Rometty's Past Reveals IBM's Future
One early bet: Look for IBM's new CEO, Ginni Rometty, to push harder into industry-specific consulting services that can drive billions in related sales.
IBM, the world's biggest business technology company, has three strategic units led by chieftains who, given the scope of their remits, could all be CEOs in their own right. But when Sam Palmisano, Big Blue's real chief executive, said Tuesday that he plans to step down, none of the group heads got the job. It went to Ginni Rometty—and that says a lot about where IBM is headed.
More than any other big tech vendor, IBM strives, and is in fact built, to be more than the sum of its parts. Rod Adkins' hardware group produces state-of-the-art chips and servers; Steve Mills' software unit develops the middleware and analytics tools that make the hardware useful; and Mike Daniels' tech services organization puts it altogether.
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Combined, the hardware, software, and Global Tech Services units produced $78.7 billion in revenue last year. Not bad.
But IBM wants to be more than the IT equivalent of a Turkish bazaar, where shoppers fill their baskets with random items from this or that stall. It really desires to be in the business of providing holistic, dare I say it, "solutions" for its enterprise and government customers. That is, it wants to help them redefine the way they operate--and then sell them the tools and services needed to carry out those operations on an ongoing basis.
Enter Rometty. She's head of global sales until she takes over the corner office on Jan. 1, but over the past decade she built and led the unit that IBM is counting on to create synergies across its various piece parts--consulting. It was Rometty who pushed Palmisano into making a big time bet on such services by acquiring the consulting arm of PriceWaterhouseCoopers for just under $4 billion in 2002.
And it was Rometty who was immediately placed in charge of the group.
IBM consulting now lives within its Global Business Services group, which on its own is relatively small. It posted $18.2 billion in revenue last year. But the numbers are deceiving. Consulting is the pointy end of the spear when IBM approaches accounts like Shell, JP Morgan, or American Airlines with deals that will ultimately drive billions of dollars worth of hardware and software sales down the road.
And those kinds of engagements aren't limited to big, Western multinationals. Perhaps more significantly, IBM is now pushing "transformation" at customers in emerging markets, where growth is in the double digits and many companies in cornerstone industries like energy and agriculture are backed by state dollars that need to be spent.
Just this month, IBM struck a deal with Kenya Petroleum Refineries Limited, to help it modernize operations and, incidentally, sell it a bunch of software without which the transformation can't take place.
Such contracts are significantly more lucrative over the long term than the one-offs that HP and Oracle, whose consulting efforts have sputtered, are still chasing, and Rometty has spent years cobbling together those kinds of deals.
In light of all this, it's not surprising IBM's board tapped her to replace Palmisano instead of one of the product heads. To boot, Rometty's said to have the personal skills and political smarts needed to run a company that's the size of a small country. "She's a team player and she took care of her upline, and she wasn't obsessively tied to her own resume," says Rob Enderle, a former IBMer who went through the company's executive training program and is now president of Enderle Group consultants.
At the same time, "she's every bit as tough as Sam Palmisano, but she's got a cooperative style," adds Sam Khanna, a former IBM sales VP who's worked with Rometty and now runs Technology Project Finance in Wilton, Conn.
So where does Rometty go from here? To the extent that the past predicts the future, expect her to push even harder into strategic business consulting. She will look to complement IBM's strong core of PWC general operations wonks with experts in specialized areas like healthcare, financial services, energy, and green sciences for the same reason that bank robbers rob banks--that's where all the money is.
There's big demand for such expertise, so watch for Rometty to use IBM's financial clout to get the talent she needs through acquisitions. There will be smaller deals with obscure players, but don't be surprised to see bolder moves as well. Rometty, for instance, might take a long look at the healthcare IT and consulting arm of an outfit like McKesson to counter Dell's take out of Perot Systems.
She also may try to move the needle on IBM’s huge but growth-challenged top line by entering the applications market—an area that Palmisano rejected. “One thing IBM learned from its near-death experience in the Nineties was that it can’t stand still,” says Khanna. That means Rometty might, at the very least, take a look at the books of pure play ERP providers like SAP or Lawson.
One thing is for sure: Rometty likely will be sitting on about $11 billion to $12 billion in cash and equivalents when she takes office on New Year's Day. She's going to use it.