Editor’s Note: IT is a great barometer for MR; both are data-centric offerings that are vital to business success on a foundational level. They are also increasingly deeply interconnected on both an infrastructure and offerings perspective. And finally, both are facing massive disruption from new solutions that deliver cost, speed, and scale efficiencies while establishing frameworks for new value creation via integration.
With that in mind, Larry Gorkin’s deconstruction of the ills IBM is experiencing are instructive for MR companies, and his prescription for success is a great primer for industry leaders to align to.
By Larry Gorkin
IBM’s earnings announcement was full of bad news. Profits were far below expectations, revenues continued an ongoing decline, and the company said it would not meet its widely promoted profit target for 2015. Wall Street sent IBM shares down -10%.
These results reflect IBM’s below par response to major shifts impacting the overall IT market. The story highlights the challenges of sustaining growth in the face of rapid market change. There are important lessons for everyone, making it the subject of this Winning Ways.
Leaders facing rapidly changing markets must aggressively manage their business from both defensive and offensive perspectives to ensure on-going progress. Included are to set internal milestones for action, decisively invest in new opportunities, and develop back-up strategies. That’s the lesson from IBM’s recent business set-backs in the fast changing IT market.
As context, the IT market is undergoing big shifts based on fast customer adoption of cloud technology. This change has hurt IBM and other established players whose profits have been driven by sales of on-site hardware, software, and services. Cloud prices and margins are much lower than old IT products, and IBM’s new initiatives aren’t growing enough to off-set legacy declines.
IBM’s challenge has been compounded by its own widely promoted goal to achieve $20 EPS by 2015. The company has aggressively cut costs and spent billions on share buy-backs to meet that target.
Challenges aside, even IBM’s CEO described the company’s most recent performance as disappointing. Revenue declined for the tenth consecutive period, earnings missed Wall Street expectations by -15%, and growth in emerging markets was lackluster. Moreover, IBM conceded it wouldn’t make the $20 EPS target for 2015, a conclusion many outsiders had reached long ago.
IBM’s results reflect several key missteps. To begin, the company seriously misjudged how quickly customers would move to the cloud. IBM’s own cloud initiative was late and under-resourced, as was its effort behind other growth initiatives like big data and Watson.
Moreover, IBM invested billions of dollars in share buy backs to meet its 2015 EPS goal that could have been invested in growth initiatives. At the same time, the company ignored on-going revenue declines and other signals that the target was unachievable. Most importantly here, IBM has yet to find a way to off-set legacy business declines with equal revenue/profits from new offerings.
Fortunate for IBM, it is a big company with lots of talent and deep financial resources. IBM is far better positioned than many companies would be to recover from these kinds of mistakes. For many companies and in many markets, missing important industry shifts would leave permanent damage.
So, IBM’s story is a good reminder that “stay the course” doesn’t work in periods of rapid market change. More than other times, leaders must stay ever close to customers and be prepared for the unexpected. Plans need to be regularly updated to reflect changing business results and market conditions. Objectivity and milestone metrics are fundamental requirements.
Lest you be unprepared yourself, here are five steps leaders can take to ensure their own success when faced with a rapidly changing market.
1. Monitor Customers Closely–Establish on-going tracking research and regular live dialogues to know what customers are thinking and buying. Look for trends/changes and conduct sensitivity analysis; determine the possible business and strategy implications.
2. Establish Milestone Metrics–Define threshold measurements that will trigger you to re-evaluate or change plans. Examples are changes in market size, revenue, and pricing. Decide what actions you will take for each trigger. Put a supporting management system in place.
3. Respond Decisively–Develop strategies that aggressively defend the threat and/or exploit the opportunity presented. Be sure the budget, people, and skills are in place to successfully execute the plan. This is not a time for indecision or saving money.
4. Prepare a Back-up Plan–Have “Plan B” ready in case the original response doesn’t work; you probably won’t have tested it in advance. Per the above, decide in advance what milestone metrics will trigger a shift to the alternate plan.
5. Establish Objective Oversight–Create a team of senior leaders to regularly monitor progress. Have the team constructively engage with the business owners on performance and strategies to ensure overall success.
Rapid market change can challenge any business. Decisive action by strong leaders will win.
Is your business facing a potential market shift? What changes could impact your business? Are you prepared?