Buffett, Mustard & Mainframes

Warren Buffett has out-performed the S&P 500 over the last 50 years by an astonishing 782:1. He has done this through disciplined value investment which, as he puts it, is about buying great companies at a reasonable price—rather than chasing uncertain trends or short-term bargains.

Buffett’s rationale is fairly simple. Great companies have mastered a business “platform” for generating value. So you can reap much higher long-term returns by wisely leveraging that proven platform than you can by gambling on unknowns or trying to time the market.

His recent investment in Heinz is a prime example. Buffett paid a slight premium to own a great company with a proven platform in the food business. One way Heinz leveraged this platform was by moving into a closely adjacent market: mustard. The incremental costs are low, and the potential upside is high.

The Heinz platform is also enabling a merger with Kraft—which on paper quadruples Buffett’s investment after just two years.

Chief Information Officers as value investors

Can CIOs apply Buffett’s value investment discipline to IT? I think so. Rather than chasing unproven IT investments that may or may not deliver short-term ROI, CIOs can instead invest in a proven value platform offers much higher—and more certain—long-term rewards.

That platform is the mainframe. The mainframe is a matchless IT platform that—like Heinz—is a staple of enterprise computing. It is scalable, reliable, and secure. And the odds that the world’s largest enterprises will stop using mainframes to execute their critical transactions and application logic are as low as the odds that people will stop putting ketchup on hamburgers.

For CIOs, investment in the mainframe can pay off like Buffett’s investment in Heinz. There are similar “adjacent markets.” Analytics and mobile are just two examples. Both are strategic to the business, and both are driving new workloads. So it makes sense to provision them where incremental costs are low and value is high.

That’s the mainframe. Contrary to popular belief, the mainframe delivers exceptionally low incremental cost. In fact, you can double your mainframe workload without adding a single person to your staff. Try doing that with commodity servers.

Have you lost enough yet?

Speaking of commodity servers, CIOs are learning the hard way how poorly those investments are paying off for system of record workloads. Empirical data plainly shows that opex for commodity servers is going through the roof as IT workloads grow.  Worse yet, commodity infrastructure has proven extremely vulnerable to service outages and security breaches. That’s unacceptable as technology becomes increasingly integral to customer engagement and service.

So CIOs have a choice. They can continue throwing good money after bad. Or they can embrace proven value investing best practices with the mainframe, the platform IT has most fully mastered and that has delivered 50 years of healthy returns.

And by the way, if you need further proof on mainframe value, feel free to ask the Oracle of Omaha himself who just happens to be IBM’s largest shareholder.

Christopher O'Malley
About the author: 

Christopher O’Malley is the President and Chief Executive Officer at Compuware Corporation. Chris serves on the Board of Directors at the company – and he is also on the Board of Directors for Bluenog & The O’Malley Foundation. Follow Mr. O’Malley on LinkedIn and Twitter.