IBM Remakes Itself

You can bet IBM Global Services doesn’t want any more earnings announcements like its Q4 2013 report.  Big Blue posted year-over-year revenue growth of only 4 percent instead of the 7 percent it indicated just three months ago and its 5 percent Q3 growth. Its margins are good, but clearly IBM has a growth issue. However, IBM is unfolding its strategic readjustment to drive global services growth in the future. It’s a three-pronged plan.

1. The exit path

Step one is to jettison the low-margin, commoditized and mature parts of the business, and I’ve blogged before about the crucial timing aspect of this strategy.

2. What is IBM doing with two acquisitions per month?

In the plan’s second prong IBM replaces its jettisoned revenue and direction by acquiring both software and services businesses. At the moment its acquisition pace is torrid — a little over two companies a month!

Rather than building products to move into more profitable business areas, Big Blue is buying companies so it can quickly shift high-growth platforms and embracing automation and the cloud. Four acquisitions show us where IBM is doubling down on acquiring capabilities:

  • Softlayer (2013) — global cloud infrastructure
  • UrbanCode (2013) — software delivery automation
  • Green Hat (2012) — software quality and testing for cloud
  • Big Fix (2010) — management and automation for security and compliance software updates

Two particular focus areas in automation platform and services stand out:

  • Analytics (automation of high-end analysis)
  • BPaaS (Business Process as a Service), which is an automated version of IBM’s infrastructure business.

Years ago IBM put hard caps on scaling the company by adding headcount, and this is a driver in chasing automation as IBM exits low-margin, labor-arbitrage offerings.

3. Battle-tested advantage

Unlike many of its peers building and piloting solutions and products, the third prong in IBM’s growth plan ensures the companies it acquires have fully formed battle-tested models. Instead of creating a baby that has to crawl before it walks, IBM acquires “teenagers” that can run — companies that already conducted pilots and ensured there is a market for the offerings. And then IBM super-charges the model with Big Blue’s awesome brand and sales and marketing strategies. This is a time-tested formula that has worked for IBM in the past.

As we watch IBM remake itself in this three-part plan to drive services growth, we expect the strategy will be successful.

Photo credit: Irish Typepad