When Arvind Krishna took over as CEO at IBM in April 2020, the world was immersed in the initial throes of the Covid pandemic and his company was struggling. It had spent the better part of a decade reporting declining revenue and it desperately needed a change in direction. Whatever IBM had been doing, it wasn’t working all that well.
He certainly had his work cut out for him.
In one of her final acts as CEO, however, his predecessor Ginni Rometty gave him something to work with, pulling the trigger on the $34 billion deal to acquire Red Hat. As Krishna surveyed the current state of his venerable organization, he likely knew this: Red Hat had to be the centerpiece of any transformation effort.
He also knew he had to start cutting the dead weight dragging his company down. In what has been his boldest move from him to date, he announced in October 2020 that he intended to spin out IBM’s $19 billion infrastructure services business. That transaction produced Kyndryl last November when the spin-out was finally official.
As I wrote at the time of the original announcement, this was about saying buh-bye to legacy businesses and concentrating squarely on modernization that was represented by Red Hat.
But he didn’t just throw out the old. He also did away with some of the newer AI efforts, as well. Specifically he took the knife to Watson Health, the conglomeration of companies that Rometty had purchased in the 2014-2015 timeframe thinking she was getting ahead of the game by concentrating on healthcare data. That market turned out to be harder to pull off than she had imagined.
So Krishna dropped the division in a deal with Francisco Partners believed to be valued at around $1 billion, well below the combined purchase price of the components the company had purchased to build out the division.
These moves and others seem to be pushing Big Blue in the right direction, at least initially, with the company reporting growth of 6.5% and 8% over the two most recent quarters. It’s a start, and it’s the kind of steady if slow growth that Krishna would probably be happy to keep moving forward.
Krishna sat down yesterday for a virtual round table discussion with several reporters ahead of the IBM Think Conference, which is starting today in Boston. He talked about a range of subjects from the role he hopes AI will play for his company going forward, the organization’s quantum computing efforts and the growing market for ESG and sustainability.
AI gets more practical
While Watson, the company’s artificial intelligence brand, may have lost some of its shine over the years, Krishna still believes that AI is central to its future success. He made it clear, however, that he wasn’t interested in “moonshot projects” any longer. Today, he wants to concentrate on use cases with practical business applications. I have offered several examples like helping McDonald’s teach a model how to make a Big Mac or helping workers be more productive or using intelligence to predict when a machine will break down.
“So these are examples of how you’re solving problems. People are willing to put them into production. People are willing to try them out,” he said.
He sees healthcare and AI being sometime off in the future, and that’s a big reason he decided to dump the Watson Health division.
“I do believe that some of the healthcare examples will happen, but they might take a half decade or a decade more to come to fruition, just given how hard those problems are. And the implications are life and death,” he said. In other words, it’s not something you want to get partially right, and getting it wrong could damage your reputation.
The future is quantum
Krishna said that his company is making some headway with quantum computing, although there are significant challenges ahead to scaling what they have accomplished in the lab.
“There’s quite a few problems we have to solve. How do you begin to scale these systems? How do you begin to communicate amongst them? How do you get the software to scale and work from a cloud into these computers? Those are all problems we believe we have line of sight to and so we have high confidence in our 2025 roadmap of 4000 qubits, and that’s on the physical core of the computer and not a simulator or software,” he said.
That’s quite ambitious considering he said that the company achieved just 127 qubits in 2021 and are hoping to reach around 400 this year and close to 1000 in 2023.
As the company looks ahead to a possible future with quantum computing, he could see them delivering quantum machines as both a service in their own cloud, and possibly competitor clouds, as well as selling physical machines to certain companies. Regardless, he doesn’t feel like the technology is that far off before we move beyond the experimentation phase we are in now into something more practical and sustainable.
“I think that’s going to be in the 2023 to 2025 timeframe. That’s not all use cases. So I want to be careful. I think some simple materials use cases and some optimization use cases will be somewhere in that time period. But if you think about pharmaceutical drugs, an area we’re quite excited about quantum, I think that’s probably going to be a little bit later,” he said.
Building a sustainable company
Krishna believes that helping companies build more sustainable operations is going to be big business moving forward, and he wants IBM to be part of the trend. To that end, he is shooting for IBM to be Net Zero by 2030, well ahead of the Paris Accords’ 2050 goal, and he says that will be real Net Zero, not achieved with carbon offsets. He has a short-term goal and a longer term one to achieve these milestones, and he believes the company can be an example for others.
“We also believe that a simple goal at the end of a decade is insufficient. So we also set a goal of 65% by 2025 because we believe the last third is harder than the first two thirds. So those are explicit goals,” he said.
The company also bought Envizi earlier this year, a startup that helps measure emissions data to give companies, both customers and IBM itself, real numbers to work with and he thinks this is a key kind of tool for helping companies achieve their sustainability goals.
“When we do our surveys – I think it’s up to now 48%, maybe 51%, somewhere in that range, of CEOs and corporate executives agree that sustainability is now a serious business topic. Not just a checkmark. Not just a little bit of a paragraph at the end of a long ESG report. So given that sustainability is important, and Envizi begins to offer what I think is the first thing people need, which is reporting, data collection, clean data analytics and ways to begin to make progress on the topic,” he said.
Finally, he sees a role for AI helping to sift through all the data that tools like Envizi and many others are producing, and using that data to take meaningful action. “Something people don’t realize, as you begin to put all these together, the positive impact on the environment can be tremendous. And for the sheer amount of data and the sheer amount of analysis needed means AI is the only answer. Otherwise it’s impossible to be able to solve these problems.”
As the company looks to the future, these are the kinds of things that Krishna is focusing on as he tries to steer his company towards stability after a long and rocky ride.