Entrepreneurial Management

Sam Palmisano is arguably one of the best CEO in the 21st century. He set the standards for how corporations should be run. In 2002, Palmisano took over previous CEO Lou Gerstner who rescued IBM from the doldrums, and put it on a viable track towards a profit making company. If Gerstner was the person who made IBM good, Palmisano would be the one who made it great. The key factor for his contribution to IBM’s success is in innovating and remaking the business. He is constantly pushing into new countries and expanding hot businesses such as analytics and supercomputer that require lots of R&D innovations. Also, he recognized the fact that the conventional company culture of command-and-control would not work in the 21st century. As such, he created a unique collaborative organizational structure and defined leadership as leading by values. All these translated into superior financial performance for the company. Consequently, IBM’s return on capital increased from 4.7% when he got the job to 15.1% in 2012, which was an incredible achievement for a large-sized company like IBM. Furthermore, despite the US economic crisis, the stock price rose 82% higher than when he first took over IBM. IBM's impressive performance attracted renowned investor; Warren Buffet to buy $10.7 billion worth of IBM shares whom further commented that Sam Palmisano has delivered big time. Although Palmisano has recently retired as IBM’s CEO, he is rumored to be the best candidate for the next CEO of Microsoft. Following on, some of Palmisano's qualities that I hope to learn from him through his actions and transformations he undertook in IBM during his tenure would be discussed.

Long term vision. Palmisano is a visionary and explains, “Forward-thinking leaders are not just achieving measurable success in the short-term. They are innovating in ways that create virtuous circles for a generation or more.” As such he positions IBM for a long-term growth strategy rather than a short-term view. This can be seen through various initiatives done by him. For example, he created the Emerging Business Organization to incubate new businesses and shield them from shareholders’ pressures. He is also willing to invest huge money in R&D. In 2010, he spent $6 billion in R&D, approximately 6% of IBM’s annual sales. He explains that although R&D will not reap in short term gains, it is essential for long-term growth.

Bold and believes in himself. Palmisano is not afraid to make bold decisions and he sticks by it despite facing tremendous pressures from various parties. One example would be his decision to cut back on the pension for the senior management. In the mid-2000s, IBM faced a serious pension problem. Their pension liability was bigger than their revenue. As such, it prompted Palmisano to make the change. He mentioned that it takes him a lot of courage to be able to make that decision because his decision would affect numerous people whom are loyal workers of IBM and have spent majority of their lives working for the company. He also faced immense pressures from those unhappy workers who are getting their pension cut. However, all these did not sway his decision and he persevered on because he truly believed that the crucial decision was required to prevent the company from experiencing serious problems in the long run. Quoting Palmisano in an interview, he mentioned that this was his toughest decision ever made in IBM.

Humble and open to feedback. Palmisano is a down to earth person and also extremely open to feedback from his employees. This is clearly seen through his launch of an online, interactive “valuesjam” involving all employees for 72 hours to determine what IBM’s values should be. He was highly receptive and even recreated and reshaped three new values of IBM after listening to his employees’ feedbacks. This is not an easy move for a CEO to put down his ego and pride in order to listen to his employee's opinions. However, he went against all odds and got down to the ground to listen to feedbacks from the “valuesjam”. In fact, even when he was doing business in China, he still made it a point to log in to contribute towards the platform. Another example would be when he became the head of global services in the 90s, he still blocked off 70% of his calendar for customer meetings and spoke to at least one customer every single day. Whenever Palmisano is travelling, he would set aside some time for a solo walk to see what people are buying. This shows clearly that he is always looking to reach out to customers and receptive to their feedbacks.

Shrewd and business savvy. Palmisano transformed IBM through some landmark decisions. One of them would be the selling of the hardware PC line and shifting income towards high-end software, services and consulting. In 2005, he sold off the PC line and acquired