster and more effectively. Today, IBM has more layers of management than it did before these efforts, and that executive bloat has not only cost the organization more money, it has further insulated top decision makers from developing a real understanding of the business, and therefore their decisions are not as good as they can be. What’s worse; there is no real accountability for these bad decisions because they don’t see the real field impact, and are not able to decipher what’s working and what isn’t, rendering them as useless politicians that merely manage their careers. Her closest advisors will be giving her junk advice. If she can’t figure that out and slash through it, she’s done. Also, if Ginni can’t slash management layers, improve decision making, and create more accountability with (far fewer of) these career IBM politicians, she will fail as IBM’s new CEO.
4. IBM’s Sales Culture is Poison. IBM’s sales culture has nearly ruined the company as many of its executives have no real knowledge about the products and services they sell, rather an obsessive desire for more “high margin” sales. IBM’s sales aspirations, and its plan to achieve those objectives, will ruin the company if not revised. IBM has developed growth objectives for earnings, and all indicators of the plan to achieve these aggressive targets seem to come at the expense of jobs, primarily jobs based in the USA – in favor of shipping them overseas, as this is thought to be ‘less costly’. The scale of a reduction required to achieve the aggressive growth targets for earnings suggest that while executives and sales folks will stay, most everyone else will need to go. The staff changes will require massive cuts in technical folks. The very same technical wizards who invent the products, get the patents, establish a new and innovative technology that can create a dominant market position are the ones that will need to go to achieve the targets. IBM’s sales culture and its current strategic plan will kill IBM if Ginni can’t stop it, and so far, she is only promising more of the same.
5. IBM’s Executive Compensation is Misaligned. IBM has aligned executive compensation to its earnings per share targets, and if the executives achieve their targets, again, primarily by downgrading skilled workers in the USA, and moving labor from the USA to lower cost countries, which will be a move that kills the ability of the company to innovate and solve complex problems, they get stock incentives. This executive compensation misalignment continues to drive behaviors towards activities that are killing the organization, yet the strategic plan hasn’t changed, nor has the executive compensation arrangement changed since Ginni’s arrival. If this continues under the current model, the executives will make out, IBM customers will suffer, a great number of IBM employees will lose their jobs, and a great American institution will go down in flames. Ginni needs to change where she places the cheese if she wants to change the behaviors of her executives, but again, that starts with a new strategic vision, and that has not yet been espoused in a clear, articulate and compelling way; in fact, quite the opposite. If Ginni can’t reset IBM’s executive compensation plans to better align them to the right behaviors to foster growth, innovation, quality and excellent service, she will fail as IBM’s new CEO.
6. IBM’s Rape, Pillage & Burn Acquisition Strategy. This is an area where IBM deserves some credit. At least they get the sequencing right. If they were to burn first, they wouldn’t be able to rape & pillage, so at the very least, let’s give them credit for knowing how to ruin a company properly. One of the ways IBM has cloaked its demise is to continue to buy highly profitable businesses with the hoards of cash the company controls. Once they do buy a new company, however, as a matter of routine, they saddle those organizations with bloated IBM processes, force them through standards processes that strip out much that was special, unique and cool about the acquired entity, they increase charges back to the mother ship to siphon off profits, and ultimately, they make the company no longer able to satisfy its customers, who eventually leave. Once IBM has sucked out all the blood, they leave the body for dead and go find another new company to buy (and subsequently ruin). If Ginni would change this model to be one of finding innovative companies that offer excellent services and provide high quality products, and helping those companies grow and develop, IBM could turn it around, but all internal signs indicate a continued focus on lowering skills, slashing R&D, eliminating innovation, and selling more promises with fewer deliveries of those promises. If this acquisition strategy persists, Ginni will fail as IBM’s new CEO.
7. IBM’s Offshore Model will kill its Services Business. I hear a lot of people say that IBM is a services company. Well if that’s the case, they are actively trying to commit suicide by killing off their services business. Over the last five years, IBM has aggressively pursued an offshore staffing model, seemingly believing that more unskilled workers are a more effective way to do business than having fewer higher skilled workers. Apparently, IBM doesn’t understand that you can’t outsource making a baby in a month to nine women in India. Not only does this create problems with logistics, language, communications and other issues, it eliminates the organization’s ability to solve complex problems. Many of our clients who subscribe to this model are dramatically disappointed with IBM’s lack of effectiveness on resolving issues, and amazed at how long it takes, and how many people it requires to get resolution. The aggressive offshore model particularly affects IBM Global Services, which represents a disproportionate share of revenue and employee head count, so the impact here will be severe. In the last 18 months, NET(net) has noticed a sharp increase in the number of disenfranchised clients who have terminated their agreements with IBM and sought arrangements with other suppliers. If Ginni allows the IBM Offshore model to continue in Global Services, the company will further convolute its ability to execute, become less able to solve complex problems, and will continue to lose more business at a faster rate.
8. IBM Sells Futures. What is IBM’s strategy? Smarter Planet? No, my laundry machine doesn’t do the wash when it knows I have plenty of excess hot water. No, my irrigation system doesn’t water the lawn when water prices are the lowest. No, my refrigerator doesn’t order groceries for me from the store when I’m running low. No, my car doesn’t sense when I am driving angry and schedule me in for a massage. IBM needs to stop selling futures, and just make stuff that works, service it well, and help its customers get value from it. IBM seems less capable more so today than perhaps at any time in recent history to solve complex problems, and it’s too busy worrying about airing commercials that look like a United Nations conference than it is about building stuff that works. It seems like IBM has been selling futures for as long as everyone can remember, and for decades, they have gotten away with it. It seems more and more however, customers are less willing to buy the hype, and are more concerned about buying stuff that works.
