The new leadership regime at IBM is set to result in a cultural shift within Big Blue, along with a different way of doing business for the centenarian company, according to at least one industry analyst.
The departure of Ginni Rometty as CEO and the appointments of Arvind Krishna as CEO and James Whitehurst as president at IBM represent much more than just new titles, according to Catie Merrill, research analyst at Technology Business Research (TBR).
In a blog post, Merrill claimed that while CEOs typically come from a finance or sales and marketing background, the current market climate is one where expertise can help business leaders thrive. In IBM's case, Krishna was previously the senior vice president of cloud and cognitive software at IBM and Whitehurst was senior vice president of IBM and CEO of Red Hat.
“Krishna’s presence should assure customers, particularly those with primary concerns around IBM’s product road map and the ways in which IBM will build out the safe, secure and innovative ecosystems components for the new multi-enterprise business networks and company federations," Merrill said.
“Installing a career technologist at the helm addresses the marketing challenge of countering competitors that rose to prominence in chapter one of cloud computing.
“Large enterprises seeking to future-proof their investments in chapter two of the cloud, as digital transformation continues to transcend the enterprise, will look to IBM for a well-articulated technology vision.”
Meanwhile, when James Whitehurst takes up the role of president, his focus should be targeted more towards cultural change, she said.
“Much of IBM’s recent struggles have revolved around execution, as the organisation’s culture and operating practices were misaligned to the prevailing ways of working and innovative best practices that came from native cloud competitors,” Merrill said.
“IBM historically has deployed ROI [return on investment] business case justifications in silos that worked well for transaction selling. This ROI process has to give way to a company-wide viewpoint of overall revenue contribution — or lifetime customer value — regardless of which discrete technology assets receive the recognition in the internal accounting process. The two models are not compatible.
“In purchasing Red Hat, IBM acquired a company with vastly different operating practices that created a sustainable and consistent revenue model based around a free product.”
Merrill added that the fourth quarter results of both companies — Red Hat’s continued growth and IBM’s traction with rollouts of its containerised software solution Cloud Paks — are representative of the potential change in direction the new appointments represent.
“In promoting Whitehurst to the role of president, IBM signals to customers, investors and employees that it will be changing its internal operating models to be more like those of Red Hat,” she said.
“Symbolically, this indicates the acquisition was more a merger of equals and should allay the concerns of the broad Red Hat ecosystem of developers and customers IBM has to retain and expand to realise the value IBM expects to gain from the purchase as it takes aim at becoming a share leader in chapter two of the cloud.”
From a hardware strategy viewpoint however, Merrill believes the change in CEO will have little impact.
“The z14 and z15 refreshes have focused on positioning the venerable mainframe as a critical gateway into the hybrid multi-cloud world by building in critical firmware and software features to deliver the mainframe capability with public-cloud-like operating characteristics, enterprise-grade security and data management capabilities,” she said.
The shift away from Rometty is significant as, under her control, Merrill claimed her leadership was the start of IBM's "cloud story".
The last eight years saw Rometty aiming to capture Amazon Web Services (AWS), Microsoft and Google, but did not reach this goal, with Merrill labelling it a “pipe dream”.
As a result, Merrill claims, this then prompted IBM to acquire Red Hat in order to take the majority of customers operating on premises to the cloud.
While the early days of cloud saw Microsoft’s Azure taking over over front-end applications, the combination of IBM and Red Hat is looking to take mission-critical back-office workloads to the cloud, Merrill suggested.
“This is a competency that has yet to be proven but may hold true under new leadership,” she said.
Overall, the research analyst said the change in CEO is a positive move for the business.
“Over the past six years, IBM Services’ revenue has been uneven, and has largely been in decline during the past five quarters,” Merrill said.
“Filling the role of CEO with an employee who has been with the company since 1990 and has been instrumental to the development of IBM’s cloud business and the acquisition of Red Hat will likely bring a fresh perspective to IBM and IBM Services, which has been struggling to overcome growth pressures in traditional labour-based services, such as in Global Technology Services and Global Process Services.
“Meanwhile, IBM Services is experiencing growth in cloud-related activities as the company leverages its technology incumbency to advise, migrate, build and manage clients’ hybrid cloud environments.”
She claimed that Krishna’s expertise will assist IBM in pushing forward with its technology-led transformation value proposition and surpass the business felt in 2019.
Merrill suggested that, moving forward, these appointments represent the same level of importance as the appointment of Louis Gerstner Jr as CEO and chairman back in 1993.
“In this transition, IBM is splitting the responsibilities between an IBM insider as chairman and an IBM outsider instrumental in building one of the best technology operating models for the new technology era.”
The change in culture is not the only potential new direction for IBM, as Merrill also claimed that the business needs to change its internal working structure to better fit subscription-based monetisation models.
“Executive measurements have to shift to align to the best practices Red Hat has deployed building a business around free products,” Merrill said. “IBM historically has jettisoned business lines that lacked discrete profit metrics as stand-alone products.”