Mad Dog 21/21: The Old Man Of The Sea
February 19, 2018 Hesh Wiener
Proteus, said Homer in The Odyssey, was the formidable old man of the sea, capable of shapeshifting and empowered by the gift of prophecy. IBM, observed a commentator in Tully, a dozen miles north of Homer, is the venerated patriarch of information technology, infinitely adaptable and proficient at discerning what lies ahead. Both employ their ability to change their form both as a defense and as a way to achieve goals unattainable in their original shape. However, this transformative power makes it difficult for others to rely on them, for shapeshifting and constancy are in conflict.
Still, for Proteus, for IBM, and for others in both myth and economic reality, dramatic transformations can be fabulously empowering. Proteus emerged from the sea to sleep with his beloved seals on the island Pharos. The Trojan warrior and adventurer Menelaus was stuck on the island, and believed that with information Proteus could provide he could escape and once again pursue the fabulously beautiful Helen. Menelaus had a plan: He would somehow capture Proteus and offer to set him loose only when Proteus provided the information that would free Menelaus.
Well, eventually Menelaus was able to grab hold of Proteus, who tried to escape by turning himself into a lion, a serpent, a pig, a leopard, a tree, and other things. None of this shapeshifting was sufficient, however, and in the end Proteus told Menelaus the secrets his captor had sought.
During its corporate life, which now exceeds a century, IBM has sought to escape the trap of technological obsolescence by transforming its substance and its image. It has been a maker of retail business appliances, such as scales and timeclocks; the developer of the finest typewriters, machines that were once ubiquitous in offices, schools, and homes; and the preeminent provider of bookkeeping machinery that was initially mechanical and currently is for the most part now abstracted into virtual system images running exotic software. Along the way IBM became a key manufacturer of personal computers but later abandoned that business. It invented many of the foundation devices of the data storage industry, and still markets apparatus that bears a functional connection to its prior products.
During the past 50 years, IBM has moved in and out of the semiconductor business, designing devices and circuits, inventing ways to assemble components into subassemblies and entire machines. IBM has become a designer and buyer rather than a maker of semiconductors, telling interested parties that it can fare better as a consumer of circuitry rather than a creator. Nonetheless, the company is actively learning about processors based on quantum computing, and if that emerging class of computer looks to be sufficiently profitable and IBM sees a sustainable path to leadership, the company could well return to manufacturing.
The thread tying most if not all of IBM’s shapeshifting is its pursuit of commercial opportunity, the hunt for revenue and profit. The same criterion governs IBM’s persistence in various market segments. If a product line appears to be losing financial momentum, its survival in the IBM catalog may be at risk. So, the conditions that attract IBM to enter a market segment and the conditions that support IBM’s devotion to that segment are the same.
In classical mythology, various gods would shift shape to reach goals more easily and to obtain results that probably could not be realized if the god confined itself to its original form. The driving force behind a lot of the shapeshifting in Greek and Roman legend is lust. A god would shift shape to seduce an object of desire and, in some stories, shift shape to pursue and rape an attractive female. In some of these tales the object of pursuit would shift shape to escape the clutches of an amorous god only to find that that god shifted shape, too, taking on a form that facilitated the relevant sexual conquest. For example, a woman might turn into a mare to hide from a god, as Demeter did, but the god, Poseidon, once he understood his quest’s transformation, turned into a stallion and fulfilled his original intention to horse around.
Arguably, the most effective shape-shifter in the history of IBM’s management was Lou Gerstner, who transformed the company from one that was predominantly a manufacturer of computer systems into one that gets the majority of its revenue from services rather than goods. Gerstner’s renaissance led to another very substantial change: Most of IBM’s employees are tied to the services portion of the company’s business. Because of this change, and the way the world market for technical talent has evolved, the company’s geographic center of gravity has shifted to India (although it took until the second generation of post-Gerstner management for that to happen).
All this change was viewed as very positive for IBM, particularly during and right after the Gerstner era. But for the past five years, IBM’s shape shifting failed to produce growth. The company’s revenue fell, year-on-year, for every quarter. That changed during the fourth quarter of 2017, and IBM showed a financial upturn. The force propelling this improvement in Big Blue’s fortunes is, of all things, the deployment of a new generation of mainframes, the very products that the company says it will relegate to a less prominent role as it strives to build up activity in what it calls strategic areas, such as cloud computing and artificial intelligence.
If IBM’s best boost in more than five years comes from what may be the bright flicker of a failing flame, those who depend on IBM, particularly users of legacy technologies but also investors and employees, have some reason to worry. What for quite a long time looked like evolution through shapeshifting now may appear as a change in the company that is no longer fully under the control of IBM’s management.
In shapeshifting stories told in fiction, there are many examples of a protagonist’s unwanted change that sometimes gets reversed to yield a happy ending, as in the tale Beauty and the Beast. But not all such stories turn out well for the main character. In Franz Kafka‘s novel The Metamorphosis, Gregor Samsa turns into a giant, repulsive insect. As the story unfolds, Samsa is largely rejected by his family, gets injured, and eventually dies, after which his family moves and moves on.
So, as legends, art, and history show, shapeshifting itself takes on different shapes. It is impossible to say whether IBM will emerge from its current transformation as strong and lively as any classical deity, as a trouble but ultimately prevailing character like Proteus, as a potentially restored captive of entrapping forces like the Beast, or as a doomed soul like poor Gregor Samsa.
While Big Blue seems most likely to prevail against all rivals and all circumstances, enduring, as did Proteus, by shifting shape and demonstrating wisdom, guile and drive, strengths it has demonstrably enjoyed since its formation, the company’s perseverance is by no means a guaranty for those who depend on it. For quite some time, IBM’s employees have suffered far more uncertainty than their predecessors, personnel of times gone by that enjoyed IBM during its many decades of growth. Investors have not done as well lately as they had in the past, but for now they seem to be relatively safe, notwithstanding the way some key shareholders, like Warren Buffett, have backed off. Compared to investors, employees and contractors, customers may be the safest among those with a vested interest in Big Blue’s viability. IBM surely does not like to shed the buyers of its offerings. Nevertheless, as IBM has shifted shape, abandoning products and services, it has not always been able to substitute new offering for those it has ceased to provide. The iconic IBM Selectric may have for many segued into the IBM PC, but after that the thread was lost. Apple, Google and others now provide the ubiquitous business devices that capture data. Even that notion of an end user device is in flux with the rise of gadgets like Amazon’s Echo along with talking robots like Alexa, Siri and Hey Google. These interactive systems tie people and things to services that IBM, for now at least, can only envy, but which other companies provide.
The economic environment is constantly changing in ways that largely defy prediction, like the classical seas in which Proteus thrived. IBM can not only survive, it can still return to growth if it learns to evolve, to shift to the right shape and the right time and, like Proteus, musters its knowledge and insight to peer into the future. It does not have to see everything, but it must be able to more accurately anticipate threats and spot opportunities. If it can do this, the tides of fortune can once again turn in its favor. If not, waves of unfavorable change could ultimately wash it away.