DISCERNING READERS
  • Home
  • About
  • Books / Bibliography
    • Keys to Success >
      • Preface
      • Introduction
      • Appendix
      • You: The First Key
    • THINK Again! Series >
      • Ideas and High Ideals >
        • Preface
        • Introduction
        • Prologue
        • Insights into Tom Watson >
          • Tom Watson's Character
          • A Wartime Humanitarian
          • Democracy's Man O' War
          • An Exemplary Man
          • On Youth & Education
        • A Successful Rebranding
      • The Rometty Edition >
        • Preface
        • Foreword
        • Introduction
        • Business Talk Interview
        • Book Trailers and Videos
      • The World's Greatest Salesman >
        • Preface
        • Introduction
        • Workplace Safety
        • Images and Quotes
        • Book Trailers / Videos
    • A View from Beneath >
      • Preface
      • Resource Actions >
        • Two R.A. Days Hit Home
        • R.A. Day Kills Productivity
      • Business Talk Interview
      • Book Trailers and Videos
    • Essays on Leadership >
      • Democracy in Business
      • We Are All Assistants >
        • Frank Venner: We Are All Assistants
      • We Forgive Thoughtful Mistakes
    • Bibliography Overview >
      • Authors and Writers >
        • Garland, Hamlin
        • Wise, John S. >
          • Slave Auction
          • Tribute to Robert E. Lee
          • On Lincoln's Assassination
      • Capitalists >
        • Baruch, Bernard M. >
          • My Own Story
          • The Public Years >
            • A Review
            • Second Thoughts
        • Davison, Henry P.
        • Schiff, Jacob H.
      • Educators >
        • Washington, Booker T >
          • Up From Slavery
          • My Life and Work
          • Character Building
          • My Larger Education
          • The Man Farthest Down >
            • Booker T. Washington and John Burns
          • Future of American Negro >
            • Future of the Negro
      • IBM >
        • IBM Books >
          • IBM Classics
          • IBM Executives' Books
          • IBM Employees' Books
          • IBM Outsiders' Books
        • IBM Publications >
          • THINK Magazine
          • Business Machines
          • IBM Heart and Soul >
            • Endicott Memorial Day
            • Poughkeepsie Memorial Day
          • IBM Art Books
        • IBM Situational
      • Industrialists >
        • Anthologies >
          • The Book of Business
          • New Ideals in Business
          • Master Workers' Library
          • The Age of Big Business
          • Famous Leaders Series Home Page >
            • Leaders of Character
            • Leaders of Industry: 1st Series
            • Leaders of Industry: 2nd Series
            • Leaders of Industry: 3rd Series
            • Leaders of Industry: 6th Series
          • Forbes' Anthologies
        • Armour, J. Ogden >
          • The Packers
          • The Packers: Second Look
        • Baldwin, William H.
        • Beatty, Edward
        • Bell, Alexander Graham
        • Carnegie, Andrew >
          • Carnegie Quotes
          • Carnegie Autobiography
          • Carnegie Biography by B. J. Hendrick
          • Round the World
          • The Empire of Business
          • An American Four-in-Hand
        • Eastman, George
        • Edison, Thomas A. >
          • Edison: His Life and Inventions
          • Edison: My Friend
        • Farquhar, A. B.
        • Filene, Edward A. >
          • The Way Out >
            • Captains of Industry vs. Captains of Finance
          • Successful Living >
            • Rules of Success
        • Firestone, Harvey S. >
          • Men and Rubber
          • Making an Organization
        • Flint, Charles R.
        • Ford, Henry >
          • Books by Henry Ford
          • The Last Billionaire
          • My Forty Years with Ford
        • Gary, Elbert H.
        • Guggenheim, William
        • Hill, James J.
        • Hollerith, Herman
        • Johnson, George F.
        • Patterson, John H.
        • Penney, James C. >
          • Fifty Years With the Golden Rule
        • Procter, William C.
        • Rockefeller Jr.
        • Rockefeller Sr.
        • Rosenwald, Julius
        • Sloan Jr., Alfred P.
        • Swope, Gerard >
          • Swope of G.E.
          • The Swope Plan
          • Selected Addresses
        • Verity, George M. >
          • True Steel
          • Character & Success
        • Wanamaker, John >
          • A Business Biography
          • Retail Firsts
        • Watson Jr., Thomas J. >
          • A Business and Its Beliefs
          • Management Briefings
          • Father, Son & Company
        • Watson Sr., Thomas J. >
          • Human Relations
          • Men-Minutes-Money
          • The Lengthening Shadow
        • Young, Owen D. >
          • Selected Addresses
          • New Industrial Leader
      • Inventors & Innovators >
        • Fulton, Robert
        • Goodyear, Charles
      • Journalists >
        • Baker, Ray Stannard >
          • Autobiography
          • The Color Line
          • Woodrow Wilson
        • Crowther, Samuel >
          • Articles >
            • Bantam Ball Bearing
          • Biographies
          • Industrialist Anthology
          • "Why Men Strike" Review
        • Gunther, John >
          • Eisenhower
        • Steffens, Lincoln
        • Sullivan, Mark >
          • Our Times
          • The Education of an American
        • Tarbell, Ida M. >
          • Overview
          • Lincoln Centennial
          • Lincoln Publications
          • Corporate Publications
          • Fiction Publications
          • Other Publications >
            • Mme. (Madame) Roland
          • Magazine Articles >
            • Disbanding the Confederate Army
            • Disbanding the Union Army
        • White, William Allen >
          • Woodrow Wilson, The Man
      • Military Leaders >
        • Lee, General Robert E.
      • Pioneers / Explorers >
        • Byrd, Richard E. >
          • Alone
          • Discovery
          • Little America
        • Columbus, Christopher
        • Lindbergh, Charles
      • Politicians >
        • Eisenhower, Dwight D.
        • Hoover, Herbert >
          • American Individualism Book >
            • American Individualism Article
          • Ordeal of Woodrow Wilson
          • Problems of Lasting Peace
        • Lincoln, Abraham >
          • Lincoln in the Telegraph Office
          • Abraham Lincoln Books By Ida M. Tarbell
        • Mesta, Perle
        • O'Connor, Basil and FDR >
          • Friends and Partners (Against Polio)
        • Roosevelt, Theodore >
          • Roosevelt: A Story of Friendship
        • Roper, Daniel C. >
          • Fifty Years of Public Life
        • Taft, William H.
        • Wilson, Woodrow >
          • The New Freedom
          • The Ordeal of Woodrow Wilson
          • Wilson's Last Words
          • Wilson's Tasks and Life
          • Wilson's Life and Letters >
            • Volume IV: President
            • Volume V: Neutrality
            • Volume VI: Facing War
      • Preachers >
        • Fosdick, Harry Emerson >
          • The Meaning of Prayer
          • The Meaning of Faith
          • The Meaning of Service
          • Power to See It Through
      • Publishers >
        • Forbes, B. C. >
          • Men Who Are Making America
          • Men Who Are Making the West
          • Automotive Giants of America
          • Little Bits about Big Men
          • America's 50 Foremost Business Leaders
          • America's Twelve Master Salesmen
          • Scrapbook of Thoughts on Business of Life
