Editor's note: I've been producing these "highlights" about IBM for nearly fifteen years, starting back in 1999 when Lou Gerstner screwed long-term employees out of their defined-benefit pensions and lifetime retiree medical benefits. Employees inside IBM, and in particular those that joined the Alliance@IBM, have known for years what the mainstream financial press is just now catching onto. Of all the articles written about IBM's disappointing third-quarter results, Mr. Denning's article best describes what's happened to IBM during the Palmisano and Rometty years. (And, I would argue, the Gerstner years.) I don't usually "fully extract" an article of this length, but in this case I found it impossible to edit anything out. Thank you, Mr. Denning, for telling Wall Street what we current and former IBMers have been trying to tell the world for years.
Full excerpt: In 1787, Empress Catherine II of Russia made an unprecedented six-month trip to Crimea, the “New Russia,” with her court and some foreign ambassadors. The area had recently been devastated by war. Amid fears of a new war, the purpose of the trip was to impress Russia’s allies how prosperous the region had become as a result of rebuilding the region and bringing in Russian settlers.
The Empress was accompanied on the trip by the official who had been responsible for rebuilding the region and bringing in Russian settlers. The official, Grigory Potemkin, happily combined this official role with his unofficial function of bedroom companion and lover of the sex-hungry Empress.
Potemkin’s problem on the visit was that the reconstruction of the area was not as far along as desired. Not wanting to disappoint his demanding imperial mistress, and being an energetic fellow, he implemented an ingenious scheme. He had a team of workers develop some “portable villages.” Prior to the arrival of the Empress’s barge, Potemkin’s men, dressed up as peasants, would show up at the site and assemble a village. At night, in the midst of the barren territory, the fake settlements with their glowing fires would comfort the Empress and her foreign entourage. Once the Empress’s barge had departed, the village would be disassembled and rebuilt downstream overnight for the imperial visit the next day.
The stratagem was a personal success for Potemkin. The Empress was sufficiently pleased with his multiple services that he solidified his hold on power. Strategically for Russia, however, it was otherwise. The visiting ambassadors detected the difference between the real and the fake buildings and Potemkin’s deception was in due course exposed by his political opponents. Shortly after the imperial visit, the region was once again plunged into a war between Russia and the Ottoman Empire.
IBM’s Potemkin prosperity. Fast forward a couple of hundred years to the troubles of IBM, the once-iconic technology giant, as its CEO, Ginni Rometty, struggles to convince a skeptical stock market that her tricks of financial engineering, share buybacks, tax gadgets, cost-cutting and hastily assembled acquisitions and innovation initiatives have put IBM on the path towards prosperity.
The problem is that after ten successive quarters of falling revenues, the pretense that everything is on track for the accomplishment of “Roadmap 2015,” in which IBM’s earnings would double to reach $20 per share, can no longer be maintained. Rometty announced last week what has been obvious for some time: IBM won’t hit the target after all.
She also announced that, rather than sell or shutter its chip division, it would actually pay GlobalFoundries $1.5 billion to take the division off its hands, while also taking a $4.7 billion charge.
“At the end of the day,” said Rometty in an interview with CNBC last week, “this is about returning value to shareholders.” Yet to many observers, the single-minded focus on returning value to shareholders is precisely what is killing IBM–and destroying real shareholder value.
IBM’s focus on boosting the share price has been built on a foundation of declining revenues, capability-crippling offshoring, fading technical competence, sagging staff morale, massive debt-financed share buybacks, pervasive non-standard accounting practices, tax-reduction gadgets, a debt-equity ratio of nearly 174 percent, a broken business model and a flawed forward strategy. Those Potemkin-style tactics can only work for so long, before the business reality becomes evident to all. With IBM’s stock down more than 10 percent over the last week, that day may have already arrived.
IBM’s staff speak. “We have a very clear strategy,” said Rometty last week, “about how to take this company to the future and more than a strategy, a whole list of bold actions we have taken, one after another this year. And when you’re clear with your workforce and you engage them, that’s how you move them swiftly.”
Among Rometty’s problems is the testimony of the staff and executives involved in the internal re-jiggering of IBM’s affairs. If the anecdotal testimony of staff is to be believed, IBM’s workers are far from being engaged. Some recent examples of IBM staff views:
Whether or not these statements are true in every detail or across the board is beside the point. The perception among staff that they are true has the same corrosive effect.
A broken business model. Some staff also question whether IBM’s business model is sound:
Rometty insisted last week that IBM’ has made “very bold moves” since she became chief executive— billions of dollars for data analysis software and skills, cloud computing, Watson artificial intelligence technology and so on. “The strategy is correct,” she said. “Now it’s our speed of execution that needs to improve.” But if the disaffected workforce doesn’t believe the strategy, implementing it won’t be easy.
The Buffett factor. The key to IBM’s game-plan in “delivering value to investors” has been “RoadMap 2015”, which promised a doubling of the earnings per share by 2015. “Roadmap 2015” is what induced Warren Buffett to invest more than $10 billion in IBM in 2011, along with many other investors, who were impressed with the methodical way in which IBM was able to boost earnings per share. (Buffett’s investment was striking because of his long-standing and publicly announced aversion to investing in technology, which he admitted he didn’t understand.)
“The best business returns,” says Buffett, “are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.” Put another way, “IBM had that stickiness and indispensability to many large corporate and government institutions worldwide.” The question is whether this way of doing business is coming to the end of its effective life. Today clients show signs of preferring flexibility to stickiness.
IBM is used to operating in a world where new versions of software come out every few years, making it difficult to get out of a license when company data depended on it. The emerging world of cloud computing will require greater agility.
How long Warren Buffett will stick with a losing business model remains a question. Some analysts speculated on CNBC’s Squawkbox last week that Buffett may already be selling some of his stake. If the share price continues to tank, he’s likely to pull out entirely.
The Palmisano factor. Rometty of course didn’t invent “Roadmap 2015.” She inherited it from her predecessor CEO, Sam Palmisano, who retired from IBM with compensation estimated at $225 million, including the options, restricted stock, pensions, deferred compensation, bells and whistles.
