Apr
10
2020
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Incoming IBM CEO Arvind Krishna faces monumental challenges on multiple fronts

Arvind Krishna is not the only CEO to step into a new job this week, but he is the only one charged with helping turn around one of the world’s most iconic companies. Adding to the degree of difficulty, he took the role in the midst of a global pandemic and economic crisis. No pressure or anything.

IBM has struggled in recent years to find its identity as technology has evolved rapidly. While Krishna’s predecessor Ginni Rometty left a complex legacy as she worked to bring IBM into the modern age, she presided over a dreadful string of 22 straight quarters of declining revenue, a record Krishna surely hopes to avoid.

Strong headwinds

To her credit, under Rometty the company tried hard to pivot to more modern customer requirements, like cloud, artificial intelligence, blockchain and security. While the results weren’t always there, Krishna acknowledged in an email employees received on his first day that she left something to build on.

“IBM has already built enduring platforms in mainframe, services and middleware. All three continue to serve our clients. I believe now is the time to build a fourth platform in hybrid cloud. An essential, ubiquitous hybrid cloud platform our clients will rely on to do their most critical work in this century. A platform that can last even longer than the others,” he wrote.

But Ray Wang, founder and principal analyst at Constellation Research, says the market headwinds the company faces are real, and it’s going to take some strong leadership to get customers to choose IBM over its primary cloud infrastructure competitors.

“His top challenge is to restore the trust of clients that IBM has the latest technology and solutions and is reinvesting enough in innovation that clients want to see. He has to show that IBM has the same level of innovation and engineering talent as the hyper scalers Google, Microsoft and Amazon,” Wang explained.

Cultural transformation

Feb
01
2020
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Ginni Rometty leaves complex legacy as she steps away as IBM CEO

When Ginni Rometty steps down as CEO at IBM in April and her replacement Arvind Krishna takes the helm, more than eight years will have passed since she took the reins at Big Blue. The executive helped lead a massive transformation, but IBM has had a bumpy financial ride throughout her tenure — at one time recording an astonishing 22 straight quarters of declining revenue.

To be fair, Rometty took over at a tumultuous time when technology was shifting from on-prem software stacks to the cloud. She saw what was coming and used the company’s considerable cash position to buy what she needed to make that switch while taking advantage of IBM’s extensive R&D to build other pieces in-house. But the transition took time, which resulted in some financial missteps.

She deserves credit for trying to move the battleship in a new direction — culminating with the $34 billion purchase of Red Hat — even if the results were ultimately mixed.

Leading the way

Rometty was the first woman to lead IBM in an industry where female CEOs are scarce. When she came on board in 2012, there were just 21 women running Fortune 500 companies; last year, that number had risen to 33, still a paltry 6.6%. Along with Safra Catz at Oracle and Lisa Su of Advanced Micro Devices, Rometty has been part of a small group of female CEOs at large technology companies.

Jan
30
2020
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Arvind Krishna will replace Ginni Rometty as IBM CEO in April

IBM announced today that the Board of Directors has elected IBM Senior Vice President for Cloud and Cognitive Software Arvind Krishna to replace current CEO Ginni Rometty. He will take over on April 6th after a couple of months of transition time. Rometty will remain with the company as Chairman of the Board.

Krishna reportedly drove the massive $34 billion acquisition of Red Hat at the end of 2018, and there was some speculation at the time that Red Hat CEO Jim Whitehurst was the heir apparent, but the Board went with a more seasoned IBM insider for the job, while naming Whitehurst as President.

In a statement Rometty called Krishna the right man for the job, as she steps back after over 8 years on the job. “Through his multiple experiences running businesses in IBM, Arvind has built an outstanding track record of bold transformations and proven business results, and is an authentic, values-driven leader. He is well-positioned to lead IBM and its clients into the cloud and cognitive era,” she said in a statement.

She added that in choosing Krishna and Whitehurst, the board chose a technically and business savvy team to lead the company moving forward. It’s clear that the Board went with two men who have a deep understanding of cloud and cognitive computing technologies, two areas that are obviously going to be front and center of technology for the foreseeable future, and areas where IBM needs to thrive.

Ray Wang, founder and principal analyst at Constellation Research, sees the CEO-president model as a sound approach. “It’s and inside-outside model. To truly understand IBM, you have to come from the inside [like Krishna], but to truly innovate you need someone on the outside [like Whitehurst] and that CEO-president model is helping,” he said.

Patrick Moorhead, founder and principal analyst at Moor Insights & Strategies, says that he was surprised by the timing of the announcement, which seemed to come out of nowhere. “I am a bit surprised at the speed of this announcement as I don’t believe there was a formal succession plan with a named successor. IBM has always had these and it was always apparent who the next CEO would be,” he said. That was not the case this time.

