There once was an upheaval at IBM; a David and Goliath moment. That was when personal computers, namely Apple, entered our landscape. The world became divided into Macs and IBM PC’s. The genericization of the Mac alternative led to a proliferation of non-IBM PC offerings from Dell, HP and others. IBM, the Goliath and “owner” of the PC, gave up. Eventually, IBM’s laptop division was sold to Lenovo. The IBM focus became mainframes and its supporting software, especially the AS 400 mainframe. This was where the money was earned. Sure, personal computing was grand. But, customization, installation and updates of mainframes was grandeur. If you are an airline, the last thing you want is for your mainframe to go down. IBM was spectacular in making sure uptime was all the time.
In its recent earnings report, IBM stated that its customers put their money into AI rather than IBM mainframes with its associated software. Big IBM contracts were not inked. Even though IBM has software with its mainframes, it seems as if a promise of AI is that AI can provide ways to more efficiently modernize and customize software internally. The possibility that AI can assist in running operations with less reliance on mainframes is out there, on the table, as potential and significant change.
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In a Wall Street Journal story about IBM’s quarterly miss, CEO Arvind Krishna “… tied the miss to IBM customers redirecting late-quarter budgets toward servers, storage and memory to lock in AI-related hardware before prices rose. He (CEO Krishna) also attributed a pause on some deals to clients reassessing cybersecurity spending.”
Bloomberg BusinessWeek wrote that Starbucks would be “replacing software from a number of vendors, including IBM, with internally built options.” Additionally, the writers point out that AI is disrupting “priorities for corporate technology buyers.”
AI is not a surprise. If you look at the business articles in The Wall Street Journal, for example, articles about AI outnumber other business topics 2-to-1, sometimes more. If you are running a technology company, AI should be a part of all scenario planning, front and center.
How, then, did a vast enterprise with incredible history and databases of knowledge fail to see that there was trouble in the backyard? Or did IBM planning create a different future?
There are two ways of looking at the IBM situation.
One view is that AI is a profoundly disruptive turning point that is shaping almost every facet of our human experience. In other words, AI is a cause of major change. If so, then, IBM is behind.
The second view is that AI is a stimulus, a catalyst, which is escalating a transformative reshaping that is already happening. In other words, AI is not the direct cause for the disruption which might have occurred without AI as an incitement. If so, then, IBM is betting on its strengths in other areas to win in the future.
If the first case scenario is true, then, it is possible that IBM fell victim to unfortunate tendencies that erode and, sometimes, destroy, enduring profitable growth of the enterprise. Specifically, believing that what has been working will still work, disregarding changes to the business landscape along with a sense of complacency.
If the second scenario is true, then, IBM’s position that AI is “a temporary disruption to its core business,” as reported in The Wall Street Journal, CEO Arvind Krishna’s strategy of staying the course is solid. CEO Krishna believes that the absolute necessity of the infrastructure IBM provides – infrastructure that is unseen to us as mortals, but working on behalf every time we use our debit/credit card or make an airline or hotel reservation or order flowers for an event – will continue to be needed, bought, upgraded, serviced and not replaced, but enhanced, by AI. CEO Krishna also believes that the personalization of IBM service, its “hand-holding” is not something that will be harmed by AI. In fact, CEO Krishna believes AI will be a “boon” to IBM.
Wall Street is skittish. The concern troubling Wall Street is the effect AI seems to be currently having on the IBM mainframes business which are the “linchpin” of IBM’s revenue. Even though IBM is betting on its edge in quantum computing, analysts fear IBM’s win in quantum computing is far away. Wall Street hate uncertainty.
If the first case scenario is true, brand IBM will need to focus on culture change. Although subtle, these troublesome tendencies can wreak havoc on an enterprise.
The Belief That What Has Been Working Will Still Work
The world changes; brand reputations change; competition changes; new approaches to operations change; technology changes. Doing what has worked when the current landscape is in the midst of serious disruption makes no sense. Believing that what worked yesterday will work today is inward-looking. Brand leadership misses what is happening now and what can happen tomorrow. Leadership must look outward rather than backward.
IBM has been through moments when turning around the organization was paramount dating back to the leadership of Lou Gerstner beginning in 1993. Mr. Gerstner not only addressed IBM’s fabled bureaucracy, but created the groundwork for e-business and cloud-based services. This is remarkable, as Amazon, the epitome of e-business, was founded in 1994.
Disregarding Changes To The Business Landscape
The Wall Street Journal wrote the following:
“Much of IBM’s revenue is tied to its data-center business, where it sells servers known as mainframes to enterprise customers such as financial-services firms and retailers. That means IBM hasn’t benefited from the boom in spending on AI infrastructure that has boosted some of its peers, including Nvidia, Amazon Web Services and Advanced Micro Devices.