Palmisano was, according to HBR in 2006, “a true-blue IBMer, who started at the company in 1973 as a salesman in Baltimore,” with “a visceral attachment to the firm.” He is “a results-driven, make-it-rain, close-the-deal sort of guy.” He also famously held a ValuesJam, in which thousands of IBM’s employees joined in an open debate about the very nature of the computer giant and what it stood for. At the conclusion, Palmisano declared IBM’s commitment to three values: “Dedication to every client’s success,” “Innovation that matters,” and “Trust and personal responsibility in all relationships.”
However critics—and many staff—suggest that what drove actual decision-making at IBM under Palmisano was not so much “clients”, “innovation” or “trust’, but a relentless drive to grow earnings per share, no matter what the cost.
Palmisano’s June 2014 HBR interview corroborates this diagnosis. In the long interview, Palmisano never once mentioned the word “client” or “trust”. He mentions “innovation” only once, and then to point out how little money it involves in the overall scheme of things. “Your innovation and long-term investments are a very small portion of the SG&A [selling, general, and administrative expenses] pot—maybe 4 percent.” Somehow IBM’s values got lost in the shuffle.
Many see Palmisano as the origin of today’s problems. Far from valuing trust, IBM, under his watch, developed a culture of distrust, in which nobody dared to talk their mind. Executives just wanted to hear the “right” story. Rometty is simply following in Palmisano’s tracks.
Offshoring has been implemented with ruthless brutality. “US employees,” says one former executive, “were asked to train their successors and then fired. The offshoring was based on Palmisano’s ideology of the ‘Globally Integrated Enterprise’ (GIE) which claims that it does not matter anymore where you put your operations. You can stitch the company together by information technology. This was used for IBM’s offshoring and customer projects where they took out cost by putting most of the resources in overseas call and competence centers. This was complemented by global processes that never worked properly. Through massive offshoring, IBM lost the ‘soul’ that it once had in days of Thomas Watson Sr.”
The “unprecedented pace of change”. “The pace of change,” said Rometty in her interview with CNBC last week, “is unprecedented.”
In the same interview, she also said, “At the end of the day, this is about returning value to shareholders.” In the interview, the client seems almost like an afterthought. By not putting the client front and center, the risk is that the pace of change will always be “unprecedented.” IBM will be continually surprised by what is happening in the marketplace.
Thus Amazon launched its cloud computing services in 2008. IBM only discovered the cloud in 2011 and has struggled to keep up ever since. After losing a lucrative CIA cloud project to Amazon—a deal that should have been a shoe-in for IBM, given its history and customer relationships—IBM acquired a small competitor, SoftLayer, to provide the services its customers were demanding, which IBM itself couldn’t provide. But SoftLayer itself was arguably already behind the curve and over-priced. And even if IBM ever does catch up in cloud-computing , the cloud is likely to be such a thin-margined industry that it won’t sustain the profit margins IBM is hoping to achieve.
Is it a surprise that Rometty reported last week that results were down because IBM’s clients were “not ready to make a decision”? Or another surprise: clients have been asking for “more flexibility in our software to deploy it for new workloads”? And surprise of all surprises in 2014: IBM has discovered that clients want “mobile.” Which century is IBM’s management living in?
IBM is systematically playing catch-up in a world where catch-up is ultimately a losing game. Instead, IBM needs to answer Peter Thiel’s questions: what can IBM do that no one else is doing? What secret does IBM know that no one else knows?
Rometty’s attempted answer seems to be the very old response of Lou Gerstner back in 1994: we can help big firms integrate all this confusing technology stuff so that they just don’t have to worry about it: leave it to IBM.
“Playing to win on cloud,” said Rometty last week in her CNBC interview with David Faber, is what IBM is about. “We have always said there would be three things that would make a difference on cloud. It would be hybrid, meaning you would connect these new ideas, these new innovations to your existing systems. Data, it would matter it would really be about data. And security. All that is coming to be now. And that is exactly the strengths and exactly what we built for.”
Huddled together on a sinking ship. Yet implicit in Rometty’s summary is a philosophy of business as usual. It involves a set of “core accounts”, namely, big firms who don’t understand software and who are scared to death of everything that it is doing to their businesses. They are hoping that IBM can somehow protect them by providing a safe and stable environment and they are willing to pay a premium if IBM can do it. That will supposedly enable them to get back to their “real business” of pushing products at customers and making money.
One problem is that when IBM itself is moving so slowly, with such a disaffected workforce, and with no apparent mastery as to what is going on, let alone any clear vision as to what is coming next, the safety and security that IBM promises to its fellow mastodons constitute an illusion. IBM is just as out of touch as they are. When there are much cheaper and more flexible solutions, the option of switching looks ever more attractive, as the pressures mount on all the big firms to deliver “better, faster, cheaper, light, more mobile, more personalized and more convenient.” In this environment, the extravagant premiums that IBM is hoping to extract for sticking with IBM look ever more fragile.
The reality is that IBM and its core accounts are huddled together on sinking ship that is basically out of touch with the marketplace, with an obsolete approach to management (maximizing shareholder value and hierarchical bureaucracy) and frightened of the future. They had all hoped that by jacking up their share prices through Potemkin-style tricks of financial engineering, share buybacks and free government money, no one would notice their real underlying problems. But change is coming, inexorably.
The problem they face is that technology isn’t any longer something that can be kept locked up in some back room, overseen by IBM. Whether these firms like it or want it or will admit it, all organizations are now software organizations. All of these firms’ systems run on software. The customers of all these firms want fast, convenient higher quality mobile solutions that only software can provide. There is no safe space where software can be contained, no back room where the glacial progress of IBM’s mainframes can reign. “Software,” as Marc Andreessen quipped in 2011, “is eating the world.”
