You get the deal across the line and then the market doesn't love it. The market was, 'You guys don't know what you're doing. You're overpaying. This is not going to work out.' This is 3.2 billion of revenue. What are you going to do with it? Well, 3 years later when the 3.2 was 6 billion, it was growing faster than it had before. It takes 3 years sometimes.
Today on the CEO Signal, we're talking to Arvind Krishna, chairman and CEO of IBM, one of technology's most storied companies. He's reshaped IBM with a bold and controversial $34 billion bet. We dig into what it takes to make decisions and stand behind them when the stakes are this high.
Ben, it's great to be back together. What I always value about these conversations is the perspective that you bring. You've been in these boardrooms. You've made a lot of these decisions yourself. You're not just watching this from the outside as I am.
Yeah. But what I love is the discipline you have and the questions that you ask and making us go deep into each topic.
I've followed IBM through a few different chapters of that history. It hasn't always been very easy to be honest. They've had a few setbacks. What strikes me as interesting about Arvind's time in charge is how many of the moments that set them back on the glorious path they once had have been down to quite tough leadership calls that he has had to make. But what strikes you about the impact he's had?
He's someone who's had to make long-term big bets that have met with resistance and then he's had to see them through and bring them to fruition. So, I'm really anxious to see how he does that.
All right, let's bring him in.
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Arvind, welcome. We are really thrilled to have you here.
Yeah, thank you. We've been really looking forward to this conversation.
It's a pleasure to be here with the both of you. I hear that you run these ask me anything sessions at a town hall at IBM where people bring up whatever question they feel like bringing up and that you're open and transparent and relaxed in those sessions. So that's what our hope is for today.
Do people tend to behave themselves in those question and answer sessions?
Look, I do those for a couple of reasons. First, I believe that if you're authentic and people have to believe you're not scripted, there isn't somebody from corporate communications or HR screening the questions. So, there is no hiding.
Have you ever been truly stumped by a question in my...
I always will say something like if I get a question, probably one in 10, I'll say something like, 'Look, I don't know the answer to this, we'll get back to you.' And as long as you get back in a month or two they are usually okay with it. I also use the line, 'You're not going to like my answer because it's a complete disagreement with the intent of why you're asking it,' but the rest acknowledge that it's authentic.
I love it because it sounds like they're getting a real glimpse of who you are and how you tend to react.
How I think, that's my goal on the thing. So, if they get a bit of context on why am I thinking about it, I think that helps them.
So, I have a 'what were you thinking' question. I've heard that when you were a child, you had a pet cheetah.
I think this came up in one of the Ask Me Anything sessions, didn't it?
The story here is my father was in the army and he was at a forward base where I think the soldiers got surprised by a full-grown cheetah and killed her. When they did that, they discovered that she was probably suckling. So, they went looking and they found two cubs. And the question was what do you do with them? And so my mother when my father called agreed to take one in and that is how the pet cheetah came to be.
Okay. So the pet cheetah grow up.
The pet cheetah unfortunately only lived a few months. My grandmother with whom we lived at the time whenever my father was on a base we used to move in with my grandparents. Actually while she was a very gentle and a kind person she also believed in you need to have grit.
Yeah. So she would kind of tell you like it's okay, go have a cry for an evening, but then you got to like just get on with things because there's lots of other things to do.
I think it's a glimpse into a quite an unusual childhood that you had. I was curious about when you got your first computer. Was that when you were a kid?
So my first computer was probably, I'll call it, it was a programmable calculator where you could do 256 lines of something close to basic and that was right at the end of high school.
Pretty top of the range. Yeah. Is that what got you started on this career?
I love to take things apart and put them back together. Half unsuccessfully the putting back together. I was always successful in taking them apart. I remember actually I must have been three or four or five somewhere there. I got a tricycle and I took it apart and then my father had to put it back together. But my parents were interesting. They didn't like scream or yell or anything on like why did you take it apart?
Okay. They encouraged this.
They almost encouraged it.
Yeah. I'm doing this with my grandkids. We're buying little engineering kits and we're building things. And I think building things is a really important part of growing up and getting the feel with your hands.
Actually, till now, my family makes fun. I'm not the most elegant person. I got like thick chubby hands. And so they look at me and they say like I mean like there's no way you can do this. But because of the skills you picked up, I can still handle finer screwdrivers, tiny like watch screws because it's just muscle memory. You just have it from being. But it also gives you a great sense of how things work like you know how gears work, how machines work, how screws work because you enjoy doing all that in those days.
