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Get ready for a major culture shift at IBM

“In a blog post, Merrill claimed that while CEOs typically come from a finance or sales and marketing background, the current market climate is one where expertise can help business leaders thrive. In IBM’s case, Krishna was previously the senior vice president of cloud and cognitive software at IBM and Whitehurst was senior vice president of IBM and CEO of Red Hat. ‘Krishna’s presence should assure customers, particularly those with primary concerns around IBM’s product road map and the ways in which IBM will build out the safe, secure and innovative ecosystems components for the new multi-enterprise business networks and company federations,’ Merrill said.” — ARN

IBM’s executive shakeup gets analysts’ stamp of approval

“Analysts have also chimed in with cautious optimism, including Geoff Woollacott, principal analyst and senior strategy consultant with TBR Cloud and Software. ‘The current climate is a different kind of IT landscape. The requirements and demands from enterprises are vastly different, which necessitates a different kind of leader. Arvind Krishna is, therefore, well suited to articulate and assure customers going forward,’ he told WRAL TechWire by email. Elitsa Bakalova, professional services senior analyst at TBR, added that it will bring a ‘fresh perspective.’ ‘Promoting the CEO from within is something that typically inspires employees and will prevent potential challenges related to future strategic direction of the company. The new CEO has a long history with IBM, he is a technologists and an operations expert,’ he said. Catie Merrill, research analyst at TBR, however, maintained a ‘wait-and-see’ approach. ‘IBM, with the help of Red Hat’s platform, is looking to take customers’ mission-critical back-office workloads to the cloud, in what it deems to be ‘Chapter 2 of the cloud’. This is a competency that has yet to be proven but may hold true under new leadership.'” — WRALTechWire

Big Blue turns purple

Rometty steps down, making way for cloud champion Krishna as IBM’s new CEO

At close of business on Jan. 30, IBM unveiled Virginia Rometty was stepping down as CEO. Arvind Krishna, current SVP of Cloud and Cognitive Software at IBM, will take over effective April 6. It was also announced that James Whitehurst, IBM senior vice president and CEO of Red Hat, will become the new IBM president, also effective April 6.

Traditionally, CEOs come from finance or sales and marketing. Finance leaders are tapped when the bottom line is the priority; sales and marketing leaders are selected when the top line is the priority. However, the current market climate presents a different kind of IT landscape. The rapidly shifting requirements and demands from enterprises necessitate a different kind of leader.

Krishna’s presence should assure customers, particularly those with primary concerns around IBM’s product road map and the ways in which IBM will build out the safe, secure and innovative ecosystems components for the new multi-enterprise business networks and company federations. Installing a career technologist at the helm addresses the marketing challenge of countering competitors that rose to prominence in Chapter 1 of cloud computing. Large enterprises seeking to future-proof their investments in Chapter 2 of the cloud, as digital transformation continues to transcend the enterprise, will look to IBM for a well-articulated technology vision.  

While Krishna will message to the market, Whitehurst will work on needed cultural change as IBM president

Much of IBM’s recent struggles have revolved around execution, as the organization’s culture and operating practices were misaligned to the prevailing ways of working and innovative best practices that came from native cloud competitors. IBM historically has deployed ROI business case justifications in silos that worked well for transaction selling. This ROI process has to give way to a companywide viewpoint of overall revenue contribution — or lifetime customer value — regardless of which discrete technology assets receive the recognition in the internal accounting process. The two models are not compatible. In purchasing Red Hat, IBM acquired a company with vastly different operating practices that created a sustainable and consistent revenue model based around a free product. Fourth quarter results showing Red Hat’s sequential growth and the traction IBM gained with its Cloud Pak rollouts are leading indicators of the directional shifts these two executives will steward.

In promoting Whitehurst to the role of president, IBM signals to customers, investors and employees that it will be changing its internal operating models to be more like those of Red Hat. Symbolically, this indicates the acquisition was more a merger of equals and should allay the concerns of the broad Red Hat ecosystem of developers and customers IBM has to retain and expand to realize the value IBM expects to gain from the purchase as it takes aim at becoming a share leader in Chapter 2 of the cloud.