In this emerging software-driven world, a new kind of management is required. It focuses customer delight as the new bottom line of the firm’s business. It delivers greater shareholder value, not as the goal but as the result. IBM will have to learn how to disrupt its own cash cows and rapidly develop new products that have not even been heard of. Innovation will need to happen on a continuous basis.
For a certain period, the tricks of financial engineering could fool some of the people some of the time that the ship wasn’t taking on water or losing velocity. But the moment of truth is fast approaching for IBM, just as it is for IBM’s core clients. The future is rapidly evolving software. All organizations will need to learn to live with it and master it. There is no safe haven. IBM can’t provide it. That era is over.
Potemkin-style financial engineering won’t save these firms. Maximizing shareholder value by jacking up the share price won’t help for long. Nor is the “corporate cocaine” of share buybacks the solution.
Does IBM have a future? Yet the case isn’t hopeless. Despite the profound problems IBM now faces, the firm still has tremendous resources and knowledge, in particular in R&D. It enjoys a huge base of customers who are losing patience but who have not yet given up on IBM. The firms that constitute the Global Accounts have long-term relationships with IBM and would prefer to stay with IBM if IBM could be a viable partner in the new world. They see IBM as one of the few companies that can actually run big complex data centers. IBM also has immense strengths in the field of High Performance Computing. Even critics concede that IBM still has the most secure and reliable software for mainframe systems and middleware.
IBM needs to build on its strengths. IBM was once a great company that respected and rewarded its employees and served its communities and society. It’s a company that still has the power to change the world if only it would choose to.
Yet it’s hard to see how it can accomplish this with the current management team or the current board and their obsolete management philosophy. It has been evident for some time that IBM has been heading down the wrong path. Why did they just watch and not act? According to Nick Summers at Bloomberg BusinessWeek, IBM’s leadership has been “like a driver obeying the commands of a GPS system even as passengers shout that the car is clearly headed toward a ditch.”
It’s time to get back to Tom Watson Sr.’s philosophy of putting the customer first among stakeholders and earning a real living again, but in a very different context with a very different approach to management.
IBM has made other major transitions in its long life—last time with an outside CEO.
Maybe it’s time for leadership with a different vision?
Selected reader comments follow:
There seems to be a cognitive dissonance at the top of IBM. On the one hand they recognize the “unprecedented change” in the industry and the need to reinvent, but they think they will be able to thread the needle and continue buybacks/dividends even as their competitors invest their free cash flow in acquisitions, more sales staff, more development, etc.
It is not that complex. IBM needs to invest free cash flow in the business to grow and be relevant… in substantial quantities. If they don’t reinvest at the same levels at their competitors, they will, over time, continue to shrink and their technologies will become obsolete. Thus far they have spent inadequately on investing in the business and the results have been inadequate. Exactly what you would expect.
As to whether they are not spending enough on innovation, I wonder whether it is the amount or the quality. The way Rometty talks, it’s like she’s throwing money at possible opportunities, in the hope that some of it will stick. Most of it is catchup, from stuff that didn’t work within IBM. It’s not like she has some insanely great idea that no one else has thought of and she is pursuing it with any passion. We know from many other companies that results from innovation bear little relation to the amount of money spent. There’s practically no correlation in any of the studies. This would seem to suggest that throwing gobs of money at things may not be the right way to go. Throwing even more gobs of money may not help.
In listening to Rometty, her one passion seems to be transferring resources to shareholders. She’s very passionate about that. And the article shows us where that has led.
In last interview she was unrepentant pledging to go back to the board to buy more stock- and referred to Warren Buffet as simply, “Warren”. I am glad she on a first name basis with Mr. Buffet.. but it seems she worries more about his portfolio value than IBM.. which she is morally and ethically required to serve.
Paying out stock dividends and plumping up the stock value to make it more attractive while contracting the company is in some ways nothing more than a high priced Ponzi scheme.. if not illegal than certainly misleading. The time for Ginni to restore honor to the office of the CEO is long past...she has disgraced the good name of IBM and must go.
“We will continue to make the investments and changes necessary to manage our business for the long term and to shift to higher-value offerings,” Rometty said in the statement. “At the same time we remain fully committed to returning significant value to shareholders.”
The end of Q4 is approaching and this quarter isn't good.. Ginni should be out of money to buy back more stocks. It is time for IBM employees to stage a work slowdown until she is dismissed! The buy backs will come on the heels of yet more damaging layoffs.
While IBM focused on out of touch “Roadmap” goals, enormous damage has been done to both employees and the company:
Although “Roadmap 2015” has been abandoned, job cuts, pay cuts and a toxic work environment mean that the pain is likely to continue for IBM employees.
Head of UNI ICTS Alan Tate said “The IBM Global Union Alliance strongly opposed Roadmap 2015, and we will continue to fight against job cuts and detrimental actions against IBM employees. It’s time IBM executives listen to their employees and the unions, before this once great company is lost to executive greed and incompetence.”
Brought to you by Alliance@IBM CWA Local 1701.
When IBM hit a road bump, the recovery plan clearly had to be on a renewed client focus and delivering superior value again. Unfortunately the baby was thrown out together with the bath water. The environment deteriorated to a point where it would no longer be considered an attractive place for talented employees.
It lost a lot of goodwill by moving out drastically from communities it served well for a long time and lost it’s soul in the process. And successive CEOs instead of stepping on the pedal and displaying strong leadership became dependent on the one group that lacks creativity and leadership, the finance folks at IBM.
It is not surprising that IBM had to explain it’s results. Unfortunately once it embarked on this slippery slope it became a journey of manufacturing results through unconventional means like share buybacks, tax gadgets, cost cutting and drastic off shoring. Ginni did not create this formula but if she was a visionary leader she would be able to decipher reality and in touch with the true sentiment of the vast majority of IBMers.
It will not be easy to recover because what remains of IBM is just a shell, the balance sheet is poor because of all the share buybacks. Few talented employees remain; the environment has become too shabby to attract new talent; no longer leader in any high growth area; lost goodwill of the clients and partners.
