This Man Made IBM A Great Company

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.Step 3: Make sure the economic model is profitable.Dozens of software companies were acquired so that those industry-focused teams could leverage their efforts profitably and repeatedly. Otherwise growth would just mean more headcount. In effect, service was productized, which showed up in the higher margins earned. Centers of excellence were built around the world that included the full range of IBM capabilities, beginning with R&D. The workforce in India, China, Brazil, and other growth markets exploded in just 36 months.Step 4: Empower the teams that can deliver for the customer but hold them accountable.In the process "the center of gravity" in IBM was lowered. Customer-facing teams around the world were asked to deliver IBM's solutions in myriad markets. To help frame the thinking of these dispersed IBMer's, a three-day, 24-hour on-line town hall was held for some 150,000 employees — IBM called it a Jam — to define the values by which IBM would be operated and its people held accountable. (Think Tahrir Square as a corporate process.)The same process was used to help bring the best ideas of its scientists out of the lab and into the markets. Equally bold, IBM's financial road map for four years was shared with investors and analysts. Its ambitious goals were met early despite the economic crisis beginning in 2008, and a new road map set.Step 5: Take care of succession from within.The financial results were magnificent: profits in 2010 were $13.06 per share and return on equity was 70%. Equally impressive, a highly-regarded internal succession was managed so that as Palmisano stepped into the chairman's seat, he was followed as CEO by Ginni Rometty, the woman who had built the service organization and integrated the PWC consultants. In an era where numerous giants have had to go outside for help, and then stumbled, IBM passed the baton to an insider with an outsider's perspective.They don't give Nobel Prizes in management, but if they did, Sam Palmisano would deserve one.This post originally appeared at Harvard Business Review.Please follow War Room on Twitter and Facebook.Join the conversation about this story »See Also:Guess What? You're Wasting Your Time If You OrganizeThis Article Explains Why Apple Makes iPhones In China And Why The US Is ScrewedMeet Paul Pittman, Mr. US Economy

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