Since IBM Never Called, Here's The Strategy Anyway

I ended that column with an offer: “call me and I’ll tell you who to buy.” But they never called. I guess they’re smarter than I thought: they knew they’d get the advice whether they asked for it or not. OK IBM, you win. Here’s what you should do.

First – and I know you’ve heard this for decades (which means there must be a reason why you've heard this for decades) – you must change the culture. Every time I speak with IBMers, I walk away thinking about the past, not the future. Only the Watson team seems to look forward, but even that team is locked in a bureaucracy that defines the team’s degrees of freedom. It always feels like they must get permission to do some really boring and some really interesting things. IBMers also often criticize their company. I hear lots of whining about how bad the company is, how leadership is stuck in the past, how unnecessarily complex the IBM bureaucracy is and how many employees cannot wait to retire (or get packaged up). Some employees are even openly unhappy with the company’s willingness to work with the Trump administration.

IBMers often fail to exude real professional happiness or enthusiasm. But there are exceptions to the low moralers. I’ve noticed that where someone works at IBM (and even on which continent) often determines their attitudes. I’ve confirmed – nothing new here – that IBM is actually multiple companies with different cultures and leadership depending on where IBMers sit. One of the IBMers I spoke with said that IBM is as culturally divided at the United States.

But how do corporate cultures change? Usually, the market speaks directly to a company. If a company’s products or services are rejected by the market then even the culture is challenged, though usually only just tweaked, to remain competitive. Sometimes this takes some time. (20 straight quarters of missed earnings targets should be enough.) The second way a culture changes is through leadership attrition. As aging executives, managers and senior directors retire, cultures change naturally, so long as their replacements are not culture clones – a process boards and new leadership teams must consciously stop. Third, cultures change because those with the greatest financial vested interests – shareholders, partners, executive teams, board members – believe the culture is an obstacle to personal wealth. Fourth, cultures change when a company finds itself on an island, after a company resists obvious trends defining their industry. If a company waits too long to adapt, it may find itself competing against itself (competing business units) or chasing too many market leaders, which is where IBM is today. Lastly, company cultures change because an extraordinary visionary with unusual personal qualities forces change. Steve Jobs comes to mind when he re-assumed control of Apple after years of cultural atrophy under John Scully, Michael Spindler and Gil Amelio. In IBM’s case, it was Lou Gerstner who taught the elephant how to dance.  In Starbuck’s case, it was Howard Schultz.

So, before IBM can internally pursue the digital transformation it sells its consulting clients, it needs a new leader and a new culture. Since the IBM culture is so embedded in the present leadership team, leadership should come from the out-side. I don’t think that the next CEO of IBM should be an IBMer, or even an “IT” executive. Do you? I hope they don’t poach someone from Oracle, SAP or HP to take over (though these companies could become acquisition or merger targets; see below). These and similar companies are IBM’s in-the-making. The last thing they need is another captain of the Titanic. They’d do much better poaching executives and managers from Facebook, Amazon, Google, Apple or Comcast. I don’t recommend IBM recruit from the start-up or early stage communities either, since the sheer size of the battleship that must be re-routed requires actual experience running large organizations.

Next, IBM should pursue its makeover through acquisition. Relying on organic growth has already proved difficult across the company, though some business units – cloud/Watson/analytics – have experienced organic growth. But not enough to either offset losses elsewhere or keep pace with their cloud/AI/analytics competitors, which is strategically key. IBM is fighting two wars. The first is with itself among growing versus stalling lines of business, and the second is with the broader marketplace. So IBM’s new acquisition strategy should not be traditional. It should not represent a double-downing on existing “silo” markets, which will be the greatest temptation the next leadership team should resist. Buying Splunk, Rackspace, FireEye and Tableau, for example, while good traditional moves, will not transform IBM. It will make them bigger, and service IBM’s need to catch up – but not pass – its competitors. I identified a bunch of traditional acquisition targets a while ago and while many of them are still valid, there’s another strategy IBM should pursue. Bigger can be better, especially if growth comes from the right cloud/AI/analytics services, but traditional growth is not enough. Right?

IBM should decide who it wants to be in ten to twenty years. It should target the competitive space where it wants to play. Does IBM want to consolidate the technology world, perhaps lead mergers and acquisitions that transform the “old” technology industry (which will inevitably consolidate)? This strategy would see IBM playing maestro to an orchestra of existing hardware, software, database and communications players. This traditional consolidation strategy would return IBM to its leadership position in technologyland. It’s a viable strategy that would be relatively “comfortable” for IBM, since the company’s roots are in hardware, software, data and technology services. If IBM goes does down this path, I suggest IBM only pursue mega M&A rather than compete with the acquisition of start-ups or early stage companies that might even help them accelerate their AI, cloud or analytics businesses. Why? Because these kinds of acquisitions will not give IBM the revenue pop it desperately needs. This means IBM should consider leading the mega consolidation of the industry it created (and then lost in the 21^st century).

The other strategy (which I prefer) should pursue cross-industry M&A. IBM could transform itself in some unconventional ways by acquiring mega companies like content, advertising and transportation companies, or companies that optimize big data, cloud storage and consumer products and services. This strategy would require IBM to define its growing business platforms – cloud/analytics/AI – as M&A infrastructure on which acquired companies could be built. If this perspective took hold at IBM there would theoretically be no limit to the mega companies IBM might acquire (so long as they optimized cloud/analytics/AI and related technologies, which is a ton of companies across many technology industries). I prefer this strategy because it unleashes IBM and because it’s consistent with the “type 2” consolidation I believe will occur anyway. If IBM does not move in this direction, then its only strategic play is big ol’ tech, a lower layer in, though still important, the go-to-market stack.

Even with the right leadership and strong support from the new board and share-holders, let’s not assume transformation is easy. IBM is an “old” company, with a lot of old products, services and people. Despite it’s slow-and-steady movement toward newer product and service offerings, it’s still way too anchored in past business models and business units (which it must just sell). IBM is revered as an elder, but not widely celebrated as an industry innovator – yet. The next CEO will have the opportunity to change all that and re-imagine one of the great American companies. But let’s hope that he or she thinks outside the old – and even new – “technology” box and looks to technology-as-a-multi-vertical/multi-functional-business-consumer-platform.