Turnaround artists get all the credit—when they succeed. So when Louis Gerstner rides off into the Westchester sunset for good later this year, hell get the thanks for saving and then turning around one of the worlds great companies, IBM. But the near-death experience was a decade ago. Where is IBM now, and where is it going? The answers will have to come from new CEO Samuel Palmisano.
In initial comments, Palmisano said all the right things about IBM already being on the right track. But, in fact, "steady as she goes" wont be good enough to ensure either growth or even a merely healthy company in, say, five years. As an insider taking over the company at a time of relative prosperity, his challenge will be to avoid stagnation.
Here are our suggestions:
First, see that the strongest business, IBM Global Services, stays that way. IGS builds on a traditional IBM strength: developing and maintaining customer relationships. Although IBM used to promote only its own products, IGS in the Gerstner reign took seriously a vendor- agnostic attitude toward products and services and has succeeded handsomely, in the process becoming a reseller of some of IBMs largest competitors.
The temptation will be to allow continued prosperity in IGS to mask problems elsewhere. Top management decided to get out of desktop manufacturing recently. It doesnt take a clairvoyant to see that Palmisano may be faced with similar calls down the road: the decisions to get better at—or get out of—the hardware and software business. It may make sense to spin off a division. We suggest that Palmisano leave his options open here.
IBM should also continue down the path of open systems. Theres no doubt that embracing Java and Linux as open technologies has been paying dividends for IBM: The company has clearly learned that even such technically sound products as Token-Ring, Micro Channel and OS/2 cannot compete if burdened with even the appearance of proprietary intentions.
Finally, it wont do to rely on financial manipulation such as stock buybacks to boost the companys performance. Many observers believe that Gerstner did about as much as can be done in this area anyway. With few additional gains possible, Palmisano will have to force IBM to make money the old-fashioned way: by earning it delivering real productivity gains to customers.