Big Blue rethinks its future

Think of it as being mayor of a midsized city. Running one of the largest IT companies in the world – 400,000 employees globally – must mean facing the same amount of politicking, the same repeated one-step-forward-two-steps-back manoeuvring, the same pressure to back off and practice “the art of the possible.”

Yet under CEO Virginia Rometty, IBM seems to be planning on getting even bigger.

An article in the New York Times last weekend profiled Rometty and analyzed the challenges that the huge company faces in trying to be nimble enough to keep pace with a fast-changing market.

The profile by Steve Lohr starts with Rometty’s frank admission that IBM is going through a “rocky” time. Revenue growth is struggling, IBM’s traditional businesses are being challenged by the rise of new models such as cloud computing, and the stock price has been flatlining.

But Rometty has an optimistic outlook on the future, epitomized by her phrase “We are making progress, and we just need to keep moving with speed.”

Under her leadership, which began more than two years ago, IBM has divested itself of unprofitable components. In January it sold its server business to Lenovo of China for US$2.3 billion. Once that deal is completed, she will have signed units that brought in around US$6 billion in revenue.

That provides some explanation for why revenue growth hasn’t been accelerating; it’s a deliberate decision, part of a re-engineering of priorities. As Rometty puts it, “we don’t want empty calories. So when people keep pushing us for growth, that is not the No. 1 priority on my list.”

IBM has ventured into new territory, including data analytics – and cloud computing, which Rometty sees as a real opportunity. IBM’s aggressive move into the cloud market, starting with last June’s US$2 billion acquisition of cloud startup SoftLayer, illustrates Rometty’s belief that IBM must embrace change, not fear it.

Since the SoftLayer buy, IBM has invested billions more in cloud data centers and in BlueMix, its cloud software development project. Its cloud business grew 69 per cent in 2013, reaching US$4.4 billion.

The cloud market is packed with competitors, but the company has deep pockets, posting a net income of US$16.5 billion last year. And a lot of that comes from the IBM products that run the deep infrastructure at large enterprises and government agencies – a stable market that promises to generate good returns for a long time to come.

As Rometty puts it, “Planes don’t fly, trains don’t run, banks don’t operate without much of what IBM does.”

Big data is another growth area. Before becoming CEO Rometty was involved in formulating the company’s strategy for big data. Since 2005, IBM has invested US$24 billion in data analytics, including US$17 billion on 30 acquisitions. Last year data analytics brought in almost US$16 billion in revenue.

IBM (Nasdaq: IBM) is also looking at its rock-star AI technology Watson as more than a “Jeopardy” winner, creating a huge business unit and funding startups that want to build applications for it. Tellingly, Watson will be offered through the cloud.

“We are transforming this company for the next decade,” Rometty says. “That is not a one-year job, not when you’re a hundred billion-dollar company.”

Andrew Brooks
Andrew Brooks
Andrew Brooks is managing editor of IT World Canada. He has been a technology journalist and editor for 20 years, including stints at Technology in Government, Computing Canada and other publications.

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