This did not happen overnight but over several years in the misguided notion that financial engineering will get IBM to its ultimate goal. IBM was an American icon but perhaps today the impact of IBM’s failure would be felt far more extensively in India than the US. Perhaps Ginny should consult Modi for ideas.
There have been many instances over Ginni’s tenure where she has shown her true colors, but the most blatant was this year. It started with a highly publicized comment where Ginni pretended to take one for the team by refusing her bonus. Then throughout the year Ginni continued to prop up the house of cards with promising her EPS targets; however, during this time she never put her money where her mouth was by purchasing IBM shares. Finally, less than two months before black and blue Monday she profits with millions of dollars in corrupt stock options – who needs bonuses when you are rewarded options for meeting easily corruptible metrics? Unfortunately, but very predictable, many of her senior execs followed suit.
And while Ginni was funding snow removal of newly constructed asinine helipads, proclaiming her delusions of grandeur, and spending her financially engineered loot, IBM’s quality of services, software, and hardware deteriorated due to a lack of resources, significant number of employees were laid off: most employees received no bonuses, and shareholders saw their investment slip by ~10%.
When one couples her tenure as CEO with her past performance as member of the AIG board, it becomes clear what Ginni is good at: looking after herself and few of her buddies while pillaging everyone else. Ginni was a member of AIG board during AIG’s finest moment and was responsible for rewarding copious sums of loot to the incompetent AIG execs.
As a former IBMer, I have acted upon your writings and want to alert the readers of your piece that I have started a campaign on change.org to bring about much needed leadership change at IBM. A link to the petition is available below: http://www.change.org/p/the-ibm-board-of-directors-bring-on-board-a-new-generation-of-leaders-who-can-steward-ibm-through-its-next-chapter?
Badly defined sales plans ensure that the IBM Services guys, the Software guys and the business consulting guys are all except being motivated to work together creatively on the same account – this might be even truer in the area of cloud computing than before. There’s an enormous shift to make in the way IBM is being managed. But as you state, maybe the most important is to put back the customer, and not the shareholder, at the center of the business. And this last statement is very much valid for MANY different companies. So what is the society we want to live in next ? As a whole?
Services is labor intensive and historically had low profit margins. Lou took the company to 50+% services and was no longer diversified in its skill. Lou stepped out because it was beyond his ego to sign anything attesting to his responsibility that the results of the company were accurate due to Sarbanes-Oxley.
Sam just continued on the path that Lou started with no strategy except buy backs and more financial engineering. All the IBM employees at the time knew it, but if we said anything we were nay sayers and not team players.
Unfortunately for Rometty, the game is over, the cutting hit a cliff and went over and there is nothing to replace all the revenue lost because of divested business units.
Stockholders think that Apple applications are going to help, by the time IBM develops them , maybe in India, and they add in the IBM premium, those applications are going to cost more than a gold iPhone for each client.
The cloud is already a commodity and watson isn’t required by most businesses and when the business that can use them find out how much they cost, I think there will be a big surprise.
Unfortunately, IBM can no longer say it has the skill to do anything. The days of hiring the best and paying better than average are long gone. Anyone left at IBM is more than likely unable to find another job or just too close to retirement to jump ship.
If you want to play IBM in the market, I suggest a short, but then again, everyone knows now.
The gap between what’s reported to Wall Street and the actuality of the “missed forecast” message each quarter has widened the gap between “classes” and has been a losing value proposition for the everyday IBMers. The constant drumbeat of monthly resource actions, cutting compensation for the US worker to fund overseas growth, pulling back from bonus payouts, removal of sales people from actual sales plans to place them on a quasi, growth-driven profit plan (funny IBM chose the name GDP), significant reduction of recognition dollars now replaced by social, peer-to-peer non-monetary thanks, and a general attitude of pushing the employee population to the breaking point of quit or smile and take a pay cut “for the good of the company.”
Unfortunately, Ms. Rometty and Ms. Gherson (current SVP of HR) have squandered their opportunity to re-invest in IBMers and reinvigorate the culture – choosing to apply the same tactics of Misters Palmisano and MacDonald (the former SVP of HR). Thankfully, I had the good sense of leaving IBM on my own terms years ago. I could no longer (in good conscience) be part of the “sticking it to the worker” mentality.
I had to go – to at least have a shot at getting my soul back. Had I remained I would have surely met Lucifer at the cross-roads — no longer believed in IBM’s engagement model – shareholder first, employee last.
Sadly, I continue to get emails, LinkedIn messages and phone calls from the great people that remain – all of which hate their jobs, have lost faith in the company and hope each quarter that the lay-off fairy and Road-kill 2015 will visit their department so they too can become Walmart greeters, Home Depot shelf-stockers or independent business people.
IBM you have lost your way, but worst of all, you have lost the trust in the one relationship that will define your success or determine your faith –the IBMer.
Unfortunately, for the first time since Tom Watson Sr. assumed control, IBM is facing a cultural crisis. Watson Sr. roaming the halls of today's IBM would make the same observation he made in 1914 - there is very little enthusiasm. Lou Gerstner used his 2002 book, Who Says Elephants Can't Dance? to claim not only strategic and financial success but cultural. He deserves credit for the first two but not the later. Our business schools should teach all its students to read any business book - but especially self-evaluations by Chief Executive Officers - with a healthy dose of skepticism.
IBM's problems are rooted in the inequitable distribution of corporate profits between its four stakeholders. Gerstner exposed his shareholder-first strategy to his employee-owners in 1999 when he failed to provide a simple choice between two pension plans. By failing to provide a choice, he pushed IBM to the edge of its very first cultural crisis. Then Sam Palmisano leaped from this precipice grasping for shareholder-only rewards; and the fall impacted IBM's customers. The strategy continues with Ginni Rometty to such an extent that IBM's Smarter Planet initiative may be in jeopardy. IBM made the plant smarter in the '60s; it is not on that path today. Today it only has a marketing slogan with minimal forward movement for a $100 billion corporation.
