After eight years, what did IBM’s outgoing CEO accomplish?

By Aaron Pressman

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Few were surprised by IBM’s announcement on Thursday evening that Ginni Rometty will step down as CEO after eight years in the job, to be replaced by Arvind Krishna, who oversees the company’s cloud computing and A.I. software efforts.

Rometty received accolades and praise from fellow CEOs, including Apple’s Tim Cook and JPMorgan’s Jamie Dimon, for her tenure. But while her strong leadership style made her a role model to many, she couldn’t find the right path to get IBM back on the upswing. You don’t hear much about the fifth place player in many tech markets. Yet that’s where IBM finds itself today in probably the most important market for the future of corporate computing, looking up at cloud leaders Amazon, Microsoft, Google, and Alibaba.

It’s already been widely remarked on that IBM’s revenue during Rometty’s tenure declined from $105 billion to $77 billion, a more than 25% drop. You might know the story: 22 straight quarters of declining revenue and just a few of growth. Oh, and don’t let me forget to mention all the stock buybacks.

Rometty knew cloud was the future, making acquisitions to bolster IBM’s offerings, and betting on artificial intelligence, cybersecurity, mobile computing, and the Internet of Things. The goal wasn’t necessarily to become bigger, it was to find businesses where IBM could thrive and dominate. As IBM’s then-CFO Martin Schroeter explained in 2015: “We’re not trying to be the largest of something. What we are, though, is trying to be the highest value.”

The problem was that Rometty bet too small, bet on the wrong parts of those markets, and bet too slowly.

  • Take the cloud. Early in her tenure, Rometty paid $2 billion for Softlayer, a cloud hosting service that specialized in the complex needs of government agencies and financial institutions. But Amazon and Google relentlessly expanded the kinds of services offered on their platforms, quickly overtaking Softlayer’s unique strengths. By 2016, IBM eliminated the Softlayer brand name and was stuck in fifth place in the cloud market.
  • Another huge miss: developers. Amazon, Google, and Microsoft all made it easier for developers to build apps on top of their cloud services, while IBM was less flexible and inviting. Rometty may have realized that mistake when she moved to buy Red Hat for $34 billion last year. Red Hat’s popular software helps developers write apps to run on various cloud platforms—a great asset if four companies are already dominating the cloud era.
  • Did I mention the stock buybacks? They were even more expensive than the Red Hat purchase. Seeking to please Wall Street, IBM spent a staggering $58 billion on buybacks during Rometty’s eight years—nearly half the company’s current market value. And while that did make earnings per share look better, it didn’t help IBM compete against Amazon, Google, Microsoft, or Alibaba at all.

On top of the revenue drop, Rometty oversaw an even more severe decline in profits. IBM’s net income fell from $16.6 billion the year before she took over to $9.4 billion in 2019, a 43% decrease (and that’s calculating in the 2017 tax cut’s huge benefit to IBM). The whole point of the downsizing strategy was to make IBM more profitable, not less. Now that will be Krishna’s challenge.

I’d love to hear your views. How do you judge Ginni Rometty’s tenure? And what advice do you have for her successor? Email me below or tag @FortuneTech on your tweets. And have a great weekend.

Aaron Pressman

Twitter: @ampressman

Email: aaron.pressman@fortune.com

Read more here:: fortune.com/tech/feed/

Posted on: January 31, 2020

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