Rometty started to write IBM’s cloud narrative, yet with Red Hat now in the mix, the story is far from finished

In many ways, IBM’s true cloud story began once Rometty stepped in to run Big Blue in 2012. Just over a year after assuming the role, IBM acquired SoftLayer in an attempt to become the leader in cloud computing and catch the leader in public cloud infrastructure, Amazon Web Services (AWS). However, amid heavy competition, SoftLayer quickly fell behind, causing IBM to shed the brand and incorporate the acquired control plane into what became IBM Bluemix — a rebranding effort with inconclusive results as it would ultimately become IBM Cloud. Over the past eight years, Rometty has been ambitious in laying out her goals to capture “the big 3” — AWS, Microsoft and Google — yet the market remained skeptical as IBM consistently failed to deliver on its top line and the ability to catch industry leaders was viewed as a pipe dream. In many ways, this prompted the acquisition of Red Hat — a $34 billion bet IBM officially made in July 2019 to take the 80% of customers still operating on premises to the cloud. Microsoft, with its competitive platform know-how through Azure, successfully captured cloud in its infancy by shifting customers’ front-end applications. However, IBM, with the help of Red Hat’s platform, is looking to take customers’ mission-critical back-office workloads to the cloud, in what it deems Chapter 2 of the cloud. This is a competency that has yet to be proven but may hold true under new leadership. 

Systems Hardware has been on a cloud-centric pivot for a while, and Krishna is likely to reinforce and cement this transition

TBR believes that from a hardware strategy perspective, the CEO shake-up will have little impact. The z14 and z15 refreshes have focused on positioning the venerable mainframe as a critical gateway into the hybrid multicloud world by building in critical firmware and software features to deliver the mainframe capability with public-cloud-like operating characteristics, enterprise-grade security and data management capabilities. TBR does not see this changing anytime soon.

A new CEO brings promise of stabilization to IBM Services, which has performed inconsistently over the past few years

While IBM’s CEO transition is not strictly tied just to IBM Services, it is a positive move for the services business. Over the past six years, IBM Services’ revenue has been uneven, and has largely been in decline during the past five quarters. Filling the role of CEO with an employee who has been with the company since 1990 and has been instrumental to the development of IBM’s cloud business and the acquisition of Red Hat will likely bring a fresh perspective to IBM and IBM Services, which has been struggling to overcome growth pressures in traditional labor-based services, such as in Global Technology Services and Global Process Services. Meanwhile, IBM Services is experiencing growth in cloud-related activities as the company leverages its technology incumbency to advise, migrate, build and manage clients’ hybrid cloud environments. IBM Services will benefit from IBM’s new public cloud offering for financial services clients, the new IBM Cloud Paks portfolio, and synergies from the Red Hat acquisition as well as the related launch of consulting and technology services offerings for Red Hat and multicloud management. However, such offerings have yet to gain scale to offset lingering growth challenges in traditional services segments.

Krishna’s experience and expertise, including around operations, will help IBM Services continue with its technology-led transformation value proposition and also help overcome execution challenges, which were present during 2019 and negatively affected services revenue growth and profitability. The Cloud and Cognitive Software business, which Krishna is currently leading, has been a growing business; sharing knowledge and supporting the ongoing market trend of convergence between services and software will help IBM Services transform into a growing business.  

 What to watch going forward

This is as critical a juncture for IBM as when it installed Lou Gerstner from the outside in 1993. In this transition, IBM is splitting the responsibilities between an IBM insider as chairman and an IBM outsider instrumental in building one of the best technology operating models for the new technology era. From this vantage point, TBR will be evaluating and monitoring the following:

