IBM CEO Arvind Krishna Says Partners Should Raise Prices, Weighs In On Broadcom-VMware Deal
Wade Tyler Millward
‘From our conversations with clients, I would tell you that nobody loves it [a price increase], but they all understand. Because most of our clients are doing the same out to their clients,’ says IBM CEO Arvind Krishna.
Should partners raise their prices?
Yes. Now, the question is how? So if you’re getting … an 8 [percent] to 9 percent increase in your labor rate, there isn’t that much margin. If you have 40 percent margin, OK, maybe you can live with it. … But if not, you’ve got to pass it on. Now the question is, how much do you pass on and in what time? … So maybe you pass 6 percent of it on and then see what’s going to happen.
If inflation comes down, then you can do six one more year, and then you’re caught up. … Maybe slightly lower margins for a while, but you are passing on a price increase.
Finally, from our conversations with clients, I would tell you that nobody loves it, but they all understand. Because most of our clients are doing the same out to their clients.
Then on the product side, wait, what’s the cost in building products? R&D? Those people are costing a lot more. Distribution? That’s costing a lot more. Our own supply is costing a lot more. … If it’s 9 [percent] or 10 percent you can’t put all of that out in one go because that’s tough.
By the way, we also have multiyear contracts, so we don’t get all of it in. … Pricing power comes down to something simple. Is the product highly valuable and is it sticky? … In a world of fewer skills, if you have the skills you can price those skills.
If you think those skills are fungible and easily taken up by somebody else … What, 5 million fewer people than there are jobs? OK, so then you’ve got to take and play that into the macro.
Our clients can’t hire people either in the world that we are in. So that means you can do it. And they would much prefer it to be variable than fixed. So I think that there is pricing power, but you have to do it in a way that they can live with. Go have a conversation … [Give them] a few months so they have time to prepare for it.