Arvind Krishna began his career with IBM in 1990 and has been the CEO of IBM since April 2020 and Chairman since January 2021. Following his IBM Think 2022 Keynote in Boston, that I attended, Arvind sat down for a live round table with industry analysts to address a range of subjects in an open question format. In this article, I will paraphrase Arvind's detailed and lengthy responses, hopefully providing clues to the future of Big Blue. IBM CEO and Chairman Arvind Krishna conducts an analyst Q&A with VP of Analyst Relations, Harriet ... [+] Patrick MoorheadTechnology is an undisputed source of competitive advantage Today, few CEOs think technology doesn't matter. Most CEOs will say that technology is the single most protected line item even in a down market and a bad economy because technology will provide a sustainable advantage. Government leaders all want a robust technology industry to increase gross domestic product (GDP) at the country level. I would concur based on my experience in talking with CEOs. Treating IT as a cost of doing business will ultimately lead to a loss of competitiveness in the marketplace. Arvind is a technologist at heart, so it is not surprising that he has placed technology and the necessary ecosystem of partners at the heart of the business model. I believe that, in the new wave of tech CEOs, technology is respected more than ever and is a benefit to IBM. Creativity and co-creation are critical Today's IBM is more open to partnerships across the stack, based on the reality that no single company has all the expertise and technology to meet customers' needs. IBM wants partners to succeed but will still play a lesser but critical role in providing innovative technology. IBM plans to focus on key technologies such as artificial intelligence (AI), hybrid cloud, quantum computing, and blockchain. The rise of the cloud drives this significant change in strategy. The days of selling software, hardware, and consulting in one package are in the rear-view mirror for IBM. Cloud computing meant disruption across every layer of the stack. We all know the acronyms now SaaS (software-as-a-service), PaaS (platform-as-a-service), and IaaS (infrastructure-as-a-service). In a follow-up 1:1 with Arvind, he talked about products taking a front-row seat to consulting. Since his arrival, the company has shifted from 70% consulting- 30% products to 30% consulting- 70% product. This is a massive shift, and, to me, a "product guy", says everything. IBM's newly announced deals with AWS and SAP represent the theme of partner co-creation well. McDonalds is a good IBM client example, where IBM went so far as to acquire the tech arm of McDonalds, MCD Tech, to facilitate the new drive-through solution. The hybrid cloud has come of age Four years ago, there was general skepticism around the hybrid cloud with a preference for a single public cloud provider. That has changed as customers tried to avoid vendor lock-in, security, regulations, cost of moving data, and the desire to have a strategic architecture to address reality and stay flexible for the future. In four years, we went from a preference for one public cloud to the majority embracing a hybrid cloud model. Cloud is no longer a place but an operating model. The hybrid cloud delivers the flexibility of deployment. The ability to deploy anywhere with security, scale, and ease of use with the end goal of frictionless development. There is also the incremental value (IBM believes it is two-and-a-half times more) from a hybrid cloud architecture than any singular architecture –only on public or private. There is no debate with me. I have written that the hybrid cloud model and multiple cloud providers are the norms for enterprises. The turning point for me was in 2018 when AWS announced Outposts, and the debate stopped. The public cloud began 15 years ago, and the hybrid cloud is in its infancy, so it will take years for the two to cross. AI will transform every company and every industry Technology is the only way to scale the business without linearly adding costs. Given the vast amount of data being created today on public clouds, private clouds, and at the edge, artificial intelligence is the only technology we know that can begin to do something with this data. Given the shifts in labor and demographics, AI is the only option to automate and take complexity and cost out of enterprise processes. AI will also play a critical role in cybersecurity. With labor shortages in the cybersecurity profession, artificial intelligence is the technology that will spot suspicious activity and bad actors. I have written several articles detailing how organizations adopt AI to bring efficiency, productivity gains, and a return on investment. In these uncertain times, AI is a powerful differentiator for companies of all sizes to transform digitally. Unlocking the full potential of Red Hat Arvind was the driving force behind the acquisition of Red Hat in 2018 and the decision to keep the company autonomous. Red Hat is one of the few companies that has managed to tap into open-source innovation and make a market out of it. The value of Red Hat comes because it can run on all infrastructures and work with all partners. The open-source culture is very different from a proprietary source culture because of the commitment that anything the Red Hat does will go back into upstream open-source. I think if IBM can keep Red Hat independent on most vectors, the sky is the limit for the company. There are only two on-prem container platforms that are extending to the public cloud, Red Hat and VMware, with HPE fielding a compelling alternative. Accepting corporate responsibility for diversity and climate change For IBM, it is a fundamental business priority. It is vital to constantly reflect the demographics of the societies we live in. If done well, IBM can attract and retain employees. IBM has committed to being net-zero without purchasing carbon offsets by 2030, twenty years before the Paris Accords goal. I have long maintained that sustainability has become a fundamental business issue. I have written several articles that detailed how companies deal with the challenge. These challenges have become real business issues. It is not just a cost of doing business or an ESG (environmental, social, and governance) checkmark. I think sustainability offers a way to improve the business and lower costs. Arvind is the first executive I had ever heard say that companies could save money through sustainability strategies. Wrapping up Unlike previous IBM CEOs, Arvind has prioritized communicating IBM's strategy and its value to industry analysts. His approach is very straightforward, he's open to criticism and receptive to feedback on how