9. Watson is not the Panacea. One thing is clear, as IBM has studied various business models, it has determined that vertically integrated systems like those found in Big Data, (where the hardware and the software of these systems are sold together as a bundle) are highly profitable, and do not require a lot of people to service them. This idea is seen predominantly in Watson, IBM’s enterprise version of Apple’s Siri, a hugely expensive and likely a highly profitable, amalgamation of hardware and software, bundled together in a highly valuable enterprise application. Could this be where IBM is heading? They want to make huge enterprise class iPhones with Watson instead of Siri? Who knows. What is clear is that many of IBMs investments have been around enterprise infrastructure, enterprise applications, analytics and Big Data, many of the key ingredients for Watson-like functionality. This is a general industry trend as organizations like HP, EMC, Oracle and others are on a similar path of selling vertically integrated systems with hardware and software bundled into a supposedly “highly tuned” bundle that offers greater overall value. In our experiences, buying the integrated system certainly costs a lot more than buying its individual parts, but our clients have questioned the supposed “highly tuned” claims, and don’t report any more value than they would have otherwise achieved by buying the parts on their own.
10. IBM Seems to be Preparing to Sell is Services Business. Like IBM jettisoned the PC business years ago, citing a highly commoditized market and the inability to make enough profit, IBM’s services business is under similar pressure and may be being secretly prepared for sale. Feedback from insiders suggests that the cuts are so deep in recent months, that there is really no other viable explanation other than the services business is being prepared for sale. If this is true for services, it is also true for many other business units at IBM. Will Ginni’s legacy be overseeing a garage sale of IBM businesses? If Ginni can’t stop IBM from selling off its business units that do not drive enough bottom line profit, she will not only fail as its new CEO, she will go down in history as IBM’s worst CEO of all time.
Ginni, you have many challenges ahead of you, and we wish you all the best! It would be great to see you turn IBM around, but that leadership starts with a strategy that’s designed to impress more than just Wall Street investors. To this point, we have not seen much that would change our views on the top 10 points above, which makes us concerned that your leadership at IBM is “more of the same”. Our clients could really benefit if IBM became great again, so we are hopeful you will announce a new vision for IBM that includes making great things, helping clients get great value from those things, and servicing those things extremely well. Our clients benefit with a strong IBM in their corner, helping to deliver high value low cost solutions that result in an improved business.
Celebrating 10 years, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get and keep more economic and strategic value. With over 1,500 clients around the world in nearly all industries and geographies, and with the experience of over 15,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client captured value of nearly $100 billion since 2002, NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact us today at info@netnetweb.com, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and supplier relationships.
75 Comments
Being an ex-ibmer * 2 ( that is twice !) and having worked with several other companies of global business nature in the industry and having led several initiatives and innovations in both services and product business I can tell you that IBM is the best place to work, to realize your potentials, to serve customers and achieve satisfaction. I have interacted with customers across globe and serviced them on both “Machines” side and ” Services ” side, have worked with other Indian as well as so called “American” companies, I can tell you the customers have full faith in IBM delivery and promises and that is not without reasons. IBM is truly international and has successfully achieved to pick right talents from India not just because of COST leverage but because of the availability of talents. The article is wrongly suggesting that Only technical talents are available in “America” and the cheap resources are in “India” in off-shore model. Think the writer is either not woken up yet to world realities or pretending and living in past glories. The reality was realized by IBM a decade ago and a strategy of increasing the footprint in India was taken. That has resulted in actually growing the company more stronger and giving more global capability. I have worked closely with Ginny’s works in my earlier tenue when she was not yet CEO and I can tell you that She will not FAIL but will LEAD IBM to a better position. I am only Sad that I am out of IBM and still wait for the day I can become an IBMer yet again- particularly to be part of Ginny’s team of transformation. Writer should really now revisit – since he wrote this ( 2012?) and see the changes in the offing. The drop of quarterly results or share values are very normal in business and not driven by strategies but more localized issues. For strategic impact one has to view and see a long term perspective and growth chart. Wait and Watch this space.
at least in real world man should ride the horse, not the other way around. Now feel like the market is riding IBM – IBM is not driving the market anymore like what it used to be. it is “hauled” by the market, which no one 100% knows about in reality. doing so causes the whole company to go after the fancy “buzzwords”.
I think it is accurate, and well written. After more than 15 successful years at IBM, I finally had to leave it. It was disappointing to see the changes that IBM has introduced. Even most of the negative comments were exactly what I have been seeing. It is sad, I put a lot of blood and sweat into making products for this company, and the parasites, favoritism, … greed, … have put it on a path of ruins.
Now, outside, I am at a good company, with great values for products, and for the employees that produce them.
IBM wasn’t interested in change, so I had to make the change instead.
Lot of dead meat walking around..and don’t need that many layers of management ..it’s only the workers they attack when. It comes to layoffs so they can save themselves….
All it’s true… I ran 3 months ago… IBM bought in 2010 Sterling Commerce, the day after we no longer sell anything…
While I agree that Rometty has work to do, I don’t agree with this analysis. No company prospers by doing what they did 50 years ago. Resisting change was a large part of what got IBM into trouble prior to Gerstner.
Nor is a focus on the money wrong….I work because they pay me!! Should the company be any different?
But I love the description of Watson as an enterprise level Siri
I have been at IBM for over 8 years and seen the company lose so many good people in that time. They screw their staff to make a profit, people will only be screwed for so long and then they leave. IBM is process bound and heading for disaster. Road Kill 2015
the goal of the execs, is to extract the maximum wealth for themselves. It does not matter if the company continues to exist once they have left does it?
The above is the actual goal.
The stated goal is to maximize shareholder value. Not customer satisfaction not long term health of the company or any other form of ‘good’.
