I guess the folks on Wall Street weren’t listening to Barack Obama’s inauguration speech yesterday, or maybe they missed the part about “choosing hope over fear.” When the closing bells rang, The Dow Jones Industrial Average had dropped 332 points (more than 4 percent), the S&P 500 lost 38 points, and the Nasdaq Composite dropped 88 points. I guess there’s more fear than hope on Wall Street these days.
However, there was one bright spot yesterday on Wall Street, especially for other software vendors and service providers: IBM’s quarterly and year-end results. IBM’s diluted earnings were up 17 percent in Q408 compared to the same period in 2007. Total revenues were down for the quarter, but software revenues were up 3 percent (up 9 percent adjusting for currency) and pre-tax income was up 15 percent. In short, software was the only business line that posted growth in both revenues and pre-tax income for the quarter.
Here’s what Samuel Palmisano, IBM’s chairman, president, and CEO said about the results: “A strong fourth quarter capped an outstanding year. In 2008 IBM performed well in an extremely difficult economic environment. Clearly our strategic transformation-migrating to the more profitable segments of the industry, investing in growth regions of the world, and driving productivity through global integration-is continuing to pay dividends.”
If you’re looking for a “survival guide” on how to succeed in today’s difficult economic environment, you’ll find it in Palmisano’s words: focus on profitable business segments, invest in geographic regions that offer strong growth opportunities, and find ways to improve productivity.
I’ve made similar recommendations in several pieces I’ve written lately, including these words (to quote myself) from “Global Trade Posts Negative Growth“: ”I also think this economic environment gives companies the opportunity to simplify their supply chains, ask themselves questions such as: Are there countries we should pull out off or deemphasize from a manufacturing, sourcing, or selling standpoint? Are there products or services we should discontinue or reprioritize? Are there operations we should outsource or bring back in house?”
Of course, IBM’s software solutions differ from the applications offered by logistics software vendors, so IBM’s results may not be a perfect indicator for the logistics software industry. In addition, several leading software vendors have had layoffs and others are reporting privately a significant slowdown in sales activity. We’ll have to wait for Descartes Systems Group, Manhattan Associates, Oracle, SAP, and other publicly-traded software vendors to report their latest financial results to get a clearer picture of how the economy is affecting the market for supply chain execution solutions.
Nonetheless, if I were heading a software company, here’s my key takeaway from IBM’s results: My best chance for success in this economy is to align the value proposition of my solutions with the “survival guide” principles of my customers. In other words, clearly show my customers how our solutions can help them reduce costs, improve productivity, and scale their most profitable lines of business (all in a year or less, of course). “Create a value proposition for the Chief Financial Officer” was one of the recommendations that I made in our Transportation Management Systems Worldwide Outlook study that we published in November. This is not a new recommendation, but in light of the current economic environment, it is arguably the most important one.
The same advice applies to logistics service providers. IBM’s strategic outsourcing signups increased 20 percent worldwide (up 44 percent in North America) in the fourth quarter. In the earnings call, IBM’s CFO Mark Loughridge said “Companies are increasingly turning toward outsourcing in a recession. That trend is benefiting IBM.” Again, IBM’s outsourcing services are different than those offered by logistics service providers, but the high-level value propositions are the same.
I’ll end with what I’ve been telling companies over the past few months: take Warren Buffet’s approach and “invest when others are fearful.” I can now use Obama’s words too: “choose hope over fear.” Freezing all investments and activities is the wrong response in this economic environment. Smart companies will invest in the “right” things-investments that lead to cost savings and productivity improvements in the near term, as well as position your company for sustainable, profitable growth in the long term.