          • 101 Unusual Experiences
          • Keys to Success
          • Teamwork
        • Fortune Magazine >
          • USA: The Permanent Revolution
        • Shaw, A. W. >
          • Handling Men >
            • Why We Are Hiring Women
            • The Dream Behind the Business
          • The Companion Series
    • Research Sites
    • Acknowledgements
  • 21st Century IBM
    • Corporate Performance >
      • Comparing KPIs
      • Brand Performance >
        • Forbes' Best Employer
      • Patent Performance >
        • 2021 Patent Performance
        • 2020 Patent Performance
        • 2019 Patent Performance
        • 2018 Patent Performance
      • Revenue Performance
    • Corporate Practices >
      • Acquisitions >
        • Acquisition: Red Hat >
          • A $35 Billion Gamble
          • IBM + Red Hat 2019 Results
        • Acquisitions: Goodwill
        • Acquisitions: Since 2001
      • Centralization >
        • A Lost Federation
        • The Need to Decentralize
      • Divestitures >
        • Kyndryl Analysis
        • Kyndryl Top Questions
        • Martin Schroeter
      • Employees >
        • Resource Actions
        • Age Discrimination >
          • Cutting Old Heads
        • Employee Engagement
        • Aren't Buying Into IBM
        • Massive Work Slowdown
        • Failure of Work at Home
      • Financial Engineering >
        • Workforce Rebalancing
        • Aggressive Bookkeeping
      • Shareholders >
        • Share Buybacks
        • Shareholder Risk
        • Overall Performance >
          • Revenue & Profit
          • Revenue & Profit Growth
          • Revenue & Profit Productivity
          • IBM Market Value
          • Shareholder Returns & Risk
          • Employment Security
        • Employee Engagement
        • Warren Buffett's Mistake
        • Do Share Buybacks Work?
    • CEO Performance >
      • Arvind Krishna Overview >
        • First Year Performance >
          • Revenue & Profit
          • Revenue & Profit Growth
          • Revenue & Profit Productivity
          • IBM Market Value
          • Shareholder Returns & Risk
          • Share Buybacks
        • The First 100 Days
      • Ginni Rometty Overview >
        • Shareholder Value
        • Shareholder Risk
        • Share Buybacks
        • Dividend Strategy
        • Acquisition Strategy
        • Revenue & Profit Productivity
        • Revenue & Profit Growth
        • Revenue & Profit
  • 20th Century IBM
    • Corporate Performance >
      • IBM's Greatest CEO >
        • Shareholder Returns
        • Revenue Growth
        • Revenue Per Employee
        • Profit Growth
        • Profit Per Employee
        • Market Value
        • Goodwill
        • Economic Contractions
        • Economic Expansions
        • Stock Market Headwinds
        • CEO Historic Footnotes >
          • IBM's Founding Team
          • Financial Engineering
          • The Greatest Gamble
    • Corporate Practices >
      • IBM Anniversaries
      • IBM Benefits
      • IBM Creativity >
        • IBM Cartoons
        • IBM Song Books
        • IBM UK Dictionary
        • IBM Computing Dictionary
      • IBM Wild Ducks >
        • The Wild Goose
        • Royal Dissenters
        • Corporate Constitution
        • Respect for the Individual
        • Service to the Customer
        • Pursuit of Excellence
    • Corporate Products >
      • 1890: U.S. Census
      • Dayton Scales in 1920
      • 1940: The Electromatic
    • Thomas J. Watson Sr. >
      • Quotes By Watson
      • Quotes About Watson
      • Articles By Watson >
        • On World Peace
        • On the Cost of War
        • On Public Education
        • On Thomas Jefferson
        • On Thoughtful Mistakes
        • On Stakeholder Relations
      • Articles About Watson >
        • A Gift of Retirement
        • A Gift of Home Ownership >
          • Construction Timeline
        • The $1,000-A-Day Chief Executive Officer
        • Employees are Valued
        • Democracy's Man o' War
        • Human Relations in 1956
        • A CEO Who Earned His Pay
        • The Story of "THINK" >
          • Two Journalists "THINK"
          • A Buddy Davis Interview
        • Learning from Crises
        • Tom Watson's Wild Ducks
        • The Lengthening Shadow
      • Slice of Life Stories >
        • Dali, Salvador
        • Drucker, Peter F. >
          • Authority and Power
          • Short-Term Thinking
          • A Corporate Culture
          • Raising Business Issues
          • Focus on Principles
          • Character and Manners
          • Knowledge Workers
          • Recognizing Ability
          • Individual Respect
          • Employee Paternalism
        • Eastman, George
        • Penney, J. C. (James Cash) >
          • Watson Homestead
          • Golden Rule Businesses
        • A 1943 Tax Problem
        • Fighting Discrimination
        • A Pajama Party
      • Pre-World War II >
        • Women in the Workplace
        • A Lost Dream of Peace
        • USO Camp Show Founder
      • World War II Effort >
        • Selling War Bonds
        • Production Awards
        • Controlling Profits
        • Machine Records Units
        • Wartime Contributions
        • Widows & Orphans Fund
        • Declaring Human Rights
        • Supporting Home Morale
        • Employee Military Service
        • War's End & Reconversion
      • Post-World War II >
        • Endicott Memorial
        • Poughkeepsie Memorial
        • Rehiring WWII Veterans
  • Articles
    • Corporate Articles >
      • High-Performance Corporations
      • The Art of the Restart
      • Crises, Recoveries & Lessons Learned
      • Strategy Should Create Human Relationships
      • A Time-Tested Corporate Constitution
      • IBM, JC Penney and The Golden Rule
      • How IBM Created its 20th Century Brand
      • The Greatest Business Risk of the 20th Century
      • How to Grow a Business
      • The Importance of Sales Productivity
      • How Much Is a Great CEO Worth
      • Let Your Guard Down
    • Business Articles >
      • Business Witticism
      • The Golden Rule and Productivity in Business
      • Who and What Built Early American Capitalism
      • Capitalism Needs Industrialist Minded CEOs
      • Producing Corporate True Steel
      • CEO Perspectives >
        • Rules of Success
        • Top Employee Qualities
        • Industrialist vs. Capitalist
      • An Open Letter to the World's CEOs
      • Henry Ford Takes Control
      • The Razor Blade Business Model
      • Two Successful 20th Century Businesswomen
      • Sears: A Dead Franchise Walking
      • A LinkedIn Incognito Mode
      • Value a College Education
    • Political Articles >
      • Political Witticisms
      • Meritocracy and Teachable Humility
      • What Is Patriotism?
      • Presidents' Day 2024-25
      • Memorial Day 2025
      • Pursuing The "American Way"
      • America: Home of the Brave
      • Securing the Borders of the Americas
      • General Grant's Stand for Justice
      • America's Heartland Stands Strong
      • The New Freedom
      • Teddy Roosevelt on Socialism & Individualism
      • Women as Citizens
      • Mary Slessor of Calabar
      • Walt Rostow Speaks to Congress
    • Spiritual Articles >
      • Inauguration Day Prayer
      • Reincarnated Thoughts >
        • Why Lies Should Never Be Glorified
        • Are You More Than A Wise Entrepreneur?
        • A World of Peace or Turbulence?
      • Wilson's Last Words
      • Spiritual Songs
    • Fiction Articles >
      • A Father's Love
      • Introducing a Friend to God
      • Hyphenated Relationships
  • Contact
  • Blog

