The Challenges Facing IBM When Rometty Became CEO

Technological changes and more agile competitors threatened everything. New access models for software and computer services evolved. Rometty had to derive value from IBM’s enormous legacy business while transitioning the company for success in the tech world of the future. For her first four years, she worked on a strategy that would address big new technological forces and put IBM in the lead of artificial intelligence and cognitive computing. 

She had to deal with aggressive technology shifts against a “not-too-healthy global macro-economic background.” Delivering on the potential of the businesses of the future meant that Rometty must transform nearly everything about how IBM operated while keeping its value-based culture. Instead of products, IBM increasingly sold outcomes to business clients. Cognitive advances allowed the company to challenge business management and decision-making as “a whole new frontier, to go where nobody’s gone before.” To do this, IBM needed to alter its client relations. Salespeople, who previously sold products to IT departments, now sold outcomes to doctors, teachers, marketers, and front office administrators. New skills were also needed. Rometty embarked on workforce restructuring immediately after taking over as CEO.

She dedicated $803 million to it in 2012 compared to Sam Palmisano’s expenditure of $440 million the year before. Also, in January 015, she revealed IBM’s most extensive restructuring in three decades, moving it from units defined by hardware, software, and services toward a structure of integrated businesses that focus on specific industries. Those who worked closely with Rometty praised her leadership. Jon Iwata applauded her “fearlessness about moving almost every part of the business into new reality.” Like other senior executives, he mentioned speed and agility. Iwata said, “She puts her foot on the accelerator and rarely on the brake. Decide, move on, learn from it, keep moving. She displayed decisiveness, saying yes to possibly risky ideas quickly instead of resting on process or precedent, for example, almost immediately hiring 1,000 designers after a manager requested it, or pushing the partnership with Apple, once their competitor.

Rometty set ambitious goals for growth sales like cloud and data analytics business. She wanted IBM to derive $40 billion in sales from those priorities by 2018. These areas made up 15% of revenues the year before Rometty took over, 2011, and by 2014 they constituted 27% of revenues. Cloud, analytics, mobile, social, and security business experienced 26% growth in 2015, with revenues from the at $29 billion or 35% of IBM’s total revenue. 

That strategy involved continuing to reshape the business portfolio to build growth businesses in new technology areas through large and small acquisitions as well as organic growth; workforce restructuring to emphasize new skills and capabilities, including talented new leaders that came with acquisitions; and a leaner, more agile organization structure and entrepreneurial culture empowering all employees to learn the new technology and get involved in development. Rometty began by targeting new technology areas and building support for massive change. 

She met with IBM’s 3,000 researchers about cognitive computing, and quickly reorganized them from hardware, software, and services to big data, cloud, and engagement. IBM leaders developed new ways to harness the ideas of the talent present at IBM, regardless of organizational structure and employee tenure. IBM executives asked four young IBMers their thoughts on how the company could boost millennial’s excitement and impact at IBM. Along with Rometty, 5,000 people across IBM, were in regular contact with one another, often surveyed about new projects and ideas. It helped IBM retain younger workers and save disengagement costs. Rometty’s creation of a “Cognitive Build” developed 2,704 new ideas. The virtual investment totaled $291 million.

IBM sold Retail Store Solutions to Toshiba for $850 million in 2012 and sold its customer care business process outsourcing services unit for $505 million to SYNNEX in September 2013. Rometty standardized IBM’s microelectronics chip manufacturing business in 2014 so that IBM could outsource manufacturing and then paid Global foundries to take it in October 2014, as an investment in the next-generation foundry lines its newest chip would require. Lenovo bought IBM’s x86 server business for $2.1 billion. These moves shrunk it is legacy Systems Hardware business’s resources by 40% across 2013 and 2014. 

Rometty accelerated IBM’s willingness to work with partners to create customer solutions. One prime example was IBM’s partnership with Apple. IBM wanted to increase access to its analytics and decision-making applications and sought “to use the technology to ‘reimagine how work is done’ and to ‘unlock value, remake professions and transform companies,’” involving analytics, cloud, and mobile. By August 2015, 100 IBMers worked at Apple’s offices at Cupertino, CA, and employees were using 110,000 Apple devices. By early 2016 the two companies would have roughly 1,500 joint clients and had developed over 100 apps related to workflow improvement. 

Partnerships also extended to social media companies, such as Twitter. Rometty’s October 2014 memo to employees articulated a three-part plan centered on cloud business, creating flexible software and delivery options for consumers, and “streamlining” IBM to make it faster, more agile company. IBM continued to build cloud offerings by acquiring Cloudant, Compose, Meteorix, and Cleversafe in 2015. For the Security business, acquisitions included Fiberlink, Trusteer, CrossIdeas, Lighthouse Security Group, and an unnamed fifth company in the forensic network space. IBM invested in Wayblazer and Sell points in May 2015, travel and shopping marketers, for online travel planning and shopping. 

Later in 2015, IBM acquired Explorys, Phytel, and Merge Healthcare industry. In fall 2015, IBM announced its acquisition of The Weather Company, to provide weather-informed insights to businesses. IBM completed a series of high-profile acquisitions in about six months. Explorys and Phytel increased capacity and access to healthcare data. Watson ingested Explorys’ 60 million electronic medical records and used them to help patients and doctors understand outcomes. Phytel’s 30-to-40 million healthcare records were fed to Watson to help with “last mile” communication of care between provider and patient. 

IBM added Merge Healthcare and its 30 billion medical images in late 2015 to build Watson’s medical imaging capabilities. More medical imaging data existed in the field than written data, and IBM believed that it would gain a significant market advantage if Watson could understand and analyze images as well. In February 2016, the $2.6 billion acquisition of Truven Health Analytics offered Watson Health medical data on 200 million patients, as well as Truven’s experience working with 8,500 clients. IBM’s process for integrating acquisitions included assigning liaisons to facilitate communication and interactions between the new acquisitions and the legacy businesses of IBM.