Ginni Rometty inherited from Louis V. Gerstner and Samuel J. Palmisano a cultural disaster founded in shareholder-first and -only strategies. The strategy of her predecessors desired nothing but 1099-MISC employee relationships, lowest-cost product development (at the expense of time-to-market, cost-of-ownership, usability, quality and overall competitiveness) and meets-minimums customer service. ...
IBM needs to invest in its people. IBM needs to do more than just say that it is abandoning the 2015 EPS Roadmap. Past decisions to save pennies at the employee-owner's expense are a drag on earnings. Both Gallup and Deloitte have shown the business impact of employee-owners that are, as they say, engaged or passionate; Watson Sr. looked for enthusiasm. You get the idea — employee morale matters.
These are a few actions that would immediately send the right message to IBM's employee-owners:
Selected reader comments follow:
There is no allure to working at IBM for anyone under the age of 40, which is a problem considering IBM is no longer selling mainframes and superior technology but their intellectual firepower through software and consulting services. Why would any sought after intellectual talent choose to work at IBM instead of Google, Apple or Facebook, or any number of high tech companies where the intellectual talent is actually treated like the product rather than a cost problem to be solved?
How many people in the 20th Century chose IBM because of a person's personal story and conversely how many are not joining the 21st Century IBM because of the same process? IBM's Human Resources department needs to quit viewing human beings as resources. Humans as a resource started with Tom Bouchard — that Lou sets on a pedestal in his book — and has been going on ever since.
Here is one change that IBM can make that will have an immediate impact — change the name of the organization responsible for human morale to realize that IBM needs relationships more than it needs resources. That applies to customers, employees society and may soon learn, shareholders.
Keep the anecdotes coming! They are powerful and meaningful. Cheers, Pete.
IBM employee-owner morale stopped being measured with the Pulse Surveys in 2011 - coincidentally with Sam's retirement. Also ask any IBM employee how effective "Sam's Jams" were that the press wrote about so enthusiastically. Jams could be effective — if as I point out above — it isn't used to keep employees at "arms length."
So, 15 years later, it is sad to see companies that did not exist then dominating in market niches that could easily have been IBM's. Areas like: cloud computing (aka SalesForce); social media (Facebook, Twitter, Instagram, LinkedIn, etc); browsers (Chrome, Firefox); mobile (Samsung, Apple, Dell); even communications/wireless. Many of these companies had little or no capital barrier to entry and IBM held many of the patents needed to excel. The fear of "competing" with clients in areas like advertising inhibited many actions.
Even in areas of raw technology and research, IBM has largely failed to capitalize on its strengths. Its patent portfolio is awesome, but few products come from the basic research. Areas like chip manufacturing could have led the way to improved battery technologies, solar panels, biochemicals, etc.. Sad to see they had to "sell" their once state-of-the-art chip manufacturing to and pay them to take it!
IBM needs to stop share buybacks and start investing in technologies and/or companies that are shaping the future of information systems and social enterprises.
It used to be that IBM was in the top gainers on Wall Street...for guidance. Maybe leadership should review that list and contemplate the difference in the strategies of those top 10 versus IBM's. Sad indeed.
That’s left investors and analysts asking: How can Chief Executive Officer Rometty give a 103-year-old tech giant new life? IBM has so far failed to move into growth areas like cloud computing fast enough to make up for a decline in its older hardware and software businesses. Other technology companies that haven’t moved quickly enough have taken more drastic action this year, with Hewlett-Packard Co. saying it’ll split in two and EBay Inc. planning to spin off PayPal. ...
What Rometty needs is growth, which is easier said than done. While IBM’s big future bet is on cloud computing, that business is only about 3 percent of the company’s annual revenue. Meanwhile, services and software are no longer the savior they once were to make up for declining hardware demand. ...
For now, IBM is mostly facing more urgency to add business customers, cut jobs and other expenses, divest more low-margin businesses and make more acquisitions to prove it can catch up to the industry’s widespread changes. After 10 straight quarters of falling revenue, IBM wants to shift its software portfolio to the cloud, where customers host technology in remote servers instead of onsite. The company also needs to battle pricing pressure on the services business, IBM’s biggest.
Selected comments from LinkedIn's "IBM Official Alumni Group: The Greater IBM Connection" follow:
Managers I worked for, in return, moved me to another branch closer to my mother's location when she began to have old age problems and travels back and forth were very time consuming. They also moved another CE on a temporary assignment to Rochester, Minnesota when his wife became seriously ill and she could be closer to the hospital there. I can think of lots of stories like these of "the old days" of IBM management. It is appropriate that the highest honor awarded to a CE was the "IBM Means Service Award".
IBM is now paying the price for this. I think what is needed is new leadership who can clear the board and start again—as Gerstner did. The pre-Gerstner IBM had many faults; we were certainly too internally focused and ignored many of the developing trends in the industry, so it's not simply a matter of going back to the old days. But in the end the interface with the customer resides in the people in the front line. If they do not have right culture, the right skills and the right attitude then you can have all the great technology in the world and no one will want to buy it from you (or at least they will not buy it a second time).
By outrageous attention to costs. Need to take a class? Sorry, we don't pay for that any more. Need pens or pencils? Sorry, we're not allowed to order those any more. Traveling to Manhattan? Here's a per diem—sorry it doesn't cover your expenses. This was a train wreck waiting to happen. Too bad for Ginni that it happened on her watch.
The "three envelopes" story comes to mind.
For years, investors mostly turned a blind eye to IBM’s underlying trouble and boosted the stock price due to its shareholder friendly policies.
Buybacks can reduce a company’s number of shares outstanding, and can cause earnings per share to increase at a faster pace relative to actual profits. Critics say companies should use their cash more efficiently, such as investing in research and development, or to increase hiring.
IBM currently has fewer than one billion shares outstanding, compared with 2.3 billion in 1993. But now, investors appear to be focusing on bigger issues hindering IBM. The company ditched a key long-term profit outlook last week in conjunction with its disappointing quarterly results.