  • Reorganization: IBM has to change how it works internally to align with subscription monetization models. Executive measurements have to shift to align to the best practices Red Hat has deployed building a business around free products. IBM historically has jettisoned business lines that lacked discrete profit metrics as stand-alone products. We will be looking to see which members of the respective teams move into leadership roles under the new stewardship.
  • Developer reactions: It is said the developer is king. TBR would expect the developer community to be heartened by these appointments, and we will be tracking this sentiment in our ongoing cloud research streams.
  • Employee reactions: Will this result in high-profile exits or will this provide middle managers with the air cover necessary to act more like “wild ducks” in IBM internal parlance?
  • Customer reactions: This will flow from the ongoing Wall Street analyst briefings on quarterly results. Rometty was conspicuously absent from many of these calls, and we expect that one or both of these new leaders will be available for the all-important Q&A sessions of these briefings.
  • Competitor reactions: Market share positions in Chapter 2 of the cloud are up for grabs, with many entities, notably Microsoft, AWS and Google aiming to become the de facto hybrid cloud standards. Traditional peers of IBM fared far worse than IBM in Chapter 1 and will struggle to remain relevant as anything more than a derived decision for increasingly commoditized infrastructure. IBM likewise has the installed base advantage for protecting enterprise IP assets. At issue, of course, is whether it can maintain that customer trust by articulating a product road map that resonates, coupled with an organization that can deliver on that vision. Krishna and Whitehurst have clear remits and track records to suggest they can deliver.

McDermott will support ServiceNow’s ambitions to fill enterprise application gaps left by vendors like SAP

On Oct. 22, 2019, ServiceNow announced Bill McDermott, who resigned from SAP less than two weeks prior, would be taking over John Donahoe’s position as CEO at the end of 2019. McDermott’s experience in the enterprise software space will inform ServiceNow’s innovations in and around business applications from SAP and its closest competitors.

McDermott’s knowledge of the enterprise applications space is key

At its core, ServiceNow has a very different software portfolio than SAP, but considering the strategic objectives ServiceNow recently laid out, McDermott is well equipped to steer the company toward continued leading financial performance. As ServiceNow aims to engage more deeply with Global Elite partners such as Deloitte and Accenture, and to develop solutions that fill enterprise software gaps as it has with mobile onboarding and financial close automation, McDermott’s enterprise applications experience is a good fit. In addition to his global partner and enterprise customer relationships McDermott brings a deep and unique understanding of the “gaps,” or workflow disconnects, around enterprise applications that ServiceNow has identified as its key growth areas.

That said, it is a toss-up whether McDermott’s guidance will help ServiceNow avoid innovating into competitive overlap or steer the company directly into applications competition. With his knowledge of the functionality and gaps in broad enterprise applications suites like SAP Business Suite for HANA (S/4HANA), McDermott can direct ServiceNow’s innovation to either fill gaps or directly compete on specific functions. With that uncertainty, this appointment should put SAP, Oracle and Workday on high alert through 2020, as McDermott’s influence becomes more clear.

Notably, ServiceNow has been undergoing other executive changes, with former CFO Mike Scarpelli leaving to follow Frank Slootman (ServiceNow’s CEO before Donahoe) to Snowflake. McDermott has indicated that ServiceNow and Donahoe have already given McDermott the leeway to influence the CFO replacement process, and there is opportunity for McDermott to further shape ServiceNow through other executive appointments.

Core to ServiceNow’s capabilities, the Now Platform has long been overshadowed by the applications built on top of it. ServiceNow’s dilemma with the Now Platform is not how to enhance the capabilities, but how to brand the portfolio in such a way that the platform becomes as ubiquitous with the ServiceNow brand as the early IT workflow products have, while still capitalizing on the company’s ability to innovate into ― and capitalize on ― niche solution areas.

Returning to a co-CEO structure completes the executive refresh to support SAP in the ongoing cloud war


Bill McDermott chose not to renew his contract as SAP CEO, making room for SAP to return to its co-CEO structure with Jennifer Morgan and Christian Klein. This changing of the guard is the capstone on SAP’s management realignment, and the announcement comes with some glaring similarities to key ERP challenger Oracle’s announcement a month earlier.

