IBM and the Art of Acquisitions

4/15/08Follow @wroush

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security holes. “We are really filling an important need in there. To really build security into a company’s software, you need to get engaged with some of the development tools they’re using.”

But that’s the obvious part. Companies generally don’t go around spending hundreds of millions of dollars on acquisitions—or billions, in the cases of Lotus, Rational, and Cognos—unless the company being acquired has complementary products that fill a real need in the market. What’s just as important to IBM is that there be enough overlap with its own products that it will be easy to plug the new company’s widgets into Big Blue’s global sales operation. That way, the acquired company gets to grow even faster inside IBM than it would have if it had stayed independent.

“Watchfire had their best quarter by far in the fourth quarter” of 2007, says Hebner. “They’re based in North America, but they landed new deals in India and other parts of the world because we were able to get them into some of the bigger accounts we have access to. Taking a company with a strong value proposition and getting them integrated with our worldwide sales organization—that alone is fuel for growth.” Similarly, Rational’s business has grown 40 percent since it joined IBM.

But synergies between products don’t mean much if the people who actually make them aren’t happy. So IBM says it puts a lot of thought into the human side of the acquisition equation. “You are acquiring the people—that is the asset in most of these cases,” says Hebner. “The code base, without the people who understand what it does, is not very useful. So we’ve put a much bigger emphasis making sure that the people are happy. We do a lot to make sure that we celebrate the culture of the company coming in. We actually try to assimilate things from them—and IBM has become a much more flexible place because of all these new people.”

As an example, Hebner points to Rational (which IBMers often seem to hold up as the company’s model acquisition). “Rational was very entrepreneurial and practitioner-oriented—it sold directly to users,” explains Hebner. “If it was a tester product, they sold it directly to testers. To do that, you’d better be technical—and [Rational founder] Grady Booch is the perfect example, very much a thought leader, very deep in the skills and the business processes that customers go through to deploy software.” IBM has tried to absorb that mindset and approach, says Hebner. “We have a much better ability now to talk to developers in an intelligent and relevant way than before Rational came on board.”

IBM’s respect for the talent it’s hiring is not lost on the talent themselves. IBM “has a reputation for doing a great job with acquisitions—which is not necessarily common in our industry,” says Weider. “When you think about why acquisitions fail, it’s typically one of two things—either the strategy was off or the execution was off. In our case, the strategy is bang on.” On the execution side—well, so far, eight months into its assimilation, Watchfire has retained 99 percent of its original employees. “That’s pretty much the largest proof point that things have gone well,” Weider says.

If there’s a problem with becoming part of IBM, says Weider, it’s that the 270,000-employee behemoth is almost too welcoming: Everybody around Big Blue wants to know all at once how they can help the new kid, and how the new kid can help them. “The challenge is being overwhelmed by all the different people who want to leverage your people and technologies,” says Weider. “I spend a lot of time being the spokesperson for our division within IBM, and if I responded to every single request, I would be doing nothing else. You have to know what’s critical and how to prioritize things.” Luckily, that’s a process question—and IBM seems to have gotten pretty good at those.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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