Method to Palmisano's madness

On the surface, IBM's sale to Lenovo looks like a humiliating retreat, but there's a careful logic behind this radical refashioning.

On the eve of IBM's decision to dump its PC business, Michael Dell was spinning like a dreidel. "When was the last time you saw a successful acquisition or merger in the computer industry? It hasn't happened in a long, long time," Dell told a room full of reporters attending the Oracle's OpenWorld conference. "I don't see this one as being all that different."

In other words, a big mess in the offing.

Would you have expected him to say anything different? No doubt this is a roll of the dice. And on the surface, the decision to sell its PC business to Chinese computer maker Lenovo looks like a humiliating retreat from a business that--more than any other company--IBM legitimized when it introduced its original PC in 1981.

But with all due respect to Dell, whose eponymous company did much to force Big Blue's hand, IBM won't regret its exit from the PC world. That's because there is a careful logic behind this radical refashioning, one that reflects the imprint of Sam Palmisano.

Even before he took over as chief executive from Lou Gerstner in 2002, Palmisano was at the center of strategy shifts that pushed IBM into realms far removed from the PC business. Palmisano, who at one time ran IBM's personal computer group, came away with an up-close understanding of that cutthroat business. If he learned one lesson during that tenure, it was that the future was elsewhere.

There's a careful logic behind this radical refashioning, one that reflects the imprint of Sam Palmisano.
So it was that Palmisano was a key Gerstner lieutenant when IBM took up the e-business banner, a decision that paid off handsomely when the pretenders fell by the wayside during the dot-com shakeout. As the Internet reshaped commerce and communications, the real money was made supplying infrastructure, and IBM subsequently cleaned up.

Palmisano also was an early champion of Linux. When he began positioning IBM as a big supporter of the open-source movement, it was not at all clear whether he was inspired or simply delusional. Microsoft had ruled the roost for so long that it was widely assumed the Windows operating system was untouchable. Bad assumption, it turned out.

With open-source software bundled onto aggressively priced hardware, IBM has since taken advantage of a golden opportunity to push its own (high-margin) proprietary middleware, accompanying applications and services. With the sale of its PC business, IBM no longer needs to pretend to be nice to Microsoft and can get about the business of settling old scores left over from the era of the OS wars in the early 1990s.

Above all, Palmisano gets top credit for securing the future of IBM with its big move into services. Even though the global services push got started under Gerstner, it was Palmisano who drove that train. With 20/20 hindsight, it now seems a no-brainer: Margins on personal computers, workstations and servers were getting thinner every year, and IBM needed to find a place in a high-priced business where the word "commodity" was not part of the lexicon. Under Palmisano, IBM achieved all that in spades--so much so that Big Blue's success in services loomed large in Hewlett-Packard's controversial acquisition of Compaq Computer, a deal that has yet to prove itself.

Charlie Chaplin was the perfect mascot when 40 megabytes was mega-storage and 80286 microprocessors constituted technology's cutting edge, but those days are gone. Just like legendary safecracker Willie Sutton, Palmisano long ago recognized where the real money was--and he's pointed IBM in that direction ever since.

 

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