Morgan and Klein take over the refreshed SAP executive suite

SAP has made numerous management changes in 2019, but all changes had been made with CEO Bill McDermott leading the company — and the newly appointed leaders — through each step. That reassuring constant ended abruptly on Oct. 10, when McDermott announced he will step down from his CEO role instead of renewing his contract. McDermott will stay with the company in an advisory capacity through the end of the calendar year to smooth the transition to the newly appointed co-CEOs Morgan and Klein.

While the personnel is changing, the co-CEO structure is a familiar one for SAP. SAP operated under a dual CEO structure for quite some time, with McDermott himself sharing the CEO responsibilities with Jim Hagemann Snabe before taking over in an individual capacity. The new co-CEOs are well paired from geographical and functional standpoints, as Morgan is U.S.-based and focused on sales, while Klein is Germany-based and more focused on products and innovation. In furthering the consistency, founder Hasso Plattner, himself a former co-CEO of SAP, remains chairman of the board and very involved in the overall strategy.

Morgan was in her role as president of the Cloud Business Group for a mere six months between Robert Enslin’s April departure to Google Cloud and her promotion into the role of co-CEO. Before his appointment to co-CEO, Klein became a member of the executive board in 2018 and served as SAP’s chief operating officer and chief controlling officer. We believe Morgan’s focus on sales and customer relationships as well as Klein’s strength in operations will be required to achieve SAP’s dual overarching goals: to grow revenue through sales and improve margins through operating efficiencies.

Notably, Morgan and Klein are stepping into the driver’s seat as other SAP executives are just finding their footing in new roles:

  • One of the biggest shifts SAP made in the first half of 2019 was changing aspects of its partner programs, capped by the promotion of Karl Fahrbach from chief operating officer of the partner organization, to SAP’s first chief partner officer in March, after Rodolpho Cardenuto left his role as president of the partner organization in December 2018.
  • Without much fanfare, Juergen Mueller was promoted from chief innovation officer to chief technology officer in January 2019, and appointed to SAP’s executive board.
  • Elliot Management disclosed its investment in SAP in April 2019, and immediately directed SAP to further improve margins while chasing revenue growth.



Returning to a co-CEO structure completes the executive refresh to support SAP in the ongoing cloud war

Bill McDermott chose not to renew his contract as SAP CEO, making room for SAP to return to its co-CEO structure with Jennifer Morgan and Christian Klein. This changing of the guard is the capstone on SAP’s management realignment, and the announcement comes with some glaring similarities to key ERP challenger Oracle’s announcement a month earlier.

Morgan and Klein take over the refreshed SAP executive suite

SAP has made numerous management changes in 2019, but all changes had been made with CEO Bill McDermott leading the company — and the newly appointed leaders — through each step. That reassuring constant ended abruptly on Oct. 10, when McDermott announced he will step down from his CEO role instead of renewing his contract. McDermott will stay with the company in an advisory capacity through the end of the calendar year to smooth the transition to the newly appointed co-CEOs Morgan and Klein.

While the personnel is changing, the co-CEO structure is a familiar one for SAP. SAP operated under a dual CEO structure for quite some time, with McDermott himself sharing the CEO responsibilities with Jim Hagemann Snabe before taking over in an individual capacity. The new co-CEOs are well paired from geographical and functional standpoints, as Morgan is U.S.-based and focused on sales, while Klein is Germany-based and more focused on products and innovation. In furthering the consistency, founder Hasso Plattner, himself a former co-CEO of SAP, remains chairman of the board and very involved in the overall strategy.

Morgan was in her role as president of the Cloud Business Group for a mere six months between Robert Enslin’s April departure to Google Cloud and her promotion into the role of co-CEO. Before his appointment to co-CEO, Klein became a member of the executive board in 2018 and served as SAP’s chief operating officer and chief controlling officer. We believe Morgan’s focus on sales and customer relationships as well as Klein’s strength in operations will be required to achieve SAP’s dual overarching goals: to grow revenue through sales and improve margins through operating efficiencies.

