You Cannot Shrink Your Way to Growth



We all know what a failing business looks like. The atomosphere is gone, the place looks scruffy and employees look deflated.

IBM has a long and storied existence. But is it a failing business?

Following earnings results this week, some media are raising the alarm.

Revenues were $92.8 billion in 2013, but are down for a third straight year. Business Insider said IBM is not transitioning fast enough to cloud computing.

The New York Times also noted IBM was moving from its traditional hardware, software and services model to the Cloud. It added, however, “analysts question how well IBM is doing in achieving its objectives. ”

Information Week made the same point, going so far as to draw on Seth Godin’s take on a business’ death spiral.

Godin argues that businesses shouldn’t cut back to squeeze more profit from smaller income. His advice to businesses suffering revenue drops:

Right this minute, you still have some cash, some customers, some momentum… Instead of squandering it in a long, slow, death spiral, do something else. Buy a new platform. Move. Find new products for the customers that still trust you.

Information Week said IBM should follow that path.

The company’s 2015 outlook does not foresee overall growth. Instead, the best the company can hope for is achieving higher margins in 2015.

Mind you, IBM has faced tough transitions in the past. It still sells mainframes and it still makes midrange machines.

But developing and maintaining proprietary hardware and operating systems is expensive, and it has had some success adopting open source.

But, instead of squeezing margins even more, Big Blue could look at Godin’s parable of the fish monger in a death spiral.

[He] sees a decline in business, so they have less money to spend on upkeep and inventory, so they keep the fish a bit longer and don’t clean up as often, so of course, business declines and then they have even less money… Eventually, you have an empty, smelly fish store that’s out of business.

Meanwhile, Computer World told the story of one innovative — if slightly underhanded — approach to cost cutting.

A company in financial difficulty made a number of cuts to save money. But in the middle of the pain, a management email went around asking if anyone was interested in a horticulture club.

One worker went along only to find out that the plant contract had been terminated and that the club members would be watering the plants from now on!

Image courtesy Wikipedia Commons.