IBM CEO Rometty talks reinvention, strategy

Summary:Cognitive computing technology such as Watson, cloud computing and systems of engagement will reinvent IBM, says CEO Ginny Rometty in a shareholder letter. But the big question is how long the transition will take.

In an annual letter to shareholders, IBM CEO Ginny Rometty said data was a natural resource and outlined the company's revamp around cognitive and cloud computing as well as systems of engagement.

Rometty's comments won't be surprising to people familiar with IBM, but the subtext to shareholders revolved around the company's transition and how it'll take some time for businesses like cognitive computing to outpace slowing growth in hardware.

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For shareholders, IBM is paying them to have some patience via dividends, but the company's last earnings conference call surfaced some analyst angst over the lack of growth even as Big Blue hits earnings projections.

In the letter, Rometty noted:

I believe that if you understand our strategy, you will share our confidence in IBM’s prospects—for the near term, for this decade and beyond.

The catch for shareholders is that many of the transformational businesses touted by Rometty haven't taken off yet. Nevertheless, 2014 will go down as a transformational year should IBM reinvent itself again.

Here's a look at IBM's strategy as outlined by Rometty:

Cognitive computing. As expected, Rometty talked up Watson and big data. The Watson business unit has been formed with a $1 billion investment and now has 2,000 IBMers and a portfolio of products to support it. The problem: The Watson unit is unproven to date. For sure, IBM has wins, but until the Watson unit can eclipse things like slowing server sales and a flattish services pipeline some patience will be required.

Cloud computing. Rometty talked SoftLayer a lot and how IBM is an enterprise cloud company. She also positioned IBM as the prime hybrid cloud vendor. Rometty also signaled that IBM plans on leveraging its middleware knowhow. She said:

A new class of “cloud middleware services” is emerging to manage these complex environments. Last month we announced several capabilities that will connect enterprise data and applications to the cloud. IBM’s entire enterprise software portfolio is becoming available to developers in an open, composable business environment to build applications with flexibility and scalability. A “cloud first” approach is being implemented in IBM software development labs globally.

Systems of engagement. IBM's other strategic pillar revolves around enabling people to better use enterprise systems. Rometty's talk revolved around social, mobile and security services and software.

ibm annual report

 

The strategy makes sense on many levels, but it's unclear when IBM's cognitive computing, big data, cloud and engagement businesses offset hardware's struggles and weakness in emerging markets. Rometty said:

We must acknowledge that while 2013 was an important year of transformation, our performance did not meet our expectations. Our operating pre-tax income was down 8 percent. Our revenue in 2013, at $99.8 billion, was down 5 percent as reported and 2 percent at constant currency. So, while we continue to remix to higher value, we must also address those parts of our business that are holding us back.

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As for emerging markets, Rometty said IBM is focusing more on growth regions.

Rometty concluded with the reinvention theme.

Every generation of IBMers has the opportunity—and, I believe, the responsibility—to invent a new IBM. This is our time. We are working to make this not just a successful business, but an essential institution for our clients and the world in a new era.

Topics: Cloud, Big Data, IBM, Social Enterprise

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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