If my foresight were as clear as my hindsight, I should be better off by a damned sight.

J. L. Mott, President of the Iron and Steel Association, 1873

IBM's $35 Billion Acquisition Gamble: Red Hat

Date Published: July 28, 2021
Date Modified: June 30, 2024
A chart dedicated to the IBM - Red Hat acquisition. A Red Hat with IBM on the brim with the tagline: IBM's $35 Billion Gamble.
​Numbers that are in the billions and trillions seem all too unreal to the human mind. So, let’s add some business perspective to IBM’s $35.1 billion acquisition by breaking it down into digestible numbers and historical risks.​
Some Business Thoughts on IBM's Red Hat Acquisition
  • This Acquisition's Greatest Risk​​
  • This Acquisition is about Wall Street-First
  • Executive Experience with High-Visibility Acquisitions
  • Red Hat and the Rise of Not-So-Good Goodwill
  • The Author’s Thoughts and Perceptions

This Acquisition’s Biggest Business Risk Is IBM’s Greatest Weakness
The following statements from Red Hat’s pre-acquisition 2018 Annual Report expose this acquisition’s human-risk factors:
​
  • Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and collaboration fostered by our culture, and our business may be adversely affected.

  • We depend on our key employees, and our inability to attract and retain such employees could adversely affect our business or diminish our brands.