Notably, Morgan and Klein are stepping into the driver’s seat as other SAP executives are just finding their footing in new roles:

  • One of the biggest shifts SAP made in the first half of 2019 was changing aspects of its partner programs, capped by the promotion of Karl Fahrbach from chief operating officer of the partner organization, to SAP’s first chief partner officer in March, after Rodolpho Cardenuto left his role as president of the partner organization in December 2018.
  • Without much fanfare, Juergen Mueller was promoted from chief innovation officer to chief technology officer in January 2019, and appointed to SAP’s executive board.
  • Elliot Management disclosed its investment in SAP in April 2019, and immediately directed SAP to further improve margins while chasing revenue growth.

While these changes have all come in different areas of the company, they are aligned with SAP’s goals as it transitions from a traditional software vendor to a cloud solutions provider. With its cloud portfolio largely in place (though innovation, replatforming and acquisitions persist), SAP is at the point in its transformation that requires it to invest in partner enablement to sell its cloud solutions and ongoing competitive innovation within its defined solution areas, and to do so with a focus on operating efficiencies. In this same spirit, McDermott aggregated a portfolio, and Morgan and Klein are well aligned to take that portfolio forward to achieve the goals, with the help of an invigorated C-Suite behind them. Arguably, SAP would have been well served by McDermott’s persistence as CEO to complete the technology transition to the HANA platform before departing, but Mueller and Plattner will likely both lend their technical leadership to ensure the smooth transition alongside the other business leaders.

Releasing earnings alongside the CEO announcement proves SAP’s ERP capabilities against Oracle’s speedy September release

SAP’s announcement was not allowed to pass without parallels being drawn to its most boisterous competitor: Oracle. The most discussed similarity is that SAP’s CEO change came almost exactly a month after one of Oracle’s CEOs, Mark Hurd, took an immediate leave of absence for medical reasons. Outside of the timing, the CEO announcements are, however, vastly different in motivation and succession.

The other similarity, which TBR believe is more noteworthy, comes from both companies’ ahead-of-schedule releases of quarterly earnings data in conjunction with their CEO announcements. When Oracle released its earnings Sept. 11, one day ahead of its scheduled release and 11 days after the quarter ended, CEO Safra Catz underscored the speed with which Oracle was able to prepare its financial statements by running on its own Fusion ERP Cloud suite. Nearly a month later, SAP was able to close and prerelease its results in a 10-day window using its ERP solutions. TBR expects this move to prove critical for SAP, as SAP quickly rebutted what could have been used as a competitive proof point of the capabilities of Oracle’s ERP solutions.

Executive change at Accenture portends changes for the market leader

With Julie Sweet appointed the next CEO of Accenture and David Rowland named the executive chairman of the board, the company doubles down on its proven go-to-market strategy and delivery frameworks. However, as Accenture strengthens its core as a technology organization and Accenture Technology plays a pivotal role in North America’s performance (Sweet was previously CEO of Accenture North America), TBR Senior Analyst Boz Hristov says a couple of questions remain:

  • Will Sweet bring a clear vision and execution strategy for the company’s IP, in particular around monetizing it?
  • Should Accenture consider spinning off its Accenture Software business as a separate entity and launch a mature startup-like software organization?

We do not expect major changes in Accenture’s strategy and/or performance in the short term; however, as with any new CEO, one should always expect some degree of change. Only time will tell if that change will be minimal or involve a 180. As TBR recently noted, Accenture delivered record-breaking quarterly revenue, with growth increasing 3.8% year-to-year in USD (8.4% in local currency) to $11.1 billion in FY3Q19, as the company’s aggressive investments in “the new” are paying off, as the segment now contributes over 60% of total sales and expanding at double digits in constant currency. While many of the new opportunities for Accenture stem from investing in innovative offerings (e.g., Industry X.0) and building out relationships with new buyers, demand for application services in connection with adopting intelligent ERP systems, enabled by key partners such as SAP, Oracle, Microsoft, Salesforce and Workday, drove double-digit revenue growth in local currency, with the segment generating 40% of sales.

