IBM needs to gun for growth markets

Having just taken over the reins at IBM on 1 January from outgoing CEO Sam Palmisano, Virginia Rometty has big shoes to fill. To start her reign on the right foot, analysts suggest that she continue the company's current business strategy, and shift focus from slower spending markets in Europe to other emerging growth markets.

Greg Richardson, an analyst at TBR, pointed out that Rometty, as IBM's former global sales chief, was the driving force behind most of Big Blue's key strategic manoeuvrings in recent years. These include the establishment of the growth markets division and its Smarter Planet initiative.

Richardson added that in her previous role, the new CEO was "fundamental" in communicating the company's value of integrated offerings to its customers, which helped strengthen the foundation to "aggregate multiple discrete technologies into need-based solutions".

With these past achievements in mind, the TBR analyst and Frost & Sullivan's Asia-Pacific vice president for ICT practices, Jayesh Easwaramony, highlight four areas that IBM's new head honcho will need to take note of.

Cater to midmarket customers

While enterprise customers are a key demographic for Big Blue, Richardson said that it would be beneficial for the IT vendor to also target midmarket customers. This group of companies will increasingly demand "integrated, need-based solutions" to support a shift to virtualised and cloud infrastructure, he noted.

He suggested that IBM will need to tailor such offerings to avoid complexity and high costs. "Midmarket customers are more price sensitive, and have smaller IT staff strength, creating headwinds for a vendor that only designs complex and expensive systems," he explained.

Keep cloud, big data momentum going

Easwaramony pointed out that one of Rometty's key focus areas would be to accelerate the migration to cloud services by customers, and enable big data analytics and management.

He said that IBM had already invested heavily with several acquisitions in these market segments, which will be the fastest-growing segments within the IT industry, so it makes sense for the company to continue on the same track.

One of the more recent acquisitions was in December 2011, when Big Blue paid US$440 million to buy web-based analytics software maker DemandTech, which makes products that aim to help companies determine the best price points and product mix by analysing customer buying trends.

"At the same time, these opportunities represent a significant transition in the IT-spending behaviour of corporate entities, and these organisations would benefit from the integrated value proposition that IBM offers," the Frost & Sullivan analyst noted.

Steer clear of slowing markets

Easwaramony went on to say that IBM should avoid markets such as Europe, where spending has slowed down due to the region's financial turmoil and uncertainty.

Instead, Rometty and her team should continue to grow the business in emerging markets, he urged.

Palmisano stated in May 2010 that within these emerging markets, the middle class was growing in strength, and, when this happened, the country would need infrastructure. This, in turn, would make such economies a larger part of IBM's revenue base, he said.

The company's third-quarter results also showed that revenue from growth markets, such as Brazil, India and China, rose 19 per cent last quarter, and would contribute sales accounting for at least 30 per cent of its revenue by 2015, up from 21 per cent in 2010.

Deliver 2015 roadmap

Easwaramony also called on Rometty to ensure that the company continues to have the "robust execution engine" to deliver on its well-thought-out 2015 strategy, so there is little need to change its long-term plans.

Her predecessor had laid out this roadmap in May 2010, saying that the company would deliver earnings of at least US$20 per share in 2015, and generate US$100 billion in cash flow in that same period.

Palmisano added that IBM would spend US$20 billion on acquisitions between 2011 and 2015. Its growth markets are also expected to contribute 25 per cent of its global revenue by 2015.

Easwaramony called on the new CEO to keep innovation high on her priority list.

"No CEO should remove their focus from innovation, and Rometty needs to showcase IBM more often as a thought leader in its growth areas, and continue acquisitions in these areas to strengthen its market position," said the Frost & Sullivan analyst.

Via ZDNet Asia