The problem is that IBM's declining business is leaving less and less money available to continue this virtuous cycle of retiring shares to inflate the value of the remaining ones and since IBM's business can't hope to keep pace with Wall Street earnings estimates, the only way Big Blue can save its own bacon is to continue to blindly buy shares whether it can afford to or not. ...
This all poses a significant problem for IBM longs because a stock that is built on financial engineering only works when the engineers are still improving EPS. IBM simply can't afford to do it the same way it once did and now that its FCF has declined so steadily we see buyback authorizations starting to dwindle as well. The dividend is making up an increasingly large portion of IBM's FCF and that is not good news for buybacks or EPS growth. IBM's FCF situation has set it up to miss EPS estimates because its business is terrible right now and without inflating EPS by retiring shares, there isn't a lot to like here.
Microsoft pivoted into the enterprise space with Windows Server back in the mid to late 1990s. That was the beginning of the end for IBM's hardware segment. The added standardization, paired with powerful middleware and ongoing support from Microsoft was what made various IT departments shift their resources away from UNIX-based systems, the type of stuff IBM created. So, in a sense, Windows offered both data center and individual PC licenses at prices that various IT firms could hardly compete with. Not to mention, Microsoft brought on board various PC OEMs to be distributors for various hardware systems that ran on Windows Server as a backbone and various Linux versions as a tertiary OS.
I recently talked to an insider, but basically, he stated that neither Oracle nor IBM could create a hardware business running Windows OS. It just wouldn't be profitable, and it's for those reasons I'm fairly convinced that the ecosystem shift away from legacy OS/middleware into more standardized OS ecosystems in the server space will continue. Basically, what Microsoft is doing on the software side of both datacenters and individual PCs bars entry from long-time competitors in the space, and since many of the applications work on Windows PCs and Windows servers, by extension both the hardware and software component is better handled by the Wintel ecosystem. ...
If you look at the software revenue breakdown, the company derives the bulk of it from middleware. Middleware is basically software that sits between the OS and various software programs that interact with it. In other words it is software that's sold to a very narrow market that needs IBM's software to make a UNIX or Linux based server run smoother (function with more applications). It represents the bulk of IBM's software revenue, indicating that the growth opportunity on the software side is limited to the number of systems that IBM can sell using IBM's more proprietary OS. In other words it's a shrinking market.
Also, IBM does not sell that many consumer facing applications. Unlike IBM, Microsoft took the initiative in software applications decades ago. Microsoft launched Excel in the mid-1980s and combined it with a couple of productivity suites and sold it as a mass market product. Now really think about that. Many business schools would echo the idea of selling a specialized product to a narrowly defined customer base. Excel should have been sold to engineers, mathematicians and programmers. But when you fast forward 20 years, everyone is trained to use Microsoft Word, Excel and PowerPoint. Now not everyone will write a book, create accounting spreadsheets or will make a presentation. But in a sense Microsoft created a productivity tool that everyone is more or less familiar with. As a result organizations are willing to pay Microsoft bulk licensing fees to roll it out across an entire organization. Plus consumers are willing to pay for it, so they can use it on devices that they personally own. Microsoft faces the enterprise and the consumer. IBM faces the enterprise and ignores the consumer. ...
So in conclusion, IBM's software business isn't that stellar, and the number of non-branded systems will continue to trend higher. Furthermore, IBM isn't very competitive in the cloud space. On the software side, it sells middleware, not applications. So IBM really isn't positioned well in many of the markets that it competes or derives revenue from. Therefore, investors should sell or avoid the stock.
Pros: Ideal place to grow your professional network and work together with great minds. Also you have chance to participate on free internal IBM provided trainings. Great place to learn how to work in a multinational company and in a matrixed organisation. Good for first employment.
Cons: Compensation is not the best comparing to other companies in the industry. If you want to be a top performer it's really hard to keep the work/life balance on a right path. If you're sick of processes and bureaucracy, then it's not your place.
Advice to Senior Management:
Pros: Like many other reviews, the work-at-home option is a great perk. I spend a lot of phone time (and some face time) with a great group of coworkers
Cons: Once IBM was a special place to work. I don't doubt that things had to change, but IBM has changed so much that now it is just a run of the mill employer — actually worse than that, since they so aggressively try to cut back on the workforce and everything they provide the workforce.
I don't know why it took the markets so long to realize how deficient and how self interested the senior management really is. But now the cat is out of the bag.
Advice to Senior Management: Well...there's not much grounds for optimism. My only hope is that we get better goal making out of Armonk to replace the ruins of the 2015 Roadkill.
Advice to Senior Management: IBM should first take care of its internal customers, before it could take care of external customers. Create a solid organization from within. Create better way to evaluate employees, to know which people to keep and support and which people do not suit their positions. Give employees reason to do their best. If you will cut jobs, then at least make sure that the job was at least mostly automatized, and not transferred to somebody else. Having everyone underpaid and loaded with 1 year worth of work will only have bad ramifications.
I hope to see IBM do the right things again. If the company strategy doesn't change drastically, then IBM is on a long downhill. You cant have satisfied clients with dissatisfied employees.
Time for Employee Jam?
Pros: The ability to work from home. Still an OK severance package, although signs that HR are starting to manufacture poor performance reviews to get people out the door without the package. The ability to work from home. Still an OK severance package, although signs that HR are starting to manufacture poor performance reviews to get people out the door without the package.
Cons: It's not really clear what the company does anymore, aside from having a core competence in 'reinventing itself'.
IBM is expert at acquiring companies then milking existing customers. Over a few years all the value of the acquisition is destroyed.
The bureaucracy is something to be experienced, as are the internal IT systems. These are slow and fail constantly. The internal search engine is a joke — it takes ages to return useless results.
The sales process is the only thing that is important; delivery is seen as an inconvenient expense.
There is no point in working for promotion; people expect to be resource adjusted sooner or later.
Advice to Senior Management: Well done Ginni for finally scrapping roadkill 2015. Although, my suspicion is that it no longer became possible to keep up the facade. Although the share price has been hit, the market will return when it can see that the company is generating real rather than paper value.
