As goes IBM, so goes the enterprise

IBM posted disappointing news for financial analysts and shareholders last week, with a decline in revenue of 4% to $23.72 billion while profit rose 6% from a year earlier to $4.04 billion. This precipitated a shakeup as CEO Gina Rometty reassigned James Bramante — who was until last week running the growth markets group, a role she placed him in when she became CEO the company a year ago, but which fell 9% from last year — and placed Bruno Di Leo back in charge of the  group, which he started in 2008 and grew for several years. She also sounded the alarm bell:

“In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue. Where we had identified high growth opportunities and pursued them aggressively — cloud, mobile, business analytics, and security — we continued to show strong growth. This underscores our strategy to continuously transform the company to high value,” said Ginni Rometty, IBM chairman, president and chief executive officer.

From my perspective, IBM is a bellwether for the tech sector as a whole, and there is no way to soft pedal the bad news in the tea leaves. They are confronted by the same problems as HP, but Rometty at least has not announced the tailing off of IBM’s remote work policies (see HP’s Meg Whitman follows Marissa Mayer’s lead: All Hands On Deck). Hardware sales are down 17%, especially in proprietary servers running IBM’s version of Unix, as well as a decline in IBM’s enormous services consulting business, which declined 4%.

The few bright spots in IBM’s P&L are those areas that reflect the rapid transition to the next generation of computing: mobile, cloud, analytics, security, and social workforce solutions.

Revenues from social workforce solutions increased 14%, an indication of the fact that social has gone mainstream, and companies are upping their investments.

Notably IBM’s WebSphere solutions business is flat — an indication that it may be reaching the point of decline, but the Rational Software — tools for developers — increased 12%.

IBM is like a mirror that shows what’s going on in the enterprise: companies are investing in mobile and cloud, deleveraging away from proprietary, ‘vanity’ servers in house, and investing in social tools, analytics, and security that meet the needs of a drastically changing workforce. It remains to see if IBM can deleverage its investments in the old technology paradigms and reorient its business lines and operations to get out ahead of this transition.

At the end of her first year, I’d say that Rometty has already opened her second envelope, and blamed the newest disastrous results on Bramante. Earlier in the year she opened the first envelope, and blamed the company’s troubles on the legacies of the past. The third and last note is all she has left, the one that reads “Prepare three envelopes.”

HP’s Meg Whitman follows Marissa Mayer’s lead: All Hands On Deck

Meg Whitman’s turnaround has not been going well. In late August Whitman told analysts that she doesn’t expect the company to grow its revenues in the coming fiscal year, and she reassigned Dave Donatelli, who had been running HP’s enterprise business for five years.

HP is still making half of its revenue from its PC and printer business, which is being slammed — like every other company in that sector — by the rapid shift to tablets, falling 9% from the same quarter a year ago. But all parts of HP are in decline, like its customer server business.

All of which is a preamble to today’s news that Whitman is revising HP’s policies around remote work, echoing Marissa Mayer’s claims that the company needs “all hands on deck” in order to affect a cultural transformation. Here’s the text of a document that supports the new policy:

My Workplace, My HP Community. What is the goal of the effort?

As part of the company’s overall turnaround strategy, there is an effort underway to bring employees who currently work from home to work from the office. This effort is part of the company’s cultural shift and will help create a more connected workforce and drive greater collaboration and innovation. In some major sites thereto large amount of underutilized workspace and we want to make the best use of our space. HP will maintain flexible work arrangement options, but with greater clarity and consistency about how to use them.

Why now?

During this critical turnaround period, HP needs all hands on deck. We recognize that in the past, we may have asked certain employees to work from home for various reasons. We now need to build a stronger culture of engagement and collaboration and the more employees we get into the office the better company we will be. Belief in the power of our people is a core principle of the HP Way Now. Employees are at the center of what we do, we achieve competitive advantages through our people. HP has amazing employees who are driving great change. We believe the more employees we have working together, the better for HP and our customers.

How does this support the company strategy end culture?

We want to make HP a great place to work and build a stronger HP Way Now culture of engagement and collaboration. Employees who are more connected tend to be more collaborative, productive, and knowledgeable. They will also have a greater sense of the company goals and experience a greater sense of pride in HP. We believe that having employees work from the office will unite and inspire them to achieve higher levels of operational excellence and innovation.

Which employees are affected?

The overall effort is designed to increase collaboration among all employees, including employees who regularly work from home despite having an assigned desk at a site, telework employees who are near HP sites, and those who regularly work in an office now. Employees with part-time or job share arrangements are expected to work from the office. Where legally permissible, contingent workers also are expected to work from the office.

I won’t recapitulate all the arguments I made earlier in the year about the downside of a “no remote work” policy (see Yahoo’s Mayer thinks that remote workers are… too remoteWhat Marissa Mayer’s ‘no remote work’ dictate meansNowhere to run, nowhere to hideThe polarization around remote work comes as no surprise, and Jennifer Magnolfi on Marrisa Mayer’s ‘no remote work’ edict).

Unlike Yahoo — where only a relatively small number of the firm’s 12 thousand staff worked remotely — HP employs 300,000+ employees worldwide, and HP’s remote work policy was general and actively promoted by the company as a way to reduce costs. In fact, it is unclear that there is room to house all the employees and consultants it employs in its current office space, despite recent layoffs. So it is likely that this will affect a lot of people, and there may be a lot of folks who will continue working remotely because of office constraints, long commutes, or other extenuating circumstances.

At the superficial level, the “all hands on deck” argument is that the company has developed a plan for its recovery and everyone has to align with that plan and work hard to achieve it. However the company has been communicating that plan and working to rally people around it in the past is inadequate for the degree of change needed at HP, which is more than a simple realignment of priorities and direction. The HP Way — which started as a set of core values and has morphed into a new HP Way Now framework of ideas that theoretically is creating a new culture at HP — apparently require more indoctrination, despite the supposed core value: “We have trust and respect for the individual”. But that trust requires the individual to do their work in one of HP’s offices, apparently.

The real, deeper push at HP isn’t intended to make people more collaborative, productive, and knowledgeable. This shift in practices is so that first-line managers can monitor people’s work more closely, and find out who is most — or least — aligned with the stress factory culture that HP has become. That will make it easier to decide who to cull in the inevitable rounds of layoffs coming in HPs next few quarters, as it sinks toward the bottom of the abyss that once was the enterprise server and PC market, and which — for all intents and purposes — is effectively dead, at least as an area of growth.

The real downside of this episode is that it casts a negative light on remote work and flexible working schedules, which HP was a pioneer in. As Peter Burrows wrote in BusinessWeek in 2004,

They shunned the rigid hierarchy of companies back East in favor of an egalitarian, decentralized system that came to be known as “the HP Way.” The essence of the idea, radical at the time, was that employees’ brainpower was the company’s most important resource.

To make the idea a reality, the young entrepreneurs instituted a slew of pioneering practices. Starting in 1941, they granted big bonuses to all employees when the company improved its productivity. That evolved into one of the first all-company profit-sharing plans. When HP went public in 1957, the founders gave shares to all employees. Later, they were among the first to offer tuition assistance, flex time, and job sharing.

But the company has veered backwards, with a more reactionary style of management, and undoing the culture that Hewlett and Packard started in a one-car garage in Palo Alto in 1938.