The Jeopardy of Watson: How I Would Improve IBM’s Business Performance

Saturday, January 11th, 2014

Been retired 11 days now. Feels good even though I’m still adjusting to the verb and the adjective. The reaction of others is “lucky you”; my reaction is “am I as old as my father once seemed?! I am working on the straight-faced retort, “Yeah, I retired. How much money does a guy need?!”

The sobering reality is that at a meeting with the staff of a prospective client yesterday (it turns out that I need some more money), I asked about the profile of their typical customer. One replied, “Old. Like in their thirties.” I hoped that she referred to their geographic latitude or their winter weather. Nope. Age. I was calm and continued taking notes on my Underwood.

This is not a rant of a guy on the other side of the company gate. Truthfully, I already appreciate IBM’s employee shield as I purposefully explore the US’s systems of healthcare, retirement and university education. Or Not! Our family’s healthcare cost could triple for less coverage; how long will we live for how much?!; is even public university price-worthy for the requirements of the modern, Internet world? Such deliberations reaffirm the need for cocktail hour.

Yes, posterity will record that I retired from IBM. And it feels much better to separate with a handshake than a cardboard box. The subtext of my exit is that employees of a certain age were told that we’re expensive; employed in the lowest revenue and weakest growth marketplace, North America; and would not be laid-off if we agreed to retire after an eighteen month period of reduced hours. I imagined a composite wanted-poster of us being nailed to telephone poles and pasted above coffee machines: “Have you seen these around? Encourage them to leave.” So I did.

As I worked from my home office for 15 years and met many more clients than I did other IBMers (the nature of my job was international travel to discuss technology strategies with senior executives of our clients), not much has changed for me so far. I do read IBM tweets and press with the attitude of an outsider. It’s the same way that I perceive news about the US Navy. I believe that I understand the language and the culture; I have no pretense that I am up to date on the details of decision-making.

Like you, I read this week that IBM will invest $1 billion dollars in its Watson Division. After three years of much promising without much related selling, the proffered solution is more investment. The logic seems to be “if we invest more, they will buy more.” I don’t buy this thinking for several reasons. Customers with whom I’ve spoken about Watson or Cognitive Computing do not relate to the feat of winning at Jeopardy. It’s an American tv program. International executives know it’s a game show and most don’t understand the game. The brains behind Watson’s development, Dr. Dave Ferruci, left IBM quietly over one year ago (he joined a hedge fund). This is not a positive sign for a fledgling technology.

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The secret sauce of Watson is the quality of its own data, the data that it uses to learn about a topic so that it can assess and understand what other target data sets might mean. It has to be taught all of the cities in the world to understand a question related to the location of Toronto. Few, very few clients have such high quality data sets. If they do, they guard this data carefully. Watson systems are expensive. Combining these two circumstances portrays why hospitals and banks are the first clients of Watson and why neither is making a related, profitable business for IBM. Hospitals may be willing to share some form of patient data and, in no way, can they afford the price of a Watson computing system. So they want to share a Watson system. IBM is trying this approach now with a Watson Cloud offering (details TBD). Banks can afford Watson computing systems and, in no way, have the correct data to teach Watson (what does your bank really know about you?!).

Now that the IBM’s Smarter Planet mantra is shopworn, there is a struggle to promote the next technology rallying point. Watson is the only wild card in their hand. This plus way too many unconnected acquisitions. Watson feels like another OS2 effort. By the time that it’s great, Siri, Dragon, Nuance and others will offer mid-range and personal equivalents.

What was the road not taken by IBM? The product climate of IBM reminds me of a too similar circumstance in the mid-1980s when I was an IBM client in Maine. Our young Boston-educated IT staff wanted to delve into mid-range computers and packaged software. The reliable and equally skilled IBM account team hardly knew what they were talking about. The company’s management sided with IBM and the boys returned to Boston to work for DEC. Then came the wave of personal computers, a storm that IBM weathered well. Unfortunately, the company considered PCs to be hardware products and allowed the Seattle startup, Microsoft, to develop and to own the operating system software. Hell hath no fury‚Ķand IBM began the OS2 march to Moscow. That did it and nearly did in the company. IBM has never again attempted packaged or end-user software development. I guess that the accuracy of my comment depends upon how one feels about Lotus Notes and recent acquisitions.

Frozen on the wrong MIS road, IBM fell to one knee in the early 1990s. Burroughs nearly purchased IBM. Outsiders Lou Gerstner from American Express and Jerry York from Chrysler were deputized to rescue the company from itself. The marketplace cooperated thanks to the ERP period, the Y2K scare and the e-business boom (bomb). They righted the boat, were thanked and dismissed. A veteran of the money-bleeding PC division replaced Lou as CEO.

Then began the march to the past. As the Internet-based technologies replaced dozens of markets and millions of users with millions of markets and dozens of users, IBM management pined for the days of the branch office (Lou closed them all to incite employees to go see clients) and the predictable profits streams of mainframe-based computing. This strategy exploded, ignited by the Financial Crisis of 2008 (banks are by far IBM’s best customers). Apple and the iPhone took center stage. Senior executives of IBM clients traded their Blackberrys for the phones that their kids were using. Promising a steady increase in earnings per share and tacitly admitted that they could no longer compete via internal resources, IBM went on an acquisition binge. To pay for dozens and dozens of acquisitions, a companion program of maniacal cost-cutting was implemented.

The world of Mobile, Social, Cloud and Big Data is being taken on by a machine called Watson. Ironically, the voice recognition algorithms used by Watson are licensed from Nuance, the same company that licensed Siri to Apple. Nuance got this speech recognition software from IBM (Via Voice) at fire-sale pricing from IBM Research as these Labs were pressured to earn their keep. It would be hard to make this up.

What would I do if I were CEO for a day? I’d adopt the tools that I try to sell to others. The company has no widespread and reliable customer management system; sales are managed on Excel spreadsheets; employee productivity tools are nearly the same as they were 15 years ago: Lotus Notes, Lotus Instant Messaging and a company portal. Conference calls and emails predominate the distribution of information in a cascading model. There is nearly no way to talk back or up or over. Never in 15 years of speaking with the most senior executives of IBM’s biggest clients did I ever have access to a CRM system. No one ever knew what I learned.

Meanwhile, Apple earns as much in a quarter as IBM promises to earn in its much heralded 2015 Roadmap. I’d appoint executives who talk to their employees in a modern, meaningful way. Lou was good at this; Sam didn’t try; Ginni was handed the job because Moffet went to jail. The strength of the company is its incredibly talented, and sadly underutilized, employees.

There may always be an IBM as there may always be the local utility company. Success in the urgent near term requires widespread revitalization of the company’s morale and a determined focus on competing where it matters to clients. Watson knows this.