In this episode of the Futurum Tech Webcast, my colleague Steven Dickens and I took a dive into the goings on at IBM this past week. Obviously, the big news coming out of IBM with an announcement late in the day on Friday last, was the news of IBM president and former Red Hat CEO Jim Whitehurst stepping down. This came as a surprise to many, as Jim was largely viewed throughout the industry as a likely successor to IBM CEO Arvind Krishna within a few years. The IBM board, and Krishna, however, had other plans and Krishna is clearly not at all close to done with what he aims to accomplish at IBM.
In a Barrons’ interview this week, Whitehurst shared that he’s not done building things and that he wants another chance to be a CEO again. He realized, when IBM’s board of directors chose Krishna as chair as well as CEO earlier this year, that wasn’t going to happen at IBM. Whitehurst is a talented leader and there is sure to be no shortage of companies interested in scooping him up. This will be fantastic to watch play out.
My colleague, Steven Dickens, shared thoughts based on feedback he’s gotten from former colleagues at IBM, who were also fairly surprised by this news. We discussed the potential impact of this change on the Red Hat employees and community, who are a pretty tight group, and of course very supportive of Whitehurst.
IBM shares are down 5% since the company announced Whitehurst’s departure, and it’s clear that the longtime Red Hat CEO is incredibly valued by the investor community – and the tech community.
Massive Transformation Underway at IBM
We moved on from the Whitehurst conversation and tackled some of the many other changes happening inside IBM. The company is clearly undertaking some massive transformation, focused on regaining market relevance and of course growing revenues. And massive transformation most often requires some significant changes.
We also discussed some of the many changes afoot at IBM that Steven has some insider experience with, including the company’s transformation of the marketing function under new CMO Carla Piñeyro Sublett and the nuances of some of those changes, along with an overview of the somewhat radical transformation IBM’s IT team is undergoing under Kathryn Guarini, the company’s new CIO.
This is a terrific conversation, filled with fantastic insights from an insider’s point of view, and one you’ll not want to miss.
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Shelly Kramer: I’m going to talk a little bit about something that’s been in the news the last few days and that’s a leadership change at IBM. And there was a late Friday news dump announcing that IBM president and former Red Hat CEO, Jim Whitehurst was stepping down and this came as a surprise to many as Jim was largely viewed as a likely successor to IBM CEO Arvind Krishna.
And so backstory there. So Jim had been running Red Hat since about 2007, the open source software giant, and he kept his title after IBM’s massive acquisition of the company for $34 billion two years ago. And one thing I noted was that IBM shares were down as of yesterday, about 5% since the company announced Whitehurst departure. And I think that really shows the high regard that Jim was held throughout the investor community and the tech community. So I’m sure that Jim’s next act is going to be an amazing one.
And one of the things I noticed today was in an interview that he did with Barron’s, I think yesterday he indicated that he wants another chance to be a CEO. And he knew that that became clear that that wasn’t going to happen while he was at IBM and he knew that as soon as the board of directors chose Krishna who at 59 years of age is about five years older than Whitehurst. But they selected Krishna to kind of lead them through as their CEO and so he knew that it was probably time for him to make a change. And so I’m really looking forward to whatever it is he does next because he has an amazing track record and I’m sure it’ll be great.
Steven Dickens: Well, I think it’s really interesting that he mentioned that in the Barron’s piece. Typically IBM CEOs check out about age 60 and I know Ginni was due to do that and hung around an extra year for the Red Hat. I know San Palmisano before her checked out at 60. So Krishna being 59 and Jim not thinking the opportunities they had for him was an interesting one for me. That’s how I read it. Being an ex IBMer a lot of us thought that Arvind was going to take the company through the Kyndryl split that’s due to happen. A lot transformationally will be going on within IBM now. Go through that split and then 2022, he’d get that all done and then step down and Jim would naturally take over. So I’m really surprised that Whitehurst has stood there. I thought he would keep his role as president, see Arvind in the spotlight making the big transformational changes that IBM is going through right now and challenge with IBM execs over the last couple of days about it.
