Palmisano preps for IBM's growth

ARMONK, N.Y. - First-year IBM  CEO Sam Palmisano has shown the kind of corporate vision experts expect of him. In the past 12 months, he's filled Big Blue's professional services gap, shored up its software division, and reinvigorated its server portfolio. But a tough economy and voracious competitors will keep Palmisano from resting on any laurels he might have earned in his rookie year.

Key events Palmisano has been part of since he took the helm last March include:

•  PwC acquisition: After only four months as CEO, Palmisano orchestrated a deal to buy the consulting arm of PricewaterhouseCoopers for $3.5 billion - a bargain compared with the $18 billion HP considered paying in 2000. With PricewaterhouseCoopers Consulting, IBM gained instant credibility in the professional services market and expertise in key vertical industries.

"Getting professional services added the topping on to the rest of the services business," says Frank Dzubeck, president of Communications Network Architects.

To continue reading, register here to become an Insider. You'll get free access to premium content from CIO, Computerworld, CSO, InfoWorld, and Network World. See more Insider content or sign in.

ARMONK, N.Y. - First-year IBM  CEO Sam Palmisano has shown the kind of corporate vision experts expect of him. In the past 12 months, he's filled Big Blue's professional services gap, shored up its software division, and reinvigorated its server portfolio. But a tough economy and voracious competitors will keep Palmisano from resting on any laurels he might have earned in his rookie year.

Key events Palmisano has been part of since he took the helm last March include:

•  PwC acquisition: After only four months as CEO, Palmisano orchestrated a deal to buy the consulting arm of PricewaterhouseCoopers for $3.5 billion - a bargain compared with the $18 billion HP considered paying in 2000. With PricewaterhouseCoopers Consulting, IBM gained instant credibility in the professional services market and expertise in key vertical industries.

"Getting professional services added the topping on to the rest of the services business," says Frank Dzubeck, president of Communications Network Architects.

But the deal put some of IBM's partner relationships at risk, says Martha Young, president at research firm Nova Amber. "By having an in-house consulting arm, the IBM strategy of building up its managed services division through channel partners comes into conflict," Young says. "I don't think this move was the best use of IBM's investment capital."

•  E-business on-demand: In his first major customer address as CEO, Palmisano announced in October 2002 that IBM was putting $10 billion behind its "e-business on-demand" initiative. The now familiar corporate credo describes a model wherein companies treat computing resources - such as server capacity, storage and bandwidth - like utilities, paying for only the processing power they use. Young says it's a wise strategy for IBM. "The utility model works for companies of all sizes," she says.

But e-business on-demand is no cure-all, says Jean-Pierre Garbani, research director at Giga Information Group. "It sounds good on paper, but at the end of the day users will still have to plan carefully for capacity, as they did before," Garbani says.

•  Trimming the fat: Palmisano showed he's not afraid to lighten IBM's load. He trimmed his workforce by 5%, or about 15,000 employees, last year and sold IBM's money-losing hard-disk-drive business to Hitachi. In other areas he's tried consolidation - such as folding technology from poorly performing units into more stable divisions. For example, Palmisano brought storage, which at one time was a separate division, into IBM's server area.