Additional assessments publishing this week from our analyst teams

Ericsson has made significant progress in its latest restructuring initiative, leading to higher margins and a more focused go-to-market strategy. The company has also lately been helped by the ongoing deployment of 5G and 5G-ready networks in the U.S. and, to a lesser extent, South Korea. U.S. spend on 5G will accelerate as operators aim to gain a competitive advantage, and Ericsson is positioned to capitalize. In our 2Q19 Ericsson Initial Response, we will examine Ericsson’s continued restructuring progress and monitor its status as a leading 5G RAN supplier. — Michael Soper, Senior Analyst

TBR will publish its 2Q19 Oracle Cloud report on Thursday, discussing where Oracle sits in its quest for cloud dominance, the status of autonomous database adoption and the expected impact of Oracle’s alliance with co-AWS-rival, Microsoft Azure. — Meaghan McGrath, Senior Analyst

Application software vendors continue to realize healthy growth of subscription revenues, accompanied by accelerating declines in licensing, as reported in the upcoming Applications Software Vendor Benchmark. Application vendors aggressively pursue cross-selling of subscription solutions to generate scale and protect operating margins as the cloud sales mix increases. This is particularly true for multiline vendors with substantial legacy license bases, though these vendors are well positioned to upsell existing customers to cloud alternatives by emphasizing the value of deploying managed, unified suites between the front and back office. — Meaghan McGrath

SAP will release its 2Q19 earnings on Thursday, uncovering the near-term impact of its highly transparent restructuring effort. TBR will discuss this, as well as portfolio developments related to C/4HANA and Qualtrics application releases, in our SAP Cloud Initial Response, which will publish on Friday. — Meaghan McGrath

IBM’s acquisition of Red Hat officially closed on July 9 and will impact the trajectory of the business for the remainder of 2019 and beyond. TBR’s Initial Response report will touch on this and other developments at IBM in 2Q19, including within the company’s Systems Hardware business. — Stephanie Long, Analyst

IBM Services continues with its portfolio realignment initiatives to deliver higher-value and higher-margin services that integrate technology and industry expertise and enable clients’ digital reinventions. While IBM Services’ activities around advising, building, moving and managing next-generation technology solutions are increasing, it will take time before the shifting business mix returns sustainable revenue growth. — Elitsa Bakalova, Senior Analyst

On Friday TBR’s 2Q19 IBM Cloud Initial Response is publishing, detailing the company’s last full quarter without Red Hat. Recent and ongoing portfolio investments, particularly at the platform layer, are expected to help boost IBM’s cloud revenue in the second quarter. — Cassandra Mooshian, Senior Analyst

TBR’s 1Q19 Hosted Private Cloud Benchmark discusses how vendors with hybrid PaaS and IaaS portfolios that span vendor and customer data centers are well positioned to capture additional hosted private cloud market share. IBM and Google continue to enhance their Kubernetes-based platforms to be increasingly infrastructure and environment agnostic while Amazon Web Services and Microsoft focus on hybrid cloud stacks, with emphasis on the IaaS layer. — Cassandra Mooshian

Kurian brings enterprise smarts to Google Cloud

During his tenure at Oracle, Thomas Kurian proved himself as a balance of technical savvy and business strategist at a company that serves the largest enterprises in the world. He reportedly left Oracle because he believed more fully in a strategy to coexist with the cemented leaders in the public cloud IaaS market. Both of these points fit Google Cloud’s aspirations well.

Creating its Google Cloud division and appointing Diane Greene as its CEO in November 2015 was the first step Google, Inc. made to tell a cohesive story around its managed cloud services and more effectively vie for share of the enterprise cloud market in competition with Amazon Web Services and Microsoft Azure, among others. Greene’s enterprise experience from co-founding VMware qualified her to start this transition, but potential Google customers have indicated to TBR that Greene’s empathy had not effectively trickled down the organization to complete the business messaging enterprises are looking for. TBR believes Kurian is a perfect fit to complete what was started by Greene, and he will be able to wrap Google’s technical abilities in a more clear and compelling enterprise story.