Responding to change
Today (W/B 20 Oct14) IBM was sold off in USA by 7.3%, in a day that the Dow went marginally up at the time of writing. That drop equates to billions of dollars, and the biggest shareholder, a Warren Buffett entity, lost over a billion dollars.
According to Bloomberg the underlying reason for the sell-off was the inability of IBM management to move fast enough into cloud computing. Customers had been moving away from owning hardware and into the vast resources available in the cloud. In response IBM had acquired a company offering cloud services and divested a loss making chip manufacturer, but this still was not enough for management to confidently retain their future profit predictions. Wham, billions of dollars of the company value.
IBM is a massive, well- resourced, publically traded entity. They had a plan to manage a shift to cloud computing, but it still was not enough. What about Kodak – vast IP and patents from generations of research, but they still suffered massively in the shift from film to digital technology.
How many companies in New Zealand resist the changes apparent in news headlines? Even when change is recognised, how many companies are smart enough to manage change in a timely manner? How many companies are right now managing the transition of their business to take advantage of the broadband rollout? My guess is not that many.
One of the key pieces of work I am involved with is to map processes within client companies that enable the company’s everyday functions. Usually, some pretty significant benefits can be derived from reviewing those processes and making adjustments. The processes normally reflect the company’s competitive position and advantage. A changed competitive environment must therefore lead to changes in company processes if performance is not to suffer. The company that moves first to change their processes to address the changed environment will gain an advantage over competitors.
The processes in this context will often include the marketing, branding, R&D, structure and staffing, but not necessarily to a huge degree.
So why do companies resist changes that are quite apparent? Perhaps it is common human resistance to change and the unknown, or trying to stick to a formula that has been successful in the past. If so it will commonly be expressed that the latest trend is just a fad and things will come right.
This type of attitude will prevent the company moving forward. The result is often an example of a so called Zombie company, which resists the changes needed to wake up. IBM is far from that, but it will be interesting to see how well they are able to respond, especially with Mr. Buffett understanding these issues perfectly.
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