IBM's CFO on creating competitive advantage over the long term

Good morning,

“Internally at IBM, we had to figure out how you create sustainable competitive advantage for the long term,” IBM SVP and CFO Jim Kavanaugh says. “I think that’s what every industry and every client is doing right now—trying to understand how they reinvent their business models and their operating models to compete and win, and digitization and cloud are at the core of that.”

The Fortune 100 company, led by CEO Arvind Krishna, is focused on helping its clients and partners accelerate their digital transformations and its own. The COVID-19 pandemic accelerated the tech giant’s transformation to a hybrid cloud future, which is supported by a “triangle” approach consisting of “core data, analytics, and technology,” says Kavanaugh. He was appointed to his position in 2018 but joined IBM in 1996.

IBM and most companies are trying to become data-centric—the foundation of any transformation, he says.

“If you’re going to capitalize on digitization and automation, it starts at the core of data,” Kavanaugh says. An example? “When you take a look at finance, what we’ve been doing is optimizing all of our data on one standard data architecture, one standard for governance rules,” he explains. All data, including financial, product, client, marketing and more is located on one architecture.

Then you can “employ A.I. to go reimagine how work actually gets done in the company; that’s the analytics component,” Kavanaugh explains. “Within finance, we probably have north of 50% of our workflows now embedded with A.I.,” he says. If you take “rudimentary type workflow” off of employees’ desks, and “enrich career plans for individuals,” it drives momentum and overall satisfaction, he explains.

Creating a “cognitive enterprise” requires leveraging cloud technology, Kavanaugh says. “We believe the world is going to be multi-cloud, and we also believe the world is going to be multi-environment, from public to private clouds,” he says.

As for the CFO’s org chart? The chief data officer, chief analytics officer and CIO all report to Kavanaugh.

IBM’s hybrid cloud platform which they are selling to clients is embedded on Red Hat OpenShift. The company is also using the platform itself. “We are now transforming IBM to be client zero of scaling and adopting that technology,” Kavanaugh says. In July 2019, IBM closed on the acquisition of Red Hat for $34 billion. IBM’s revenue was $73.6 billion in 2020, down 5% from the prior year. But Red Hat revenue was up 18% for the year, and total cloud revenue was $25.1 billion, up 19%.

“Our acquisition strategy has been centered around ‘how do we accelerate the adoption of our hybrid cloud platform thesis?’” Kavanaugh says. “We have acquired capabilities around the platform, like containerized security with the StackRox acquisition, or application performance management, as we acquired a company called Instana.”

“Acquisitions are an integral part of our business strategy and capital allocation strategy in the company,” he says.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

A report by The Conference Board released this month continues research on the long-term impacts of the COVID-19 pandemic on the workforce. A survey of 231 human capital executives representing large companies reported growing difficulty finding qualified talent, especially employers with mostly industry and manual services workers.

Going deeper

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Leaderboard

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