They’re surprised as I am that Jim’s not the next person in charge of IBM in the ’22 timeframe. So I think great from Whitehurst’s lee go that the share price dropped within 90 minutes. It took sort of five or $6 off the share price. That must be great that you’re that highly valued. But I think the view within IBM is going to be really interesting. I think a lot of traditional IBM has really excited by Whitehurst. He was taking quite a prominent role in messaging to the IBMers. And I think from the Red Hat side, there was a lot of interest in him retaining that role and being seen as the Red Hat person in the executive ranks at IBM.
So it’s really going to be interesting how those kind of constituencies react to the news. I’d expect that the Red Hatters are going to be quite unsettled by the news of Jim moving gone. And the IBMers correspondingly a little disappointed that such an industry bloominary isn’t going to be in the executive ranks, sort of guiding the journey that they’re on on their hybrid cloud strategy.
Shelly Kramer: Right? Well, you know what? We will see how it plays out.
Steven Dickens: It’s going to be really interesting to see where Whitehurst lands. I mean, he’s on a stellar run and got a lot of runway left in his career. The work he did at Delta as COO was seen as really strong. He took Red Hat to be the first billion dollar source company, the first 2 billion open source, the first 3 billion open source, and then ultimately sold the business out for 34 billion. So he’s going to be a hot property and it’d be really interesting to see where he lands.
Shelly Kramer: He is indeed. And to your point about the Red Hat community, I mean, obviously there’ll be disappointment and sort of uncertainty and everything else, but you know, the reality of it is with any career path, right, there’s never a given, there’s always uncertainty, there’s always change. And so it’ll really be interesting to watch how this transpires, how IBM motors on and where Jim Whitehurst ends up and we of course wish him the best. And so it’d be very interesting to watch. One of the things that I wanted to talk about in this segment of our show is you are a former IBMer for a very long time, we’re still happy to have you as part of our team, by the way. And so there’ve been some other changes at IBM that I wanted you to touch on. Some changes as it relates to sales and marketing structure and that sort of thing. So let’s talk about that a little bit.
Steven Dickens: Yeah. I think if you’re not tracking IBM closely, you’ll see point announcements coming out. They announced a new CMO with Carla Piñeyro Sublett. They announced the new CIO with Kathryn Guarini who used to be my boss actually in a previous role. And you’ll see those as just point announcements, not a lot of fanfare, but when you see them in the aggregate and you see them as a whole, IBM is on a complete transformation. You’ve got the big Kyndryl split going on where they’re spinning off what used to be the global technology services business. That is a quarter of the company, both revenue and headcount wise, about 90,000 people are leaving the business to go and form Kyndryl. That’s about $20 billion a year worth of annual revenue. So that’s significant. That’s meaning and impact on to how they run some of the backend processes. And Kathryn’s having an interesting couple of weeks with the email migration that’s going on chatting to some of the IBM as they’ve had a bumpy ride with emailing calendaring over the last couple of weeks.
Shelly Kramer: Right. You don’t think about this, but when you’re in sales and it’s the month end.
Steven Dickens: It’s half end for IBM as well so they’ve had, chatting to a few former colleagues it’s been interesting trying to trace down purchase orders. So I’ll be watching their Q2 earnings to see whether there was a blip. They just announced razor thin growth numbers last quarter so any blip is going to be material to see whether they squeak over into revenue growth. But I mean, I talked about the marketing, I talked about some of the IT changes. They’re having to carve off a quarter of the company. There’s GTS used to do a lot of the operational management of the IBM systems in GTS data centers. That’s got to be spinate. IBM’s also going through an email change. They’re going through a CRM change. They’ve gone through a sales and a sales and go to market change. So there’s a lot of transformational stuff all going on at once within IBM right now.
