IBM Spins off GTS. The future is 100% Hybrid and AI

On October 8th, 2020, IBM CEO Arvind Krishna announced that IBM was spinning off the Infrastructure Management group of Global Technology Services or GTS.

This is no small spinoff; $19B in revenue, 90,000 employees, and nearly 5,000 clients and a truly global business. The working name is “NewCo”. The separation process is targeted to be finalised by the end of 2021.

The spinoff of GTS does not come as a major shock to anyone who watches IBM closely. For the past 20 years, from PC’s, Contact Centre BPO, Servers, LotusNotes and many other products, IBM is not afraid to dispose of those assets that have passed their fit into the rest of IBM. That does not make them bad businesses but just misaligned for the future as IBM sees it. I have learnt from the PC sell-off to Lenovo (which I initially thought was the wrong move, but hindsight proved me incorrect). In this case, I cannot disagree with IBM. The decision is the correct one, perhaps, a couple of years too late, but whilst there is still value and upside for the business.

What will NewCo look like? Where will it be headquartered? Will the logo be blue? Clearly, the branding will be important, distinct from IBM, but not completely. They have pledged to be strategic partners and work closely. This has to be the case given the entanglement of customers, partners and employers across both organisations. IBM has been so entwined in a lot of the largest enterprises in the world for a generation; the two parties will work together to migrate across each other’s capabilities and maintain service delivery standards for customers.

The challenge for NewCo is to stand alone and provide growth and annuity as an investment. It has to drive growth on the back of IT infrastructure modernisation. Independence will allow it to pursue more aggressively partnerships with companies not always on the IBM radar such as Dell, and Microsoft. The benchmark for this type of spinoff was HP when it divested HP Services and the legacy EDS business with CSC into DXC. NewCo can learn from this.

Whilst many may argue that Infrastructure Management is industry agnostic, with increasing regulatory environments, multi-industry approaches and globalisation, it is far from it. NewCo has to ensure that industries are front and centre from delivery and go to market perspectives.

The rest of IBM? Well, it is no shock that IBM is going to be positioned as a $59B Hybrid Cloud and AI powerhouse. Hybrid Cloud is all driven on the back of Red Hat. IBM has finally become a software company with a bit of hardware and services. IBM Research will be increasingly more significant as it drives the future, particularly from an AI, Quantum and emerging technology perspective. Whilst GTS is shifting to an independent model, GBS will remain pivotal to steer clients towards digital optimisation on the back of Hybrid Cloud investments. Expect more aggressive partnering activity in this space as it looks to build out capabilities with partners such as Workday, Salesforce and Slack amongst many others. Industry depth will remain central to the IBM play. IBM also needs to find a way to address more aggressively the non-Fortune 1000 market. Perhaps the freedom resulting from the split-off can be the impetus it needs to do so.

Another critical aspect of the new IBM is the coolness factor from a recruitment perspective. As a company focused on AI, Hybrid Cloud and Research-driven, IBM may well be able to increase the attractiveness for emerging workers populations and those looking for innovation. NewCo may have the opposite issue, with a realignment towards automation, and rep[eatability of migration and modernisation it will need to redefine employee attractiveness.

As a personal aside, when I first entered the workforce way too long ago, it was with Lend Lease who was the first major Strategic Outsourcing customer of IBM in Australia. The two created a joint venture, ISSC to expand the business. I was excited to get my first laptop, an IBM one, of course. It replaced my home desktop I shared with my brother that ran Lotus 123 and WordPerfect. The only technology company I knew at that point was IBM. Nothing stays still, and nor should it.

Capture Point
It was only the beginning of the week that I had discussions that IBM was perhaps risking becoming too reliant on the CIO role and technology selling as distinct from Digital engagement. This move has upended all that. It is aiming at being the Hybrid and AI leader for digital alignment. The road ahead will be difficult. Over 100 years of shared history is not unwound in a flash, but it does enable to different revenue, growth and outcomes of IBM and NewCo to be clearly defined. Just as with an acquisition, divestments are all about the execution and keeping close to the stakeholder perspective. This is what I will be looking closely at. How are the customers of IBM impacted? Is it smooth for them?

It is the last shot at the title for IBM to enjoy 100 more years of technology. If it succeeds, it will be a masterstroke, if not, it will fade into the history of technology. IBM will be throwing everything to ensure it is a masterstroke.

About capioIT - Phil Hassey

If you require further information, please contact Phil Hassey, CEO of capioIT. capioIT is an advisory firm focused on helping organisations to understand emerging technology as the world becomes Digital. Phil may be contacted easily in the digital and real world. +61422231793
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