After IBM acquired Red Hat for $34 billion in October 2019 and then Red Hat CEO Jim Whitehurst was named IBM's President three months later, most IBM and Red Hat analysts assumed it was only a matter of time before Whitehurst would take over the top job of IBM CEO. We were wrong.
True, former IBM CEO Ginni Rometty has said at the time that the newly promoted CEO Arvind Krishna was "the right CEO for the next era at IBM because "He is a brilliant technologist who has played a significant role in developing our key technologies such as artificial intelligence, cloud, quantum computing, and blockchain." But, few people took that seriously. Krishna was seen as an interim CEO. Whitehurst, once he'd gotten a handle on IBM, would take over.
Why? Because Whitehurst is a dynamic leader. His record -- first at Delta as COO and then as Red Hat's President and CEO -- had been outstanding. Under Whitehurst, Red Hat became the first billion-dollar Linux company. Soon afterward, Red Hat became the first two-billion-dollar Linux company.
At IBM, under Whitehurst's guidance, in the fiscal year 2020, IBM's total cloud revenue of $25.1 billion went up by 20%. Much of this was driven by Red Hat's hybrid cloud programs. Red Hat itself saw its revenue go up by 18%. Clearly, Whitehurst was doing great guns for IBM's bottom line.
The market saw and appreciated this too. Whitehurst is widely respected by Red Hat's ISV partners and investors, and his departure raised concerns on Wall Street. Since the news of Whitehurst's departure came out before the July 4th holiday, IBM's stock price has dropped by 5%. While in the long run, the market remains bullish on IBM, there's some fear, uncertainty, and doubt in the short run.
Nowhere is that more true than within Red Hat. When IBM first acquired Red Hat, Red Hat employees were frightened that they'd lose their strong, unique culture. Whitehurst soothed their fears by telling them in a company memo that, "You've heard me say this before, but it bears repeating, Red Hat is still Red Hat. IBM is committed to preserving Red Hat's independence, neutrality, culture, and industry partnerships."
At many companies, such a memo would be dismissed as simply corporate hot air. That wasn't the case at Red Hat. Whitehurst was, and is, respected by Red Hat staffers. Now, sources at Red Hat report that those fears have returned and doubled.
Krishna, who has 30+ years at IBM, told the Financial Times that Whitehurst has been considered for the top job but the IBM board backed Krishna instead. Krishna added that Whitehurst is staying on as a special adviser. "Krishna said, "He's being very gracious. He's not going anywhere right now."
Whitehurst hasn't said anything to date about his future plans.
The two companies were never a match made in heaven. Yes, IBM was the first major tech company to support Linux and both have staked their future on the hybrid cloud. But, Big Blue's culture is bureaucratic and the company makes its money from consultancies, services, and hardware. Red Hat, on the other hand, runs on an employee-empowered open organization with open-source software as its revenue driver.
Inside IBM, some staffers are happy that Whitehurst isn't moving up. From their viewpoint, he favored Red Hat over IBM. For example, IBM wants to sell Cloud Pak Software-as-a-Service bundles to potential Red Hat OpenShift customers and the two companies' sales teams didn't work or play well with each other.
IBM staffers also don't like how Red Hat is seen as keeping IBM at arm's length. As Red Hat CEO Paul Cormier told The Register soon after he took the top job, there wasn't a culture clash because: "We don't participate in their culture. It's that simple."
Cormier continued, "In terms of IBM and our strategy, we do our own things. I have my own HR, own legal, own CFO, own IT. We have no plans to consolidate even our back office."
That's music to Red Hatters' ears, but out-of-tune noise to some IBM staffers. If IBM tried to force Red Hat to sing from its Songs of The IBM--yes it was a real thing--I expect Red Hat employees to seek a new home.
I foresee a massive culture clash coming. Before it's done, I expect both IBM and Red Hat to suffer as a result. IBM should have embraced its future with Whitehurst. Red Hat has been a major innovator while IBM's "business as usual" approach has seen the main company continue to trail the overall tech market. As the bad joke goes, the "I" in FAANG stands for IBM.