CRN Interview With Sam Palmisano, IBM

Palmisano, IBM President and COO since Septemeber 2000, will become Big Blue's new CEO on March 1, when the contract of current Chairman and CEO Louis Gerstner is due to expire. Editor In Chief Kelley Damore and Industry Editor Craig Zarley spoke privately with Palmisano last week after his keynote speech at PartnerWorld 2002 in San Francisco.

CRN: As IBM adopts a more services-oriented business model, what will be the role that solution providers play?

PALMISANO: I believe that by working with our partners and solution providers, we can really have a complementary relationship. On the macro level, it's simple to think about it because we [at IBM are so concentrated at the macro level. We have customers that are in the billions of dollars [in sales a year. There are also offerings that we have created that are much more attractive to the channel, such as hosting, infrastructure and products that [solution providers can take to market and build value around. I fundamentally think there is an opportunity that as this industry moves, customers are going to want more solutions, more integration services and more value added. And that is going to be the market. A key for us in being successful in that market is a partnering strategy. The pure-play model was distorted by the dot-com bubble, but that has now passed. Customers now want someone to help them solve a problem, and that's the role of solution providers.

CRN: IBM Global Services (IGS) intends to move more aggressively into the SMB market. To that end, what's your strategy for partnering with solution providers, and how can you avoid channel conflicts?

PALMISANO: We've drawn a line and said, 'Solution providers, this space is yours.' It tends to be more to the smaller [companies,$100 million in annual revenue,than the large and midsize. So in that perspective, it's pretty clear. We'll pass you leads here, and you pass us leads there. But the proof is in the pudding. If we actually see demand passed back and forth, then people are trusting each other. I don't know if we're there yet, on either side. We don't see a lot [of leads coming our way, either [laughs. The relationship is about sharing, not 'We give, you take.' I know it's been a sore point for years, but we don't in any way intend to disintermediate the channel. We start with the perspective that we need the channel. It's a huge opportunity, and IBM can't get at all of it [alone. We have all of these businesses beyond services,software, servers, storage,and absolutely half of everything that happens there is touched or influenced by the channel. We understand that, and within IBM we need to manage this and be willing to compromise and not be selfish about sharing some of these opportunities.

CRN: What will IBM's channel strategy be under your leadership?

PALMISANO: It starts with accepting the fact that the channel is fundamental to IBM's long-term success. And this relationship will have to evolve because this industry will have to evolve. The model that existed, a hardware fulfillment model, has evolved to a solution provider model that is pulling through the infrastructure. As the industry evolves, we will have to evolve together. But IBM is not going to evolve in such a way that we leave the channel behind.

What I would love to see over time is that the channel will help us gain share. I respect the fact that they are going to always be able to offer multiple platforms. But I'd like to be pragmatic and say that there are some IBM partners that are really with us and are going to go for [market share with us, and we should really have a relationship that helps us accomplish that goal. In an industry that's solution-based, it's going to be a white-knuckle battle for share, and we need to have some key partners that work with us and drive that.

CRN: Is your partnering strategy going to involve fewer channel partners but tighter relationships?

PALMISANO: No, I wouldn't say that. Their business models will dictate how many partners we have. It will always be more partners if you consider the fact that we used to have just fulfillment partners. Now we have integrators, pull-through hosters, etc. That's why it's so hard to say, 'Just draw a line.' You can't solve the customer problem by saying, 'You take these 1,000 accounts, and I'll take everything else.'

We start with a bias that says this is the customer, this is the marketplace and we need to work within the marketplace and not define arbitrary guidelines that are easy for us. [We want to forget the glass ceiling,or whatever some of our competitors call it,and say we really want to work with these partners across the board. If there's a large account and the partner has expertise in something like supply chain, why the hell wouldn't we want to work with them? It's just crazy. I didn't say there will be fewer partners. [Instead I've introduced complexity. But I do think that in complexity, people are going to choose where they want to align and play. I'd be hopeful that some of our partners would want to be with us.

CRN: How often will you meet with partners and seek their advice and guidance?

PALMISANO: This industry moves too fast, and you need to pick up insights. At this dinner last night [with IBM business partners, I'm sure that as we had our conversations people weren't thinking that insights were being passed. But then you wake up at 3 in the morning and think about what someone said, and it's pretty profound stuff. These guys that run these companies are wonderful businesspeople. They aren't slouches. You can't survive and be a CEO of these companies unless you are tried and proven. The weak of spirit wash out fast.