ibm ompany’s strategy

BM requires an atypical activist fix. The company’s strategy of cost cuts and debt-fueled buybacks is no longer working – even though the company keeps trying. A tarnished balance sheet, lean staffing and a history of disposals rule out typical activist wheezes. Encouraging Virginia M. Rometty, the chairwoman and chief executive, to invest in IBM’s core businesses could pay off.IBM has run the same playbook for two decades. It sells low-margin businesses, cuts expenses, buys some profitable software companies and returns a lot of cash to investors. Over the last four quarters, the $152 billion company has spent more than $23 billion on dividends and buybacks.The problem is that IBM is investing too little. It has spent only about $11 billion over the last four quarters in total on research and development, capital expenditure and acquisitions. That’s a problem in technology, where old products soon become obsolete. Google spends about 16 percent of its sales on R.., but IBM spends 6 percent.The effect is becoming clear on the top line. Revenue has shrunk for 10 consecutive quarters. Costs have been cut to the bone, sending customers fleeing to better service providers. In a good year for stocks, IBM’s shares have fallen more than 15 percent. That means IBM has overpaid on its last three years of buybacks.That has spurred talk of activists. But what could rabble-rousing shareholders demand? Unlike Yahoo, there’s no obvious gem to sell or cash-laden balance sheet to raid. IBM has been selling off hardware, like last quarter’s disposal of the chip division, reducing the appeal of a Hewlett-Packard-style breakup. IBM hasn’t done any big acquisitions recently, so an activist can’t argue it is wasting capital like HP, which wrote off three-quarters of the $12 billion it paid for Autonomy. And year after year of punishing cost cuts leave no obvious fat to trim.A better idea is to invest more in the business. Assume IBM repurchases $10 billion of…