IBM’s Sam Palmisano: A super second act

A fascinating article over at profiling IBM’s progress under CEO Sam Palmisano.  Here’s the intro:

CEO Sam Palmisano took a revitalized IBM and made it the envy of the tech world and darling of investors. His secret? He’s restored Big Blue’s focus on innovation and set it up for an even brighter future. (Move over, Lou Gerstner.)

Sam Palmisano
Here is what you probably know about IBM. You know International Business Machines was one of America’s first tech companies, and in the 1960s and 1970s became the world’s leading computer maker on the strength and power of its huge mainframes. It all went to hell in the 1980s, when personal computers and servers supplanted those mainframes, and an arrogant and bloated IBM was caught flat-footed. The board brought in Lou Gerstner, who famously stabilized the company (in part by firing tens of thousands of employees) and got it to grow again by steering IBM into the unsexy — but high-margin — business of systems integration and services. Perhaps you recently watched an IBM computer, Watson, trounce a couple of brainiacs on the game showJeopardy.

Now, here’s what you might not know: Nine years after Gerstner stepped down as CEO, IBM is financially and strategically stronger and, yes, sexier than ever — all thanks to Sam Palmisano, Gerstner’s successor. Under Palmisano, earnings have quadrupled and the stock is up 57%. He’s not merely cutting costs (though he’s done plenty of that, including shifting work from the U.S. to India). He’s remaking the company by pushing into new countries and expanding hot businesses such as supercomputing and analytics that require heavy-duty lab innovations. Last year’s R&D spending? Some $6 billion, or 6% of IBM’s nearly $100 billion in annual sales. Its 5,896 patents in 2010 — more than any company in the world — help explain why it lands at No. 12 on Fortune’s annual list of the World’s Most Admired Companies. That Jeopardy-playing computer isn’t just a gimmick; it is at the heart of IBM’s long-term growth strategy.

The article goes on to discuss IBM’s financial progress under Sam’s leadership:

But make no mistake, Palmisano also delivers quarter after quarter, no small feat when you consider the size and complexity of IBM. (Its $4 billion in revenue growth in 2010 alone is roughly equal to the total revenue of gamemaker Electronic Arts, (ERTS) theNo. 494 company on the Fortune 500.) And though he inherited a much-improved company, Palmisano moved into the CEO’s office in 2002, just after the Internet bubble burst. More recently he’s had to contend with the worst recession since the Great Depression. Instead of hunkering down as many of his peers did, Palmisano greenlighted several major projects — including IBM’s “Smarter Planet” initiative, a program to use networking and computer technology to address social problems such as access to health care or traffic congestion. In 2010, IBM earned $14.8 billion on $99.9 billion in revenue, with 46.1% gross profit margins.

and IBM’s move away from dependence on hardware sales:

The upshot: IBM today is a company that still gets most of its revenue from services and consulting — the business that Gerstner astutely pushed IBM into in the 1990s. But software now contributes more to pretax earnings than consulting, and analytics, the kind of sophisticated data-crunching and decision-making that Watson does, grew 19% last quarter, faster than any other line of business. Harvard Business School professor Rosabeth Moss Kanter calls this a “boldness of imagination,” saying, “Sam accelerated what Lou Gerstner set in motion.”

It’s a very interesting piece, definitely pro-Palmisano in outlook, but gives a good overview of IBM’s direction since he became CEO.

However, perhaps even more enlightening are the comments on the post from IBMers and ex-IBMers, suggesting that such progress has come at a very significant cost.  I’m sure that as usual it is the more extreme views that get aired in public, but even so, the comments make very interesting reading…

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