IBM Chief Palmisano On Big Blue's Prospects

The Associated Press Samuel J. Palmisano

AP: On the same day that Hewlett-Packard revealed big internal problems, IBM said it expects to hire 19,000 new people this year. Looks like you're trying to say you're feeling better about things than the competition.

PALMISANO: We saw, and we believe ... that the industry would bifurcate strategically, and there'd be a high-volume distributor of industry-standard things that are invented by lots of other people ... And we thought there was going to be a completely different play that was high-growth, high innovation-reward, and you had to invest significantly in (research and development), drive the industry agenda, and that would be an IBM-like play. So we went off, as you know, on that play. ... We went about repositioning the company, and we started this three years ago. But the fact that we did it gives us a lot of confidence about the future, and that's the statement yesterday about hiring. ... We're just reacting to demand, quite honestly, that's relevant to the spaces we've positioned ourselves in. So we're pretty confident about where we are.

AP: Explain your thinking behind your strategy of outgrowing the industry and winning high-margin opportunities that other companies can't.

PALMISANO: There's a couple of things in that. First of all ... we're going to be operating in an envelope of good but moderate economic expansion, not hyper growth. So all companies are going to have to have a strategic agenda associated around innovation and productivity gain. That's on-demand business, in kind of the (IBM) marketing parlance. ... Now, within that space is a tremendous amount of opportunity to apply technology to areas it hasn't been applied before. A classic example that I think everyone gets is (IBM's partnership with the Mayo Clinic), because we're talking about changing the practice of medicine, if we can make this happen at Mayo. So it's hugely profound. And then there are other things which are much more oriented around the business world ... There's all kinds of areas where there's this expanded opportunity, and when we saw this about three years ago, we decided to reposition the IBM portfolio and our strategy, (divesting businesses such as disk drives and retail PCs, and making acquisitions in services and software). No other company could really deliver that value proposition to the marketplace.

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AP: Your biggest competitor, Hewlett-Packard, says IBM has a heavy-handed relationship with customers, because IBM has so many hardware and software products it tries to sell to them.

PALMISANO: If you just look at our track record _ you're talking to the guy who started the services business at IBM. It's always been based on what the client desires are. That's why it went from nothing to $42 billion. If you didn't represent the client interests, we couldn't have a $40 billion services business and have over $100 billion under contract. So I'm really not going to go where HP's statements are. They can say _ they say a lot. Let them say whatever they want.

AP: What keeps you up at night?

PALMISANO: The key thing ... is our ability to execute. We have in my opinion invested to put together a capability that no one else has. ... But it's all bringing that together in these new spaces that is key. That is the thing. ... I worry about the reintegration of IBM and execution. I'm not worried about the marketplace. I'm not worrying about client demand.

AP: How do you go about ensuring execution?

PALMISANO: We have three teams: an operational team, a strategy team and a technical team, and we've expanded it beyond just my staff, my direct reports, to be much more inclusive so that people earlier on in their careers can be part of the process, so they can learn. ... At the same time we put this information system in place that's called Edge. ... We can roll up -- it's not just the financial data -- it's demand, it's leads, it's market opportunities -- we can roll it up electronically for every client team, every customer set, every geography, every product line everywhere in the world, daily. It's a wonderful source of information so that when we get together, everybody has the same set of facts. We don't spend any time exchanging information. We only spend time working on whatever the issues happen to be.

The last thing that we're doing more and more of is, we're trying to delegate things down in the organization, out of headquarters. ... More and more we want our line people to take more responsibility and be more dedicated to the client's success .... Wherever you happen to be in IBM, we want you spending more and more of your time out there and helping our clients ... We'll all learn more.

One of the reasons why I spend 60 percent of my time externally is to set the example. I mean, I could spend 80 percent of my time internally. There's plenty of work to be done. But if I delegate to the senior team that I have reporting to me it allows me to get out there and be with the clients ... So that we're all more in tune with what's going on in the marketplace ... You become intuitive. When you become intuitive, you're on top of things, you're ahead of things, you're not reacting late to things.

AP: Is this also why you keep a low public profile?

PALMISANO: I think it's important that you prioritize your time around running your company and being with your clients. Other people can pick their own priorities for their time. But we think it's much more important that we work in the client interest and shareholder interest -- and that, believe me, it starts with me.

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