IBM Looks To The Cloud To Fight Disruption

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IBM Drops 4% After Its $22.48B Q1 Revenue Fails To Meet Investor Expectations

We are in an age of disruption and this is even more pronounced for a large technology company like IBM. But Big Blue finds itself in the position of having to reinvent itself yet again after surviving and even thriving through earlier technology transformations.

Let’s not forget that IBM was once the king of mainframes, which was a great place to be until mainframes were marginalized by mini computers from the likes of DEC, Wang and Data General (who in turn were rather quickly disrupted by the PC and LANs).

Through it all, IBM found a way to redefine itself, and in today’s cloud world IBM is attempting to do that again. Just last year it bought SoftLayer and with a stroke of the pen became a player in Infrastructure as a Service. But the company hasn’t stopped there. It’s developed a portfolio of over 100 SaaS offerings, and just last week it bought Silverpop in an effort to boost its growing hold in marketing tools.

And it appears that IBM’s strategy could be working if today’s earnings report is any indication. Although as TechCrunch’s Alex Wilhelm reported, the company’s overall revenue failed to meet investor’s expectations, there was a bright spot with cloud-related revenue up 50% and “the company indicating that on a run-rate basis, cloud-as-a-service is up to $2.3 billion per year, an increase of more than 100%.”

Of course, IBM is hardly alone among big tech companies when it comes to making a push to the cloud. In fact, Microsoft, Dell, Red Hat, HP, Cisco, Google and others have all made big cloud announcements recently and it’s hardly a coincidence. The technology world is tilting and this requires these companies, including IBM, to adjust.

But as Michael Krigsman, CEO at Asuret, a company that advises large organizations on marketing strategy, told me, changing a company the size of IBM is a tremendous undertaking. “Transformation is hard for any company, even individual departments find it difficult, let alone an organization the size of IBM,” he wrote me in an email.

Forrester analyst James McQuivey who wrote a book on organizational disruption called Digital Disruption agrees and says the larger the company, the bigger the challenge it is to overcome the disruptive force.

The larger the company, the harder it is to disrupt yourself, that’s not just an observation, it’s what executives we survey in companies of all sizes say about their own ability to transform themselves,” McQuivey wrote to me in an email.

Larry Downes, an industry analyst who studies disruption and is author (with Paul Nunes) of the recent book, Big Bang Disruption, says it might be a mistake to say that IBM has reinvented itself completely over the years, even though he agrees that it has found ways to alter its direction enough to stay profitable and thrive.  He says it’s important to remember that through it all, IBM has remained at its core an IT company.

“Companies in highly competitive industries, including consumer electronics, computing, gaming and entertainment, are always in the process of reinventing themselves,” Downes wrote me in email. “So too are companies in industries undergoing radical transformation of their core technologies. From that standpoint, the IT industry has always had to deal with the double-whammy of hyper-competitiveness and technological disruption, which are in fact related change agents and have been from the beginning.”

Downes says companies that manage to survive multiple changes are usually led by a strong executive core that guides the company through the changes and isn’t afraid to make bold decisions to alter the company’s traditional goals and markets:

The secret to surviving and even thriving under such conditions always come back to leadership.

  • Do the senior executives accept what we call the “inevitable truth” about the end of one set of core technologies and the emergence of better and cheaper replacements, and do they accept it in time to act?
  • Is the organization flexible enough to respond—shedding assets before they become liabilities, diversifying into new businesses, acquiring start-ups pioneering the new disruptors?
  • Can they make strategic use of patents, copyrights and trademarks to stall the inevitable, if only to buy a little more time to reinvent themselves?

These are the kinds of questions we asked when looking at incumbents of all sizes and ages to understand how some survived and some did not.

And this is what it appears IBM and its fellow large tech companies are attempting to do today under increasing pressure from a more agile, flexible and cheaper cloud marketplace that is putting extreme pressure on their previously profitable businesses.

McQuivey says it’s an enormous challenge for large companies to overcome this type of disruption, but it’s not impossible. “IBM has managed to stay alive — and large — through years of this kind of disruption, going from hardware to software, and now needing to see itself as a business partner. It’s a services and consulting model, true, but it won’t succeed unless IBM sees it as something even more challenging than that — a time to build a partnership model with its customers to serve their end users.”

He added, “That sounds easy enough, but it’s hard for anyone to make a shift like that, and other big tech companies will do well to watch IBM closely to see what works and, should it come to that, what doesn’t.”

It’s worth noting that on the same day it announced its earnings, IBM announced a big cloud win with The Hartford, a deal the company reports is worth $500 million to supply private cloud infrastructure. It’s not exactly going all in on SoftLayer in the public cloud, but it’s a move toward a changing marketplace, and that’s exactly what IBM is going to have to do moving forward if it hopes to thrive in the next generation of corporate computing. If today’s report is indicative, the company could be pointed in the right direction.

Image by Flickr user tomislav medak under a CC BY 2.0 license