Since the execs are rewarded based on the share price, any fool can see how the two goals are one and the same.
How does a company increase share price? Sell assets. We do that. Buy our own shares. We do that. Lay off as many works as possible. We do that. Maintain the farce of being a technology company, we do that by buying other companies, taking their assets (customers), laying off the employees.
If we cant lay people off fast enough, we sell a chunk of IBM to Lenovo, tell the employees they are not being fired, they will become Lenovo employees, and then Lenovo fires them 18 months later.
Will Ginny be a success in doing all that? Sure any fool can do this.
Will IBM exist as a viable company. Nope, that is not in the plan.
If exec remuneration vested only in 10 years, then you would see very different actions as there would be an incentive to make the company a success, not the execs.
The company is a complete mess internally. It’s not just sales, it’s management, senior executives, the fact that 20% of the workforce does 95% of the work. There is so much dead weight here (and shitty nepotism that favors arrogant offspring of arrogant executives) that it’s produced a management system based more on politics than merit. The hardest workers are typically the least rewarded.
yup, it seems true but comparing to Indian IT companies like TCS,Infosys,CTS IBM is much better.
I agree with most of this article. Ginni should think about this seriously. Do we really need 400,000 employee in the company? and have quite a big management team.
For technical members, when we’re doing the development work or handling critical PMRs, there’ll be quite a lot members to push you to deliver the code/fix as soon as possible, but seems the ones who is doing the real work is less and less, there’re lots of architect/1st line mgr/2nd line mgr/director/product manager/release manager/test architect…
So lots of good talents left IBM finally, and this vicious cycle is becoming more serious every day. When this situation can be ended?
I think the writer needs to blog without prejudice, he needs some serious home work to do…
The writer clearly did do his homework. This is 100% accurate.
thank you. we did study this by talking to hundreds of IBM customers.
Today’s quarterly results (1Q 2013) and a $17 a share stock price drop, certainly provides some support for the conclusions reached above. I spent 23 years with IBM, last as an executive in Global Services. I feel much of the above is true, sadly. Love IBM, being an alumni, and want to see it grow again. Saddens me to see so many businesses we made great get sold off or abandoned…PCs, Networking, POS. IBM made the first real smartphone…now we abandon the race to Google and Apple.
IBM = International Business Machines
no Machines any more…its all Services… or Software… so, International Business Services?
or IBS
or irritable bowel syndrome…
either way, I feel sick.
We have just been told that the Service Delivery organisation MUST support the Sales Team – in order for them to meet their targets….these same Sales guys that drive Porsche, BMW, Mercedes Benz etc and get a bonus that exceeds my annual salary. Erm…no Sales need to sell, they need to Sell something Deliverable, and we should be allowed to Deliver it. Sales need to stop selling UNDELIVERABLE services, that lose money and cost reputation. The bean counters need to back off, and Management need to grow a set of balls, make decisions and run the Business like a business. Stop trying to keep the Shareholders happy, and focus on the Clients and the Staff – the Shareholders have had their rewards – the Stock is at its highest EVER… with Moral amongst the staff at its lowest ever. It used to mean something to work for IBM, it used to be something you could be proud of. Now its just a job…not a career or a vocation.
I am glad the top execs get paid in hundreds of millions of dollars – good for them, but if they want that to continue, they need to keep in mind that the business needs to make that money first.
The salvo on outsourcing and the claim of IBM still being regarded as an American dream is funny. From my personal experience i have rather found that most of onshore service people lacking proper emotional quotient and mostly placed in the job through some connections while in most of the scenarios you need to be extremely qualified to get same job done from offshore. I won’t say that the claims are wrong but at least a few of them are stubborn and scented with demographic dogma.
I’d be interested to read an update from the author that addresses IBM’s decision to hold off company contributions to employee 401k accounts until the end of the year – if you’re still an employee! (No ‘vesting,’ either.)
That seems like another short sighted idea from some “Financial Wizard” to me!
Dear Hugh,
You don’t know at all what was my position at IBM.
IBM is the temple of the Dunning Kruger effect.
Big Blue is the most cynical company I’ve ever seen.
People with no ethics are successfull, but they never left a mark in the History.
@Rocco – You’re one of the typical IBM “kool-aid” drinkers who is either so far down in the bowels of some Delivery Center or employed in India that you are insulated from the realities inside. Your Pollyanna views are great, but will not serve you well during the upcoming RA’s.
She will succeed !!!
#6 is the core of the IBM business model. As long as IBM will be able to acquire innovative software companies IBM will be highly profitable.
I’m not sure that buying companies alone is a sustainable model. Looking at HP’s recent $11 Billion acquisition of Autonomy, and then the $8.8 Billion write down illustrates the risk quite clearly.
Any successful business has three competing yet symbiotic constituencies: The owners, the clients, and the employees. If any one of these groups is persistently neglected, the eventual result is the failure of the enterprise.
Unfortunately for IBM, the upper echelons of the company do not belong to any of these groups. They are parasitic with no lasting stake in the success of the company. To the extent that they are compensated based on a reward system that discounts the worth of the company’s future ability to survive, their decisions and strategy will necessarily be short-sighted and corrosive to all three of the above mentioned constituencies.
