Big news from Big Blue yesterday: IBM CEO Ginni Rometty is stepping down after eight years at the helm. In her stead, IBM is doubling down on the cloud by appointing Arvind Krishna as CEO and member of the board. The real move to watch, though, is the appointment of Jim Whitehurst, Red Hat CEO, as president of IBM and a board member. It’s the first time that someone has held the title of president singularly, and it may portend where the real power will be at Big Blue (and Red).
Krishna was previously head of the cloud and cognitive software division at IBM. He is an IBM veteran, having been with the company since 1990. His appointment sends a strong signal about how important the cloud is to IBM’s future. In some ways, it is similar to Satya Nadella’s appointment at Microsoft. But perhaps it’s not as strong a signal about the importance of the cloud than the $33 billion IBM spent acquiring Red Hat.
It is that $33 billion investment and the importance of Red Hat to the new IBM that leads me to believe Krishna may, in fact, be a transitional CEO. The eventual appointment of Whitehurst as CEO and the rise of Red Hat leadership within IBM may in some ways be a reverse-merger type of thing, with Red Hat eventually running the show.
IBM is a huge beast. A company of Red Hat’s size will find it difficult to change the culture and overcome the inertia at IBM. But frankly, IBM has been transitioning for almost all of Ginni’s time there. While the Enterprise Systems group (Z systems mainframe) is still the cash cow, bringing in a large percentage of revenue, IBM has increasingly tried to be a major cloud player.
The SoftLayer acquisition didn’t quite give the company what it needed, as it was not a public cloud play. It left IBM unable to compete with Google, Microsoft Azure and AWS in true cloud services. After a few fits and starts, IBM decided that Red Hat, with its open source pedigree and cloud strength in both public and private cloud settings, could be the engine that could as it pertains to cloud.
The street has not been kind to IBM over the last few years as a result of the botched cloud play, either. At a time when its tech competitors and the market in general have soared, IBM has actually fallen, as has its revenue.
Mitchell Ashley, founder and managing analyst at Accelerated Strategies Group, agrees with this assessment. “We are seeing a sea change in big tech CEO strategy. Like Microsoft’s elevation of cloud exec Satya Nadella to CEO, IBM is rebuilding its executive ranks from the open source cloud software world with the appointment of Red Hat’s Jim Whitehurst as president and board member,” he said. “How soon the Krishna regime including old-line IBM executives gives way to Whitehurst and other Red Hat executives remains to be seen.”
Ashley was not the only analyst to weigh in.
“IBM bet the farm on cloud with the $34 billion Red Hat acquisition,” said Steve Duplessie, founder and senior analyst at Enterprise Strategy Group (ESG). “It was only a matter of time for the succession. Now the two top dogs running IBM are cloud purists. The old IBM died a while ago and they had to change—I like the move! Their stock lost 26% while the S&P rose over 150%. This lets them remake themselves before it’s too late.”
Changes at the top don’t always portend success. There is a lot of hard work ahead at IBM as the company continues this journey. Competing with AWS, Google, Microsoft and other players in the cloud space is going to be challenging, given the head starts these players have already. But you really can’t count out IBM, ever.
One other thing I wanted to mention: With IBM’s appointment of Krishna at IBM, there now are CEOs of Indian descent at Alphabet (Google), Microsoft and IBM. This is very positive for all persons of not only Indian heritage but for all people of color and nationalities. Kudos to these companies and these men for their success. Now, how about some women of color in these roles?