The news that IBM is buying Red Hat came out of the blue, but perhaps should not have. Both companies are looking for a new impetus. IBM revenue has fallen steadily over the last several years, as legacy hardware businesses retreat and it struggled to transition into tech and sales models. IBM's share of the global cloud computing market dipped to 7% in Q3, according to researcher Synergy, as AWS and others grab bigger pieces of the pie.
Red Hat missed on sales target in its latest quarter and warned on revenue for the current quarter. Red Hat share price is down 34% from its June peak, hitting a 52-week low last week.
While many commentators have been writing about the technology mesh around Linux and the potential synergies, the channels for both will be thinking about the future, and the likely outcome. Both companies, it is true, have a cloud business which they are building and which needs to engage the market more strongly. Both companies also have a strong self-identity which sometimes holds them back from moving faster in new innovations.
They may struggle to engage their internal visions and those of their channel in a combined business. Looking at Red Hat’s management style, very much driven from Jim Whitehurst, President and CEO, who has a technocratic vision, working as part of a larger team may be an issue. When we read and reviewed his book “The Open Organization” three years ago, it was big on participation and sharing ideas, but he also told us: “I generally think large organizations start to get a little less personal as they grow. It's hard to know everyone and as we're all taught, the older we get the more "serious" we have to behave.”
“I think a lot of companies have done components of the "open organization". Maybe at Red Hat we've gone a little further in trying to pull it all together.”
And he has built an organization around these rules which has grown, but while there seems to have been a lot of communication and messaging, and he sees his job as “to foster open dialogue” a sense of direction is important.
And his message on culture was clear when we asked him about other cultures: “Some people are like fish to water, they love this place. They love the culture, the way we operate. They like the debate, and the openness. And then we have other people who are extremely hierarchical in their thinking and worldview, and they typically do not work out well here.”
“In terms of working with partners, we work with all types. And we don't think everyone has to be like us. We do think organizations like us are more effective but that doesn't mean we won't work with very traditional organizations,” he told IT Europa.
IBM is looking for direction; it knows it need to up its game to compete with Amazon and Google; it has a strong internal structure and traditional channel, but moves to speed internal innovation have not worked in the ways it hoped: The Watson AI processes have not succeeded in sparking growth in its channel; IBM still likes to hold its technologies close and many of its key partners are IBMers from way back. Talk to the born-in-the-cloud partners and the digital marketeers, and IBM is one of the last vendor companies they think they should be associated with. CEO Ginni Rometty (pictured) would like to deliver a result from her reign at the top of the company, and IBM's biggest acquisition in history will be down to her. But she needs it to work and work soon.
Early discussions with partners who have history with previous mergers hark back to HP/Compaq and a slow development of the business through sheer market growth rather than innovation. Others predict some real issues as the cultures and partner plans go head-to-head. We wait to be proved wrong.
