Leadership at IBM – Sam Palmisano

Sam Palmisano took over IBM’s CEO role back in 2002 from Gerstner who was brought in to restore IBM from its historic decline during the early 1990s. I was an employee of IBM for 16 years until the year 1992. I left early in 1992 and by the end of the year people were asking me how did I know that such decline was coming. My answer was that I had no idea and I really agonized over the wisdom of leaving IBM, a great company by any measure.

Palmisano went into the second phase of “value creation” and changing IBM’s course in several ways. He said that the world is instrumented, interconnected, and intelligent and hence IBM’s new solutions have to address that. Here are some of the key decisions during his tenure:

  • Acquisition of Price Waterhouse Coopers in 2002 for $3.5B, injecting business solutions services for large clients
  • Selling of the PC business to Lenovo for $1.75B back in 2004-2005 to get out of the consumer hardware commodity business. Again to refocus on large enterprises.
  • Selling of the storage business to Hitachi, which was not yielding great profits
  • Increasing the R&D budget by 20% to a whopping $6B per year, to refocus on innovation. A new research lab came up in Brazil, the ninth such lab across the globe.
  • Introduction of several initiatives like Smarter Planet in 2008, Watson supercomputer last year (answering questions posed in natural language for speed, accuracy, and confidence. It trumped in the Jeopardy game against two smart humans), Corporate Services Corps to address hard issues with clients across the globe, etc.
  • Cutting $8B cost to make IBM operationally trim

What were the results of such moves? Well, during his tenure, IBM’s earnings quadrupled and the  market cap went up above Microsoft last September(first time since 1996) to $214B, just behind Apple’s. So shareholders are happy and even Warren Buffet (who never buys technology stocks) bought significant chunk of IBM stock late last year.

Like a true leader in IBM’s tradition, Palmisano celebrated the 100th. birthday of a great company and reminded everyone of the basic principles of its founder Thomas Watson Senior. In October, 2011, he named Virginia Rometty as his successor as the new CEO starting this month and him serving as chairman of the board.

IBM’s sustainability as a great company is exemplary in the world.  Many of today’s high-flying valley technology companies can learn from IBM’s leadership and value system.


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