I was fired without cause in 91 after 10 years. I did seek the top Labour Lawyer in Canada to obtain what compensation could be garnered. Of the hundreds of Management that I knew, I would only consider about 2 of them to be competent. The rest were entirely technically illiterate. There have been evolvements since that time, though rarely to the positive. In reading this article and the ensuing commentaries, it is evident, the greatest failure of this company now, as was then, is an overwhelming disrespect for its’ technical personnel, and for its enduring support for their ineptitude in Management. I have only “shorted” an investment of a company once, & this was IBM in 91. I made a substantial return in the thousands, because I witnessed the ongoing corruption. I feel for the “abused” technical people & their undying contributions. This company I expect will fail, as they have not learned to respect who truly provides their revenues, and therefore their successes. It is possible IBM will survive, however if so, it will be a fraction of what it once was. The acronym IBM in its’ truest meaning, is where I-diots B-come M-anagers. Good luck to the Techies there !~ & IBM Management you are the leeches of the Business world.
While much of what I read here is likely accurate, I believe it’s becoming outdated. I work for IBM and at this moment in time, March 2013, things are changing FOR THE BETTER. I mean that sincerely. Ginni is NOT failing at all. In fact, she’s assertively leading a culture change and I’m glad to be here to witness it. I’ll post again in 6 months if things fall flat, but right now, I’m happy to be an IBMer!
Steven Zolman does not know what Ginni can do or is doing within IBM, that’s very clear……shê is transforming the organisation and the results will have a long term positive impact. if only people understood what it takes to preserve the core DNA, a peek inside IBM now and what the leadership is doing and the steps being taken will be a testimony to that.
That transformation you’re talking about (and I have no idea what you’re talking about, but maybe there is one and I don’t know it) is not demonstrating any positive results for IBM customers. Our customers are being borderline abused by piss-poor products and support. And our in-the-trenches management has reached the point of saying “I can’t help you, Mr/Ms customer – I just don’t have enough people.” The only transformation I’m seeing is one of despair, apathy and grief. What am I missing here?
Most of this 10 criteria are true for many more IT Companies. I bet collegues from Oracle, HP etc. would agree. The post describes very well how difficult it is to transform such a big organization. Unfortunately, today’s management grown up when the environment was much easier to handle. They don’t have an answer how to react to crisis and new challenges. I mean, what kind of business goal is it, to define a stock price or to improve the world ?? sure, it’s important to attract investors – but stock price to me it’s not a strategic goal – but a result of a good strategy.
Well, here’s the challenge – how to define a strategy for a croud of 420’000+ employees + mio of stake holders ?
difficult to answer – may be it would require complete new approaches. May it would require to refocus and resize the whole company. Ginni has received a big elephant again and needs to find a way to dance again – but with new music and new dance partners. Good luck
Unfortunately the title of this article is misleading. There are no 10 reasons why she will fail described in the text, there are just 10 possible challenges the author believes she is facing.
I am not sure when this was written but the first comment is dated Mar 2012 so that gives me a starting date. Point #10 has not happened…yet. They did sell Retail Stores and that was probably the rumors referred to in point #10. I hear more is coming so Services is not out of the woods. I think many of the points made by the author are valid to a degree. Internally we talk about these issues often. It is frustrating watching this company reinvent the wheel as far as policies and direction are concerned. Changing the terminology for previously abandoned business techniques is annoying. I don’t now, maybe the thought is the constant change keeps employees from being complacent or bored.
Executive pay is also discussed often among the rank and file. Fairness is always the subject. The 401K delayed payments is the latest in a long line of earnings ploys that anger many of us.
The one thing that may keep IBM viable longer than many people think is, who is better in this business? Dell or HP? EMC or Cisco? Microsoft? All of these companies have problems. IBM at this point in time is probably the best of the lot. The innovation in technology is not near the level it once was. IT is a maturing industry. There are no more leaps to be made. It’s in small steps these days.
And another thing to keep in mind with all this off-shoring going on, our government’s policies have tremendous affect on the decisions large companies make. The more government interferes, the more likely those old “unintended consequences” come into play.
Sadly, this article is accurate. The first thing Ginni needs to do is not only get rid of MANY/MOST layers of management across the ENTIRE company, but also reduce the number of managers at each remaining layer.
Here in research we are paralyzed by the management/executive bloat which results in our official projects being 80% posturing and only 20% substance, and we need to sneak around to do our good work; most of the organizational effort is spent on managers politic-ing and fighting each other, while researchers are left to fend for themselves to actually do good work. Watson is nice, but we could have many such quality results if the managers would get out of our way and let us actually do our jobs. Instead we have most people working on stupidity and only a “blessed” few, on the occasional project for which research management actually takes some responsibility, get to do real forward looking work as their full time job.
We could save billions AND have much better technical results if we would have a much flatter organization. Get rid of all the second and third line managers – they just add politics.
The second thing Ginni needs to do is force the remaining managers/executives to actually make decisions AND take full responsibility for their decisions. Today, they do neither; when its layoff time, the technical experts get fired and all the managers/execs who made the wrong calls to begin with keep their jobs. Employees can do everything their management asked and still get killed at PBC time because the management called the wrong shots, but its the employee who gets hit instead of the managers/execs.
The third thing Ginni needs to do is put an end to this stupid push towards higher earning per share. It’s ruining the company. We need to get back to doing excellent technical work and having great revenue as a result. EPS is a fig leaf to hide the fact that we are disintegrating due to management bloat and executive aloofness.
IBM is still a great company with good people and lots of innovation happening every year- Ginni is smart and understands one thing that most companies forget over time. This is still a people business and relies on senior leaders to understand and respect relationships with employees, clients, partners, etc.
She will right the ship -no more short cuts – in order to be sustainable it will require a few hard decisions about products services and people – and I have great hope that she will get it done. I worked at IBM for over 12 years and although I have moved on – I am buying stock in them with confidence!
IBMers commenting negatively here don’t see necessarily the FULL picture. YES, the company is being run by finance…duh, have you been privy to the World Economy lately? #1, above, couldn’t be FURTHER from the truth. Services are becoming fastly a lower-margin commodity, HOWEVER, software is a HUGE margin…and I like it in the Software Group, currently. #3, 4, and 5 are unfortunately quite true. I don’t believe for one minute that this will kill the company, let alone harm Ginni’s position as CEO.
