Shifting a business away from its strengths is generally a very weak strategic move. The sluggish performance that such a move brings can weaken a company for a long time.
Shifting a business away from its strengths most likely can only pay off over the longer term in situations where the previous non-strengths are eventually developed enough to become the company’s new strengths. But often, this never happens. Instead, there can be long term sluggishness.
We are recently reminded of this with an example of a company that continues to have less than stellar performance quite some time after shifting away from its earlier strengths. Yet, in this example, there is a bit of hope for eventual improvement.
The company is IBM. Its ongoing challenges were discussed in a recent Wall Street Journal article about the company. The article was in the paper’s Heard on the Street section on April 26-27, 2025, and was titled “IBM Is Back. Now It Must Prove Its Mettle in AI.“ The article reports that IBM’s performance continues to be somewhat weak as it has been for quite some time, however, it has been improving. The article said IBM is “a company that is doing better than it has in a while.”
From previous information about IBM, my view is that IBM struggled after shifting away from its strengths. The company had previously been a major supplier of computer hardware and software, but shifted its emphasis away from that after acquiring a major consulting firm. IBM’s new emphasis was on consulting, rather than on its historic hardware and software strengths. An executive from the consulting business became IBM’s CEO. The recent Wall Street Journal article tells us that IBM missed the cloud computing opportunity, which I’ll point out is related to what had previously been IBM’s strengths before the shift toward a consulting emphasis.
The article reports that IBM “failed to convert past AI successes like the ‘Jeopardy’-playing Watson or chess-playing Deep Blue into thriving businesses.” The article also says that IBM’s “Watson Health AI initiative fell short.” I’ll point out that IBM’s “Jeopardy” and chess AI differed from IBM’s previous computer hardware and software strengths. And, Watson Health differed from IBMs previous strengths even more by trying to be an expert in an industry where IBM did not necessarily have strong expertise. I’ll emphasize that companies succeed by building on their strengths, but IBM hadn’t been doing that.
More recently, however, IBM seems to be gaining momentum with its consulting business. As the article reports, IBM “Chief Executive Arvind Krishna has built up $6 billion of bookings around generative AI.” The article mentions that IBM’s price earnings ratio has recently been much higher than it was previously, presumably “a premium to where other AI heavyweights such as Nvidia, Google parent Alphabet and Microsoft are trading.” But, most of IBM’s consulting business has little to do with AI, according to the article. The article’s subtitle summarizes IBM’s situation quite well. It says, “Big Blue has clawed its way back into investor favor, but needs to show staying power in artificial intelligence to cement its comeback.”
As I see it, IBM weakened its position as a business when it shifted away from its traditional computer hardware and software strengths and instead focused more heavily upon consulting and in areas where it was not necessarily strong. It missed opportunities that were more like where it used to be strong. It may be slowly recovering if the AI boom allows its consulting efforts to grow more. But, it illustrates the difficulty involved in regaining momentum when a company shifts away from its historical strengths.