to improve. As regular readers will know, I have followed IBM for several years. I believe IBM is on an improved tack, with a focus on AI and hybrid cloud. Incredibly enough, it is the leader in the next big step in the future of computing, quantum computing. IBM is one of the few companies with the resources to tackle challenging problems that take years of persistence to make breakthroughs. IBM has taken quantum computing from science fiction to where everything is now just science in ten years. It is hard to find another company with the same staying power. It's one of the only companies to do research still. With Arvind at the reins and a group of brilliant people solving problems that make a big difference, I think IBM has a promising future. Moor Insights & Strategy, like all research and analyst firms, provides or has provided paid research, analysis, advising, or consulting to many high-tech companies in the industry, including 8x8, Advanced Micro Devices, Amazon, Applied Micro, ARM, Aruba Networks, AT&T, AWS, A-10 Strategies, Bitfusion, Blaize, Box, Broadcom, Calix, Cisco Systems, Clear Software, Cloudera, Clumio, Cognitive Systems, CompuCom, Dell, Dell EMC, Dell Technologies, Diablo Technologies, Digital Optics, Dreamchain, Echelon, Ericsson, Extreme Networks, Flex, Foxconn, Frame (now VMware), Fujitsu, Gen Z Consortium, Glue Networks, GlobalFoundries, Google (Nest-Revolve), Google Cloud, HP Inc., Hewlett Packard Enterprise, Honeywell, Huawei Technologies, IBM, Ion VR, Inseego, Infosys, Intel, Interdigital, Jabil Circuit, Konica Minolta, Lattice Semiconductor, Lenovo, Linux Foundation, MapBox, Marvell, Mavenir, Marseille Inc, Mayfair Equity, Meraki (Cisco), Mesophere, Microsoft, Mojo Networks, National Instruments, NetApp, Nightwatch, NOKIA (Alcatel-Lucent), Nortek, Novumind, NVIDIA, Nuvia, ON Semiconductor, ONUG, OpenStack Foundation, Oracle, Poly, Panasas, Peraso, Pexip, Pixelworks, Plume Design, Poly, Portworx, Pure Storage, Qualcomm, Rackspace, Rambus, Rayvolt E-Bikes, Red Hat, Residio, Samsung Electronics, SAP, SAS, Scale Computing, Schneider Electric, Silver Peak, SONY, Springpath, Spirent, Splunk, Sprint, Stratus Technologies, Symantec, Synaptics, Syniverse, Synopsys, Tanium, TE Connectivity, TensTorrent, Tobii Technology, T-Mobile, Twitter, Unity Technologies, UiPath, Verizon Communications, Vidyo, VMware, Wave Computing, Wellsmith, Xilinx, Zebra, Zededa, and Zoho which may be cited in blogs and research. As Arvind Krishna takes over as CEO of IBM Monday, he won't be shaking employee hands or preparing a speech for a crowd at the company's Armonk, New York headquarters. Instead he'll rely on tools like email, Slack and a webcast to help him get his message across: This company has survived hard times before. There's a plan for brighter days ahead. It's a pivotal moment for IBM, and not just because of the coronavirus pandemic. Big Blue no longer towers over the technology landscape the way it did a generation ago. While executives have focused on shedding less profitable businesses, they have struggled to grow sales. In the recent market rout, IBM's market capitalization fell to less than $100 billion as of Friday's close, about a tenth the value of rivals Microsoft and Amazon. Meanwhile, investors have tended to pay more attention to those West Coast darlings. But what if IBM's naysayers have it wrong? Krishna says IBM is poised for great things. The new CEO is a technologist with business chops. He both led the company's renowned research division and was a driving force behind its $34 billion acquisition of Red Hat in 2018. He's been at IBM for 30 years. In an email he sent to employees Monday morning, Krishna said he will focus on artificial intelligence and hybrid cloud as key technologies for the future. He also made the case that the company's legacy of providing core technology make it indispensable during high-pressure times like today's. "If there's one thing that this public health crisis has brought to light it is the ever essential role of IBM in the world. We are the backbone of some of the most critical systems," he wrote. "Today, more than ever, trust is our license to operate." It's not a radically different strategy from the one his competitors are touting, nor is it a departure from IBM's recent messaging. Under outgoing CEO Ginni Rometty, who the company says will remain as executive chairman through the end of 2020, IBM positioned itself as a time-tested provider of flexible cloud infrastructure and services. And because of its long history supplying big customers, IBM said it was ideally positioned to help them transition away from on-premise systems. To this point, IBM's cloud efforts haven't had enough impact to meaningfully boost sales or profits. So the question might be whether Krishna will change the company's structure and approach in a way his predecessors didn't. His inaugural message did suggest that change is afoot in the executive ranks. As the company had previously announced, Jim Whitehurst, previously the CEO of Red Hat, will become IBM president. Bridget van Kralingen, a dynamic executive who had led IBM's blockchain efforts, will become senior vice president of global markets, touching IBM's most important sales relationships around the world. Howard Boville, a longtime finance and telecom executive, will join IBM next month to lead the cloud business. Can Krishna's leadership set IBM's stock price on a new trajectory, and return it to its historical perch atop the enterprise tech mountain? That probably depends on two things. One: Can he make IBM a consistent top-line grower? Because IBM has been around for more than a century, it has a lot of old, profitable businesses like mainframes that are big and essential but not growing. They're great for cash flow, but not for the stock price. How do you keep them around to fuel the future, but prevent them from defining the company? Two: Can he solve IBM's workforce conundrum? IBM had a massive payroll of more than 350,000 full-time employees as of the end of 2019. That's 2.5 times as many as Apple and 3.5 times as many as Google. Many of them work in IBM's services business, doing the kind of nuts-and-bolts software work customers need to prepare for the move to the cloud. How much does IBM invest in that business, considering it isn't growing and that cloud-driven trends threaten to shrink it? They're tough problems, but not impossible to solve. Remember: Eight years ago, far too many industry watchers thought Microsoft was so far gone that it needed a former Ford and Boeing executive with fresh eyes to come and shake things up. Instead, the board promoted Satya Nadella, a technologist who had worked there more than 20 years. Subscribe to CNBC on YouTube. |