The worst is: you don’t know what’s wrong until it is too late. Very well said article and I bet Ginni should has read it silently and awaiting for more on “What” & “How”.
Time will tell. All the best to her because IBM has been & I hope will continue to define America’s success. Forge ahead, Ginni!
I’ve been thinking of writing a letter to Ms. Rometty to express the parallels I see between her and Carly Fiorina. Both were positioned to fail before taking control of the business unless they made bold and accurate changes to the business models. IBM is failing by cannibalizing it’s skill base, it’s product base, and it’s organic business at large. Each time they purchase another firm they add it to the organic business junkyard. The large, highly advanced U.S. skill pool is being decimated in lieu of cheaper support. I am part of this mess and I can assure you there is nothing wrong with the U.S.A. education system. The US has the highest skilled labor pool right out of college. The customers of IBM are being short changed and will continue to drift away from this strategy as they need stable and highly skilled support to ensure their businesses are able to compete.
I’m discovering this analysis today, very well documented. BTW, I resigned these days exactly for these reasons and conclusions I made myself. I am in the field at IBM for almost 30 years and working hard, I do not see a motivating strategy and for several years there is no relevant incentive for people working in services. The statements above are also true out of US, in Europe … really too bad.
Good insights. As someone inside but below the executive ranks, #3 hits the nail on the head. Business and technology decisions in IBM are no longer made by the people who should be making them, but by the folks in finance and legal. Morale is the lowest I’ve seen it in my 14-year career, and TRUE talent is leaving the company in droves. It’s sad.
Oh, and BTW, they told us today that they’re keeping our 401k match until the end of the year, starting in 2013, instead of distributing it in each paycheck. So glad I can help you accrue MORE cash and interest, IBM! If you’re not employed on December 15th, you don’t get that year’s match on December 31st. I wonder how many layoffs will be on December 1st.
IBM is in a death spiral.. it was a good company to work for in the late 90′s, and has been consistently selling out the most valuable asset a company has (its best employees) for short term stock gains.. that benefit overcompensated, horrifically bad top management. Making customers happy is the lowest priority they have. I have been with them a long time… but am jumping ship… Disney and State of TX got it right.. Sell your stock before it tanks.
I just received this **amazingly accurate** analysis from an IBMer. Great job
I was a Vice President in services years ago and anyone who spoke against the outsourcing model was considered anti-IBM when it was evident that finance was calling all the shots and long term be damned. I worked a number of initiatives she “participated” in adding zero value, insight, knowledge, or know how. They will not promote anyone to the top who did not attend one of five ivy league schools, irrespective of their value and accomplishments. Deny Welsh is living proof of that. When the finance guy got busted for insider trading, she was the tallest midget left standing. The shell game is finally coming to an end.
and how much money does IBM spend with Gartner each year?
While elements of what you say might very well be true the overall story is more complex than the picture you paint and like it or not the only constant is change and that always challenges everyone, forcing us to stretch ourselves and improve. Whether IBM has got it right or wrong is not for me to say, but time will certainly prove it -one way or another
Gartner seems to think she’s got it right for now.
According to a recently published document.
Vendor Rating: IBM
Published: 29 June 2012
Overall Rating = Strong Positive
A random look at a few details of the rating include Strong Positive for Strategy, Marketing, Organisation and some of their market and service offerings…
Dear “44 years IBM-mer”
You, and people like you are exactly the cause why IBM is aiming to crash.
You understood nothing about the article. “$20 EPS by 2015″ is just not a valid target for a technology firm!!! It’s only valid for a Wall Street firm.
The only valid target/vision is CUSTOMER VALUE.
If IBM leaders don’t realize it and start acting for it, the company will go down in flames no matter what else is going on in the meantime.
By the way I’m also working for IBM – the Hungary branch. We here would so much like to boost IBM’s value by adding our own… if only the company would let us do that, and not smother us with bureaucracy, try to measure us by systems developed for production(we’re doing services, after all).
I agree with 95% of the article, with one comment: Wake up, USA, there’s life outside your borders, intelligent life!
32 year veteran of IBM, the last half in services. From my seat in the business, everything in the commentary is 100% true. The author must have been a long term IBMer to comment this precisely and accurately.
The only thing I would add is that in the services business, our hands are so tied by oppressive management and worthless bureaucrats which treat professionals like children, that we can’t keep clients satisfied.
Without radical reform, IBM will gradually die. To paraphrase TS Eliot in “The Hollow Man”, IBM will die “not with a bang but a whimper.”
I sold my IBM stock at $208, because the current strategy is not sustainable. Sooner or later, those vultures will come home to roost and IBM will no longer be able to financially engineer their business results.
I’m not certain that selling off the services business would be a bad thing for the IBM employees that work in it. Nobody can run that business worse that IBM has.
Last, the author leaves blame for this situation with Sam and Ginni – which is entirely fair. I think credit should be shared by the IBM Board of Directors which has allowed this travesty to occur. I have zero confidence in their competence.
I have never seen a company which manages solely by their stock price lead their industry. If you want to lead the industry, make it a priority and the stock price will follow.
I think the writer is a bit general throughout. As an IBMer I certainly don’t want to see skills or innovation have less focus. However, I do recognize that the services business is highly competitive and to stay in the game you must be cost competitive.
There are huge challenges since the world wide web gave anyone the ability to support a client from most any part of the world. Being in the US I do see many of my co-workers dealing with more work and stress than ever before. Definitely more than almost 20 years ago when I joined the company.
