Imagine the following scenario: You're groomed to become a Fortune 500 CEO. But before you can sit in the CEO chair, you must agree to long-term financial goals set by the company's current leader. The goals involve long-term share buybacks and lofty earnings per share targets. The bigger twist: Once you take the CEO seat, you'll discover that your company is painfully behind in two of your industry's biggest business waves.
Alas, you've got to agree to business and financials goals despite the fact that your own R&D isn't cranking out enough solutions to meet those goals. In my mind, that's the scenario current IBM CEO Ginni Rometty has faced when she took the top post from former CEO Sam Palmisano in January 2012.
As part of that 2012 succession, Rometty "stayed the course" with Palmisano's longer-term business plan -- which featured: A path to $20 per share in profits, exiting businesses that don't grow, doubling down on software and services, and betting big on analytics, notes ZDnet.
Back around 2010, Pamisano told investors that the clear line between consumers and enterprises would remain, insisting that, "Enterprise will have its own unique model. You can't do what we're doing in the cloud."
Turns out, Palmisano was wrong. Fast forward to the present and IBM's revenues have been flat or declined for 10 consecutive quarters amid an over-dependence on traditional IT (hardware and software sales) rather than modern models like cloud and mobile IT.
Misreading the Forecast
While many enterprises continue to make on-premises investments, most IT growth these days comes from cloud and mobile computing. On the cloud front, IBM had an effort called SmartCloud -- but it wasn't all that smart. Alternatives like Amazon Web Services were easier for CIOs to procure. Amazon even beat IBM to the early punch on various cloud security and privacy certifications in certain vertical markets.
IBM certainly didn't need to introduce commodity tablets and smartphones. Rather, IBM needed to make sure its corporate applications were available as apps in the newly mobilized world. Just like the cloud, IBM's mobile strategy was late to the game.
How is Rometty trying to cope with those realities?
- First, IBM acquired SoftLayer in 2013 to jumpstart its IaaS and cloud business. I loved the move because SoftLayer is truly an enterprise-centric cloud provider.
- Second, IBM acquired Fiberlink in late 2013 for mobile and security management. I liked the move, but the overall mobile management market is highly fragmented.
- Third, IBM inked an enterprise partnership with Apple to bring more corporate apps to the iPad.
- Fourth, Rometty has finally abandoned IBM's 2015 earnings per share promise that Palmisano made and she had, until now, endorsed.
So Who's to Blame?
Overall, I still blame Palmisano for handing Rometty a 2012 company with a decade-old business plan. But Rometty has some egg on her face, too.
After all, Rometty began her career with IBM in 1981. She lived through the painful shift from mainframes to client/server computing, and from client/server to eBusiness. Rometty should have known the corporate cloud and mobile IT waves were building faster than Palmisano realized.
Rometty's previous experience as GM, IBM Global Services Americas -- while valuable -- may have undermined her judgment about the cloud wave. After all, big IT services firms sell long-term consulting engagements for on-premises platforms like CRM and ERP.
"Little" cloud CRM and ERP companies like Salesforce.com and NetSuite certainly don't compare in size to IBM. So, perhaps Big Blue wrongly assumed the consulting gravy train would keep delivering profits and growth. In reality, more and more CIOs are finally realizing they can activate cloud applications in minutes, days or a few short weeks -- rather than the months or years such projects used to take.
Don't Count Her Out
Amid all of those challenges and realities, let's not forget: Rometty's career is filled with successes. IBM is still profitable. And the 2015 earnings promise is now history.
Perhaps now, Rometty can fully run IBM based on her vision -- rather than the earnings-per-share vision of her predecessor.
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