Wednesday, November 16, 2011

Buffett Invests Big Money in IBM

What attracts Buffett? Technology is not the right answer!

This week’s reading “Capitalizing on Capabilities” talks about that intangible assets such as leadership, talent, speed, culture are very important to make corporation create superior market value and they are also the factors that other competitors can not easily copy, the factors that can truly differentiate themselves[i]. I think nowadays, when investors make their choices, such assets are also the reasons they’ll consider. That reminds me of the news on Nov.14 2011 that Warren Buffet bought about 64 million shares of IBM, which cost about $ 10.7 billion and it becomes his biggest bet on the technology field that he has made in his investment history[ii].

It is an obvious surprise for the public because Buffet always said he would not invest in technology because he knows nothing about it. However, in an interview with CNBC, Buffett made such statement that “He was struck by IBM’s ability to retain corporate clients, which made it indispensable in a way that few other services are”; “It’s a company that helps IT departments do their job better”; “I don’t know of any large company that really has been as specific on what they intent to do and how they intent to do it as IBM”[iii].

From his statement, I believe what Buffett considers in his investment and also the reason why he gives high praise to IBM is not the technology and the products of the company but the leadership development, management styles and other intangible assets that make IBM distinct. Fortune ever ranks the companies that are the most successful business which knows that developing talent is their top priority and IBM is one of them when Samuel Palmisano was CEO[iv]. This year, IBM names its first female CEO Virginia Rometty, who is currently in sales and marketing. According to the analyst’s opinion, Virginia and Palmisano share the similar characteristics that are important to a good CEO[v]. However, the fact that HP’s female CEO Carley Fiorina’s disappointing performance will push the public to closely watch Virginia’s performance as a female CEO.

IBM focuses on their leadership and ownership development by seeking answers to the following questions[vi]:

· Do we have the right leaders ready to take on key jobs when they arise?

· Do people understand and are they capable of executing, our vision and strategy?

· What does IBM measure when it comes to leadership investment?

Also Randy MacDonald, senior Vice president for HR for IBM states[vii]: “ We expect our senior managers and executives to share in the ownership of the leadership development process at IBM. We don’t chase quick and easy answers to complex problems. And we measure our success by the extent to which we can link our leadership development activities to business results. It all becomes a matter of demanding accountability”.

Leadership is always a hot topic but at the same time may be ignored by people easily. Companies tend to invest time and money in developing new product and technology, without thinking of the investing in processes such as leadership development, common mission establishment and creation of ownership. The risk of this ignorance is leaders may follow old-fashioned, misguided way of management.

My following questions come after thinking of the corporation change when IBM changes its CEO and Apple ends its Jobs dynasty. What and how do corporations do to smoothly undergo the transition of such leadership change? What are the possible risks and the alleviating methods?



[i] Ulrich D, Smallwood N, HBR Spotlight: Capitalizing on Capabilities

[ii] Buffett builds $10 billion stake in IBM, retrieved Nov. 14 2011, from http://news.yahoo.com/buffett-builds-10-billion-stake-ibm-123443864.html

[iii] Buffet sheds Tech aversion, invest $11 billion in IBM, retrieved Nov. 15 2011, from http://www.firstpost.com/investing/buffet-sheds-tech-aversion-invests-11-billion-in-ibm-130949.html

[iv] World’s best companies for leaders, retrieved

[v] IBM names its first female CEO, retrieved Oct. 26 2011, from http://www.guardian.co.uk/technology/2011/oct/26/ibm-female-ceo-virginia-rometty

[vi] Achieving change through “ Leaders Capital” in Dynamic organizations, retrieved October 2010, from http://www.reference-rcd.com/english/images/pdff/conference%20-en.pdf

[vii] Achieving change through “ Leaders Capital” in Dynamic organizations, retrieved October 2010, from http://www.reference-rcd.com/english/images/pdff/conference%20-en.pdf

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