I am concerned about the US. We were an industrial society until the point when we helped build up other countries after the war(s). We went to a services based economy until the internet allowed that to be done from about anywhere……I don’t see the country evolving to a new kind of society to feed it’s people.
If these thoughts are true we may have seen the peak of the US and are just going to watch it decline……Please tell me I’m missing something here.
I see that the comments show the various points of view that you can get from working in a big company as IBM. I work in the Argentina branch, and it is practically leaving the country to be replaced by India. I’ve worked with them in the past few months and I have found very few effective people that were correctly and strategically placed as managers or project managers. They’re the only ones with whom you can communicate properly. Otherwise, if you need something from a SA or any other regular employee, you’re lost. I’ve seen many capable argentines being laid off as if they were a piece of machinery that was rendered too costly to keep on working.
This article shows a very short sighted view on off-shoring. It’s described as if the only efficient market is the US. No, there are efficient and talented people everywhere. Also, sometimes the less-skilled employees come out of IBM as the better fit due to their training and experience in the company. I’ve seen a lot of high-skilled (by that I mean, having been in university, studying engineering) that do not work well in companies because they just don’t know how to behave or to adapt. It’s just relative.
What I’ve seen that is horrible and has done great harm is the continuous search for further specialization. Distributing one team’s work in many others and having one person do many accounts’ work kills efficience and shows how dumb their view of structures is.
All in all, IBM should have high-skilled employees on strategic places where they know it’s necessary, not everywhere. That’s a smart move they’re not following. Also, offshoring should be more smart too- moving to other countries is not always a bad thing, but should always be well though of beforehand, instead of only looking after the previous costs, that reducing salaries by offshoring ends up with higher costs due to accounts leaving and processes being misunderstood or less efficiently followed.
After been 30+ years in IBM, I see how the motto : IBM means service is gone !
It is the author’s view, and an expanded opportunities for IBM. But as an IBMer and lover of Knowledge Management. from where I see IBM. It is the only company which provides us with collaborative opportunities within a company. And anybody who knows Knowledge Management, can understand how the collaborative opportunity tagged with global structure can produce Innovative surprises. And Virginia “Ginni” Rometty is leader who know how to ripe and harvest such fertile fields.
I completely agree with this article. IBM is being ruined, skilled people are laid off, projects are struggling etc etc.
This all results in a ever decreasing moral and motivation by the employees, which also does not help to save IBM.
I am an IBM employee… it’s a good article and I agree to 99%. IBM will fail if we go further in this direction…
But of course, I guessed you are a finance guy. That is exactly why you think a 20 $ EPS is the right strategy! wake up you idiot, this is not a wall street brokerage firm where you talk about strategy only in terms of EPS. And you still believe that so called ‘Dream Team’ of Fortune is by merit? come on man, everybody knows that these magazines will write anything that their biggest patron asks them to… In a nut shell, this article is bang on target. The company that Lou Gerstner revived is being killed by his protege (Sam) and the last rites are being performed by his (Sam’s) protege…
I agree with the other poster re:”44 year IBMer”. You – YES YOU – “bean counter” are the very reason why IBM is in 95% of the state this article documents. I’ve been in the company for well over 10yrs and I’ve seen the wonderful work Gerstner did to rescue us. It was never a long term solution – just a way to get the company back on track. Ever since Palmisanio (and now Ginni) have taken over they have not seen this even though Palmisanio was right there with Lou watching. Instead when he became CEO all he did was hand the reins immediately over to the bean-counters (like YOU in finance) and let them dictate the company policy and management direction (eg this stupid $20EPS target also known as the “2015 road kill”.). 10yrs ago we (Australia) use to manage a 60+ team with just 2 managers. Now, with an ever decreasing team (thanks again for those cut-backs!) we now have 3-times as many managers! Only the first-liners actually do any work. The rest sit around all day working on their “company social perception” (translation : stuffing around on the web) while those of us who are actually providing software products and maintenance (software not only needs to be developed but fixed as well) get hammered with even more and more “overhead”, less productive tools (due to a corporate mandates) all while trying to do more work with less people in the same about of time.
Go get a job in a bank where bean-counters belong and leave the technology to those of use who actually understand, work and develop it to how the remaining IBM customers actually want. Before the company is left in ruin!
The author of this article clearly has his head up his *** and hasn’t got a clue of what he is talking about. I’ve been at IBM 44 years….yes, 44…not a typo…and have seen it all and can assure you that IBM today is a sound and well run enterprise.
There is a strategy. There is a profitable annuity revenue stream (yes, stupid…it’s called Services). There are very profitable products -otherwise known as software. Just ask Larry Ellison if he doesn’t agree. And BTW, SW produces a nice revenue stream on its own. Not to mention that the strategy of buy vs build is brilliant….
There is a clear strategy….$20 EPS by 2015 and a clearly understood path of how to get there. IBM’s portfolio of offerings is the most successfull mix ever.
We have a CFO that just got voted to the Fortune executive ‘Dream Team’ and have senior execs a mile deep that can handle any part of the business at the blink of an eye…and that includes Ginni.
Jettisoning low profit, high volume products is only something that HP can dream of doing…and IBM still makes the best, fastest and most secure mainframes on the planet (that would be in the category of ‘producing products’, dope).
You could pay 20 IBM execs with what Drerek Jeter earns, or what Michael Jordan earned in his day…and probably still does…
I defy you to name one single company that IBM has ‘bought, sucked dry and left for dead’. There has been no HW company purchased in the past 10 years, just sound SW outfits that enhance the portfolio.
If you want an opinion on whether IBM is ‘going down the tubes’, go ask the stock market. My advice buddy, is to get into another line of business, because you are truely without a clue as to what reality is at IBM. BTW, I’m in Finance and I do know what I’m talking about.
