IBM’s Chief to Employees: Think Fast, Move Faster

Updated April 24, 2013, 9:24 p.m. ET

IBM’s Chief to Employees: Think Fast, Move Faster

By SPENCER E. ANTE

IBM is reassigning hardware chief Rodney Akins following poor performance results in the first quarter that sent the stock plunging. Spencer Ante reports on The News Hub. (Photo: AP)

International Business Machines Corp. IBM +0.05% Chief Executive Virginia Romettydelivered a rare companywide reprimand in the wake of a poor earnings report last week, saying the sprawling technology company needed to move faster and respond more quickly to customers. The comments came in a five-minute internal video message to the company’s 434,000 employees. In the video, Ms. Rometty salted the praise for employees in her regular post-earnings pep talk with unusually blunt comments that the company needs to speed its shift to new computing models to get back on track. “Where we haven’t transformed rapidly enough, we struggled,” Ms. Rometty said in the video published on IBM’s internal website and reviewed by The Wall Street Journal. “We have to step up with that and deal with that, and that is on all levels.”In another sign of fallout from the poor earnings, IBM reassigned one of its most senior executives—the head of the company’s computer hardware business—following a sharp drop in first-quarter sales at the unit, a person familiar with the matter said.

Rodney Adkins, formerly head of IBM’s Systems and Technology Group, will now be senior vice president for corporate strategy.

The moves show Ms. Rometty is trying to move aggressively to end a run of uneven performance at IBM during her 16 months on the job.

IBM has made a science of managing its diverse portfolio of businesses and regularly delivering earnings reports that please Wall Street. But it has stumbled recently, at a time when new technologies are threatening some of its lucrative franchises.

Last October, IBM reported third-quarter revenue that fell short of Wall Street’s expectations, triggering a big drop in its stock. Then on Thursday, IBM said its profit fell 1% and revenue dropped 5%.

More Key Quotes From Rometty’s Video

  • “The first lesson: accelerate our shift to the new computing model to serving new markets, to new clients, to building the new skills we’ve talked about—and do it now.”
  • “As the quarter ended hundreds of millions of dollars of software and mainframe opportunities, they didn’t close; and in a number of cases because we didn’t move fast enough.”
  • “If a client has a request, a requirement, a question, an expectation, respond in 24 hours.”
  • “And if anything slows you down, call it out. Engage management, engage leadership and let’s deal with it.”
  • “The wonderful news is our strategy is the right one. Our fundamentals are strong and our future is in our own hands.”
  • “I know we will confront this honestly and with urgency, and moments like this are when IBMers rise to the occasion. We don’t retreat; we go on the offense.”

Shares dropped 8% the following day, the biggest decline in eight years, wiping out $19 billion in market value. On Wednesday, IBM’s shares rose 10 cents to $191.71.

IBM blamed the poor first-quarter results on the company’s sales staff, saying it failed to close a number of valuable software and hardware deals.

Speaking on the video from an office in the company’s headquarters in Armonk, N.Y., Ms. Rometty called out one of those deals, a big software pitch to what she said was a major client in the retail industry.

“We were too slow to understand the value and then engage on the approval and the sign-off process,” she said. “The result? It didn’t get done.”

The CEO then unleashed a new rule. If a client has a request or question, IBM must respond within 24 hours, she said.

“And if anything slows you down, call it out,” she urged. “Engage management, engage leadership, and let’s deal with it.”

The bar is high for Ms. Rometty, a lifelong IBM employee and the ninth leader of the 102-year-old company. She inherited a company whose stock was trading near all-time highs following a string of strong earnings reports stretching back through the financial crisis. Her predecessor, Samuel Palmisano, radically reshaped the company’s portfolio, shedding the commoditized PC business, and plowing funds into more profitable pursuits like software.

She said in the video message that the company’s strategy is on the right track. She also praised “IBMers” for delivering new, more lucrative technologies that help to transform the way companies operate.

“Our performance reminds us that there are profound shifts under way in our industry, and when we move to the new high value spaces we do well,” she said, pointing to businesses like helping companies manage and analyze big data sets.

IBM’s view of itself is increasingly at odds with some views on Wall Street.

A growing number of analysts believe the company’s core problem may not be execution or cyclical in nature. Instead, they fear IBM may be on the wrong side of a major technology shift, known as cloud computing.

Cloud computing offers companies the ability to rent hardware and software over the Web rather than buy expensive systems and running them internally. Cloud deals are typically much smaller, take far less time to implement, and involve lighter equipment purchases.

IBM, meanwhile, makes much of its money selling software, hardware and computer systems installed by its army of technology consultants. The company’s own cloud services business is being outpaced by rivals like Amazon.com Inc. AMZN -0.04%IBM doesn’t break out the quarterly revenue for that division but said it was up 70% in the first quarter.

In 2011, IBM projected that cloud services would generate $7 billion in revenue for the company by 2015, of which $3 billion is incremental growth.

IBM’s cloud business includes building in-house “private clouds” that companies own and control. The approach is good for companies that need high security. But it doesn’t confer the cost advantages of using public cloud services.

The bad first-quarter results prompted a round of restructuring at the company. IBM said it would spend around $1 billion in the second quarter on layoffs. The company is also looking to sell off its low-end servers business, people familiar with the matter said.

Ms. Rometty has been discussing her concerns that the company at times isn’t moving fast enough with people outside the company.

Jeffrey Sonnenfeld, a senior associate dean at the Yale School of Management, said that during a meeting he had with Ms. Rometty a few weeks ago at her office, she expressed concern about getting IBM employees to move faster and do a better job at explaining the value that IBM can bring to a client.

Getting that message across and following up with hundreds of thousands of employees operating in more than 170 countries is a challenge. Ms. Rometty ended her post-earnings address with a bit of encouragement.

“Our fundamentals are strong and our future is in our own hands,” she said in the video. “I know we will confront this honestly and with urgency, and moments like this are when IBMers rise to the occasion. We don’t retreat; we go on the offense.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: