Lou Gerstner wrote, "People truly do what you inspect, not what you expect." … Lest we forget, these "inspection pages" exist because chief executives are "people" too.

Peter E. Greulich

Arvind Krishna: First Year IBM CEO Performance
Published July 23, 2021
Arvind Krishna’s First Year Performance Numbers
  • Summary of How Arvind Performed
  • Links to the Details of Arvind's Key Performance Indicators (KPIs)
  • This Author's Thoughts and Perceptions
 How Did Arvind Perform in His First Year?
How did Arvind Krishna, IBM's Chief Executive Officer (CEO) perform in his first year:
Arvind’s year-over-year records at the end of 2020 were as follows: (1) revenue was down 4.6% and profit was down 41%; (2) revenue growth was down 5% and profit growth was down 41%, (3) sales productivity was down 3.6% and profit productivity was down 40%; (4) the company’s market value was down by 5.5%; (5) employment was down 2.2%; and (6) shareholder returns were down 1.2% while shareholder risk was flat.

So, at the end of Arvind Krishna’s first fiscal year as chief executive officer his performance markers were nine downers and a flat note. Not a very impressive start. Let’s graph Krishna’s 2020 performance, and then put that performance within the context of the corporation’s 21st Century results.
​Would Tom Watson Sr. approve of the 2020 performance of Krishna; the nine-year, 2012–20 performance of team Krishna and Rometty—Team K&R; or the twenty-one-year, 2000–20 performance of team Krishna, Rometty, Palmisano, and Gerstner: Team KRP&G? The abbreviations may sound like a Warren Buffett railroad conglomerate, and if they were, he would probably acknowledge that they are flying off the rails.

As you will see, Mr. Buffett made the right decision selling his IBM holdings. Now is probably not the time to be an IBM stakeholder: shareholder, customer, employee or supportive society. IBM hasn’t been a battleship turning; it has been a battleship taking on water faster than the crew can pump it out. The men and women in the pilot house have ignored and abused those manning the boiler room for more than two decades.

The company is approaching a point at which it will be powerless to control its fate.
​
Soon, it may find itself dead in the water.
 Details of Arvind's Key Performance Indicators
Select any of the buttons below to read the evaluation of Arvind Krishna's performance in that particular area.
Corporations, within a capitalist economy, become worthless as they fail in their main purpose: moving products of competitively higher value off the showroom floor into a customer’s hands while generating enough profits to ensure a self-sustaining stakeholder ecosystem.
A corporation needs to generate enough money (revenue and profits) to invest equitably to attract and hold customers, employees, shareholders and their supportive societies.
​These charts show revenue growth is a serious problem, and that profit growth has been propped up with some serious financial engineering—following short-term, financially expedient paths at the expense of the long-term health of the business.
​These charts challenge the perspective that IBM has been divesting and investing to move into higher-value markets with higher profit margins.
​​In a corporation of 400,000 individuals, if each individual employee loses $10 a day in productivity, the corporation loses a billion dollars in a year.

​Of course, gain $10 a day and a billion dollars is sent to the corporate bottom line.
Even a small change of productivity in a large corporation is impactful. Shareholders should understand how productivity is affecting IBM's bottom line. Employees should understand where their benefits and raises originate.
Lou Gerstner often used market value as a key business metric to evaluate his business success. He touted his success to his shareholders in annual reports.

​He called it “the most important measure of progress to investors.”
​What would IBM's share price be today if the executives had continued to focus on increasing market value instead of on earnings-per-share roadmaps?
Since 1999, IBM has spent $176 billion on share buybacks. Since 1995, the corporation has spent $201 billion on share buybacks. Of course, the shareholders are happy with this reduction in the number of shares, right? Why would they be upset?
How about losing money on the returns on an investment of one-fifth of a trillion dollars and two chief executive officers who buried their results on the last page of the annual reports: Virginia M. (Ginni) Rometty and - now - Arvind Krishna.
​No, Arvind Krishna hasn't spent any money on share buybacks . . . yet, but he might consider it. Share buybacks compete with other possible investments and directly affect the bottom line. Visualizing share buybacks as profits dramatically highlights the corporation’s myopic focus on investing in paper.
​Therefore, these charts document the complete picture of IBM's falling profitability and visualize its overriding failed strategy of investing in paper instead of in the business: its people, processes and products. Arvind, don't do it!

