IBM: CEO Rometty's Challenge

| About: International Business (IBM)
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IBM CEO Virginia Rometty called on the employees to "step up" after the recent quarter that was described by some Wall Street analysts as a disaster. CEO Rometty implemented a new rule requiring all employees to respond to customer requests and questions within 24 hours. I am surprised that such actions where not already a habit at Big Blue, nonetheless, as a stockholder, I'm glad to know that this policy will be in force going forward.

My aim in writing CEO critique articles is to support leadership when the CEO is working toward solutions. There are situations when the market for a company's product or services is weak. In these instances, the CEO has to determine whether the downturn is cyclical in nature.

If the decline is cyclical, the CEO has to batten down the hatches and move the company forward during the lean times. This brings along the unfortunate cuts in expenses, which in many cases require employee layoffs.

There are other times when the business decline is secular, and the CEO has to formulate an altogether new strategy or reinvent the company.

Then there are times where demand for the company's products or services is healthy, and the company fails to execute.

I can not fault CEOs during cyclical declines unless they fail to adapt. I can not fault CEOs during secular declines as this is the most difficult predicament for a CEO, and successfully maneuvering a company through a secular change in its business is extremely difficult. The stakes are very high, if the CEO fails, the company goes out of business.

There is no excuse for execution failure at the CEO level for an S&P 500 company. There is too much on the line (jobs, retirement plans, community commitments, impacts on vendors and other businesses in the supply chain, tax revenues, ect).

While every CEO deserves a second chance and there are occasionally mitigating circumstances, continued failure of an S&P 500 CEO to execute, must be met with swift termination.

As a reader of my last article IBM: 2 Strikes on CEO Rometty recently pointed out to me, one unproductive CEO can cost the jobs of thousands of productive workers.

I have written and called IBM requesting a response to the chatter about the company's cloud computing issues. Although this request is not from a customer, it will be interesting to see whether or not IBM gets back to me within 24 hours.

At issue, IBM works with customers developing their own in-house "private cloud" for data storage, retrieval and interpretation. The competition for IBM is the "public cloud." To IBM's advantage, the public cloud requires companies to store their data off-site. However, the public cloud is more powerful (able to handle more robust data) and much more cost effective than building an in-house private cloud.

Since IBM indicated on the recent earnings call that business demand was satisfactory (not in cyclical decline), I am hoping that after speaking with IBM more in-depth about the cloud issue, I will be able to shed more light onto whether CEO Rometty's challenge is secular problem or an execution issue.

Disclosure: I am long IBM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.