IBM takes a new road

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Virginia Rometty speaking at the CEO Summit in Yale School of Management
Virginia Rometty speaking at the CEO Summit in Yale School of Management

It took IBM hundred years to appoint a female as its head. Ginni Rometty would replace IBMs longest serving CEO, Sam Palmisano, who would step down as CEO and remain as Chairman. The transition would be effective 1 January 2011.

The new CEO who confessed she has always been on a experiential learning mode said, “I learned to always take on things Id never done before”.

She takes the reins as steady profit growth pushes IBM shares this year to the highest level since the company went public in 1915. Her experience in sales, services and acquisitions fits with the strategic direction set by Palmisano, who said last year the company will add $20 billion to revenue between 2010 and 2015 by expanding in markets such as cloud computing and analytics.

Rometty, earlier serving as head of strategy at IBM was involved in building its five-year plan and so is expected to follow the road map set for the company. The appointment of Rometty, with a background beyond technology, underscores the companys focus on business services, said Bobby Cameron, an analyst for Forrester Research.

Rometty: a glimpse

Rometty is one of a very small number of female CEOs in the male-dominated tech industry, including Meg Whitman (who took over as HP’s CEO earlier this month) and Ursula Burns of Xerox.

Rometty was instrumental in integrating one of IBM’s biggest acquisition in the past of Pricewaterhouse Cooper’s Consulting division. Inside IBM, she is known as a polished executive who can close a sale, expanding relationships with companies from State Farm Insurance Co. to Prudential Financial Inc. Shes an engaging woman and great with customers, said Fred Amoroso, one of her former boss. Customersjust love Ginni.

She is more than a superb operational executive, Palmisano said in the statement. With every leadership role, she has strengthened our ability to integrate IBMs capabilities for our clients.

The succession at IBM has been the result of careful, long- term planning by the companys board, said Rosabeth Kanter, a Harvard Business School professor who knows Rometty and other IBM executives. Rometty not only held many key positions at IBM during her career, she also has received mentoring and exposure to global leaders important to IBMs future, she said.

Palmisanos contribution

Palmisano turned 60 in July and will leave a business vastly different than the one he took over. Known in the olden days as a hardware behemoth, IBM has nicely transformed itself into a services and software powerhouse.

This was possible through several strategic initiatives like the Pricewater Cooper’s acquistion, sale of PC business to Lenovo and more than $25 billion in software acquisitions, all of which made the company predictably profitable, boosting per-share profit for more than 30 straight quarters.

Since 2001, IBM boosted sales by 20 percent, while keeping costs of the 426,000-employee behemoth under control. Palmisano used IBMs cash flow to buy back stock, helping to boost earnings per share and the share price.

Strategy shift

IBM strategy has been lately to focus on business problems and not technology, and analysts see Rometty’s appoint as evidence of that shift.

In a commencement speech at her alma mater last year, she explained why she has stayed at IBM.You have the skills that can be applied to some of the worlds most significant challenges, she said. I know that is what has always drawn me to, and kept me at IBM. IBMs long- standing mantra is Think. What has always made IBM a fascinating and compelling place for me, is the passion of the company, and its people, to apply technology and scientific thinking to major societal issues.

Every day I get to Think and work on everything from digitizing electric grids so they can accommodate renewable energy and enable mass adoption of electric cars, helping major cities reduce congestion and pollution, to developing new micro- finance programs that help tiny businesses get started in markets such as Brazil, India, Africa, she said. After 30 years, Im genuinely excited to get up and apply those problem- solving skills in ways I would never have imagined when I was sitting where you are.

Challenge ahead

Rometty faces the Herculean task of moving IBM from a traditional outsourcing services model to an operating expense-based cloud computing services model where “price points are vastly below what they are today for [traditional] outsourcing,” said David Tapper, vice president of outsourcing and offshore services for IDC, a market researcher headquartered in Framingham, Mass.

The challenges Rometty faces are every bit as treacherous as the ones IBM faced as it transitioned from the mainframe computing era to the PC era, said Tapper.

“Systems integration technology consulting is becoming more embedded in delivery of operations through a SaaS (Software-as-a-Service) model so customers may not need as much system integration services anymore and IBM has a very big systems integration technology consulting service,” he said. “IBM is dealing with a huge set of challenges

“She has got ramp up time, but at the end of the day, she has to tackle these issues head on,” said Tapper. “My belief is IBM has to build a distinct business unit like a cloud unit that pulls it altogether and moves the old business model to the new business model.”

VIP CEOs

Tech companies have changed the image of CEOs. These Tech CEOs have become superstars and the face of the company. If we take the likes of Steve Ballmer, Steve Jobs and many others, they are the face of their company. But the IBM CEO has always been in the shadows (perhaps Louis V. Gerstner, Jr was an exception). Well now they seem to be breaking norms, so would this mean they would portray their new CEO as a rock star? Or is it back to shadows?

Source: Bloomberg, CRN, CNN, Engadget

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