By Bill Moran, Rich Ptak
Recently, much ado was made over IBM’s problems in integrating its internal email system. As we understand it, the project involved returning IBM’s email services in-house after they had been outsourced to an India-based company. Things did not go well.
Potential Tripwires
Of the large and variety number of problems IBM faces, we chose nine for our commentary. Not in priority order, these are:
- Completing the Red Hat integration.
- Increasing profitable growth.
- Lawsuits involving GlobalFoundries, age discrimination, etc.
- Integrating numerous recently acquired small companies
- Completing Kyndryl creation and launch.
- Preparing for and winning serious competitive battles in cloud, AI, and Quantum
- Rationalization of the management team.
- Internal IT issues.Other internal morale issues, etc.
What could
possibly go wrong?
Item 1 – Completing
the Red Hat integration. Obviously,
integrating Red Hat (13,000 employees, market value over $26 billion) into IBM was
going to be tricky. Many Red Hat customers are direct IBM competitors e.g.,
Microsoft. A great deal of Red Hat’s value depends on its preserving “Swiss-like
neutrality[1]” in the marketplace. This makes integration
of the IBM and Red Hat sales forces very difficult, perhaps impossible. We
suspect there exist additional integration dilemmas for other functions. In
some sense integration is necessary, but operational independence must be
preserved.
Item 3 – Addressing Lawsuits involving GlobalFoundries, age discrimination, etc. Lawyers have day-to-day responsibility for legal issues. Serious issues may require Board-level decisions and significant CEO involvement. Without case details, we simply identify the broad risks for IBM. Any litigation can potentially lead to a problem negatively impacting success. Close monitoring by an executive will help to avoid surprises.
Item 6 – Preparing for serious competitive battles in Cloud, AI, and Quantum. Very fierce competitive battles will be fought for each of these markets. Every major vendor, as well as many emerging ones are engaged here. CEO Krishna cited statistics asserting that the company “providing the platform” will get 90% of the value. AWS, Microsoft, and Google agree. All are competing to claim that position. All have significantly larger market penetration, and annual growth rates surpassing IBM. Red Hat’s open-source positioning and technology are key IBM advantages. But Swiss-like neutrality may very well prove a double-edged sword in this competition.
Inherently large error rates remain a major challenge for quantum hardware driving furious competition among competing architectures. IBM and Google both forecast a million-qubit error-corrected system by the end of the decade. On the other hand, M12[2]-funded PsiQuantum (in partnership with GlobalFoundries) projects mid-decade delivery of a fully error-corrected quantum computer. PsiQuantum has sufficient Wall Street/Investor credibility for a recent cash infusion to boost total funding to $665M and a valuation exceeding $3.1B. But market success requires more than impressive technology and massive funding. It requires strong marketing to attract customers, and sales expertise to persuade customers to buy. China’s delivery of quantum supremacy with an optically based quantum device adds pressures.
Time and again it’s been proven that the BEST technology can, and frequently will lose to a BETTER sales/marketing team. IBM will have to avoid repeating go-to-market and sales missteps that squandered past advantages of best in-class, and first-to-market products. Remember Microsoft’s Windows was (and for many remains) a kludgy, inelegant, not-so-wonderful user interface. But it permits non-IT, non-programming staff to leverage the power of the computer with relative ease. Smart sales and marketing facilitated its market domination until Apple computers and eventually the iPhone[3] arrived on the scene.
Item 7 – Rationalizing the management team IBM has multiple areas in need of exceptional leadership. Today, apparently overlapping, and confusing role definition makes it difficult to determine where responsibility for success resides. Cloud and Sales roles appear especially impacted. IBM must win significant sales contracts. Once IBM had the sales and marketing talent[4] that was world-class, the envy of competitors. We’ve had IBM customers bemoan the lack of talented sales reps. To succeed, world-class sales and marketing expertise and field experience is mandatory. It is not there today.
Final
Observations and Comments
We started by asking which challenge facing IBM would trip them up. We examined a subset of possible issues. All are significant to some degree, most are confronted and dealt with in any significantly large company. Some are recurring; as such they will require continuing consistent managerial time and attention. A few are self-inflicted and are relatively straightforward to resolve. The chart below summarizes our thoughts. Further elaboration of our conclusions resumes after the chart.
Issue |
LT Int Term
Short Term |
Comments |
1 Red Hat
Integration |
## --- # |
A manageable problem with short term spikes. Long term
risk. |
2 Profitable
Growth |
## ##
|
Major issue both intermediate & long term, not as
critical in short term. |
3 Legal Issues |
?
