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Congratulations on your recent promotion! I do not know how you feel about it, but I think you have some tough times ahead. Your product business has stagnated for years and I don't suppose you can let the growth of your services business keep taking the strain. So what are you to do with those product divisions?
For a company like IBM, success is a bit like winning an election: you have to capture middle America. The support of the party faithful is all very well - and they do need constant tender loving care - but on their own they won't carry the day. No, you need the hearts and minds of the middle ground. As we know, these are a fickle bunch, always ready to listen to a good story, and the tale that has captivated them over the last few years is that one about LAN-based architectures for core business systems. Unfortunately, this story didn't come from IBM.
1996 | 2001 | Growth | |
---|---|---|---|
Cisco | 4.1 | 22.3 | 444% |
EMC | 2.3 | 5.9 | 157% |
Microsoft | 8.7 | 25.3 | 191% |
Oracle | 4.2 | 11.0 | 162% |
Sun | 7.0 | 18.3 | 161% |
IBM products | 49.3 | 46.3 |
Your stockholders have had a pretty miserable time of it recently but this does not seem to have impacted much on senior management. If you look at IBM insider trading at, for example, http://quote.yahoo.com/, you will see that various board members have been picking up cheap stock options and then selling them in the market. Indeed, there is a rumor (which I don't believe for a moment, by the way) that sales of wheelbarrows have been booming in Armonk to carry the cash to the bank. (Alas, bagel bags have been more than adequate for your stockholders.) So my first suggestion is that you cancel all stock option plans and align management incentives directly to growth in the stock price.
It cannot have escaped your notice that even when you sell a new computer to the party faithful, you still have to invite in someone else to enable the users to get at it. Then once your back is turned, these people go running around your accounts spreading ideas which I am sure you would prefer they kept to themselves. So my second suggestion is that you stop this head-to-head product competition and get back to selling systems. There have always been niche players claiming - often with some justification - that their products offer better value. But when IBM had a successful product business, these claims were deflected by proposing systems solutions where the whole was greater that the sum of its parts, not least by removing from the customer the risk and cost of getting (and keeping) the bits working together.
So where to start? A good general always attacks at the weakest point and amongst your competitors there is an obvious candidate with a hard-won reputation for product quality, timely delivery and ethical business practices. My big idea, then, is that you create a division out of your PC people, your OS/2 people and your Lotus people with a mission to build a desktop solution. The division should be led from the software side (not forgetting my incentive ideas, q.v. above) with the challenge of capturing a respectable share of the desktop market within a reasonable period. Naturally, the party faithful can be relied upon to give you a good send off and after that - things should develop their own momentum. (This is only a start, remember: don't forget other things like the recently announced Cisco/EMC/Oracle development agreement.)
So there it is, then: focus and systems! I know this is not what you're doing, but you'ld expect me to suggest something different, of course, because what you are doing isn't working.
But whatever you try, be assured you will always be in my thoughts. It might also be helpful for you to reflect from time to time, if not every second of every day, that there is only one line item on the Performance Appraisal of a CEO: the stock price. Oh! And that reminds me, I almost forgot: you don't need to set up progress reviews with me - I will get a daily update from the Wall Street Journal.
Yours ever,
- Derrick Price
A Hopeful Stockholder
March 18, 2002
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