Recently IBM announced a very disappointing set of fourth quarter (Q4), 2013 financial results. Their biggest problem is their hardware group where revenue plunged 27% in the quarter. Also, this is their seventh consecutive quarterly revenue decline.
To me, the most disappointing part of their Q4 report was that back at the end of the prior quarter (Q3 of 2013), IBM had reported a 17% drop in hardware sales and at that time the executives said they hoped that their hardware division would stabilize in the fourth quarter. It’s as if they don’t really understand the technological inflection point that the hardware industry is going through, as the world increasingly supports cloud computing and services.
In discussing these recent results with the financial community, IBM’s CFO said “clearly we have under-performing businesses.” If that isn’t an understatement I don’t know what is!
All of this reminds you of the early 1990’s when IBM had for decades been riding the wave of success of the mainframe and completely missed the whole technology revolution of servers, databases and PC’s as opposed to heavy reliance on mainframes. It was Lou Gerstner who came in and saved the company by focusing it primarily on building a strong services business. Unfortunately, today IBM has somewhat taken its eye off of the ball in regard to their services business which should be quite robust as customers adopt the newer technologies. But instead, IBM’s services business suffered a 2% decline in revenue in Q4.
This IBM situation is in stark contrast to companies such as Netflix. Even though they were incredibly successful with their business of mailing DVD’s, they took the risk of starting a service of streaming movies over the internet, knowing full well it could completely cannibalize their DVD business. On the other hand, they wanted to get ahead of the technology wave of streaming content and it has paid off handsomely. Their stock price quadrupled in 2013!
The lesson from all of this is very obvious:
Spot major inflection points in technology and customer practices early, and quickly begin learning about their potential.
This principle applies to anyone in any organization no matter what their responsibilities are. If there are trends and innovations that can make what you do far simpler, more effective, and/or more efficient, you should jump on them early and test their potential in your business setting. To not do so causes you to face the risk of falling behind and playing catch up.