Well, I'm curious. You spent so much of your career thinking about what's just over the horizon on technology and trying to push the organization to be ready for that. You're now as CEO, to what extent is that still the role?
I think it's really important for a CEO to be bold and to be willing to take a risk, right, and push forward. Now, don't take the risk to the extent that now it's existential for the enterprise. That's okay if you're a startup or a new thing, but take a lot of risk. So, here you've got to be okay, I can see something is coming. There's some evidence. So, you got to keep your ears open for that. Then you say, now if I take a leap forward, there's a massive, we call it a first mover advantage. That may be the simplest way to explain it, but if you can build on your first mover advantage, you are going to create a lot of value for your clients and perhaps a great return for your shareholders and employees.
So Arvind, you said you have to keep your ears open. How do you keep your ears open? What are you doing?
Like when I go see a client, I'll often ask them, 'Hey, what are your people excited about? What are you doing? Forget us. Just what are you doing that excites you?' or 'What is an area where if you could have a better answer where you would look for it?' And I call that keep your ears open.
You've been at this company a long time, 35 years or so. It's 115 odd year old company. You've seen it through many different chapters. Right now we're living in the age of AI. Quantum is on the near horizon. You've got a lot of geopolitical risk, all sorts of execution challenges, your clients and things. How do you define this chapter for IBM? Just frame this for us.
Look, as I was coming into the role, so this is now going back six, seven years. You got to ask yourself the fundamental question, what defines the company? Is it that we are wonderful at marketing something and getting it to scale or are we fundamentally a technology innovation company who helps invent something and then make it industrial scale? And I was firmly of the conviction that the second is what defines IBM. If you ask people what they remember, they'll remember IBM did the punch card reader. They'll remember IBM did the Selectric electric typewriter, did the mainframe. So if those are the moments, those are not just about scaling and marketing. So it's easy to fall into the myth that that's what IBM is, right? Yes, that is important, but that's not the heart of the company. So I said okay our heart has to be about technology innovation not only but that's a really important part what are those things and how do you do them some you can do internally and some you can do outside but that became to me the driving force in this chapter of IBM.
Kind of ECG on the heart of IBM here. Yeah, I was going to ask how do you describe IBM today, you know, not to an analyst, not to a stockholder, but just how would you describe it to someone who's going to join IBM or you want them to be excited about IBM?
I kind of say three things. So because you said to people who join, so the people that I'm trying to attract out of university to come, I kind of say, look, if you're interested in working on really hard technology problems, and I phrase it, really hard that are going to take years to get to completion, we are the ideal place. We have the patience as long as we see that the prize is there. We don't give up in two or three or four years. We're willing to go for it. And so if that is what really drives you and then seeing that scale because we have the scale, that's a great place.
Give us an example. Give us, you know, like how do you now organize the company and say, 'Okay, here's what we're going to go after.'
I'll give two examples. One from the past that really I think brought IBM into the iconic stage it is today. And certainly while it did many things before, I think the IBM mainframe was probably the defining product in the past for IBM. They began a program in 1960. They thought then it would be a 1 to 2 year program and they would get out of it. It became a five-year program. The entire company, the entire had to be dedicated to getting it to work. And when it did, the first two years were not so great. History is a bit rosy. But by year three, by 1970, it had climbed to 80% market share. That's a really hard problem. But the prize was clear. If you can get there, then you can redefine how enterprises and governments buy computers.
Okay, before we get to the IBM of now, I just have to tell you a story. So I remember when I was a little girl, my dad took us to the office on the weekend to visit the IBM mainframe computer. It was such a big deal for his company which he was building, you know, to have that computer and so I get it. You know, the prize was huge and it was a very hard problem. Okay, tell us about the IBM of now.
So I'll go all the way into something which is emerging today. Okay, but we started the journey 10 years ago. So in 2015 it looked like quantum computing may be possible but in '15 unclear are we going to hit a scale problem. So for the first five years we took a bet we took a risk but I wouldn't say it was existential for the company. If you take a 100 people at our scale of 200,000 people and you give them and even if you give them a lot of money, tens of millions, it's not going to break the company if it doesn't work. Then you reach 2020 and you say, I got to discover whether the clients have value in this. So you kind of start that as a side theme. Then you start asking yourself the question, if it works, what do I need to be able to scale it? What do I need to be able to protect the intellectual property? What do I need to get to and solve enough real problems for people? Now the bet is much much bigger than the tens. But you've reduced your risk because now I think now it's a question of just can I do it in three years or four years or five. No longer is it a question of can it be done.
