Palmisano Elected IBM CEO: A Screenplay by Mario Puzo

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Change, when it comes to IBM, is glacial in its momentum, sort of like watching the The Godfather films I, II, and III back-to-back-to-back in a single viewing. And so, last Tuesday, it seemed that a grand film noir epic was drawing to a close. The event: IBM's board of directors announced that it has elected Sam Palmisano to be IBM's CEO to replace Lou Gerstner on March 1, 2002. If you can imagine a much trimmer Marlon Brando in the role of Gerstner (and Al Pacino as Sam Palmisano), you will immediately get my drift.

Palmisano is already the president and chief operating officer, two positions he attained a couple of years ago. And though Lou Gerstner will remain chairman of the board until the end of 2002, it is clear that an era is quickly passing. John M. Thompson (Robert Duvall, anyone?), IBM vice chairman, has also announced he will retire from the company and board on September 1. This means, by the fourth quarter of this year, the reins of leadership will have irretrievably passed to the next generation of IBM executives, and the revolutionary path that Lou Gerstner charted for IBM will be a thing of history--if not film legend.

"Leave the gun. Take the cannoli."
--Peter Clemenza

It's easy to forget that when Lou Gerstner was brought in as chairman and CEO in 1993, IBM was a much different company, with very different priorities. Internally, IBM was fighting the great Systems Application Architecture (SAA) wars, trying to pull together its diverse architectures into a single strategic profile. At that time, the burning question within IBM was how to bridge mainframe, mini, and micro computing systems into a comprehensive solution that would satisfy the burgeoning needs of a whole new generation of computer users.

But outside of IBM, users were making their own choices of platforms--primarily by selecting networked PCs, Novell, and the rapidly evolving Microsoft Windows operating system. IBM was portrayed in the press and in the streets as a stumbling, corrupt giant preoccupied with its internal feuds and turf wars while its customers waited in the wings for service. IBM's sales suffered terribly, its stock values slid precipitously, and the company's leadership--composed of hand-picked, IBM-trained engineers--was forced to resign in disgrace. Whether IBM itself would survive was an open topic of debate.

"Don't overestimate the power of forgiveness."
--Michael Corleone

Lou Gerstner's appointment as chairman and CEO was revolutionary if only because he was the first non-IBMer to hold those jobs. He was neither an insider nor even an engineer, and as a result of his easy demeanor, his common-sense pronouncements seemed like breaths of fresh air. For instance, when asked to choose among IBM's various strategic computing platforms, Gerstner's response sent shockwaves through the company. As far as he was concerned, there were no strategic platforms! Not the System/390, nor the AS/400, nor the brand-new RS/6000. The purpose of IBM was to make and sell products that the customers wanted to buy. If the customers wanted mainframes, IBM would make them. If they wanted Windows-based networks, IBM would provide them, too.

"He's a businessman. I'll make him an offer he can't refuse."
--Don Vito Corleone

As sage as such a proposition may seem now, it created a cultural revolution within IBM: No longer would IBM attempt to dictate the direction of computing technology through proprietary engineering. Instead, it would listen carefully to what its customers wanted, and it would meet the demand within the context of a rapidly growing and changing marketplace. The ancient IBM motto "Think" was replaced by the new phrase "IBM Listens!"

The results Gerstner delivered are impressive. Between 1993 (when Gerstner joined IBM) and year-end 2001, the company's share price increased more than 800 percent, and its market value grew by $180 billion. The company also gained market share in multiple "strategic" areas, including servers, software, storage, and microelectronics. Simultaneously, IBM has received more U.S. patents than any other company for nine consecutive years--ensuring that its "secret technologies" would generate royalties for years to come.

"Keep your friends close, but your enemies closer."
-- Michael Corleone

Yet, as Gerstner gradually turns over the reins of power to Sam Palmisano, what is remarkable is that the question of the "strategic proprietary platform" is still drawing fire from the press. And in an age when Microsoft's proprietary operating systems now dominate the industry, IBM is on the opposite side of the open systems debate.

Instead of pushing for proprietary operating systems as it once did, IBM is now leading the movement for open systems and international standards. In fact, in the keynote speech at LinuxWorld last week, Bill Zeitler, senior vice president and group executive of IBM Server Group, said, "For decades the proprietary model of computing has defined the computer industry. That day is over, and those who don't realize it's over are on the wrong side of history." That's quite an impressive statement, coming from an IBMer who once served as the vice president of marketing for the "proprietary" AS/400 Division. And today, IBM has a server offering across the entire range of computing models--from PC network all the way up to mainframe--all of them offering non-proprietary Linux as an operating system for e-Business.

"? a man that doesn't spend time with his family can never be a real man."
--Don Vito Corleone

However, it has been through IBM's revolutionary Business Partner arrangements that customers have felt the largest impact of Gerstner's reign. Under Gerstner?s leadership, IBM vastly expanded the role of its Business Partner Executive Council (BPEC) and essentially franchised the IBM brand out to the qualified partners who created follow-on products and services. So important has this change been that by 2001 IBM had relationships with more than 100,000 partners--with more than 80 percent of iSeries revenues, 60 percent of pSeries revenues, and 20 percent of zSeries revenues derived directly from its Business Partner relationships.

Today, what started as BPEC is known as PartnerWorld, and the timing of the Palmisano announcement was designed to prepare Business Partners for this year's February 17 opening of PartnerWorld in San Francisco. (For more information on PartnerWorld, visit http://www.ibm.com/partnerworld.)

At PartnerWorld, the transfer of power from Gerstner to Palmisano will be put on public display for all the IBM Business Partners to view. In fact, Palmisano is slated to conclude PartnerWorld with a keynote speech, a true indication that an important transition has been accomplished. And to underscore the film noir epic, IBM has even arranged for a special appearance by screen director Francis Ford Coppola. No doubt, the Godfather-like significance of the scene will not escape Coppola's notice, as indeed, Mario Puzo himself might have written the script.

Thomas M. Stockwell
Editor in Chief

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