New CEO: Hybrid Cloud and AI Are the Future of IBM

Ibm Red Hat

By: Mary Jander

IBM (NYSE: IBM) has installed a new CEO, shuffled its leadership deck, and reorganized its priorities in a move that could be pivotal in helping Big Blue out of a longstanding funk.

Today marks the first day at work for new CEO Arvind Krishna, a 30-year IBMer whose track record includes a leading role in IBM’s acquisition of Red Hat in 2018. That purchase seemed an enormous gamble back then, but it clearly signaled IBM’s dedication to hybrid cloud infrastructure. Indeed, at the time of the merger, Krishna was SVP of IBM’s Cloud and Cognitive Software division, having also served as SVP and director of IBM Research, among other executive posts at the company.

But for a number of reasons, IBM foundered in its cloud mission, ceding share to Amazon, Google, and Microsoft continually over the last few years. Under former CEO Ginni Rometty, whose nearly nine-year tenure was marked by enormous compensation packages for herself, lots of shareholder grumbling, and a double-digit decline in share value in a bull market, IBM’s focus wasn’t translating to customer wins.

Same Strategy, Different Tactics

In a letter shared on LinkedIn today, CEO Krishna addressed IBM employees, stressing the same goals for the company that have been in place for several years now — to dominate the market for artificial intelligence (AI) and hybrid cloud infrastructure. What’s different will be the way IBM hopes to reach those goals.

“Hybrid cloud and AI are two dominant forces driving change for our clients and must have the maniacal focus of the entire company,” stated Krishna. The use of the word maniacal is striking, but so is the CEO’s restraint: Today’s message is free of the hyperbole about IBM’s cloud market share that has made the company a laughingstock in the trade press. Instead, he emphasizes a need for IBM to be more informed about client needs and more aggressive about winning business from rivals.

Krishna emphasizes technology as the main weapon in this war: “[W]e have to deepen our understanding of IBM’s two strategic battles: the journey to hybrid cloud and AI. We all need to understand and leverage IBM’s sources of competitive advantage.”

The Red Hat Advantage

Not surprisingly, a key tactic in IBM’s tech strategy is to leverage its investment in Red Hat. “There’s a unique window of opportunity for IBM and Red Hat to establish Linux, containers and Kubernetes as the new standard. We can make Red Hat OpenShift the default choice for hybrid cloud,” stated CEO Krishna in today’s message.

In this battle, IBM faces fierce competition from VMware, which recently released vSphere 7, upgrading its virtualization platform by equipping a hypervisor with Kubernetes capabilities, which Vmware says makes IT development easier and application performance faster.

IBM aims to get OpenShift even more in line against VMware, and Big Blue won't stop there. The company will push harder on its expertise in several other areas. “IBM is an innovation powerhouse. If you look at all the tectonic forces shaping the future of technology—cloud, AI, blockchain and quantum—IBM is leading on all fronts,” Krishna’s letter stated.

Part of the plan seems to be fresh leadership in key trenches. Besides the new CEO, IBM also has promoted Jim Whitehurst, the ex-CEO of Red Hat, to IBM president in charge of IBM Strategy along with the Cloud and Cognitive Software unit. Longtime Red Hat executive Paul Cormier is now Red Hat CEO. Bridget van Kralingen, another IBMer whose resume includes experience establishing IBM’s AI and blockchain technologies in world markets, is now SVP of Global Markets. And Howard Boville, the CTO of Bank of America, is set to start in Mary as IBM’s Head of Cloud Platform.

Other Issues to Address

No doubt it is high time for IBM to better leverage its technological strengths. But observers say the company has other problems that must be addressed. These include a bloated workforce with a cumbersome org chart, and a misguided reliance on legacy businesses as the means to forge into cloud.

Further, IBM’s given off many mixed messages in recent times — and not just around its cloud numbers. Overall, the company’s financials are confusing and full of weird contradictions. Capex figures are larger in the annual report than can be accounted for by tallying quarterly reports. Product classifications are Byzantine. Tracking IBM’s performance in many areas requires calculating figures based on totals aggregated across several months, or trawling through a range of fuzzy line items. All of which raises questions that need honest answers. The company's puzzling and patronizimg page on "How to Read Annual Reports" doesn't help.

Clearly, IBM has a lot of work to do to get on a faster track, much of which involves getting out of its own way. With clear planning that builds on the company’s many strengths, progress seems possible, even if it isn’t guaranteed.

IBM shares rose notably in trading today: by 3 PM ET, shares were priced at $113.13, up +6.76 (6.36%).