But like Wang, Moorhead likes the approach of having an “outsider” and long-time IBMer working in tandem.

Wang believes the new leaders have to honestly assess the company’s strengths and weaknesses and find ways to compete with today’s cloud companies for the hearts and minds of the enterprise customers.

“Today IBM is in an interesting position where the world has changed, and people go to Amazon or Salesforce or they go to Google or Workday or Microsoft. Companies still have a lot of IBM, they still trust IBM, but the new leadership team needs to figure out where the technology gaps are, which ones they need to build, which ones they need to partner, and in some cases say, this is not our market,” he said.

Jul
12
2019
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With $34B Red Hat deal closed, IBM needs to execute now

In a summer surprise this week, IBM announced it had closed its $34 billion blockbuster deal to acquire Red Hat. The deal, which was announced in October, was expected to take a year to clear all of the regulatory hurdles, but U.S. and EU regulators moved surprisingly quickly. For IBM, the future starts now, and it needs to find a way to ensure that this works.

There are always going to be layers of complexity in a deal of this scope, as IBM moves to incorporate Red Hat into its product family quickly and get the company moving. It’s never easy combining two large organizations, but with IBM mired in single-digit cloud market share and years of sluggish growth, it is hoping that Red Hat will give it a strong hybrid cloud story that can help begin to alter its recent fortunes.

As Box CEO (and IBM partner) Aaron Levie tweeted at the time the deal was announced, “Transformation requires big bets, and this is a good one.” While the deal is very much about transformation, we won’t know for some time if it’s a good one.

Transformation blues

Oct
28
2018
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Forget Watson, the Red Hat acquisition may be the thing that saves IBM

With its latest $34 billion acquisition of Red Hat, IBM may have found something more elementary than “Watson” to save its flagging business.

Though the acquisition of Red Hat  is by no means a guaranteed victory for the Armonk, N.Y.-based computing company that has had more downs than ups over the five years, it seems to be a better bet for “Big Blue” than an artificial intelligence program that was always more hype than reality.

Indeed, commentators are already noting that this may be a case where IBM finally hangs up the Watson hat and returns to the enterprise software and services business that has always been its core competency (albeit one that has been weighted far more heavily on consulting services — to the detriment of the company’s business).

Watson, the business division focused on artificial intelligence whose public claims were always more marketing than actually market-driven, has not performed as well as IBM had hoped and investors were losing their patience.

Critics — including analysts at the investment bank Jefferies (as early as one year ago) — were skeptical of Watson’s ability to deliver IBM from its business woes.

As we wrote at the time:

Jefferies pulls from an audit of a partnership between IBM Watson and MD Anderson as a case study for IBM’s broader problems scaling Watson. MD Anderson cut its ties with IBM after wasting $60 million on a Watson project that was ultimately deemed, “not ready for human investigational or clinical use.”

The MD Anderson nightmare doesn’t stand on its own. I regularly hear from startup founders in the AI space that their own financial services and biotech clients have had similar experiences working with IBM.

The narrative isn’t the product of any single malfunction, but rather the result of overhyped marketing, deficiencies in operating with deep learning and GPUs and intensive data preparation demands.

That’s not the only trouble IBM has had with Watson’s healthcare results. Earlier this year, the online medical journal Stat reported that Watson was giving clinicians recommendations for cancer treatments that were “unsafe and incorrect” — based on the training data it had received from the company’s own engineers and doctors at Sloan-Kettering who were working with the technology.

All of these woes were reflected in the company’s latest earnings call where it reported falling revenues primarily from the Cognitive Solutions business, which includes Watson’s artificial intelligence and supercomputing services. Though IBM chief financial officer pointed to “mid-to-high” single digit growth from Watson’s health business in the quarter, transaction processing software business fell by 8% and the company’s suite of hosted software services is basically an afterthought for business gravitating to Microsoft, Alphabet, and Amazon for cloud services.

To be sure, Watson is only one of the segments that IBM had been hoping to tap for its future growth; and while it was a huge investment area for the company, the company always had its eyes partly fixed on the cloud computing environment as it looked for areas of growth.

It’s this area of cloud computing where IBM hopes that Red Hat can help it gain ground.

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer, in a statement announcing the acquisition. “IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

The acquisition also puts an incredible amount of marketing power behind Red Hat’s various open source services business — giving all of those IBM project managers and consultants new projects to pitch and maybe juicing open source software adoption a bit more aggressively in the enterprise.

As Red Hat chief executive Jim Whitehurst told TheStreet in September, “The big secular driver of Linux is that big data workloads run on Linux. AI workloads run on Linux. DevOps and those platforms, almost exclusively Linux,” he said. “So much of the net new workloads that are being built have an affinity for Linux.”

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