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THE IBM ETHOS THAT DOOMS ITS DIVERSIFICATIONS, JOINT VENTURES, TO FAILURE

It’s easy enough to catalogue the failed joint ventures and diversifications entered into by IBM, as we did in CI No 596 (and isn’t British Telecom relieved that the UK Department of Trade & Industry turned down its proposal for a value-added networking joint venture with IBM!): the hard part lies in discerning why they failed, and where IBM can go from here.

IBM cachet

One of the biggest drawbacks of entering major joint ventures which represent diversifications for both partners is that each partner has to take on trust the other’s knowledge and understanding of the aspects of the new market both plan to enter. A classic example was CW Communications’ first attempt to enter the UK market in partnership with the Thomson organisation. CW assumed that Thomson knew all about marketing controlled circulation magazines to specialist UK business sectors – whereas it had no experience of the peculiarities of the UK computer publishing market and could therefore bring almost nothing but printing and distribution capacity to the party. Thomson assumed that CW Communications knew all about staffing up a computer publication and about selling classified advertising space in a highly-competitive controlled circulation market – in fact it knew little about the first, nothing about the second. Its flagship US and German computer magazines groan under the weight of the job ads they carry – yet it took ComputerWoche six or seven years to get beyond two or three pages a week, and it took ComputerWorld in the US over a decade. The job ads lagged by several years the editorial success of the publications. And that kind of misapprehension about the skills of a powerful partner, the easy assumption that its knowledge of one market sector can be effortlessly transferred to a related but different one – is entirely typical of major joint ventures. Comsat knew all about selling satellite capacity to public telecommunications bodies, and about building satellite installations cost-effectively; it knew almost nothing about selling bulk data transmission capacity to large private corporations. It assumed that IBM knew all about that – after all, IBM talked to those people every day – and it thought that IBM’s cachet was such that the cash would come rolling in, and for once it would be possible to build a Rolls Royce satellite system instead of the Volkswagens it had had to settle for in its own cost-conscious operations. Aetna, as the sleeping partner there to keep the Federal Communications Commission happy, assumed that the two active partners knew what they were talking about. In fact, IBM knew nothing about selling telecommunications services – very little about selling services in the US, having been barred from the bureau business for a decade. Satellite Business Systems duly failed to live up to expectations. In retrospect, International MarketNet represented a quite remarkable triumph of hope over experience.

IBM nameplate

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IBM naively assumed that Merrill Lynch’s knowledge of what the provincial brokers that it serves needed would transcend their inhibitions about paying an arm and a leg for such services, while Merrill was so blinded by IBM’s size and clout that it completely ignored the fact that if you want a major software development brought in on time and on budget, the last company you choose to carry it out is IBM. IBM is packed to the gunwales with software engineers who have been educated in the comfortable assumption that the customer is so locked in to IBM that however long it takes and how ever much it costs, he can’t afford to do other than wait and accept the product. IBM further assumed that brokerages were so profitable that it could get away with locking the thing in to the 3270 Personal Computer, a pricey machine designed primarily to improve IBM’s margins on one part of the Personal Computer business, and one that by then was already clearly a commercial failure. Joint ventures with powerful partners, then, are more often a short-cut to disaster than a guarantee of success. So if you’re IBM, what do you do to

maintain your high rate of growth? Diversify but go it alone? That didn’t work too well in the case of PCjr, where IBM found to its cost that the Big Blue nameplate did nothing to offset abysmal value for money in a market where IBM was not recognised as a player. Acquisition? That doesn’t seem to have worked out too well in the case of Rolm. All of which leaves IBM having to face the fact that the only thing it can be certain it really does know all about is building and marketing large computer systems – and in the last 12 months, even that market has begun to show ominous signs of going ex-growth. IBM’s biggest problem in managing relative failure – and a key factor in the disappointments of all its joint ventures and diversifications – is the cosy, exclusive them-and-us culture that it fosters so assiduously right through the company. IBMers find it extraordinarily difficult to treat partners – or resellers, or customers – as equals because they have been brought up to believe that IBM, the IBM way, and by extension, IBM people – all IBM people – are superior.

IBM hubris

A classic example is the commendable no lay-offs policy. Its strength is that it binds IBMers cohesively together, but its weakness is that it is seen from outside as incredibly cynical when OEM supplier after OEM supplier is forced to make savage employment cuts as a direct result of IBM terminating an OEM contract unexpectedly. IBM is seen from outside as saying quite unequivocally that while it cares passionately about IBM jobs, it really couldn’t care less about the people who provide IBM with the products and services which from time to time are indispensable, if those people are not actually on the IBM payroll. And, disconcertingly, IBM’s key current strategies, those of selling much more equipment through resellers, and of becoming a major player in large-scale systems integration, depend crucially for their success on two key areas where IBM is weakest – in its relationships with the outside world in general and its resellers in particular, and in bringing in large and complex developments in on time and on budget. Despite the disappointment over Rolm Corp, the most promising route for growth by diversification almost certainly does lie in making a major acquisition. But to make a success of it, IBM needs to import a generation of managers who are not imbued with the IBM hubris, but exhibit instead, humility, a respect for the non-IBM world, and a willingness to learn from non-IBMers. Are there any at the top of IBM today with the courage and the vision to take such a radical step?


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CBR Staff Writer

CBR Online legacy content.