The splitting up of IBM is unlikely to end here

Thirty years ago, the UK IT scene was led by two dominant suppliers – the global giant, IBM; and the British tech champion, ICL. Snapping at their heels were Hewlett-Packard (HP), Digital Equipment Corporation (DEC), and Compaq. Today, only one of those companies still exists in the same form – and that’s not going to be the case for much longer.

ICL declined rapidly through the 1990s and was swallowed up by Japan’s Fujitsu. DEC was acquired in 1998 by Compaq in what was then the largest merger in tech sector history. Just three years later, HP acquired Compaq.

By the early years of the new millennium, IBM was riding high. It had struggled to shift from its mainframe base to compete with the nimbler PC era, and in 1993 posted the largest loss in corporate history at that time. The strategy that saved the company was to focus on IT services, and IBM Global Services became the profit and revenue engine through the 2000s.

But there was always a fundamental flaw at the heart of Big Blue. Back in the 1980s, its stated mission was to become the world’s biggest company. The nineties put paid to that, so under CEO Sam Palmisano’s leadership from 2002 to 2012, the supplier was driven by a goal to deliver an ambitious stock price to shareholders – $20 earnings per share by 2015. Here too, it failed.

Strategic decisions were driven not by the needs of customers or employees, but targeting an elusive stock price, an aim that was eventually scrapped in 2014, by which time earnings per share was a meagre $3.68. Since Palmisano’s exit, IBM missed another boat – the rise of cloud.

So it is fair to say that IBM’s decision to split the company in two – hiving off the once-dominant IT services business, and refocusing the IBM brand onto hybrid cloud – marks the end of an era.

When HP split into two in 2014 it was only the start of further divisions intended to maximise shareholder value, as its software business and IT services arm were subsequently hived off. It’s inevitable, therefore, that if the focus for IBM in its latest decision is share price, this may not be the last diminution of the company that we see.

IBM wants to be a hybrid cloud company – it has to, because it has already lost the public cloud market. If the acceleration of public cloud brought about by the pandemic continues apace, even that hybrid goal may be too late.

At IBM’s many customers, CIOs need to be sure their supplier is making its strategic decisions with their needs at heart. History suggests that has not always been the case.

Data Center
Data Management