“There have been some fears that AI tools could help some enterprises modernize their workloads, which could result in them moving off of mainframes entirely and instead renting computing capacity from cloud providers. … IBM sees ‘no evidence of clients moving off mainframe.’”
Not paying attention to the changing needs, problems and desires of core customers means the brand is not up to speed. Continuing to do what you know how to do means the brand is not evolving with changing times.
Ignoring the changing world is linked to corporate complacency in that complacency blinds an organization to the forces of change creating a “staying alive” mentality rather than a moving forward mentality.
The Comfort Of Complacency
Let’s not think of complacency as inaction. This is false. Complacency can involve action. That action, however, is routine, rote and never leading to making headway in the present or into the future. Complacent actions are actions that people are just comfortable doing; so comforting that people are lulled into believing that changes in the marketspace have nothing to do with you.
How? Complacency stops ideas, innovation and keeping up with customers. Complacency crushes curiosity and creativity. Some data show that complacency leads to market share loss and underperformance. Complacency gives you the opportunity to stop looking at the changes in the world around you and in your specific market segment.
Years ago, a consultant at a leading consulting firm said that complacency is “How giants fall.” He said that complacency stops leaders from really looking outside at what is coming up and what the threats are to the enterprise.
Warren Buffet pointed out in one of his shareholder letter (2015), that complacency is a “corporate cancer.” Complacency is so dangerous because its roots are in past success.
It is impossible to say if IBM suffered from these flaws. However, observers, including analysts and Wall Street compadres are concerned. Bloomberg BusinessWeek remarked that IBM’s missed quarter “… rattled investors, who began to question whether IBM really had much of a moat protecting it from AI.”
But, let’s assume that CEO Krishna is correct. Let’s assume that his upbeat, rather bullish view on IBM’s future path is the way forward. Afterall, there was a lot of hype and brand reorganizations to manage in an automotive EV future. This was perhaps optimistic. EV pullbacks among car brands has already occurred.
CEO Krishna indicates that IBM is fighting for a future where brand IBM has defined a clear strategy for enduring profitable growth, acting like a leader and not living off of current positive momentum but instead creating ongoing positive momentum.
Define A Clear Strategy For Enduring Profitable Growth
A brand strategy does not exist in a vacuum. A brand strategy takes place within the purpose and ambition of the corporation. The corporation’s purpose is the guiding force that provides the direction for all thought and action on behalf of a business. All corporations are in the business of building an enduring, profitable, growing and preferred brand whether it is a corporate brand or the corporation’s branded portfolio. Brand strategies must fit and work within the stated corporate priorities. In other words, have a Plan to Win and execute with precision and flexibility.
Brand should strengthen competitive position, pricing power, and enterprise value. The Blake Project helps make that happen.
Act Like A Leader
Brands need to act like leaders. Brand leadership runs on the principles of transparency, integrity, honesty, credibility, authority, responsibility and authenticity. A past study by Interbrand, the brand valuation company, indicated that among 3,000 brands, leadership is the characteristic most closely correlated with the strongest long-term value. Brand leadership means a brand must be a visible and authoritative symbol of an historic legacy and have a vision of its place in the future. Brand leadership comes from education, inspiration, influence, support and evaluation.
Brand leadership is not about size. Brand leadership is about being perceived as a leader in thought and in action. This involves innovation and action around the innovation. In the 1980s, IBM learned this lesson as Apple was perceived as the more popular, innovative brand while IBM was an iron-clad behemoth. Today, IBM is innovating in quantum computing as well as investing in AI technologies that represent growth opportunities for IBM’s hardware and software.
Not Living Off Current Positive Momentum But Creating Ongoing Positive Momentum
If scenario two is true, then it means that IBM is not living off inherited momentum; that IBM is not riding the coattails of previous success but generating new pathways to success. It means that IBM has not fallen into the trap of forgetting its core of computing expertise, mainframes and proprietary software to run these mainframes. It means that IBM has figured out new ways to win in the future that do not undermine its core.
When management rides the already established momentum without thinking about rejuvenating the brand life cycle, the brand slowly slips into a valley of despair. The truth is that this can be avoided by creating a new upward slope based on new ideas, innovations, renovations and news.
IBM has articulated its vision of the future world in which it will win. IBM has indicated what role the brand IBM will play in this future world. That all depends on whether AI is the disruption or a catalyst of a disruption. Just because Wall Street has misgivings does not mean that IBM is mismanaged. Brands can live forever but only if properly managed.
Contributed to Branding Strategy Insider by Joan Kiddon, Partner, The Blake Project, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I
At The Blake Project, we help leaders turn brand into a disciplined driver of financial performance — strengthening pricing power, competitive position, and enterprise value. Email us to start a conversation about enduring profitable growth. For The EBITDA.
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