  • We may not be able to continue to attract and retain capable management.
    ​
IBM last published its employee satisfaction numbers in its 2010 Corporate Responsibility Summary. In 2011, IBM asked their employees if they would recommend IBM as a place to work. The industry average was a positive 7 out of 10 with the industry's best reaching 9 out of 10—89%. IBM’s worldwide response was below average with only 58% offering to recommend the company. Within IBM North America it was a miserable 50%—only 1 out of 2 would recommend the company as a place to work.

​It is understandable why IBM’s Human Relations organization no longer publishes its employee satisfaction numbers. Instead, it publishes what it does for its employees, not if what it is doing is actually effective. This is the equivalent of appraising an employee on hard work rather than effectiveness: kudos, but it misses the point.
​
Despite the nice picture that IBM’s Chief Human Resource Officer paints of her tenure for Forbes, the corporation’s human relation practices have been a two-decade-long drag on sales and profit productivity and – as a result – earnings per share.

Here is IBM's twenty-first-century sales productivity as an example:
A slide showing two line graphs of IBM's declining revenue productivity (sales productivity) from 1999 through 2021.
IBM’s Achilles’ heel is its human relations. If Gallup did an in-depth study of the corporation, it would find that its employees are not engaged; Deloitte would quickly discover that they aren’t passionate; and Tom Watson Sr., if he were alive today, would make it a priority—as he did in 1914—to improve employee enthusiasm. Why is this important?
​
Red Hat’s employee sales productivity at the end of 2017 was 20% higher than IBM’s, and its profit productivity was 34% higher (IBM’s profit productivity has been dropping significantly since 2013 and hit 21st Century lows in both 2017 and 2020). Red Hat’s employees, it would appear, were engaged, passionate and enthusiastic before the acquisition. Are they still?

The answer is noted in the chart above:


  • If IBM employees were as productive in 2021 as Red Hat employees were in 2018, revenues would have been $86 billion, not $57 billion.
  • If IBM employees were as productive in 2021 as Red Hat employees in 2018, profits would have been $11.3 billion, not $5.7 billion.

It seems that Big Blue is already impacting Big Red's productivity numbers. This should be an embarrassment since IBM paid approximately $3,000,000 per person ($35.1 billion for 11,870 employees as of February 28, 2018). This is an important number to remember as each Red Hat employee leaves, is resourced, or is picked off by the competition because Red Hat’s value to IBM is its people and their "innovation, creativity and collaboration."
​
The value of this acquisition deteriorates with each employee lost, not to mention the merger's loss of Red Hat's dynamic Chief Executive Officer: James Whitehurst.
IBM’s Acquisition and Divestiture Strategy Is about Wall Street-First
Image of the world with the Stock Market overlaying it and the tagline:
Is it time to sell?
Most analysts have been focusing on IBM’s $190 per share purchase price or the market’s reaction to the announcement, but only Wall Street speculators and side-show commentators care about the short-term price of paper and speculative news or rumors.

​The real question is how long will it take to pay off this acquisition? Is it a rational expenditure of greenbacks? Would the company be better served spending the money elsewhere? Should it have paid less? After spending $201 billion on share buybacks since 1995, why didn't the executive team ask for some of that money back with a stock offering to fund the acquisition, similar to what Thomas J. Watson Jr. did in 1965?
Were they afraid no one would buy into the offering? [See Footnote]

Red Hat’s average net income over its last ten years had been $164 million and its latest net income was $258 million (Red Hat’s 2018-19 Annual Report). The purchase price was one hundred thirty-five times Red Hat’s highest yearly net income and more than two hundred times its ten-year average. Wouldn’t it be hard for a small business man or woman to justify a $500,000 business loan to purchase a competitor that had a yearly net income of less than $5,000 and a ten-year, average net income of half that number?

Even decisions that are measured in billions should be subject to an economic justification. If this acquisition doesn’t meet expectations, it is reasonable to expect IBM’s Chief Executive Officer to spin off the company, its products, and its customers like the company has other acquisitions and whole divisions whose products were of strategic value to the corporation's customers but not necessarily to IBM's corner office.

IBM’s decades of acquisitions and divestitures demonstrate that the chief executives have prioritized their earnings-per-share strategy over their own customers’ strategic investments in the company’s products. It has never been a good, long-term business strategy to alienate customers.
​
These are bad, short-term, stock-price manipulations that have been going on for too long.

One does get the feeling that this acquisition was a Hail Mary acquisition.
IBM Has Little Proven Expertise with Acquisitions of this Visibility
From 2001 through 2018, IBM had acquired 184 companies—an average of ten per year or almost one a month—at a total purchase price of $52 billion. Its largest acquisition was Cognos at $5 billion and the average acquisition size was $283 million. IBM’s 184 acquisitions were so numerous, came so fast, and were monetarily, so individually insignificant that few received any attention beyond the initial acquisition’s press release.

​This purchase dwarfed the corporation’s largest twenty-first-century acquisition by seven times and was an astronomical one hundred and twenty times larger than its average acquisition. This acquisition is being watched. There will be press’ and analysts’ bullseyes focused on how well IBM wears its Red Hat.
Red Hat with IBM on the brim and a big target on it.
This begs the question as to who at IBM has the experience to successfully integrate the talents of such a visible acquisition. James Whitehurst would have been a logical choice, but he is out of the picture. IBM, as a corporation of 400,000 (reduced to 300,000 in 2021) with all its arcane polices and human resource problems, can easily overwhelm a corporation of 12,000 causing drops in sales and profit productivity. If growth numbers disappoint, or if the company attempts to obfuscate these numbers (as it has its strategic imperative numbers), we should hope that the "free" press and "competent" analysts will call its bluff on an acquisition of this size. This could force a goodwill impairment of significant magnitude.

