When Sam Palmisano retired as CEO of IBM on Dec. 31, it marked the end of one of the most remarkable tenures in corporate history. Over his decade as IBM’s leader, he made a number of moves, each instructive, but their power came from their cumulative effect in the transformation of a good company back into a great one.
Palmisano became leader of a great company that had stumbled badly in the 1980s and had been returned to health in the 1990’s by Lou Gerstner. When Palmisano took over in early 2002, IBM had four main businesses each organized on a global basis: hardware, software, services (such as back-office outsourcing), and personal computers (PCs). The company was led — as it had been for decades — by a corporate executive committee (CEC) of the top 11 officers of the company who ran the businesses and the corporate functions. Its profits were $3.07 a share and its return on equity was 16%.
Step 1: Craft the strategy and organization to implement the vision.
Bold step by bold step, IBM was transformed into a single globally-integrated enterprise that focused on serving the need for processed information in the form of solutions for enterprises in 170 countries. The CEC was dissolved. That council of barons was replaced by teams for strategy, technology, and operations whose members included the next generation of operating leaders.
Palmisano and his team had a new vision: a world in which trillions of bits of information generated by everyone everywhere had to be analyzed so that it could be used to solve problems facing modern business and governments everywhere. That demanded a faster-moving widely dispersed organization where decisions could be made quickly. The team members had jobs leading parts of that dispersed group. The teams didn’t review and discuss; their members made things happen.
Step 2: Get rid of the businesses that don’t fit and acquire the capabilities that you do need.
The PC business and low margin hardware businesses were sold over the protests of key leaders who argued for their strategic essentiality.The consulting arm of PriceWaterhouseCoopers was bought to provide thousands of professionals who understood the process needs of key industries. In a near-miraculous feat of management, those consultants were partnered with technologists and successfully integrated into the company.