New IBM CEO’s First Hundred Days: A Mixed Bag
August 10, 2020 Alex Woodie
How did Arvind Krishna do during the first 100 days of his new job as the CEO of IBM? Krishna took the helm during a remarkable stretch in early April, when COVID-19 was clamping down on businesses of all sizes, so he will be forgiven for not completing the wholesale transformation of the 109-year-old company into the hybrid cloud leader during that time. Just the same, some people expected more from him.
The selection of Krishna by IBM’s board of directors is important because he was the architect of the $34 billion Red Hat acquisition, which was announced in October 2018 and completed in July 2019. As a technologist, Krishna is unique among IBM CEOs, which are typically pulled from the ranks of sales and marketing. Krishna’s predecessor, Ginny Rometty, was hired by IBM as a system engineer, but made her mark in IBM’s services division.
Big Blue obviously has not fully absorbed its smaller Red team yet, as such acquisitions typically take years to fully flesh out. There is much work to do to completely integrate the company’s respective products, which we would imagine Krishna having a hand in directing. But there is still progress being made, as we saw with the recent decision to support Red Hat’s Ansible monitoring software with IBM i.
Ansible is nice, but Red Hat’s OpenShift platform is the big “get” in this deal. OpenShift is important because it’s built on Docker (the container technology) and Kubernetes (the container orchestration technology). Atop these core technologies–which are critical to running in a public, private, or hybrid cloud – OpenShift exposes the raft of necessary services and functions that enterprises need to run applications in a cloud environment, including databases, language runtimes, service meshes, CI/CD pipelines, IDE plug-ins, and all the rest.
It’s hard to overstate the importance of OpenShift for IBM’s strategy to lead the industry in developing a hybrid cloud platform. Krishna stated it plainly when he wrote “Hybrid cloud and AI are two dominant forces driving change for our clients and must have the maniacal focus of the entire company” in a letter he published on LinkedIn on April 6, the day he took over for Rometty.
Hybrid cloud, which is how many enterprises will run AI applications, is an open battlefield at this point. IBM recognizes that none of the other public cloud providers (AWS, Microsoft Azure, Google Cloud, Alibaba Cloud, and Oracle Cloud) have dominant positions in the nascent field, and are unlikely to in the near future.
IBM has strengths that it can lean on in the hybrid cloud war, notably its unimpeachable record in providing computing hardware, software, and services to the Global 2000. For decades, IBM defined enterprise computing, and to a certain extent, it still does.
But IBM also has weaknesses to overcome, notably its public cloud strategy. The company had $23.5 billion of cloud revenues over the last 12 months, and 30 percent growth in cloud revenues during the second quarter. But it trails AWS, Azure, Google Cloud, and Alibaba Cloud by large margins in total revenue.
That’s not to say that IBM can’t create a strong hybrid cloud strategy without a dominant public cloud. But it puts IBM at a disadvantage when AWS and Azure have size on their side, and when enterprises are looking to them to deliver a hybrid option, which they are most definitely doing.
Obviously, Krishna has not fulfilled his promise to make IBM a leader in hybrid cloud yet, just over 100 days into the job. That, obviously, would be impossible.
The good news for Krishna and IBM is that IBM’s cloud business accelerated in the second quarter and managed to keep pace with the overall market. Krishna can take some credit for that. But clearly Krishna and IBM have a lot more work to do in months and years to come if OpenShift is going to become the dominant hybrid cloud platform, as is the current plan.
But how is IBM (that is, how is Krishna) doing in other areas? We know that COVID-19 has presented dilemmas that no CEO could foresee, and Krishna appears to be handling it as well as could be expected. The switch to work-from-home appears to have been relatively painless at Big Blue, with more than 90 percent of IBMers now working from home, according to Krishna. The company continues to deliver new software, and the rollout of Power10 seems to be on track, so those are all plusses.
Following the anti-police protests that occurred after the killing of George Floyd, Krishna took the initiative in announcing that IBM would no longer sell facial recognition technology.
“IBM firmly opposes and will not condone uses of any technology, including facial recognition technology offered by other vendors, for mass surveillance, racial profiling, violations of basic human rights and freedoms, or any purpose which is not consistent with our values and Principles of Trust and Transparency,” Krishna wrote.
In the days following Krishna’s announcement, Amazon Web Services and Microsoft decided to stop selling facial recognition technology, too.
Krishna was ahead of the game in several respects, but he could have done better in other areas, according to Peter Greulich, an author and follower of IBM,
For starters, there was the analyst call following the disclosure of IBM’s second quarter revenue figures. Krishna actually showed up for the call, which was a refreshing change, as his predecessor rarely (if ever) sat for these grillings. So Greulich gave him a plus for that.
But Greulich wasn’t so enthused with the content of the call, notably what he called the CFO Jim Kavanaugh’s “continued…obfuscation of the corporation’s revenue problem,” as he wrote in his self-published piece, Evaluating Arvind Krishna’s First One Hundred Days.
While the April settlement of an ongoing age discrimination lawsuit in Texas was probably good for the IBM company, Greulich took the new CEO to task for the company’s broader actions, namely the firing of upward of 100,000 employees through resource actions and workload rebalancing over the years, which was disclosed in a deposition in the case, according to a story in Bloomberg.
Stopping these resource actions “could have slowed, halted, or even reversed IBM’s two-decade-long drop in sales and profit productivity,” Greulich writes. “Employees find it hard to remain productive when every job within the corporation is at risk – not just the ‘old guy’s’ job…This practice has created a work environment that is so toxic that even the best-of-the-best hold their noses as they head off to work.”
Krishna is under immense pressure to deliver results and put IBM back on the perch as the most trusted technology company in the world. If he succeeds, the results will almost certainly show up in the company’s stock price, which peaked at around $212 in March 2013, and has since been in a seven-year slump. IBM has steadily rewarded shareholders over the years, and its dividend yield is a super-healthy 5.2 percent. But in Greulich’s rendering, the company’s relentless focus on maximizing financial aspects of the business overshadow its failings in other areas, in particular its treatment of employees.
“Arvind Krishna’s first quarter, though, felt like so many that the corporation has had since 1999. It could be too easily filed under business as usual: falling revenue, short-term profit thinking, earnings-per-share promises that produced roadkill without a roadmap, resource actions that cause generational battles and reduce productivity, cloud outages without explanation, and workload rebalancing that steals employment security from highly productive workers. All of this leads to the conclusion that sales productivity will continue its two-decade-long fall.”
Krishna brings a perspective and skills to the position that are unique in the history of IBM CEOs, but he’s also a career IBMer, so a radical shift in IBM’s direction was likely never in the cards. For every disgruntled IBM observer, there is another who likes what she sees. In the end, the short sample size during a period of tumultuous economic and political shifts is likely a poor barometer for a tenure that is likely to exceed a decade. For that reason alone, optimism is still on Krishna’s side.