With the wrong executive leadership, this acquisition could easily become IBM’s equivalent of HP’s Autonomy or Microsoft’s Nokia, as IBM's financial organization doesn't understand the difference between talking about a vision and providing the necessary funds to train people and improve processes to deliver profitable, competitive products to market.
​
This twenty-first-century corporation is led by jettison-now management, not managed by turn-around leadership. It will be interesting to see if Arvind Krishna—without James Whitehurst—can or has the will to rein in the financial organization.
Red Hat and the Continuing Rise of Not-So-Good Goodwill at IBM
IBM is carrying on its books 71% of all its acquisition dollars since 2001 as an intangible asset called goodwill. Its acquisitions have not been in tangible assets such as manufacturing facilities or office buildings but in that “intangible” gray matter located between its acquired assets’ two ears. This human asset can lose his or her value slowly as productivity melts away in disillusionment, or it can be lost quickly to a competitor if the new work environment proves too toxic to bear. With bad management, investors should remember that human – intangible – assets are subject to the saying, "Here today, gone tomorrow"—physically, mentally or emotionally.​

The IBM 2019 Annual Report reflected the one-year's growth in goodwill and all intangible assets with the acquisition of Red Hat: (1) goodwill of $23.125 billion, (2) client relationships valued at $7.215 billion, (3) technology of $4.571 billion, and (4) trademarks of $1.686 billion. Out of all the "assets" acquired, only $4.125 billion (10% of all assets) were in cash, cash equivalents, property, plant, and equipment.

The charts below have been updated with information from IBM's 2020 and 2021 Annual Reports:
  • The Growth of Goodwill since 2001
Chart showing yearly growth of IBM's goodwill and the percentage of total assets that is goodwill from 2001 through 2021.
  • IBM's 2021 Percentage of Goodwill Hasn't Been this High since the Corporation Was Known as the C-T-R Company
Chart showing IBM's yearly goodwill percentage of total assets from 1914 to 2021.
  • The Growth of Goodwill + Intangible Assets since 2001
Chart showing yearly growth of IBM's goodwill including other intangible assets and its percentage of total assets from 2001 through 2021.
  • A Total Assets Mirage: Tangible Assets Are Declining while Goodwill and Intangible Assets Are Growing
Bar chart showing the increase in IBM goodwill and intangible assets and decline in tangible assets from 2001 to 2021.
IBM justifies this goodwill every year – as it has since 2006 – with its normal cut-and-paste into its annual report: “The primary drivers that generate goodwill are the value of synergies between … the company and the acquired assembled workforce.” Unfortunately, the synergies of its previous 184 workforce acquisitions (207 acquisitions as of the end of 2021) have failed to materialize, as IBM’s sales and profit productivity continues to fall. Total shareholder equity less goodwill reflects the overriding importance of these acquired human assets—the human synergies upon which this goodwill is based.
​
This Red Hat acquisition might finally cause a few of the larger, more powerful shareholders to start asking questions as shareholder equity less goodwill has fallen significantly further into the red, and shareholder equity less all intangibles reached scary amounts and a significant percentage of total assets.
  • Shareholders' Equity Less Goodwill and Intangible Assets
Bar chart showing IBM's yearly Shareholder Equity less Goodwill and Other Intangible Assets from 2001 through 2021.
Shareholders may soon awaken to the realization that the only way to maximize shareholder value is to maximize stakeholder value through an equitable distribution of profits between shareholders, customers, employees and society—the corporation's four investors. As the three charts above show, IBM's human assets - synergies of acquired workforces - have reached half of total assets.

Just as a piece of machinery needs maintenance or it breaks down, the human being needs investments to maximize its efficiency in the workplace.
This Author's Thoughts and Perceptions
​After some study, it is apparent why Red Hat’s shareholders approved this acquisition. They cashed out. It is hard, though, to see how this acquisition is proving to be of any benefit to IBM’s long-term shareholders other than in short-term marketing hype. It is not the type of acquisition that will shake the corporation out of its two-decade-long, shareholder-return slump. This is more of the same: a two-decade-long, wrong-headed, dual strategy of investing in paper and acquisitions instead of making the corporation's people more productive, its processes more effective, and producing products of higher value through long-term, customer-focused, internal research investments.

IBM needs to invest in game-changing, bet-the-business initiatives within its industry or march in place, marshal its resources and put its top distinguished engineers to work calculating where to make profitable micro-investments until the next market shift happens – and then lead. Historically, IBM has used such strategies to take market share from its competitors during down economies. (see IBM’s Crises, Recoveries and Lessons Learned)

With this acquisition, IBM is following the herd into a territory in which it has little expertise: low-priced, highly-commoditized, and extremely competitive markets. It has rarely been successful in being the short-term, low-price, producer of anything. Its success has always been in selling the highest-priced but long-term, lowest-cost, solution that sticks—such as the System/360 (mainframe) or AS/400. This acquisition doesn’t fit the later model and any transformation that takes IBM in the direction of the former, is a mistake of the greatest magnitude.

As always, a humble opinion – derived from on-going research – that is expressed with great passion and concern for the corporation, its people and my friends who depend on the company for their pensions, dividends and paychecks.

Cheers,
​
- Peter E.