The management knows via surveys that morale is rock bottom. Realize that whoever is left is good, so empower the grass roots. Don't start cutting staff — do an Amazon and pay no or reduced dividends (Roadmap 2019?) so as to invest in the future.
Pros: A great deal of flexibility (in my job) to work from home sometimes, take time out for things like doctor's appointments, etc.
Cons: Extremely high pressure. Resources that are far, far below the level necessary to actually get your job (or your team's job) done. Poor and outdated tools, such as the software we use and the PCs and other hardware devices we use.
Constant layoffs, often of the most experienced and knowledgeable people.
Limited educational opportunities (impossible to attend external courses, conferences, etc. that cost money).
Focus on "fighting fires" (which are often caused by the issues above) instead of sensibly planning and working on long-range goals everyone believes in.
Persistence in trying to make the company "successful" through financial engineering (stock buybacks, layoffs, accounting gimmicks) rather than sound practices of studying customer needs and providing products and services to meet them.
Salary has dropped relative to inflation every year for about the last 10 years, even though I am very highly rated every hear.
Advice to Senior Management: Make your people happy and give them a stable environment without threats and with the resources they need. If you do that, they will be on your side, will work hard, and will make you successful.
Pros: IBM is a big company. I have worked in a few different areas, and each is like a different company, with its own culture, and people. If you don't like where you are, and you're capable, there are lots of opportunities, lots of products, lots of places to try.
Cons: Top management has a focus on shareholders first, then clients, then employees. Once you recognize and accept that the word "customers" usually refers to shareholders, much of what upper management says makes more sense.
Advice to Senior Management: The people who leave are usually the best people. Not enough is done to keep top talent.
Pros: Wide variety of job opportunities, if you are one of the lucky ones to still be employed by "Big Blue."
Cons: The company seemed to have a policy of shedding as many US jobs as possible, and replacing the lost jobs with overseas or contract workers. My job was "sold" to a foreign company, but I still was expected to work just as hard or harder, with fewer resources.
Despite being one of the top-rated employees, I received a total of 2.5% raises over a 3 year period.
The defined-benefit pension plan was discontinued so executives could see their stock options soar in value, replaced with a far less generous defined contribution pension plan.
If you wanted to take an opening in another location, IBM would not compensate you for the move.
I was expected to work weekends at least once a month, without "comp time" off.
Policies were geared to the "politically correct," and if you held traditional values, you were not part of "the team," and your promotion chances were nil.
Advice to Senior Management: None—it's too late to save the company. They've sold their souls to the devil.
Pros: The talent of people that you are able to work with in great and motivated. You have the ability to gain customers' attention and start a conversation easily by stating you are from IBM and I would like to talk to you about...
Cons: Cumbersome processes which make you feel that you are not in control or that your view point matters. Cannot reach fast to customers questions and always need to set expectations that solutions or answers may take several days.
Advice to Senior Management: listen to the smart field sales people and organize the company to help them meet and beat customer expectations instead of having them catch arrows for sluggish responses.
Pros: Vacation and paid holidays are still a premium if you can find a backup to cover for you; overall benefits are still decent.
Cons: Corporate greed has taken over; customers and employees are no longer top priority for this company unless you're a top executive. Executive pay and bonuses continue to rise; pay and bonuses for non-executive employees, band 9 and lower have been frozen.
Advice to Senior Management: NEVER punish the employees who are the paper pushers; administrative employees are the backbone of the company and they have been left behind in the pay scale. Corporate bonuses for people below a certain band were frozen while the company still made billions and executives and sales personnel maintained their compensation and bonus structure.
Pros: IBM is huge, there are a huge number of incredibly talented people. Some of them are IBM "lifers" that haven't worked anywhere else for decades. However, they are great resources and great to work with.
Cons: This is a dying company. They lay off incredibly talented people because they plan from the top without departmental input. They have no essentially no "tech" benefits: you will not see a raise, there is no travel, no training—not even coffee is provided to employees.
Advice to Senior Management: Too late.
Pros: Great respectable brand and benefits.
Cons: Those at the lower levels especially are treated like a number and management does not care whether you work in an area you're interested in.
Advice to Senior Management: Align incentives better.
Pros: Home office and flexibility is allowed for some job titles and this is excellent for work-life balance. You will know people around the world, develop relationships and learn cultural differences. IBM is always innovating and is ahead of its competitors in terms of raising technologies.
Cons: The salaries and sales incentives are usually inferior comparing to competitors. Too much bureaucracies and processes that impact day-to-day work.
Advice to Senior Management: Negotiate your salary before you join, since afterwards it´s very hard to get any increase.
Advice to Senior Management:
Pros: Ideas to solutions; research and Watson operate like a high profile and well funded startup; alliances and acquisitions are continuing to transform IBM from HW provider to thought leader and problem solver.
Cons: GBS (services) has the talent, but some GBS leadership have their heads in the sand. Many arrogant partners who don't get pink slips that APs and worker bees get when the numbers are not where they need to be. IBM's benefits package is exceptional for the long timers; still pretty good and broad for the newer hires.
Advice to Senior Management: GBS needs a person-by-person review at the higher levels. Many are on their high horse, looking down on the day-to-day sellers. Need to figure out the B&P model to enable new and needed solutions (especially with new alliances and offerings—Apple+IBM will be huge when GBS can prioritize on the small time investment.
Pros: IBM employs very smart software engineers.
Cons: I started my job right out of college at IBM, with high hopes unfortunately:
By working at IBM I learned what type of company to avoid.
Advice to Senior Management: Start innovating and investing in your employees.
Pros: Excellent benefits. Tremendous talent. Incomparable brand recognition. Generous comp plan.
Cons: Too many layers of management. Sales prevention at its worst. Employees (NOT management) are just numbers. Lifers get a free ride.
Advice to Senior Management: Take a look at the failing managers and make changes. There are no issues cutting worker bees, but executives seem to be immune from the swinging axe.