What interests me is this is so different from the Silicon Valley fail fast mantra. You seem to be saying that what's differentiating IBM, what's created a lane for you is your willingness to think in these very long-term cycles. Do you think you are particularly unusual as a company for doing that?
I think we are unusual because we're not saying everything is a one two year cycle.
But what I also hear you saying is about risk management. In other words, you have ideas about where you want what you think is an opportunity. I've heard, I've been listening. I want to solve a problem. I'm going to manage. I'm going to put assets against it. Put resources against that problem, but I'm going to then watch it and see what comes of it. And then as I put more resources against it, I've assessed what's the possibility.
As the amount of the size of the bet goes up, the risk has to come down.
Yes. And so that is important. But I think that I'm willing to take do things that take 5 to 10 years.
You've had this long career at IBM. You find yourself in 2018 with this realization about the cloud and the two choices you have. You know, do you become the great, you know, master of the cloud yourselves or do you go for this hybrid cloud strategy? You conclude that IBM needs to go for the latter strategy and to do an acquisition. You land on Red Hat, but not everybody in the company is buying into this idea at all. Can you tell us how you got that deal over the line and you weren't the CEO then, right?
Okay. So, tell us the story.
So, you have a certain sense of I'll call it engineering logic or business logic. The two are intertwined. I'm not going to say that they are completely separate. And you come to the conclusion you need something that runs on every cloud and that helps an enterprise go across their environments. Hence the word hybrid cloud. You then have to ask could you build it yourself? You could. It'll probably take three years and then probably another couple to get market success. So that's five years away. Or is there something which gets you there right away? You identify there are two or three things in the real world that could get you there and that's maybe when there is a bit of an art as well as a science to it because I could say yes there are which is the one that's more likely to not just be good for that but also good for the next thing that is about to come and Red Hat to me had more of that than the other couple of alternates.
Tell us what resistance you were facing.
Well, so when you want to spend that much money, of course, there's going to be all kinds of agendas that realize people are very smart that if that happens, then their agendas are done. The company has made it, capital is not available for their project. I call it that's natural human reaction. I don't call that malicious. So you could imagine that 80% of the people would have been against it, not for it. But having had a couple of not quite at that scale but similar experiences, you realize you got to build some support for your position. So I enrolled our CFO.
Take us into that conversation. Were you running numbers for him and showing him the market? How did you get him to believe this is the direction we should go?
The CFO can do hopefully numbers better than I can. So if you talk numbers only, he's just going to go do it himself. And my guess is he's smart enough or you have probably been doing that already. So what you got to talk to him about is the business logic. Then you get into hey can the numbers be made to work.
And okay so you get the CFO on your side and the argument. How about the CEO? How about the board? How did you bring them along?
There was a lot of resistance. So at the urging of the CFO and the CEO, I actually then enrolled a third party, one of the three big consulting firms. And I think that the good consulting, the good thought leaders play a good role like that.
So we often when we're doing deals, we have to we ask ourselves what has to be true or what do we have to believe in order for this to be a good idea. So what was the give us what was the thesis that it had to be?
So the common wisdom at that point was every client is going to pick one public cloud and then they'll make all their bets there and all their workload will migrate there. If that thesis is true, buying something that's hybrid is got no value. So you've got to believe the opposite thesis is true. People are going to straddle multiple and their current existing infrastructure will not go away for the next 20 years. If that's the case, they need something that goes across all three. That's the big thing you have to believe. So the third party was useful in saying, okay, after doing a lot of client interviews and a lot of just looking hard at the world, not just at believing the Kool-Aid, that is more likely the reality today. It looks like conventional wisdom. Now, everybody would say, 'Yeah, of course that's true.'
Well, and I would imagine your consultant could go then out to your customers and ask them, okay, are you running everything on one cloud? Is that your...
We ask them to not survey our customers, but their own customers. So, it's not even biased because it could be biased that our customers think a certain way.
Ah, interesting. That's what was the biggest objection you had to overcome.
One, this is toxic open source. How can you mix open source and proprietary? Aren't you going to lose the hearts and minds of all those open source people out there? So you actually are creating disenergy, not synergy. Objection one, objection two, these people partnered with a lot of people who are perceived today as IBM's competitors. Why would they keep working with you? Three, in the end technology is the people. Will these people stay the employees of Red Hat?
And so those are all the risks you have to go talk about and mitigate.
