Fri, Aug 17, 2001 page19

• IBM taking its time in introducing future leader

  There is a clear frontrunner as Big Blue prepares for a change of leadership, but the incumbent chairman and CEO is in no hurry to hand over the baton

  • By Barnaby J. Feder / NY TIMES NEWS SERVICE
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  IBM is moving toward the retirement of Louis Gerstner Jr, its chairman and chief executive since 1993, in an exceptionally methodical fashion.

  The appointment of Samuel Palmisano nearly a year ago to president and chief operating officer made him the clear front-runner to succeed Gerstner. Gerstner made his thinking explicit in May when he said during a television interview that Palmisano was "emerging as the leader" of the management team that will "take IBM to the future."

  

  IBM's chief executive, Louis Gerstner Jr, pictured at IBM headquarters in Armonk, New York.

  PHOTO: NY TIMES

  Palmisano, who joined IBM right out of college in 1973, is one of a cadre of top executives who proved flexible enough to thrive in both the old IBM, with its legendary buttoned-down bureaucracy, and the higher-velocity, hard-edged corporate culture that emerged under Gerstner during the 1990s.

  But IBM is not offering any clues as to when its future under Palmisano, who turned 50 last month, might start. Many analysts expect a transition announcement before the end of the year, with Gerstner's actual departure coming in March when he turns 60 and his current employment contract ends. Others, however, say they would not be surprised to see Gerstner stay on for as much as two more years.

  Gerstner clearly is in no hurry to share the public spotlight with his heir apparent. At this spring's annual meeting with industry analysts, Gerstner barely gave Palmisano a chance to speak.

  Palmisano appears content to remain in the shadows. Both men refused requests for interviews. And IBM executives are reluctant to publicly recount their experiences with him for fear of looking like they are pushing Gerstner out the door.

  Gerstner, after all, is widely admired for transforming IBM, the computer giant, into IBM, the services-led enterprise, one capable of prospering during the current downturn. IBM earned US$8.1 billion on revenue of US$88.4 billion last year and is on the path to double-digit earnings growth again this year. But no one has forgotten the huge losses of the early 1990s that led to the recruitment of Gerstner, the first outsider to lead the company.

  Current and former co-workers describe Palmisano as humble -- never a term applied to Gerstner -- and quick to use humor to disarm those in his orbit.

  "He always had a boyish enthusiasm that conveyed a sense he felt lucky to be doing what he was," said C. Michael Armstrong, a former IBM executive who is now chairman and chief executive of AT&T.

  Those who have encountered Palmisano in action more recently say that a steelier side has emerged. A fast talker with an encyclopedic mind for data and trends, Palmisano, like Gerstner, is not subtle about conveying impatience. John Whiteside, a former IBM executive, said in a 1998 interview that Palmisano would break or toss pencils -- or simply leave to make sales calls -- if he felt a meeting was dragging.

  But Palmisano is not known as Gerstner is for screaming or angry outbursts calculated to intimidate employees, consultants or critics.

  "The first attribute that comes to mind with Palmisano is `nice guy,'" said Bob Djurdevic, president of Annex Research in Phoenix, who is one of IBM's most unstinting and caustic critics.

  Palmisano grew up outside Baltimore and attended a Catholic high school before enrolling at nearby Johns Hopkins University. He maintained a B average but displayed no zest for academics, according to classmates. In addition to the football team, on which he played center, his extracurricular interests included playing saxophone in a jazz band and dating Gaier Notman, known as Missy, who later became his wife and the mother of their four children.

  Palmisano joined IBM as a sales representative immediately after graduating in 1973. He was quickly identified as an energetic, high-potential young manager and promoted rapidly. In 1991, Palmisano was chosen for a plum assignment to serve a one-year term as executive assistant to John F. Akers, Gerstner's predecessor.

  Glowing reviews from Akers, however, were not worth much at IBM upon the arrival of Gerstner, a former McKinsey consultant and top executive at American Express and RJR Nabisco. By then, though, Palmisano had completed an attention-grabbing stint in Japan, where he laid the foundations for what is today a huge business running the computer operations of Japanese companies, and settled in as president of IBM's global services subsidiary.

  His work in Japan and subsequent postings, including a period running IBM's troubled personal computer operations, added up to a track record that spoke for itself to the results-oriented Gerstner.

  Yet skeptics say that Palmisano's accomplishments are also testimony to his skills as a corporate politician and his fortunate arrival at units like global services just as they were taking off.

  And even some analysts who speak highly of Palmisano add that IBM's practice of moving promising managers like him rapidly through many assignments makes it hard for outsiders to assess their capabilities. Palmisano's brief sojourn from the spring of 1996 to the end of 1997 through the tough personal computer business, for example, coincided with one of the industry's stronger growth periods. And some wonder whether aggressive stuffing of sales channels to meet short-term performance goals during that period may have contributed to the troubles his successor, David M. Thomas, encountered. Analysts estimate that IBM lost more than US$1 billion in the personal computer business in 1998.

  Thomas, who left IBM last year, was among the former colleagues who declined requests to discuss Palmisano.

  No one disputes, though, that Palmisano played a major role in the growth of the global services business into the company's largest unit. Palmisano headed the services business twice -- first in 1993, when it was known as Integrated Systems Solutions, and more recently from January 1998 to October 1999.

  Outsiders looking for clues into Palmisano's strategic bent have been impressed by his aggressive backing, starting in late 1999, of IBM's support of Linux, an open and free computer operating system. Reliance on Linux runs contrary to IBM's traditional support for proprietary software that it could sell along with its computers.

  Donald Young, who follows IBM for UBS Warburg, thinks Palmisano will eventually take significant risks to push the company in new directions. "He is more likely to go for market share," he said, "at the risk of cash flow and profits."
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