5 ms·

ex-IBMer here. I rode this from 2001 until 2016 when it became clear that breaking up the company (as they recently did) would become the only sensible path for

by osipov 5y ago

ex-IBMer here. I rode this from 2001 until 2016 when it became clear that breaking up the company (as they recently did) would become the only sensible path forward. While many poor decisions were made inside of the company, I ultimately blame Wall Street for IBM's downfall. Remember that back in 2011, Palmisano finished strong with IBM's Watson winning Jeopardy, IBM Software delivering consistent >80% profit margins on $10Bs in revenue, and a strong services backlog. Many don't know that Palmisano's departure was preceded by a Wall Street mediated competition for the successor. IBM Software Group SVP, Steve Mills, was the obvious choice. The guy was a lifetime IBMer, intellectually superb, allegedly with photographic memory, effective public speaker, and with a proven history of leading (at the time) the 3rd largest software business in the world. Unfortunately, Wall Street didn't like Mills because he did not come across well on CNBC. The guy is chubby and doesn't look like a conventional CEO. So Ginny Rometty, with a claim to fame based on building IBM Global Business Services from on the PwC acquistion became the leading candidate. Ginny is "media friendly" and the diversity factor didn't hurt. Once Ginny came on board, leadership style changed from long-term to fickle and neurotic. Instead of committing to the hard work of building complex technology (e.g. cloud), any signs of technological challenges became reasons for business strategy changes at the top level. What started as a build decision (IBM SmartCloud) turned into a buy decision (Softlayer), followed by a build decision (IBM Bluemix), and so on. However, Ginny's biggest failure was her inability to raise capital on Wall Street. IBM's engineers weren't failing at building cloud technology because the engineers were terrible (some were, normal distribution rules still apply) but because cost cutting policies starved engineering teams though attrition and lack of hiring. Staffing a team meant bringing in internal hires w/o the right skill set or taking a gamble on offshore (global) resource. At the same time Google was hiring left and right with comparative ease (as an aside, now they are dealing with the consequences). Bottom line, Ginny couldn't get the capital to fund internal engineering efforts for the scale of the transformation needed to sustain IBM's success with machine learning (Watson) and cloud. I place the blame on Wall Street since they made the bet on Ginny and then left her out to dry.

xadhominemx 5y ago
IBM generates $15b of free cash flow per year. They did not need to raise anything from Wall Street. And the notion that Wall Street would somehow interfere with an internal succession process because they thought a brilliant tech executive was not very polished is laughable.
- osipov 5y ago
  >IBM generates $15b of free cash flow per year. The cash flow number obviously varied year to year. If you think that Wall Street doesn't have a veto power in the selection of a public company's CEO you are very naive.
josipt 5y ago
Wall Street? Couldn't raise capital? Maybe IBM could have used some of the $110 billion dollars they spent on buying back shares to, I don't know, build a real business? IBM could potentially have built what is now AWS but what did they do instead? Share buybacks. What do they have to show for that? IBM has been essentially a financial engineering machine for many years, with their ridiculous 5-year EPS targets and all the rest of it. While I was there they even removed plants, copiers, coffee machines, televisions, pads, pencils, pens and everything else in sight to "save" money. The "leadership" of IBM drove the company in to the ground, period.
- throwawaygal7 5y ago
  Agree completely , the leadership was selling the farm piece by piece.
- osipov 5y ago
  >Maybe IBM could have used some of the $110 billion dollars they spent on buying back shares to, I don't know, build a real business? You just answered your own question. As I pointed out, leadership was "picked" by Wall Street investors. Share buybacks and financial engineering exist to keep the investors happy. If they didn't buy back shares and invested in R&D the stock would have gone straight down instead of sideways. As I said the leadership "couldn't get the capital to fund internal engineering efforts for the _scale_ of the transformation needed to sustain IBM's success"
jldugger 5y ago
> Google was hiring left and right with comparative ease (as an aside, now they are dealing with the consequences). In the five years since you left IBM in 2016, GOOG has tripled in value, while IBM has lost 8 percent. I think I know which set of consequences I'd prefer to deal with as an executive, shareholder, or employee.
- osipov 5y ago
  Obviously I wrote to the problems that Google is experiencing now, not the ones that it tackled back in 2016. Google's future is less bright as of 2021 than it was in 2016.
throwawaygal7 5y ago
I was an intern at IBM from 2010-2015, and then an full time engineer for a short while before moving on. I agree completely that the change in leadership marked an inability to really bring WATSON to market, and some other products too. While I was an intern, I sat next to ExtremeBlue interns and team members working on Watson. The technology was awesome and they were working like mad. Sleeping under the desk. By 2015 the push had stopped and everyone knew it was a failure to launch.
- jollybean 5y ago
  "I agree completely that the change in leadership marked an inability to really bring WATSON to market, and some other products too." Watson for all it's academic glory, was kind of vapourware as a product. It just never really did anything materially useful. They did a lot of hospital trials that fizzled. Way, way over-promised. A little bit along the lines of ElementAI - it's hard to commercialized AI directly. Google et. al. do it right by incrementally improving things like translation, voice recognition ... it's making waves within academia for it's quality, but it's something consumers are hardly aware of. Since IBM is not a consumer company, there's only so much sugar and hype that Watson can provide (winning Jeopardy was a brilliant thing) before the rubber has to hit the rode. I'm not so sure if it's fair to blame a new leader for that one ... because I'm not sure what a realistic business application for Watson would be. (Maybe there are hard and real products, but they're probably going to be very context specific etc..) Building great tech is hard enough, then building great products on top of that - just as hard. Doing it within a massive multinational that makes it's money from grifting governments and megacorps into paying for really expensive services probably just is not going to work. MS, Google, FB ... they have the operational fidelity and product line to leverage AI internally, IBM, not so much. I don't know what the future of IBM looks like aside from just being another Accenture.
  - throwawaygal7 5y ago
    Interesting perspective. They were advertising WATSON everywhere and it did seem like they wanted it to be big. I worked for rational doing... less savoury stuff but it did pay the bills!
thedougd 5y ago
Sam's EPS target was the singular focus during that time. Executive management squeezed everything for the last penny during that period, IMO setting the path to failure.
- 2sk21 5y ago
  Exactly! Palmisano was squeezing every last cent and starving the company of resources for developing the future. Even by 2008, it was clear hat cloud computing was the next big wave and yet IBM built out its own half-baked internal cloud offering before acquiring Softlayer
- osipov 5y ago
  >Sam's EPS target Yes, but on the flip side Sam was getting results. Ginny failed to capitalize of Watson, Software, and Cloud.