Rolm, Lotus….
I couldn’t agree with this article more… They just sold of POS business in 2012…
Funny thing is Sam already did all the burn and slash so what is Ginni left with? Selling off parts of the company…
By putting all there eggs in one (services) in one basket they put the entire company at risk. You don’t see an investment agent put all his money into one stock, he diversifies to leverage and reduce risk.
What Sam and the current management team failed to see is ITS the PEOPLE that make up the company… By getting rid of all the good experience people your left with a product that isn’t very good.
IBM new model is use 4 outsource people who mess up who cares we make $$ for now.
IBM reputation is going down the tubes as more and more companies they services stop using IBM because the horrible quality they are producing. This reminds me of when Ford use to be quality job 1 then all of sudden they never mention quality.. look at what happen to them… now there back to focus on QUALITY…
This analysis of IBM’s situation and challenges in front of its new CEO looks well documented and pertinent, though sometimes a bit caricatural…
Approximately 10 years go, IBM corporation avoided failure thanks to Lou Gerstner nomination as CEO; he was able to articulate a new vision and strategy which lead to massively invest the IT Services market where IBM’s people can bring value and sell their knowledge. It worked great, but it looks like a century ago. Since then China, India and Brazil are booming, finance rules the world, communication is as simple and easy as breathing and two major crisis(internet and finance) occurred.
Alike IT products, IT services market has sharply evolved, and IBM must transform to follow its evolution and keep succeeding in it: this requires investing in transformation which requires not only money (not a problem to IBM) but also people with right and new skills, senior experience on products and integration. Which is not something we find by cutting jobs in western countries, replacing them by low-cost hiring or subcontractors in the emerging countries. This only allows to deliver low-cost services, and low-cost is a way in which IBM cannot compete nor succeed.
Alike economy, IBM has moved from a ‘technology and product based’ vision and strategy, to a ‘finance driven’ one. Look at it, the road map 2015 (fully supported by Warren Buffet) is all about reaching $20 per share. IBM is spending billions each year buying back its own shares, to meet this goal; while it dis invests in HR assets education and evolution. Explaining that customers want ‘low-cost’ and there is no other way round. Advertising technology or concepts that are not mastered nor safe yet to make new markets. The only escape is then to invest emerging countries markets, because there is so much growth that IBM can win a piece of it, where IBM hardly succeeds in keeping share in the ‘old’ regions…
Ginni is just digging the track set by her predecessor Sam Palmisano and IBM Corp’s Board.
In the end, Ginni’s first and biggest challenge perhaps is to free up from the Board of Directors & Shareholders chains… to draw a new vision and strategy for another IBM future than just a finance cash-cow. Let’s hope she can ‘make it’!
Author fails to say that he is the CEO of a competitive company (NET). I suppose that has no bearing on his opinion of IBM.
I retied from IBM and I always tell IBM I am glad I worked for IBM and glad I worked for IBM when I worked for IBM. I had a really enjoyable career with the company.
I don’t agree with some of the comments above, I am 11 plus years in IBM, before that in GE and other big name companies, so far IBM has been the place where there is no limit to inovation and invention. Ginni Rometty has great client focus, she is thinking in terms of solutions to address client challenges and needs be it hardware, software or services.As far as strategy IBM’s strategy for your knowledgeis Smarter Planet, Business Analytics, Cloud, Business process Management, Mobility, Integrated Expert Systems, Growth Markets etc and if you see any CIO studies these are the things on the CXO’s minds. IBM evolves as per market needs and that is what Ginni does. The author is talking of IBM we have a strategy and vision for 2015, he should be concentrating on the the companies those have real problem like HP, Microsoft etc what is there strategy.I have full confidence in IBM and people who are supporting this article will be disappointed because IBM has been there for 100 years will be there for another 100 years and more and IBMers will keep it as one of the most profitable companies of the world. I am a proud IBMer, and i have full confidence in the CEO i am working for, she is teh “BEST”.
I am surprised at how accurate this article is. I left just over a year ago after 10 years hard work with the company. I’ve seen all of this first hand. After seeing the writing on the wall and continuing to work harder for less money, I made a “business” decision to move on. I moved to a competitor that specializes in software, and couldn’t be happier.
By the way, speaking of deep cuts in benefits, thanks IBM for the 1% interest on my former pension you’re holding for me. Cheap bastages. Guess you needed to pay Sammy off.
I AM PRESENTLY WORKING FOR IBM NOW FOR ABOUT 32YRS.
I HAVE SEEN THE BEST OF IBM AND NOW THE WORST. I AM EXPERIENCING GOOD EXPERIENCED VERY LOYAL EMPLOYEES BEING LEAD OUT THE DOOR.THESE PEOPLE HAVE MADE IT THROUGH SEVERAL LAYOFFS, WHICH MEANS WHATS LEFT IS THE CREAM OF THE CROP. wE HEAR THROUGH THE GRAPEVINE OF BEING BOUGHT OUT. wE HAVE BEEN STRIPPED OF OUR COUNTRY CLUB, STRIPPED MEANINGFUL RAISES IF ANY, STRIPPED OF RECOGNITION, PAY MORE FOR MEDICAL, AND FEEL LIKE ITS ALL ABOUT THE LEADERSHIP WHO SEEMS TO BE MOVING ALL AROUND TO ESCAPE THE DOWNFALL OF OUR SITE. SHAME ON YOU LEADERS OF IBM.
I can say this after 30 years on the IBM services side of the house, IBM has never EVER been so devoid of technical skills. They may have bodies – most outside of the USA – but the skill levels are atrocious. I wouldn’t allow most of these people to work on my garbage disposal.
