By Kathleen Ohlson
Network World, 12/24/01

Relaxed. Goal-oriented. Gregarious. Straight-shooter.

These are some of the characteristics Sam Palmisano, IBM president, will bring to the top spot when he takes it over next spring when Lou Gerstner retires. That Gerstner will leave and Palmisano will become Big Blue's next CEO are almost certainties.

Scuttlebutt surrounding IBM's leadership is that Gerstner will retire when his contract expires in March. At 60, Gerstner is at the age when all senior IBM executives have retired over the past 30 years. Palmisano, 50, has been Gerstner's right-hand man since Day One, and long considered his heir apparent.

The CEO prep work predates Gerstner's arrival, with Palmisano serving at one point as executive assistant to former CEO John Akers. But when seeking Akers' replacement in 1993, with IBM in financial straits, the company turned to outsider Gerstner, who had much-needed business experience at RJR Nabisco and American Express. Palmisano, on the other hand, had spent the previous two decades at IBM.

True Blue to the heart

Palmisano joined IBM at age 22 fresh from John Hopkins University. He first worked in its data processing group, then later as IBM Japan's senior managing director of operations — one of a few IBM executives to spend time overseas. Palmisano also ran the PC division, and the server and storage group. Now as president and COO, Palmisano is responsible for IBM's operating units, including all products and services divisions, as well as sales, distribution and global financial businesses.

His biggest accomplishment is making IBM Global Services the powerhouse it is today.

Palmisano was running IBM's outsourcing subsidiary, Integrated Systems Solutions, which was making a modest profit, when he inherited its money-losing consulting and systems integration business in 1995. His analytical and aggressive business persona turned the division around from losing tens of millions of dollars to making a profit by year-end. The divisions were later combined into Global Services, which handles everything from running a business' IT department to consulting on system and software upgrades.

Global Services raked in $8.6 billion in revenue in the third quarter of 2001, accounting for almost half of IBM's $20.4 billion quarterly revenue. Business is booming so much that the unit has a backlog of total services contracts worth approximately $97 billion.

"He's a great closer. He knows how to do business — what's good against what's bad. He's walked away from accounts, and those who got the account were sorry years later," says Frank Dzubeck, president of Communications Network Architects and a Network World columnist.

Dzubeck recounts when IBM and Electronic Data Systems (EDS) were bidding to get an outsourcing contract from Xerox in 1994. Palmisano sensed the deal wouldn't benefit IBM, so he deliberately bid high. EDS won the 10-year, $3.2 billion contract, but sued Xerox in 1999 claiming Xerox's failure to pay for certain infrastructure charges caused EDS to write off $200 million. Xerox and EDS later renegotiated the contract.

Ready for the limelight

As a manager, Palmisano wants results and likes to get to the point.

"He's similar to Gerstner in that they don't believe management should be foilware — wonderful presentations and slides," says Bob Simko, an analyst at the International Technology Group.

But with his technology background and relaxed personality, Palmisano is expected to be a much more visible industry leader than Gerstner has been.

"He's much more easygoing than Lou Gerstner," Dzubeck says. "He likes audiences, whether they are his peers or underlings. He likes the atmosphere of give and take. When he enters a room, it doesn't get quiet, whereas when Lou Gerstner enters a room you know he's there to make a speech."

Palmisano will continue Gerstner's strategy of shifting IBM's focus from hardware to software and services. And he's already groomed and named his people to key positions: Steve Mills to oversee IBM's software group; Linda Sanford to its storage systems group; and Bill Zeitler to its server group.

His biggest challenge is one every company faces: the economic recession. But the pressure will be greater for Palmisano, as he's expected to move the company's sales to the $100 billion mark — Big Blue tallied $88.4 billion in 2000 and is expected to report 2001 sales in the same range.