by osipov 5y ago

xadhominemx 5y ago

IBM generates $15b of free cash flow per year. They did not need to raise anything from Wall Street. And the notion that Wall Street would somehow interfere with an internal succession process because they thought a brilliant tech executive was not very polished is laughable.

osipov 5y ago
>IBM generates $15b of free cash flow per year. The cash flow number obviously varied year to year. If you think that Wall Street doesn't have a veto power in the selection of a public company's CEO you are very naive.

josipt 5y ago

Wall Street? Couldn't raise capital? Maybe IBM could have used some of the $110 billion dollars they spent on buying back shares to, I don't know, build a real business? IBM could potentially have built what is now AWS but what did they do instead? Share buybacks. What do they have to show for that? IBM has been essentially a financial engineering machine for many years, with their ridiculous 5-year EPS targets and all the rest of it. While I was there they even removed plants, copiers, coffee machines, televisions, pads, pencils, pens and everything else in sight to "save" money. The "leadership" of IBM drove the company in to the ground, period.

throwawaygal7 5y ago
Agree completely , the leadership was selling the farm piece by piece.
osipov 5y ago
>Maybe IBM could have used some of the $110 billion dollars they spent on buying back shares to, I don't know, build a real business? You just answered your own question. As I pointed out, leadership was "picked" by Wall Street investors. Share buybacks and financial engineering exist to keep the investors happy. If they didn't buy back shares and invested in R&D the stock would have gone straight down instead of sideways. As I said the leadership "couldn't get the capital to fund internal engineering efforts for the _scale_ of the transformation needed to sustain IBM's success"

jldugger 5y ago

> Google was hiring left and right with comparative ease (as an aside, now they are dealing with the consequences). In the five years since you left IBM in 2016, GOOG has tripled in value, while IBM has lost 8 percent. I think I know which set of consequences I'd prefer to deal with as an executive, shareholder, or employee.

osipov 5y ago
Obviously I wrote to the problems that Google is experiencing now, not the ones that it tackled back in 2016. Google's future is less bright as of 2021 than it was in 2016.

throwawaygal7 5y ago

I was an intern at IBM from 2010-2015, and then an full time engineer for a short while before moving on. I agree completely that the change in leadership marked an inability to really bring WATSON to market, and some other products too. While I was an intern, I sat next to ExtremeBlue interns and team members working on Watson. The technology was awesome and they were working like mad. Sleeping under the desk. By 2015 the push had stopped and everyone knew it was a failure to launch.

jollybean 5y ago
"I agree completely that the change in leadership marked an inability to really bring WATSON to market, and some other products too." Watson for all it's academic glory, was kind of vapourware as a product. It just never really did anything materially useful. They did a lot of hospital trials that fizzled. Way, way over-promised. A little bit along the lines of ElementAI - it's hard to commercialized AI directly. Google et. al. do it right by incrementally improving things like translation, voice recognition ... it's making waves within academia for it's quality, but it's something consumers are hardly aware of. Since IBM is not a consumer company, there's only so much sugar and hype that Watson can provide (winning Jeopardy was a brilliant thing) before the rubber has to hit the rode. I'm not so sure if it's fair to blame a new leader for that one ... because I'm not sure what a realistic business application for Watson would be. (Maybe there are hard and real products, but they're probably going to be very context specific etc..) Building great tech is hard enough, then building great products on top of that - just as hard. Doing it within a massive multinational that makes it's money from grifting governments and megacorps into paying for really expensive services probably just is not going to work. MS, Google, FB ... they have the operational fidelity and product line to leverage AI internally, IBM, not so much. I don't know what the future of IBM looks like aside from just being another Accenture.
- throwawaygal7 5y ago
  Interesting perspective. They were advertising WATSON everywhere and it did seem like they wanted it to be big. I worked for rational doing... less savoury stuff but it did pay the bills!

thedougd 5y ago

Sam's EPS target was the singular focus during that time. Executive management squeezed everything for the last penny during that period, IMO setting the path to failure.

2sk21 5y ago
Exactly! Palmisano was squeezing every last cent and starving the company of resources for developing the future. Even by 2008, it was clear hat cloud computing was the next big wave and yet IBM built out its own half-baked internal cloud offering before acquiring Softlayer
osipov 5y ago
>Sam's EPS target Yes, but on the flip side Sam was getting results. Ginny failed to capitalize of Watson, Software, and Cloud.