i Cringely: the Decline and Fall of IBM – a review

For quite a while I was working on a series of blog posts about the decline of Notes and Domino and then came this book. Damn, he was faster. But this book isn’t about Notes and Domino and I couldn’t say if Cringely even knows it, but it does not matter. Here is a bigger picture and it explains quite well, why Notes and Domino are on a sinking ship. It’s not only that Notes is under constant fire from outside, the whole IBM is a mess, if all what Cringely writes is only half-true.
I like the book. I said similar things before. But is the magnitude of stupidity that reigns in the ivory tower of IBM as bad? Sam was on the wrong track, but it looks like, the Road Kill 2015 is not going to stop soon and the C-level is following like lemmings.
Forbes has a nice article about it, too.
The whole problem with IBM turns around shareholder value, or rather the gamblers version of it. Even as a first year student, I knew shareholder value is not one of the clever ideas (according to Jack Welch, the most stupid and he should know), if you want a company to survive. It’s a good idea, if you don’t care about the company and all you want is more money. But that river will dry out eventually. It just does not work as a sustainable strategy.
From my point of view – you may call it idealistic – investors are people who give a company money to work with, to build on. They have a long-term view, because the investors believe in the company and the products. People like Ican, BlackRock and so on, are more like gamblers. They are not investors, because they do not invest. They want making money as fast as possible. Which means buying cheap and – now comes the important part – selling high in the shortest possible time. Only by selling the stocks, they actually make a lot of money. Dividends are just a nice to have on the way there and a way to move the stock price higher (read: the twenty bucks target of IBM in 2015). What comes after, isn’t their concern. If they leave a bloodless hull on their way to wealth, who cares. What amazes me most, is the way Sam thought, that the investors are a good thing for IBM. They buy stocks from outsiders and sell to outsiders. There is no money flowing into IBM. It is absolutely useless. The only reason to schmooze with them, were his own pockets, as Cringely points out. According to him, Sam did everything to get rich and get out … and on the way make his friends on Wallstreet happy.
What I find interesting about the investors, is their view about „their“ money. If it was „their“ money, it wouldn’t be in stocks, it would be a credit, where the company pays an interest and after a while the whole sum back. Capital stock is money you don’t get back from the company you invested in. That’s the whole point. It’s the companies own capital. But you get a dividend which is hopefully higher than the interest you would get from a credit. The only way to get your money back, is to sell the shares to somebody, who believes that this risk is worth taking at a certain price. That’s the stock market were the gamblers reign. There is nothing wrong with that, but it is wrong to use your power to influence companies to act in a way that hurts their business only to make money for gamblers, who have nothing to do with the company. Why the heck should IBM care about them? But it looks like, there is a whole generation of economists, that never saw the stupidity of shareholder value.

My profession – the economist, not the developer – is a lame one. We can’t do anything. We depend entirely on others to develop, build and sell products (I am not really one of them, because I can build stuff) but we are the clever ones that made a whole economic world revolve around us and we are very good at slapping each others backs. Yes, there are things we learn and can do, like organising, reorganising, book-keeping, all very important things, but we are nothing without the grunts on the shop floor, who turn the screw drivers.
Unfortunately, not many managers realise this.
Now the real clever ones think; yes, the grunts know a few things we don’t. How can we make them expendable anyway? How about knowledge management? If that works, we can fire the expensive grunts and hire cheap ones without loosing anything. Unfortunately it does not work, not even with IBM Connections. Because intuition, experience and creativity isn’t something you can store in a database.
Back to the book. IBM added 100’000 Indians, Brazilians and Chinese developers, managers and whatever else, and fired (or talked them into leaving) 100’000 Americans, Canadians, Germans, Swiss and others to cut cost. What I don’t get is the fact, that outsourcing developement, services and design is so last century. By now everybody knows that software written cheaply elsewhere by newbies without experience and proper (which means looooooong and expensive) training, will be easily 20 times more expensive, because of the errors which have to be rectified at home (from those few left, that still now how it works). That has been common knowledge for years and still is true today. But since my brothers and sisters of the economy schools do not have a clue about software or hardware development (they don’t, I gave many of them private lessons in excell programming. It was horrible) they probably really do not know about it. Another interesting effect of this is, that IBM seeded hatred against itself. Many fired IBMer will eventually turn against IBM and 100’000 ex-IBMers with a grudge is a lot of influence in the market.

Can Ginni turn the ship around? If she wants, but she will make a lot of gamblers angry, because it would mean to stop the Death March 2015 (said that before). She would have to stop borrowing money to pay for buying IBM shares. Invest IBM’s own money to make better products faster. I don’t agree with Cringely, that they have to be cheaper, but for a premium price you need premium products and services. It’s doable, but not like this. I get itching from the last sentence:

One thing is certain. Rometty will likely breathe a sigh of relief once her hands are no longer tied by it [the Roadkill 2015].