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From Chief
Executive
Here are highlights of an interview with
IBM's Sam Palmisano, conducted at Armonk headquarters
by Chief Executive's Contributing Editor Leah Nathans
Spiro and Editor-in-Chief Bill Holstein.
Q. You are sharing first place with
Johnson & Johnson and Bill Weldon.
A. Bill is a good friend. I'm not surprised they scored
very highly. They really do have a terrific reputation,
strategy and performance.
Q. Why is leadership training so important?
A. At the end of the day, a lot of running a company
is the leadership and the people, as much as good strategy
and analytics and good management systems and processes.
At most companies, it really gets down to the people
who are driving the businesses for you and how they
work with the customer and how they establish the strategy.
You can't separate out the human factor.
Q. What does IBM do in the leadership
area that is unique?
A. We do not separate out executive or leadership development
from the strategy. We absolutely book the strategy,
and then based upon the strategy, we start building
the executive teams.
In fact, if a unit comes in with a new strategy, they
then go off to this thing we call the Senior Leadership
Forum. They ask themselves, "Do I have the organizational
capability, the right business models, the right leaders
in place?" We say they have to "operationalize"
the strategy.
So we don't separate out strategy from leadership. It's
not sort of something, "Oh yeah, well, we'll do
that later. We'll worry about developing the people
later."
Instead, we make sure as we book a strategy
that we have a development team in place. It's core.It's
how we plan and operate the business every day. Which
is one of the fundamental differences in how some other
companies view it.
Q. What is this thing you call bench-planning?
A. We try to make sure we have a bench of two or three
candidates for every job. We have to have a plan in
place for a diverse slate for every one of those jobs.
There are going to be holes. It's not always perfect
because there are gaps. Where our people know they have
a skills gap, they have to have a plan. I do the same
thing. I probably have 17 or 18 direct reports. I try
to identify two or three candidates for each of those
positions.
Of course, a lot of people can play multiple
positions. Let's say I've been to finance, Asia, technology.
An another person may have been in services, software
and Europe. Most of these people can play three other
positions.
There are some specialists. Our research
area requires a specialist. You aren't going to put
an MBA in there. Your union card is your Ph.D. And you'd
better have a patent.
Q. Is it fair to say, in the past,
CEOs just paid lip service to leadership development?
A. As you'd expect, I talk to most of the leading CEOs
around the world. Most of us think the same way on leadership.
You can't find anybody today who doesn't understand
the importance of having a very strong team and developing
the team over a sustained period of time.
We all share ideas about how we do it.
There are lots of unique approaches. We always learn
from each other. But I can't name anyone who doesn't
think this isn't absolutely core and central to the
execution of the business strategy. At least the people
I interact with. And I interact with a pretty large
subset because the nature of our business is so global.
We tend to be in contact with every major corporation
in the world. It's the nature of who we are.
Q. Why is leadership such a hot topic
at this moment?
A. The world has changed. More and more, the strategies
tend to be based on intellectual property and human
innovation. In the old days, your assets and your capital
dictated success. That still may be true for some industries.
You still have the Big Three automotive companies, for
example.
But the world has changed so much. It's not who has
the most assets or the best capital structure. It's
about having an innovative strategy. That competitive
advantage is driven off of people--their thoughts, their
ideas, their innovation. That's different than before.
Because of the networked world and the
Internet, you can form horizontal structures. I no longer
have to have the most manufacturing scale. Because we're
the largest, I can rely on Asian manufacturers in our
supply chain and drive $6 billion in savings. This year
it will be $7 billion. Because you can now interconnect
horizontally, you don't have to do it all yourself.
You become much more of an idea place.
I think people realize all this. It gets
down to a company's ability to innovate and drive their
productivity. As a result, leadership takes on a whole
different dimension.
The other reason leadership takes on more
importance is because of speed. You don't have the luxury
of five- and seven-year planning cycles. The world is
too dynamic and moves too quickly. We need businesses
that are flexible and resilient.
Q. What are the fault lines in debate
about leadership? What is the debate when you sit down
with your counterparts?
A. Everyone has their own take on it. There's a negative
side of structure that's called bureaucracy, which is
associated with a lack of speed. A lot of organizations
need to be more fluid.
But when you're dealing with company the size of IBM,
we need a little bit of process to bring these things
together. We rely on the process. It doesn't have to
be cumbersome. If I take it to the board of directors.
I go through not only succession planning but also the
top tier resources in IBM. Smaller companies may not
need the process, but it's important to us for a multitude
of reasons.
Q. Are you applying those techniques
on a global basis?
A. It's a luxury that we have access to top talent all
over the world. One way you retain that talent is by
giving them an opportunity to become the future leaders
of the IBM Corporation. Not just the future leader in
Japan, or India or China or what have you. You have
to have that opportunity for them to advance all the
way up through the ranks.
We want to be your employer as long as
you contribute and buy into our values over the long
term. You can go all the way in IBM. We try to instill
the fact that we want to be representative of communities
we work in all over the world. We reach out to diversity.
Again, this lends itself to process. To be more than
value statement, to make it a reality, you have to reach
out through in your development and hiring.
We've done all kind of studies. It takes
a long time to become an executive at IBM, but it's
no different. It's about 17 years on average.
Q. From entry to executive level?
A. Yeah, so they're in their mid to late 30s, which
isn't that ridiculous. But nonetheless, it probably
should be sooner.
It's those kind of metrics and benchmarks
that we go through. We find, there's a great advantage
to size because you can leverage all this breadth and
capability. It lends itself to process. You have to
have process to make it work. If you don't have process
and metrics, you can't have any accountability or follow-up.
It's not that we don't trust people. Of
course, we trust people. For the system to operate,
however, it has to be process-driven. If not, you create
too much overhead or staff. And we don't want the expense.
So you rely on process. You rely on metrics. You rely
on our technology.
Q. On your Senior Leadership Team,
the top 300 people leaders within IBM, what characteristics
do they display that might be different from those of
someone your own age?
A. The industry is re-integrating. It's easy for me
to say this. I've been around for 30 years. A 30-year-old
might just think there's a lot of excess capacity in
the technology industry.
But I see it as consolidating. It's re-integrating because
fundamental customer behavior is changing. They don't
want to go take 15 different disparate pieces of things,
called technology, put together themselves to make it
work. That's not the most effective way to do it.
If the industry is re-integrating, your
strategy has to have people who can work together on
a team. At one point in time, when the industry was
disaggregated, you could offer the best in PC's, the
best in servers, the best in operating systems and so
on The customer bought all 15 and put the system together
themselves. We always said teamwork was important, but
if you were the best software guy in this business,
you could pretty much operate alone.
But now the technology industry has contracted.
It's flat this year and it was down for the previous
two years. It's the first time in the history of the
industry that it's contracting at this rate. It's happening
because customers are changing what they value.
So we have to bring a solution together
for the customer. We have to have real teamwork to satisfy
the customer's demand for a combination of hardware,
software, services and financing.
That explains why teamwork is much more important than
it was 10 years ago. If you had great sales and marketing,
great technology, you were going to win in your space.
That's what has changed strategically. The leadership
model has to be much more oriented around collaboration
and teamwork.
Q. What does that mean in practical
terms?
A. You have to be able to lead a multi-divisional team
that doesn't report to you. It can't all report to you.
But you have to create this compelling vision for what
has to get done, assemble a team and bring it together
to solve a problem that's in the interest of the customer
and IBM. It's a whole different set of competencies.
Q. So they really have to lead themselves?
A. Right. We've come to the conclusion, there is no
ideal organization. It's really values and culture and
behavior that tie this thing together.
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