IBM Reorganization Prompts Questions

IBM announced its latest quarterly results yesterday, but it did something else, too: It reorganized itself, shuffling some executives upward and changing the reporting structure for others.

On the surface, it’s not a big deal. It goes on all the time, especially at large companies besieged by changing markets, technological advances, bureaucratic inertia, and intracompany politics. Reorganizations help to shake things up, to keep the generals and the troops focused externally, on customers and markets rather than on solipsistic careerism (not that there’s anything wrong with that) and departmental intrigue.

But I’m wondering whether the IBM move portends more than that. In disclosing the changes to IBM staff in an email, the company’s president, CEO, and chairman Sam Palmisano wrote the following about the most significant aspect of the change, the integration of IBM’s formerly independent Systems and Technology Group (STG) into the company’s Software Group:

“We know that IT infrastructure performance is greatly enhanced when every element – from microprocessors and storage through operating systems and middleware – is designed and brought to market as tightly integrated, optimized systems.”

It’s a straightforward observation, as well as a decent rationale for the change, but it might hint at something more. In recombining its hardware and software under the same executive management — and in acknowledging the enhanced infrastructure performance of “tightly integrated, optimized systems” — IBM’s move causes  one to wonder whether the company might consider becoming a purveyor of other presumably valuable pieces of optimized infrastructure.

Until now, for example, IBM has been willing to stay out of the network-infrastructure business. First, it had a partnership with Cisco, which it still invokes occasionally for mutual benefit, and more recently it has partnered with Brocade and Juniper Networks. Through those partnerships, IBM covers the networking gamut, able to offer its customers extensive solutions that reach from the network edge to the core.

It doesn’t own the gear it sells, though. And it might not feel the need to offer its own gear, even now. But circumstances have changed since it first partnered with Cisco. Back then, Cisco wasn’t trying to sell servers, and it wasn’t aggressively pushing storage from EMC, an IBM “coopetitor.” Moreover, during the same intervening period, HP has gotten more serious about network infrastructure, buying 3Com to complement its HP ProCurve business and to form HP Networking.

Even Oracle is making sounds about getting into the networking game via an acquisition. That would make IBM think twice, if not three times, about whether it needed to change tack. In fact, it’s probably giving ample thought to the matter now.

I don’t presume to know what Palmisano and his inner sanctum are saying after they pad into the boardroom on IBM’s mahogany row. But I do know that this reorganization, entirely logical and justified in its own right, makes me wonder whether the stage has been set for a different sort of move.

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