Can’t say I disagree with any of it. Seems a common path for all enterprises. We just witnessed the same type of death of Kodak. We need to go back to the 1850s where businesses were licensed as corporations by the local government and their period of existence was limited to their mission statement. Upon completion of their stated mission the corporation was dissolved and the investors were allowed to take a modest profit. This ensured a focus toward public welfare. Wall Street is the evil that will consume us and in the end lead to our extinction. My idea may sound crazy but only because you have been brainwashed into thinking the current business model is correct. Capitalism should only exist as a servant of Democracy. Right now we are slowly being enslaved by Capitalism and the power it concentrates among its rulers.
Its like Obama cleaning up Bushs’ Mess, Now Ginni has to clean up Sams’ mess, but she isn’t. She’s following right in his footsteps. An ungodly # of Exec’s left within the last 3 months. Why? They saw the writing on the wall.
I hope someone sends this right to Ginni, let her know what a lousy job she is doing so far.
The writer of this article hit the nail right on the head.
As an employee, I think you’re missing the forest for the trees. Looks to me like Ginny is following the strategy of Sam before her – which is: get out of the USA. There’s too little profit margin and the resources are expensive. So – focus on the ‘I’ in IBM. I’m guessing the next big announcement will be that corp HQ is moving to the UK or China.
I’d be interested in some examples of #6. Which acquisitions were left for dead?
I compare IBM to the the old Roman empire – it came, it saw, it conquered and then collapsed in decline and decay…..and like the Emperors of Old Rome, the IBM executives of today fiddle while the company burns. So, what’s to say except this – nothing lasts forever, not even pure and unrelenting greed. There’s certainly no hope left.
I just received my 21st issued patent – all assigned to IBM. Where am I? Laid off 2.5 years ago. I headed an invention development team and was a certified executive project manager. I was not even replaced by someone offshore… they just asked everyone to tighten their belts and do pieces of my job. It is such a shame to see a company that invented RISC architecture, disk drives, new standards of mainframe reliability and availability, throw it all overboard in favor of a 90 day profit vision which precludes doing anything that may be the right thing to do even if the market isn’t ready for it. IBM will be replaced by a similar 3 letter acronym, RIP.
You were quite accurate about the excess levels of management. When Lou Gerstner came in I had nine layers of management to the CEO level. When Lou left it was down to five. When I retired in the summer of 2010 it was eleven. While eleven might be great for Spinal Tap it is results in nothing getting done in a business.
While I strongly disagree with some of the benefit reductions Lou implemented the reduction in management overhead made my job more fun and productive. Unfortunately the transfer of power to Sam Palmisano brought a return of the same failed IBM management that Lou Gerstner had replaced. I think IBM would have done better to go outside when Lou retired.
I left IBM last year after 17 good years exactly on the reasons described here. Instead of a technical vision and strategy, the only strategy during the past years were profit making and share price development. Firing people and spending billions for share-buy-back programs and top-management boni is not good for customers/partners/employees. Everything said here about the management is true. Most of them (of course there are exeptions!) have NO idea of their own products, nor the competitive situations. They very much focus on numbers on their own career rather than customers, employees or a sustainable strategy for the company. Next quarter is beyond their horizon.
And I can tell you from inside: most of the IBM employees are really frustrated about the behavior of the company. With Lu Gerstner the visions left the company about a decade ago.
And because of all this I left the company, I wanted to know: is there a different culture out anywhere ? And yes, there is. After some month in a new company (also a big IT company) I feel like in a new world….
congratulations on your move. sounds great. let us know where that is.
I have never seen anything this true and to the point about IBM and its current executive team; their strategy and lack of vision. It also was spot on regarding their M&A, they have killed successful businesses, including the acquisition of their Service arm by who else on the helm but Ginny, who is now divesting it, making it ready for sale. I have been involved in 4 of such acquisitions and have seen a list of companies who were bought and then destroyed after being “blue-washed,” It pains me to see that bunch of career politicians, as you called them, are ruining IBM; an AMERICAN ICON.
I wish there was a watchdog organization or a technology group that could arrest IBM’s self-serving current executive team, send them to jail till they have their day in the court for crimes against humanity, technology, and also against America. Ginny is just like rest of them, she grew up in IBM. She doesn’t think there is anything wrong, or she would have fixed it by firing these leaches to bring in a team of intelligent, competent leaders who care for IBM, its clients, and its high skilled employees who are either leaving to competition or escorted out by IBM security. All is left is these career politicians/prostitutes who want nothing but EPS for obvious reasons, they are worst than blood suckers.
Thanks for your article, so I am not the only one who sees it this way. I am sure the market and clients think the same, or a huge list of clients including multi billion dollar Disney wouldn’t have left IBM just a short while ago.
I am very worried for IBM!!!
rright. Disney is only the latest in a long list of clients who have had high-profile exits from long term IBM services agreements.
I think the author would agree with the book The Puritan Gift. While you need a profitable company to make products, good products come first.
I also think they and others have made the point that IBM got lucky. They had the ability to move in to the services and software space using their deep experience serving business to tie together everything in IT. They delivered solutions. This worked well but this model may be on its way out. That said there is always a market for people who can understand business needs and deliver IT solutions, precisely because so few people can and will do that.
This also brings up interesting issues of corporate management. I don’t think there’s anything wrong with IBM making sure it is investing in high profit businesses. Usually a high profit business is a sign of uniquely serving consumer demand – look at Apple’s margins. What is tricky for management is – how do we let the less profitable businesses run while not diverting resources we need elsewhere – people, money, and management attention.
What is of course a bad idea is turning a business in to a high profit business by cutting the good costs, the costs that add value, so that your business no longer delivers on its promise. It sounds like that is what some IBM customers are experiencing today.