Typically, we focus more on acquisitions than we do spin-offs, but I’ve found that spin-offs are often far more successful than acquisitions if they are done right.
Acquisitions typically put together two companies with very different cultures, policies, and strategies. The process tends to focus on the benefits, not the problems, and they rarely meet the overblown expectations. On the other hand, spin-offs are less likely to blow up, because there are fewer unknowns.
For instance, Dell’s recent spin-off of VMware had none of the drama or problems inherent in its acquisition of EMC, which included VMware. I recall in the early 2000s, Microsoft leadership felt, rightly as it turned out, that Microsoft would scale faster without a global services unit like IBM’s. In time, they were proven right.
IBM just finalized the spin-off of its Managed Infrastructure Services unit into a stand-alone company, Kyndryl, which is very similar to what Perot Systems and EDS used to be.
Let’s talk about the benefits of IBM without what is now Kyndryl, and the new advantages Kyndryl has on its own:
De-bundling IT services
IBM’s recent Kyndryl spin-off finally reverses the trend that IBM essentially started binding global services, an outsourcing entity, to a computer company. Initially, it benefitted IBM as a dominant technology vendor. When you are essentially the only company at the scale of your type, a high degree of vertical integration is strategic. But when you are in a more competitive market and focused on growth, you need to partner with other services firms to gain scale. Still, those companies don’t want to partner with competitors that could limit their growth potential, like a vendor that competes with them.
Separate from IBM, Kyndryl can better perform the role of technology adviser by choosing solutions that better fit customers’ needs rather than defaulting to IBM for almost every answer. As a stand-alone, it can pull from a broader portfolio of offerings from various vendors.
At the same time, with this move, IBM’s product groups become closer to their customers and become more independent of Managed Infrastructure Services. This separation with Managed Infrastructure Services increases proximity between IBM’s customers and product and consulting groups. This proximity should result in IBM offerings that better meet customer needs over time.
In addition, the spin-off shifts Red Hat into a more prominent place in IBM’s model, while allowing Kyndryl the opportunity to partner more closely with major players, like HP and Microsoft, that work more closely with other independent services organizations.
When large companies experience growth problems, they often become too complex to manage efficiently. However, with this move, IBM’s structure becomes somewhat simplified with clear delineations between IBM Consulting, IBM Software, and IBM Infrastructure. IBM Consulting will consist of Business Transformation, Technology Consulting, and Application Operations. IBM Software will comprise Hybrid Platforms and Solutions (Red Hat, Automation, Data, AI, Security, and Health) and Transaction Processing. And finally, IBM Infrastructure includes Hybrid Infrastructure (IBM Z, Power Systems, Storage and IBM’s public cloud) and Infrastructure Support. This structure should help customers better understand IBM’s capabilities and help IBM senior management more easily handle the units.
An increased focus should have additional benefits, including enhanced agility due to simplified management decision-making. This simplification should also make IBM more responsive to its customers and ecosystem partners, including companies like AWS, Microsoft, SAP, Salesforce, Adobe, EY, Deloitte, Palantir, Dish, Celonis, Intel, Samsung, and Verizon, among others. One additional benefit is that this should allow IBM to better focus on integrating its recent string of acquisition companies to enhance its hybrid cloud, artificial intelligence (AI), and high-value consulting services.
IBM serves large clients that are often complex, multinational, and highly regulated. To serve those customers best, IBM has to become closer to them, not by working through the lens of Managed Infrastructure Services, but more intimately and freer to work through other localized service organizations when needed. These customers need enhanced security, want to harness AI, and ensure compliance across multiple platforms, including on-premises, public and private cloud, as they deal with their complexity.
With this significant structural change, IBM should be better able to meet the needs of their diverse customer base, while helping those customers take advantage of cloud computing, advanced AI, and the emerging world of quantum computing.
Thomas Watson Jr. once said, “Be willing to change everything but who you are.” In a way, this change helps IBM again focus on who they are. And at its core, IBM is best as a product company that partners exceptionally well with the customers it serves.
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