P.S.: He still as $2,000,000,000 authorized to spend.
Being of service or caring about stakeholders other than customers is sometimes confused with paternalism—especially when it concerns employees. When Watson Jr. talked about employment security, he did not view it as paternalistic but instead as a means of increasing employee loyalty, goodwill, and diligence on the job.
Employees are less efficient when worried about employment security.
This Author's Thoughts and Perceptions
Falling revenue exposes that customers aren’t enthusiastic about the corporation’s product strategies. Falling returns demonstrate that shareholders aren’t impressed by the size of share buybacks, and they aren’t myopically focused on the consistency of dividends—or monikers like Dividend Aristocrats, and they definitely aren’t trusting earnings-per-share metrics. Falling productivity reveals the employees’ lack of engagement, enthusiasm and passion.

IBM has been getting more opaque with critical numbers, such as employee engagement and customer satisfaction. These should be made available to shareholders—the owners. Even several once-reputable, business-focused, magazines that lighted the way forward for American Capitalism, are failing at their fourth-estate duties. They are merely regurgitating overly rosy executive outlooks, and monitoring and rewriting corporate press releases. Are these journalists paid by the worthy insight or the word count?

Ida M. Tarbell wrote an expose on John D. Rockefeller Sr. and the Standard Oil Corporation. It was a turning point in our corporate history. No, she did not halt the consolidation of small businesses into large corporations—nor did she think that necessary, but she and her fellow muckrakers inspired a public belief that ethical standards should be applied to a corporation as well as to an individual.

Men and women like Dorothy Shaver of Lord & Taylor, Elbert H. Gary of U.S. Steel, Thomas J. Watson Sr. of IBM, George F. Johnson of Endicott-Johnson Corporation, George Eastman of Kodak, Owen D. Young and Gerard Swope of General Electric, J. C. Penney of J. C. Penney Company, B. C. Forbes of Forbes, George M. Verity of Armco, William Cooper Procter of Procter and Gamble, and John H. Patterson of NCR to name a few, stepped in to fill these new roles. Granted that they were tough, but they generally fair individuals who attempted to treat their stakeholders equitably, and they demanded that their organizations serve their four major stakeholders: customers, employees, shareholders and society. As is necessary within any ecosystem, they had to fight for a balance in the distribution of profits to make their individual ecosystems … self-sustaining.

John D. Rockefeller Jr., the son of the target of Ida M. Tarbell’s early articles, evidently took to heart what she and others wrote. He expressed his obligation to one of his stakeholders: his community.
Were it not for the community’s contribution, in maintaining law and order, in providing agencies of transportation and communication, in furnishing systems of money and credit, and in rendering other services — all involving continuous outlays — the operation of capital, management, and labor would be enormously hampered, if not rendered well-nigh impossible. … The recognition of the social aspect of industry is of vital importance to its successful operation.
John D. Rockefeller Jr., "The Biggest Thing in Business," The Book of Business, 1920 
​There is a corporate obligation to maintain a functioning, self-sustaining stakeholder ecosystem. IBM’s leadership has lost track of this concept that at one time was imbedded in the very fabric of its institutional memory, but no longer. As I wrote in THINK Again! The Rometty Edition, “Shareholders need engaged employees. Shareholders need satisfied customers. Shareholders need supportive societies. Shareholders need a sustainable stakeholder ecosystem.”
The path to maximizing shareholder value is found in an equitable distribution of profits between the four major corporate stakeholders: customers, employees, shareholders and their shared societies. And yes, you should ask, “What is equitable?” The answer is always, “It depends.”

And a chief executive that can articulate and justify those yearly decisions to the satisfaction of all his or her stakeholders … is worth big bucks.

Peace brother …

      … and cheers,
​
- Pete
© 2021 Peter E. Greulich. All Rights Reserved
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Cheers,

- Peter E.