Pros: The company is so large that you have a lot of opportunity to have multiple careers at one company. You have the opportunity to collaborate with a lot of SMEs. There is flexibility in work schedule and working from home or office.
They have a very good continuing education program. The benefits package is awesome (health, vision, dental, 401K, pension and employee discount program).
Cons: Because there is flexibility to work from home it seems that it is the norm to be expected to always be connected, on and available. Work/life balance is very hard because of all the long hours required to complete projects. It can sometimes be hard to have a collaborative environment because you are being compared to your peers so most people are doing whatever they need to do to shine.
Advice to Senior Management: Really understand that people are the most important asset and not laser focus on the dollar bill (revenue). Do everything you can do to help your employees thrive and grow.
Pros: Benefits not bad, and time off flexibility good. For some there can be work/life balance but gradually being eroded. Some cutting edge and interesting but can be hard to find.
Cons: Appalling management and leadership, and company probably entered a long downward spiral. Salary can wildly vary between people and don't expect any pay rise.
Advice to Senior Management: Listen to and reward the hard working guys at the bottom. Stop lining your pockets/pension and share options. Share price is not as important as you think and quarterly results are killing company. Need a proper (non-financial) 5-year plan.
Pros: It's a good place to start because they're always in the market for dirt cheap labor. If you're fresh out of school, they will charge their clients for an experienced developer as long as you have a pulse.
Cons: Management hates employees; that's the only explanation for many of their compensation and promotion policies, openly forcing employees to engage in "competitive differentiation" which simply makes for the cutest hostile work environment; everyone trying to make their peers look bad and screwing everyone to cover their behinds. Instead of fixing problems, finding new amazing stuff to blame on each other. But in the end is the person who the manager likes the most (or hates less) who gets promoted.
Advice to Senior Management: The way your employees feel about you, is the way your customers will feel about you.
Pros: It's a large company. If you put in and work hard, there are opportunities for advancement but it's not always easy or consistently based on merit.
Cons: Pay is not good. Don't expect annual increases or bonuses. Expect that if you work hard you will likely get rewarded by being given more work, promotions without actual pay or band increases, excuses and promises about what might happen in the future if you suck it up and work even harder. Also HR is solely there for the legal protection of IBM. They will exploit every gray area to get away with treating employees poorly. Beware of going on maternity leave. Like me, you could be starting your career over again when you get back. No protection and no employee rights.
Advice to Senior Management: Start valuing your employees rather than treating them as expendable expenses.
The local people management here in Germany is, what I have experienced, VERY good. The two first-line managers I have had here were both very understanding and interested in ME not in a working resource. I have always enjoyed enormous freedom be it working hours, home office, or hacking side-projects. This was due to mutual trust. Good stuff.
The fellow workers are very skilled to extremely skilled and the local people-to-people climate is usually pretty good.
Work is more "development" than "research and development" as the sign in front of the house says. But there can be interesting research aspects every now and then. The actual kind of work you do, of course, depends a lot on the product you work on. But generally it is hard core IT and usually fun.
Cons: Top level management is focused on their bonus and sees you as an annoying costly resource. Management is done without a lot of sense of realism ("build the best product in the world in two days"). Dilbert comics are very commonly glued to office doors; that should say it all. Also colleagues in America and India are sometimes capable and often not. Pay is definitely not above average. Bonuses and all kinds of goodies are virtually non-existent, as soon as they cost money. Not infrequently, local managers pay for things (grill parties, e.g.) personally. For example, we had a wonderful team hiking weekend — payed by ourselves.
Advice to Senior Management: Stop pursuing customer and sales lead and take a look around at your crippling organisation! People are complacent, and management just keeps their heads down and exclusively pursues sales opportunities with little regard to how their people are developing or could potentially contribute.
The ignorant managers responsible for the final RA selection were lacking the skills to identify required skills and yet landed as curriculum managers for the 10% of the remaining IBMers whose skill sets were deemed deficient. (Was their pay docked by 10% for not knowing which skills were required to promote SCAMS?)
Ginni says Services are essential and yet the skills are hardly there to support them. Whoever tries to right this ship had better focus on resurrecting true technical education that began its slow death in 1992 so that IBMers can begin again to delight their customers. -Soothsayer-
This week my manager sent us a PowerPoint showing our productivity targets. Exempt employees are expected to record 103.5% productivity or 2153 productive hours a year. If you have earned five weeks vacation, you are expected to work an extra 200 hours overtime to make the ratio. It appears the same applies to sick days, etc.
What a way for IBM Management to MAJOR in the MINORS vs. focus on improving morale and revenue. My solution was to join the union. I hope more do. IBM Profits have tripled in the last ten years while non executive employee compensation steadily declines, even before inflation. Feel free to use my name. -Steve Gaylord-
When I joined Advanced Technical Support in the US I was appalled that I could not visit a customer without 3rd line expense approval. My job was Technical Sales. I was supposed to sell technical solutions to customers DIRECTLY.
My ATS management was so proud that he made his expense budget every year. Conversely, the rank and file were shocked at how little customer interaction we had. It was like having a heavy weapons reserve unit that was prevented from going into battle because bullets were too expensive.
So, Ginni, your directions on expense control were carried out by your management structure without regard for the need to actually sell something to a customer. You totally mismanaged the primary responsibility to the shareholder and that was to promote a healthy growing profitable business and not a crafty financial engineering business. Peter Principle in action. -Anonymous-
Sorry, my dance card is filled. The deliverable will fail. You saw to that when you eviscerated the development and test organizations. Customers will be displeased; GTS will loose contracts. You have salted the earth; now reap what you have sowed. -gone-
Our Productive Utilization policy expects us to work on average more hours (2153) than there are working hours in a year. While it appears you can still take Christmas, Thanksgiving, other holidays and your "earned" vacation, if IBM doesn't need you on those days, you are expected to work enough overtime hours to make up for any non-productive time such as vacation and holidays, plus another 73 hours a year.
Is it any wonder we have seen attrition rates in the 20% range and most of those who haven't quit because they need a job, are looking elsewhere? -Steve Gaylord-
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