Footnote: Watson Jr. wrote in his book Father, Son and Company about the increased competition as he was making the shift from tabulating machines to computers in the early '60s. It appears the market saw this competition too. He would write in his book that in the autumn of 1965, after announcing the System/360 in April of 1964, everything looked "black, black, black" as the company clung to "its production schedule" but "morale was going down." The company came within weeks of needing to borrow money to meet its payroll obligations. He "surprised" the market with a new stock offering to cover the costs of building the new hardware platform. The shareholders kept their faith in his leadership and the company's ability to deliver. The new stock offering was fully subscribed.

Return to IBM's 21st Century Corporate Practices Home Page
© 2025 Peter E. Greulich. All Rights Reserved
Information posted on this site recognizes the legal right of copyrighted material. The following material is considered in the public domain effective January 1, 2025: (1) Works published in the United States prior to January 1, 1929, (2) All unpublished works created over 120 years ago, (3) Works published in the United States before 1978 that have no © copyright notice, and (4) Works published in the United States after 1929 but before 1964 with a proper © copyright notice that were not renewed in their 28th year. Some information is used here that does not fit this criteria. This type of material has been purposely minimized, and it is used in good faith, usually with an attribution, and in the belief that such usage would withstand a test of fair use. This site also utilizes images from Pixabay that are "free to use under the Pixabay license" and "do not require attribution." Any concerns with the public domain, fair usage, or attribution of material utilized on this site will be removed until a discussion can resolve the matter with its permanent removal or republication. To reach us, use the "Contact" menu item above or this hyperlink: [Contact Us]
  • Home
  • About
  • Books / Bibliography
    • Keys to Success >
      • Preface
      • Introduction
      • Appendix
      • You: The First Key
    • THINK Again! Series >
      • Ideas and High Ideals >
        • Preface
        • Introduction
        • Prologue
        • Insights into Tom Watson >
          • Tom Watson's Character
          • A Wartime Humanitarian
          • Democracy's Man O' War
          • An Exemplary Man
          • On Youth & Education
        • A Successful Rebranding
      • The Rometty Edition >
        • Preface
        • Foreword
        • Introduction
        • Business Talk Interview
        • Book Trailers and Videos
      • The World's Greatest Salesman >
        • Preface
        • Introduction
        • Workplace Safety
        • Images and Quotes
        • Book Trailers / Videos
    • A View from Beneath >
      • Preface
      • Resource Actions >
        • Two R.A. Days Hit Home
        • R.A. Day Kills Productivity
      • Business Talk Interview
      • Book Trailers and Videos
    • Essays on Leadership >
      • Democracy in Business
      • We Are All Assistants >
        • Frank Venner: We Are All Assistants
      • We Forgive Thoughtful Mistakes
    • Bibliography Overview >
      • Authors and Writers >
        • Garland, Hamlin
        • Wise, John S. >
          • Slave Auction
          • Tribute to Robert E. Lee
          • On Lincoln's Assassination
      • Capitalists >
        • Baruch, Bernard M. >
          • My Own Story
          • The Public Years >
            • A Review
            • Second Thoughts
        • Davison, Henry P.
        • Schiff, Jacob H.
      • Educators >
        • Washington, Booker T >
          • Up From Slavery
          • My Life and Work
          • Character Building
          • My Larger Education
          • The Man Farthest Down >
            • Booker T. Washington and John Burns
          • Future of American Negro >
            • Future of the Negro
      • IBM >
        • IBM Books >
          • IBM Classics
          • IBM Executives' Books
          • IBM Employees' Books
          • IBM Outsiders' Books
        • IBM Publications >
          • THINK Magazine
          • Business Machines
          • IBM Heart and Soul >
            • Endicott Memorial Day
            • Poughkeepsie Memorial Day
          • IBM Art Books
        • IBM Situational
      • Industrialists >
        • Anthologies >
          • The Book of Business
          • New Ideals in Business
          • Master Workers' Library
          • The Age of Big Business
          • Famous Leaders Series Home Page >
            • Leaders of Character
            • Leaders of Industry: 1st Series
            • Leaders of Industry: 2nd Series
            • Leaders of Industry: 3rd Series
            • Leaders of Industry: 6th Series
          • Forbes' Anthologies
        • Armour, J. Ogden >
          • The Packers
          • The Packers: Second Look
        • Baldwin, William H.
        • Beatty, Edward
        • Bell, Alexander Graham
        • Carnegie, Andrew >
          • Carnegie Quotes
          • Carnegie Autobiography
          • Carnegie Biography by B. J. Hendrick
          • Round the World
          • The Empire of Business
          • An American Four-in-Hand
        • Eastman, George
        • Edison, Thomas A. >
          • Edison: His Life and Inventions
          • Edison: My Friend
        • Farquhar, A. B.
        • Filene, Edward A. >
          • The Way Out >
            • Captains of Industry vs. Captains of Finance
          • Successful Living >
            • Rules of Success
        • Firestone, Harvey S. >
          • Men and Rubber
          • Making an Organization
        • Flint, Charles R.
