IBM Reorganizes To Reflect Its New Business Machine

January 12, 2015 Timothy Prickett Morgan

Big Blue did a lot of changing last year, and CEO Ginni Rometty started off this year by making some organizational and personnel changes that reflect the new shape of its company and the opportunities that it sees ahead of it in the global economy that is also undergoing wrenching change. Information technology and the economy have been changing each other for so long that it is hard to say what is cause and what is effect, but what can be said is that IBM has spent more than 10 decades adapting to such changes.

In a memo to IBM employees that was sent out on January 5, Rometty explained the organizational changes as well as the rationale behind them.

“A year ago we laid out our strategy, and said that IBM’s investments, acquisitions, divestitures–and our own practices as IBMers–would be reshaped by our strategic imperatives of data, cloud and engagement, underscored by security,” Rometty wrote. “The past year has strongly validated our strategy, as clients embrace and invest in these new technologies. Our industry is rapidly re-ordering. And IBM has been moving aggressively–evident in a long list of ‘signature moments’ through 2014. They included the formation of IBM Watson; the global expansion of SoftLayer’s cloud pods; the launch of Power8; the creation of our cloud platform-as-a-service, BlueMix; our $3 billion investment in next-generation semiconductor R&D; the acquisition of Cloudant; the launch of Watson Analytics; our divestitures of x86 servers and semiconductor manufacturing; our enterprise mobility alliance with Apple; our cloud partnerships with SAP and Tencent; and our Big Data partnership with Twitter.”

While IBM mashed up Software Group, its very profitable software arm, with Systems and Technology Group, its sometimes profitable and sometimes money-losing hardware unit, back in July 2010 during a massive reorganization that set the stage for Rometty’s rise to the top of Big Blue, the company did not organize itself into vertical stacks as it talked about its financials. Software Group and Systems and Technology Group remained distinct businesses, with their own segments and profit and loss statements. With the sale of the System x division to Lenovo Group, which closed in the United States in October and in Europe last week, IBM has seen fit to start talking about its systems business as a whole.

To that end, the new IBM Systems group will include Power Systems and System z mainframe servers, IBM’s various tape, disk, and flash storage products as well as operating systems and middleware as a single unit. Tom Rosamilia, who was heading up Systems and Technology Group, will lead the IBM Systems group. The interesting bit to me is that IBM will finally show revenue for systems that actually reflects what it really does derive from its systems business–something it should have done a long time ago. IBM sells integrated stacks of servers, storage, and software to a very large portion of its customers, and if it wanted to show its strength in this regard, it should have perhaps changed the way it reported its revenues many years ago. It will be interesting to see how IBM accounts for the sale of middleware, database, and application software that is not tied to its own systems in some fashion.

As part of the reorganization, IBM is also appointing Steve Mills, the long-time leader of the Software Group and the executive chosen to run the combined software and systems units in recent years, as an executive vice president in charge of software and systems. The name change is significant in that Mills is the only executive vice president–all of the other top leaders are senior vice presidents. Even though software assets will be embedded in various IBM groups (including a new IBM Cloud group) and in vertical stacks that also have their own managers (such as the new IBM Healthcare group that was also created), Mills is being tapped to keep track of all of the software assets as a whole and keep everything humming. “We will also look to him to play a leadership role in our most significant technology partnerships and relationships involving clients, countries and our industry,” Rometty said.

With Systems and Technology Group gone, IBM Research has to go somewhere, and it will be a free-standing unit led by Arvind Krishna, who is being elevated to senior vice president and director of the R&D arm of Big Blue. He succeeds John Kelly, who now has the position of senior vice president of solutions portfolio and research. Krishna was most recently general manager of development and manufacturing in the Systems and Technology Group, and he led the team that created the Power8 processor and who ran IBM’s database business for many years as well as having key technical roles in Software Group and IBM Research.

In his new role spanning research and (I just hate this word) solutions, Kelly is manifesting something that has been happening with IBM for the past two decades, and that is the increasing connection between the research and development that IBM’s scientists and researchers perform and a tie to solving specific business problems for customers. Indeed, Kelly is the bridge between IBM Research and three new cross-platform business units. They are: IBM Analytics, led by Bob Picciano; IBM Commerce, led by Deepak Advani; and IBM Security, led by Brendan Hannigan. All of these divisions, Rometty explained, will have an analytics component, will have software assets tied to them as well as professional services. Each unit, as Rometty put it, “will offer hybrid cloud delivery, and each unit will support open platforms and global ecosystems.” I think that means the stacks IBM creates will be available on IBM’s own systems as well as those of others and on its SoftLayer cloud and very likely other big clouds.

In some ways, these new stack groups resemble the IBM Watson group that was formed last year and that is being led by Mike Rhodin. IBM is also forming another industry-focused unit called IBM Healthcare, which Rhodin will create using the hardware, software, services, and research available across IBM.

All of the executives of these units as well as Krishna report to Kelly in the new organization chart. Picciano has been general manager of IBM’s Lotus groupware business, overall software sales, and development and support for the DB2 database running on Linux, Windows, and Unix platforms, among other jobs. Deepak Advani was CEO at statistical analysis software maker SPSS before IBM acquired it and has most recently been in charge of management tools for systems and cloud. Hannigan was CEO of Q1 Labs, which IBM acquired in October 2011 and which is the basis of its former security division. Rhodin was also a general manager related to software before taking the IBM Watson role, and headed up IBM’s Software Solutions Group, which peddled Smarter Commerce, Smarter Cities, business analytics, and social business stacks to customers. Before taking over various IBM system units over the past year, Rosamilia was in charge of IBM’s very successful WebSphere middleware business.

The last big change that was announced for 2015 is the creation of the IBM Cloud group, which will be headed up by long-time IBM executive Robert LeBlanc. The SoftLayer cloud, the Cloud Managed Services (CMS) tools derived from SmartCloud and OpenStack, and the BlueMix commercialized version of the open source Cloud Foundry tool will be put into this new group. LeBlanc has been in charge of IBM’s Tivoli systems management and WebSphere middleware lines in the past, among many other high-level jobs. It looks like Rosamilia and LeBlanc report directly to Rometty, but that is not clear from her message to employees.

If you are sensing a theme here, aside from change, it is that software has been the route to a senior position at IBM.

“As you can see, IBM software has become an essential element in every part of our company,” Rometty said in her note to IBM employees. “Indeed, it is so because our software portfolio is the foundation of the world’s core business systems and powers the expanding array of cloud-based solutions we are bringing to clients.”

I can’t wait to see the new financial presentation reflecting these new groups and units, which IBM will probably use when it reports its fourth quarter 2014 financial results, which should come out by the end of January if history is any guide.

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