Once upon a time, there was a killer whale living in the IT sea called Big Blue. Big Blue was no ordinary whale. It was the biggest creature in the IT sea. All other creatures must obey Big Blue, who set the rules on the proprietary interfaces in mainframes. If Big Blue changed its interfaces, the little fish could die, and Big Blue ate up its customers, becoming even bigger.
Eventually Neptune (aka the US government) laid its hand on Big Blue. It broke up Big Blue’s dominance to allow competition. Nevertheless, after enduring years of pain and struggles, it had learnt how to survive under the new rules, and managed to grow healthily.
Today, Big Blue is a multi-faceted behemoth. Its annual revenue of almost $100 Billion US and its strength in research and development makes others envy. Only a few creatures in the world, can match the size and power. Nonetheless, it also faces complex challenges specific for its overwhelming size.
Therefore, the purpose of this speech is to illustrate Big Blue (aka IBM)’s strategy, describe its present major issues, and finally outline its possible future directions.
As we all know, IBM has a three pillar strategy, software, services and hardware which cater to the customer. Key to the recipe for success is to optimize clients’ IT investment value by providing an end-to-end solution. Just to recall, back in the early 90s, customers were so frustrated with IBM’s monolithic approach that they think IBM is a slow maneuvering elephant. Nevertheless, who says an elephant can’t dance, and we all know about Lou Gerstner’s historic turnaround from IBM’s near-death spiral, and how a culture was instituted to inspire employees to drive toward customer-defined success.
Today IBM still garners most of its revenue from services and consulting, but software now contributes more to earnings than consulting. Why software? The simple answer, it has a greater profit margin. The 80-90% margin it gets on software is double what they achieve elsewhere. In the last decade alone, IBM has acquired over 100 software companies to steer itself towards that direction, and in 2010 the software group has revenues of $22.5 billion and 70,000 employees. To put this in perspective, the group alone is almost the same size as the evil empire (aka Oracle).
Look at the big-name acquisition in the past decade, PWC Consulting in 2002, Rational in 2003, FileNet in 2006, DataMirror in 2007, Cognos in 2008, Lombardi in 2009. The list goes on and on. Did you know prior to the acquisition made in March 2011, IBM had its longest acquisition drought for almost 8 years, and guess how long that period was: 5 months.
In a sense IBM is trying to fuel its revenue growth via acquisition with its stockpiled $11 billion of cash. An analogy is a high-jumper who already holds the world record, and is trying to squeeze as much as possible to break its own record. If he can’t break the record fast enough, then he injects human growth hormones. Now, I’m not comparing IBM to Barry Bonds, who claims he never “knowingly” took steroids. I’m just saying it is using acquisition to fuel revenue growth.
However, the stomach of its customer might be suffering from digestive problems from all these acquisitions. One general negative feedback from the customers is: IBM has too many products. Even worst, they think IBM is trying to generate more revenue by selling them more product licenses. Given the burden it will place on them to figure out which product to use, they think they also have to pay more to IBM global services. Customers should not have these views on IBM. Therefore in my opinion, the measure of success for acquisition is on how easy it is for acquired customers to adopt and then ‘grow into’ the IBM products, and prevent technical complexity that prolong the customer’s solution selection. Duplicate offerings will also be consolidated.
Finally, we have all heard about the four ambitious strategies of IBM: provide sophisticated data-crunching to allow clients to see patterns in data, pepper the world with sensors in the Smarter Planet initiative, migrate customer’s IT assets and services to heaven, otherwise known as cloud, and capitalize on every last corner of the emerging world. The question is, if you don’t work on any of those four strategies directly, how can you embrace them? What will it mean if you don’t work on those areas, when the wave of consolidation comes? Frankly, I don’t know what to say. If you have an answer, please let me know. Thank you.