        • Ford, Henry >
          • Books by Henry Ford
          • The Last Billionaire
          • My Forty Years with Ford
        • Gary, Elbert H.
        • Guggenheim, William
        • Hill, James J.
        • Hollerith, Herman
        • Johnson, George F.
        • Patterson, John H.
        • Penney, James C. >
          • Fifty Years With the Golden Rule
        • Procter, William C.
        • Rockefeller Jr.
        • Rockefeller Sr.
        • Rosenwald, Julius
        • Sloan Jr., Alfred P.
        • Swope, Gerard >
          • Swope of G.E.
          • The Swope Plan
          • Selected Addresses
        • Verity, George M. >
          • True Steel
          • Character & Success
        • Wanamaker, John >
          • A Business Biography
          • Retail Firsts
        • Watson Jr., Thomas J. >
          • A Business and Its Beliefs
          • Management Briefings
          • Father, Son & Company
        • Watson Sr., Thomas J. >
          • Human Relations
          • Men-Minutes-Money
          • The Lengthening Shadow
        • Young, Owen D. >
          • Selected Addresses
          • New Industrial Leader
      • Inventors & Innovators >
        • Fulton, Robert
        • Goodyear, Charles
      • Journalists >
        • Baker, Ray Stannard >
          • Autobiography
          • The Color Line
          • Woodrow Wilson
        • Crowther, Samuel >
          • Articles >
            • Bantam Ball Bearing
          • Biographies
          • Industrialist Anthology
          • "Why Men Strike" Review
        • Gunther, John >
          • Eisenhower
        • Steffens, Lincoln
        • Sullivan, Mark >
          • Our Times
          • The Education of an American
        • Tarbell, Ida M. >
          • Overview
          • Lincoln Centennial
          • Lincoln Publications
          • Corporate Publications
          • Fiction Publications
          • Other Publications >
            • Mme. (Madame) Roland
          • Magazine Articles >
            • Disbanding the Confederate Army
            • Disbanding the Union Army
        • White, William Allen >
          • Woodrow Wilson, The Man
      • Military Leaders >
        • Lee, General Robert E.
      • Pioneers / Explorers >
        • Byrd, Richard E. >
          • Alone
          • Discovery
          • Little America
        • Columbus, Christopher
        • Lindbergh, Charles
      • Politicians >
        • Eisenhower, Dwight D.
        • Hoover, Herbert >
          • American Individualism Book >
            • American Individualism Article
          • Ordeal of Woodrow Wilson
          • Problems of Lasting Peace
        • Lincoln, Abraham >
          • Lincoln in the Telegraph Office
          • Abraham Lincoln Books By Ida M. Tarbell
        • Mesta, Perle
        • O'Connor, Basil and FDR >
          • Friends and Partners (Against Polio)
        • Roosevelt, Theodore >
          • Roosevelt: A Story of Friendship
        • Roper, Daniel C. >
          • Fifty Years of Public Life
        • Taft, William H.
        • Wilson, Woodrow >
          • The New Freedom
          • The Ordeal of Woodrow Wilson
          • Wilson's Last Words
          • Wilson's Tasks and Life
          • Wilson's Life and Letters >
            • Volume IV: President
            • Volume V: Neutrality
            • Volume VI: Facing War
      • Preachers >
        • Fosdick, Harry Emerson >
          • The Meaning of Prayer
          • The Meaning of Faith
          • The Meaning of Service
          • Power to See It Through
      • Publishers >
        • Forbes, B. C. >
          • Men Who Are Making America
          • Men Who Are Making the West
          • Automotive Giants of America
          • Little Bits about Big Men
          • America's 50 Foremost Business Leaders
          • America's Twelve Master Salesmen
          • Scrapbook of Thoughts on Business of Life
          • 101 Unusual Experiences
          • Keys to Success
          • Teamwork
        • Fortune Magazine >
          • USA: The Permanent Revolution
        • Shaw, A. W. >
          • Handling Men >
            • Why We Are Hiring Women
            • The Dream Behind the Business
          • The Companion Series
    • Research Sites
    • Acknowledgements
  • 21st Century IBM
    • Corporate Performance >
      • Comparing KPIs
      • Brand Performance >
        • Forbes' Best Employer
      • Patent Performance >
        • 2021 Patent Performance
        • 2020 Patent Performance
        • 2019 Patent Performance
        • 2018 Patent Performance
      • Revenue Performance
    • Corporate Practices >
      • Acquisitions >
        • Acquisition: Red Hat >
          • A $35 Billion Gamble
          • IBM + Red Hat 2019 Results
        • Acquisitions: Goodwill
        • Acquisitions: Since 2001
      • Centralization >
        • A Lost Federation
        • The Need to Decentralize
      • Divestitures >
        • Kyndryl Analysis
        • Kyndryl Top Questions
        • Martin Schroeter
      • Employees >
        • Resource Actions
        • Age Discrimination >
          • Cutting Old Heads
        • Employee Engagement
        • Aren't Buying Into IBM
        • Massive Work Slowdown
        • Failure of Work at Home
      • Financial Engineering >
        • Workforce Rebalancing
        • Aggressive Bookkeeping
      • Shareholders >
        • Share Buybacks
        • Shareholder Risk
        • Overall Performance >
          • Revenue & Profit
          • Revenue & Profit Growth
          • Revenue & Profit Productivity
          • IBM Market Value
          • Shareholder Returns & Risk
          • Employment Security
        • Employee Engagement
        • Warren Buffett's Mistake
        • Do Share Buybacks Work?
    • CEO Performance >
