I’m ex-IBM myself and it gives me great pleasure to see my old firm do well. Well this quarter they didn’t disappoint with significant improvement in their new business initiatives, which are just short of 50 percent of revenue. You remember the mainframe, that platform that supposedly was dead back in the 1980s? Well, once again IBM showcased there is evidently life after death because that puppy grew more than a whopping 70 percent year over year.
Let’s talk about IBM’s results and why IBM, after 100 years, is again able to perform at the top of their class.
IBM Pivot
IBM was designed to pivot. That was one of the things that Thomas Watson Jr, IBM’s most iconic CEO, drove into the firm’s culture. He taught that you must be willing to change everything but what you are. He meant your attitude toward customers, employees, and quality needed to be consistent, but you had to move with the market—otherwise you’d likely not last a decade as opposed to IBM’s impressive lifespan of over 100 years and counting.
Pivoting is tough. A lot of firms haven’t made that cut and I’m sure there were a lot of customers and IBM employees who were worried that IBM wouldn’t either. Well, those worries should largely be gone because IBM’s strategic imperatives and cloud efforts—their new businesses—grew a whopping (I’m going to use that word a lot) 86 percent in the systems segment. Holy crap.
Granted there is a little bit of margin pressure and their services segment grew more slowly, and some of the legacy stuff (Global Process Services and Application Management) continue to decline slightly, but most all the other numbers are impressively strong. Storage—where IBM once dominated with over 90 percent of the market—reported its 4th quarter of consecutive growth, assuring IBM’s continued importance in that segment.
Cloud—where IBM was a non-player a few short years ago—has strengthened to a level where they are legitimate challengers to Amazon and Microsoft. Analytics—one of the industry’s huge growth areas—crossed the $20B mark in revenues which, if it isn’t market leadership, is damn close.
One of the newest areas, software-as-a-service (SaaS), jumped to $9.4 billion run rate from $8.8B for 2017 and IBM’s cutting-edge efforts with SaaS (analytics, Watson AI, and Blockchain) is up to $7B and remains one of IBM’s greatest differentiators.
Security—one of the hottest and fastest growing areas in tech—is up 50 percent at IBM and providing a significant boost to z14 servers sales.
What Drove the Change
On top of the IBM culture of change noted above, Ginni Rometty, IBM’s current CEO, brought in a whopping 600 executives from outside over the last three years. Building skills for new market efforts in cloud, analytics, and cybersecurity. On top of that, IBM invested another $2B in training and development over 4 years to assure they had the skills to execute the pivot. WatsonHealth alone has gone from zero employees to 8,000 in three years showcasing IBM’s massive investment in their own future. An investment that is clearly paying off in spades.
Overall it is this willingness and ability to invest in the future—while still assuring customers they will support those customer’s past purchases and investments—that has formed the foundation for IBM’s performance. IBM remains almost alone in their practice to mentor and train executives and assure their CEOs have both the skills and demeaner to be strong executive managers.
Wrapping Up
This is what IBM is all about. The firm’s products, processes, and services can change, but IBM remains committed to its customers, strong business practices, and to the idea of assuring employees are both matched to their jobs and well trained. This tends to allow IBM to stand out as relatively unique, and able to survive decades while past competitors have gone to that great corporate graveyard in the sky.
We lack many good examples for how companies should be run. This is yet another way IBM stands out. It is a great example of how to build and manage a company that is immortal, and is designed to weather any storm—even one that shifts the market from hardware and software to something as tenuous as the cloud.
Oh, and I can almost hear IBM’s thousands of mainframes say to competitors, “Dead?!? We’ll still kick your ass!”. Now that’s the way to pivot!
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