I was part of a failed acquisition by IBM costing the company billions, so it is particularly fascinating to watch the execution of Red Hat by the company. If IBM had used the same process with similar promises they used to acquire ROLM Systems I could forecast a dire outcome for this effort. However, many people were so frustrated by IBM’s acquisition process they rewrote it and created an industry leading model that Dell eventually adopted and then improved. IBM appears to be using this improved model with this Red Hat acquisition, basically closing the circle. Execution should result in an organizational structure like VMware at Dell Technology and that will have a number of interesting implications for IBM and Red Hat Customers, employees, and IBM investors.
Let’s go through some of the expected changes.
Friction Reduction
Now if you think of this less like a typical merger where the two firms are smashed against each other with massive damage to the acquired company and more like a super partnership, you’ll be closer to where this will likely end up. Material movement, intellectual property, products, and employees will find it easier to move between the two firms than with any pre-existing Red Hat or IBM partner.
This is because where you are likely to see synergies and mergers between the two firms are in common services. It is also normal for this process for the two firms to treat each other like favored vendors with reduced approval processes, advantageous intercompany charges (prices), and because the HR systems will likely be aligned, a far simplified process to move between the firms.
Now another change in IBM since the ROLM acquisition that was such a disaster is that IBM is no longer an employer for life which turned IBM acquisitions into dumping grounds for under performing employees. Since it is now more like other firms operating under employment at will (terminating an underperforming employee is relatively easy) the foundation for this bad behavior has been removed. This doesn’t mean an IBM manager can’t still trick an Red Hat manager into taking a problem employee but it reduces the desire to do so to an extent that it just doesn’t make sense to go through this effort and the repercussions for the IBM manager that gets caught doing this would likely be dire.
Red Hat’s Reach Expands Exponentially
Red Hat is a relatively small firm, IBM is not. With this acquisition Red Hat gains better access to IBMs global service and sales resources allowing the firm to better compete globally. IBM’s market research also significantly exceeds what Red Hat can afford and this data and resource will be available to Red Hat so they can better target future development offerings on enterprise needs and create messaging that is more effective when marketing their existing offerings. So, they gain both reach in sales and services and reach in terms of market information pretty much assuring a strong upside to their global sales.
Artificial Intelligence
IBM is arguably the leader in AI at enterprise scale with Watson and, increasingly, the company is using this tool internally to enhance decision making. This isn’t an inexpensive effort, but it is a potential huge competitive advantage for the IBM executives that have access to it. I expect Red Hat will get access to this tool shortly and be able to use it to enhance their decision-making process improving their market performance. IBM, in turn, will gain information on the application of Watson in Red Hat and, given their new intimacy with the company, should be able to use this access to better refine Watson going forward.
Doubling Down On Open: The True Oracle Counterpunch
Up through the 1980s IBM was the posterchild for the Lock-In strategy so popular back then. But, after this policy nearly put them out of business, they pivoted to Open with a vengeance and with this acquisition effectively are doubling down on this bet. IT shops are rapidly updating and modernizing their infrastructure to better complete in this ever more digital world and have massively favored the “Open” strategy as well which has become the new industry standard (someone should really tell Oracle). This need has migrated to the cloud in spades and Cloud efforts that don’t embrace the Open concept
With this acquisition IBM is signaling that Open will remain the firm’s strategic imperative.
Wrapping Up: Doing Mergers Right
Like a lot of you I’ve been through a lot of bad mergers and the pain to employees, customers, and investors is avoidable. The process IBM is using should assure that this merger is one of the few good ones and I hope other companies that more typically use the destructive smash together processes of the past will learn from this. IBM’s acquisition of Red Hat should make both firms stronger, provide better options for employees and customers, and even IBM investors should eventually be pleased with the result. There is a right way and a wrong way to do most things, it took a lot of pain to get here, but IBM has embraced the right way now if we can just get most firms to do the same.