      • Arvind Krishna Overview >
        • First Year Performance >
          • Revenue & Profit
          • Revenue & Profit Growth
          • Revenue & Profit Productivity
          • IBM Market Value
          • Shareholder Returns & Risk
          • Share Buybacks
        • The First 100 Days
      • Ginni Rometty Overview >
        • Shareholder Value
        • Shareholder Risk
        • Share Buybacks
        • Dividend Strategy
        • Acquisition Strategy
        • Revenue & Profit Productivity
        • Revenue & Profit Growth
        • Revenue & Profit
  • 20th Century IBM
    • Corporate Performance >
      • IBM's Greatest CEO >
        • Shareholder Returns
        • Revenue Growth
        • Revenue Per Employee
        • Profit Growth
        • Profit Per Employee
        • Market Value
        • Goodwill
        • Economic Contractions
        • Economic Expansions
        • Stock Market Headwinds
        • CEO Historic Footnotes >
          • IBM's Founding Team
          • Financial Engineering
          • The Greatest Gamble
    • Corporate Practices >
      • IBM Anniversaries
      • IBM Benefits
      • IBM Creativity >
        • IBM Cartoons
        • IBM Song Books
        • IBM UK Dictionary
        • IBM Computing Dictionary
      • IBM Wild Ducks >
        • The Wild Goose
        • Royal Dissenters
        • Corporate Constitution
        • Respect for the Individual
        • Service to the Customer
        • Pursuit of Excellence
    • Corporate Products >
      • 1890: U.S. Census
      • Dayton Scales in 1920
      • 1940: The Electromatic
    • Thomas J. Watson Sr. >
      • Quotes By Watson
      • Quotes About Watson
      • Articles By Watson >
        • On World Peace
        • On the Cost of War
        • On Public Education
        • On Thomas Jefferson
        • On Thoughtful Mistakes
        • On Stakeholder Relations
      • Articles About Watson >
        • A Gift of Retirement
        • A Gift of Home Ownership >
          • Construction Timeline
        • The $1,000-A-Day Chief Executive Officer
        • Employees are Valued
        • Democracy's Man o' War
        • Human Relations in 1956
        • A CEO Who Earned His Pay
        • The Story of "THINK" >
          • Two Journalists "THINK"
          • A Buddy Davis Interview
        • Learning from Crises
        • Tom Watson's Wild Ducks
        • The Lengthening Shadow
      • Slice of Life Stories >
        • Dali, Salvador
        • Drucker, Peter F. >
          • Authority and Power
          • Short-Term Thinking
          • A Corporate Culture
          • Raising Business Issues
          • Focus on Principles
          • Character and Manners
          • Knowledge Workers
          • Recognizing Ability
          • Individual Respect
          • Employee Paternalism
        • Eastman, George
        • Penney, J. C. (James Cash) >
          • Watson Homestead
          • Golden Rule Businesses
        • A 1943 Tax Problem
        • Fighting Discrimination
        • A Pajama Party
      • Pre-World War II >
        • Women in the Workplace
        • A Lost Dream of Peace
        • USO Camp Show Founder
      • World War II Effort >
        • Selling War Bonds
        • Production Awards
        • Controlling Profits
        • Machine Records Units
        • Wartime Contributions
        • Widows & Orphans Fund
        • Declaring Human Rights
        • Supporting Home Morale
        • Employee Military Service
        • War's End & Reconversion
      • Post-World War II >
        • Endicott Memorial
        • Poughkeepsie Memorial
        • Rehiring WWII Veterans
  • Articles
    • Corporate Articles >
      • High-Performance Corporations
      • The Art of the Restart
      • Crises, Recoveries & Lessons Learned
      • Strategy Should Create Human Relationships
      • A Time-Tested Corporate Constitution
      • IBM, JC Penney and The Golden Rule
      • How IBM Created its 20th Century Brand
      • The Greatest Business Risk of the 20th Century
      • How to Grow a Business
      • The Importance of Sales Productivity
      • How Much Is a Great CEO Worth
      • Let Your Guard Down
    • Business Articles >
      • Business Witticism
      • The Golden Rule and Productivity in Business
      • Who and What Built Early American Capitalism
      • Capitalism Needs Industrialist Minded CEOs
      • Producing Corporate True Steel
      • CEO Perspectives >
        • Rules of Success
        • Top Employee Qualities
        • Industrialist vs. Capitalist
      • An Open Letter to the World's CEOs
      • Henry Ford Takes Control
      • The Razor Blade Business Model
      • Two Successful 20th Century Businesswomen
      • Sears: A Dead Franchise Walking
      • A LinkedIn Incognito Mode
      • Value a College Education
    • Political Articles >
      • Political Witticisms
      • Meritocracy and Teachable Humility
      • What Is Patriotism?
      • Presidents' Day 2024-25
      • Memorial Day 2025
      • Pursuing The "American Way"
      • America: Home of the Brave
      • Securing the Borders of the Americas
      • General Grant's Stand for Justice
      • America's Heartland Stands Strong
      • The New Freedom
      • Teddy Roosevelt on Socialism & Individualism
      • Women as Citizens
      • Mary Slessor of Calabar
      • Walt Rostow Speaks to Congress
    • Spiritual Articles >
      • Inauguration Day Prayer
      • Reincarnated Thoughts >
        • Why Lies Should Never Be Glorified
        • Are You More Than A Wise Entrepreneur?
        • A World of Peace or Turbulence?
      • Wilson's Last Words
      • Spiritual Songs
    • Fiction Articles >
      • A Father's Love
      • Introducing a Friend to God
      • Hyphenated Relationships
  • Contact
  • Blog