? ? |
Potentially large problem. IBM lawyers handle and keep executive
management informed. |
4 Integrate acquisitions |
--- --- --- |
Careful management needed to realize the expected
benefits and avoid loss of opportunistic benefits. |
5 Kyndryl Launch |
# --- --- |
Long term could be troublesome, may not match IBM
expectations. |
6 Competitive
battles |
## ##
# |
Very difficult to resolve, requiring long term solution. |
7 Rationalize
Mgmt. Team |
--- --- # |
Short term that CEO must solve e.g., who is in overall
charge of Cloud activities? |
8 Internal IT
issues |
--- --- # |
An able, empowered CIO can solve the problems. |
9 Staff morale,
turnover |
#
# # |
An ongoing problem but should be manageable. |
Definitions:
·
Long
term is more than 5 years.
·
Intermediate
is 18 months to 5 years.
·
Short
term is now (Sept 2021) to the next 18 months.
·
# - a significant issue that is bad,
troublesome, and difficult to handle.
·
## - a major issue with potential to do
real damage to the corporation.
·
--- a real but not fatal issue that should be dealt with by management with
minimal fuss.
·
Issues
of serious interest to the financial community may impact ratings. See Motley
Fool discussion[7] of IBM positives and risks from an investor’s viewpoint.
·
Economic
recovery will be allowed to continue without another massive lockdown.
·
Also,
in any discussion of the future are Nassim Taleb’s “black swans[8], i.e., Events (good or bad) unpredicted and/or even unpredictable which may
necessitate radical alterations in strategy, tactics, plans, etc.
IBM CEO Krishna’s proven background, intelligence, and expertise in technology demonstrate he has the strengths and experience for managerial success. As CEO, he must choose where to focus his efforts, what to delegate and to whom. So far, except as noted above, his decisions have been encouraging.
Some
believe IBM is irrelevant in today’s technology world. Our opinion is that with
insightful, proactive management it can be a very serious contender and
contributor. Success requires correctly choosing where to focus efforts along with
clearly assigned responsibility and accountability. We think CEO Krishna can
succeed. We wish he and IBM the best in their efforts.
Appendix - On the Failure of Large Projects
When large IT projects fail, it normally involves one or more
of these results:
•
The project is extremely late.
•
The project is vastly over budget.
•
Key functions do not work, and/or they do
not deliver expected benefits.
•
The project never completes and is
abandoned.
Numerous examples can be found in
government, e.g., in the US there is the Obamacare website rollout fiasco. The
UK Postal IT experienced a system foul-up which led to prosecution of some 700
innocent people. Poul-Henning Kamp’s discussion of that event appeared in the Communications
of the ACM, November 2021 entitled: “What went wrong? “ (public
access to the article is available here: https://tinyurl.com/ydtvwty3). In the
private sector, failures can be and often are discretely concealed, thus
avoiding negative publicity and potential legal liabilities.
For a multi-level service vendor like
IBM, another factor comes into play. IBM does not use its best talent for
internal projects. The best will be assigned to revenue-producing customer
projects. No vendor can afford to do otherwise.
That said, it is important to not
overrate the importance of internal project failure. While such events are
embarrassing, any customer survey would reveal most, if not all prefer to have
the best of the vendor’s talent working on their problems, not the vendor’s.
[1]
“Swiss-like neutrality” means that Red Hat needs to treat all its partners the
same way. No favorites. No special advantages to IBM. We believe that Red Hat’s
other partners, who are IBM competitors, have launched projects to evaluate their
options if IBM compromises Red Hat’s neutrality.
[2]
M12 is Microsoft’s venture capital arm, thus Microsoft is a potential
PsiQuantum partner
[3]
IBM’s OS/2, an arguably technically superior product, lost out.
[4]
IBM’s legendary Francis “Buck” Rogers was such an executive. His specialty was
rescuing sales situations where IBM was losing. His memoir “The
IBM Way” is well worth reading. See https://tinyurl.com/yfwp6p5m
[5]
The website does list 21 people. Almost all have VP titles. Only one is clearly
identified as reporting to the CEO. Do all the rest report to the CEO or do
some report to others? Frankly, we are confused.
[6]
Not to belabor the point but both Bill Gates and Steve Jobs had extensive sales
experience when they ran their respective companies. Ross Perot started his own
company only after a (very successful) career as an IBM salesrep. Virtually all
entrepreneurs must learn this lesson. To complete the picture, the current IBM
CEO, Krishna is a long time IBMer, spent years in IBM research before he went
into management. He has a PHD in electrical engineering. He has no sales
experience.
[7]
The Motley Fool article is at: https://tinyurl.com/ygansxmf.
[8]
Nassim Nicholas Taleb’s “The Black Swan”. We recommend it.