And I think what’s interesting for me is this is probably the same scale of transformation that IBM went through under Lou Gerstner, but it’s getting done a lot less press. So I think the piece we did, Daniel and I, on the executive leadership, Jim Whitehurst got a lot of the news and we’ve just talked about that. I think if you watch an IBM closely, there is a lot going on under the surface that’s not getting news. Kathryn Guarini taking over from, from the previous CIO, isn’t really newsworthy, but it speaks to something that’s going on there. Also the marketing changing. They’ve just announced a marketing reorganization, root and branch. Carla came on board. I think about February time. She’s taken some time to analyze the business and I see my LinkedIn changing with all my colleagues over there.
That’s just here to huge marketing reorganization to realign from a product focused and be you focused to conversations with clients. So the really, I think the key takeaway from this really is there is a lot going on at IBM right now. And I think Arvind is undertaking the same scale and magnitude of transformation that Lou Gerstner took in the, what was it? Mid to late ’90s. So it’s going to be really interesting. IBM is being very, very thoughtful about getting back to growth. Everything is growth, growth, growth and I think all this transformation is laser focused on getting back to revenue growth.
Shelly Kramer: One thing I wanted to touch on that, I think that you mentioned either in a conversation or a bit in the article that you co-wrote with Daniel was a change in go to market strategy on the part of IBM and how that may potentially impact customers.
Steven Dickens: Yeah, it’s really interesting. I wrote this at the start of the year. And having been at IBM 10 years, it was a very relationship focused client exec model with a, almost a minor on revenue in how those clients execs were paid and measured. It was very much on relationship metrics and the overall relationship dynamic with their biggest clients. What they’ve done is they’ve rolled out a couple of different segments of how they manage their clients and this was fragmented and various business units would segment clients in different ways. What’s really obvious now is you’re either part of segment one, which is the top 500 relationships IBM has globally, or you’re in segment two. What that means for you as a client if you’re wondering kind of where am I is not much change in segment one. The client exec structure still exists, still very strategic relationship focused.
In segment two however, massive change. A lot of client execs left the business as the transition in January, or got given different roles. And what that means is in segment two, there’s not those sort of almost second tier of accounts if you want to call it that. They’re going to take a technology driven focus. And I think this is a returning to focus from IBM of we need to go and drive some of those technology conversations with our clients, really engage with them and interact differently with them around how they position technology. And I think that’s a competitive response to have some of their competitors, the AWSs, the GCOs, that sort of GCPS that they’re engaging with their clients on a more technology lens and less on a relationship lens and I think it’s going to be interesting.
That’s only sort of six months in for IBM and that’s a massive change. And the lady who rolled that out, Bridget, was one of the people who was announced on Friday that she’s going to be leaving the business. So she was asked to hang around to roll out that change. It’s going to be interesting to see how IBM doubles down on that going forward.
Shelly Kramer: And how the lifespan of those changes, right?
Steven Dickens: Still a massive change for IBM of how they go to market.
Shelly Kramer: Well, I think one of the things that you mentioned in our prior conversation about it was just the customers in that tier two level will have to get used to a different kind of relationship, different kind of treatment, perhaps not quite as high touch, not quite as personal. Sometimes that’s a good thing. Sometimes that’s… I mean, when you’re used to very personalized high touch and you transition away from that, there’s always a danger in that, right? So I think the challenge with IBM there will be how can we transitioned these customers into these tiers, how do we keep these tier two customers happy and feeling like they’re getting what it is they want from IBM, what it is they deserve out of this relationship? So that’ll be interesting.
Steven Dickens: It’s going to be even more interesting as Kyndryl happens in the sort of September, October time. A lot of those big, big multi $100 million dollar relationships are Kyndryl relationships that form part of that $20 billion. So it’s going to be interesting to see how an account that was maybe led by GBS, sorry, GTS, the sort of now Kyndryl business transitions to be in an IBM led relationship as Kyndryl split splits off. So that’s going to be fascinating I think.
Shelly Kramer: Much ahead. That is for sure.
Steven Dickens: Yes, busy year for an off internet.
Shelly Kramer: Absolutely.