IBM Reorganization Tucks Systems Under Software

July 26, 2010 Timothy Prickett Morgan

I think we might have to start calling it International Business Services and Software. Last Monday, after the market closed and after Big Blue told Wall Street all about its business in the second quarter, Sam Palmisano, IBM’s president, chief executive officer, and chairman, sent out an email to all of the company’s employees telling them about some reorganization of the company. This reorg is different from other ones you have seen.

Now, the Global Services behemoth that was split in two a few years back is one unit again, and the Systems and Technology Group is now under Software Group. That’s right. The long line of independent systems businesses that started out with the Data Processing Division and the General Systems Division, that saw the spawning of nascent software and services businesses in 1969, and the establishment of separate systems, software, and services groups in the 1990s, has come full circle. Now, IBM has basically two groups, which had not been renamed yet to reflect this change when Palmisano sent out his email, but at the System zEnterprise 196 mainframe announcement last week, I saw it referred to as the Systems and Software Group. Whatever IBM calls it, the four executives beneath Palmisano are clearly in charge of the four quadrants of the company.

Steve Mills, who has been running Software Group for many years, now has responsibility for systems, storage, systems software, chips, and intellectual property. Mills, who is 58 and almost as old as Palmisano, who turns 59 this month, is not widely seen as a candidate for president or chief executive officer. But he is clearly now one of the most powerful people at Big Blue. Rod Adkins, who has been general manager of the Systems and Technology Group since Robert Moffat stepped down last October when he was busted in the Galleon hedge fund insider trading scam, remains a senior vice president but he reports to Mills.

The software dog is now truly wagging its hardware tale.

Mike Daniels, who is 56 and has been running the Global Technology Services part of Global Services, now has the whole ball of wax. Frank Kern, who was general manager of the Global Business Services unit (the spawn of IBM’s acquisition of the IT consulting business it acquired from PricewaterhouseCoopers in 2002), now reports to Daniels.

Ginni Rometty, who is 52 and has run Global Business Services for a number of years, took over as the general manager of IBM’s cross-group sales and distribution operation. Now, according to Palmisano’s email, Rometty takes control of marketing and communications, too, with the title of group executive for sales, marketing, and strategy. Jon Iwata, the senior vice president of marketing and communications, and Erich Clementi, general manager of IBM’s enterprise initiatives (like cloud computing), now report to Rometty.

Finally, Mark Loughridge, IBM’s chief financial officer, is now senior vice president of finance and enterprise transformation. Linda Sanford, who was senior vice president of enterprise transformation, and Bob Zapfel, general manager of IBM’s Global Financing unit, now report to Loughridge.

Maybe Palmisano just wanted fewer direct reports? Now, only Mills, Daniels, Rommety, and Loughridge report directly to him.

Palmisano explained the changes as being less about organization and more about “collaboration” and “teaming.” I have no idea what he is talking about and it sounds like some horse-hockey that some mar-com person in Armonk thought up. His explanation about the integration of systems and services made a bit more sense to me.

“We know that IT infrastructure performance is greatly enhanced when every element–from microprocessors and storage through operating systems, and middleware–is designed and brought to market as tightly integrated, optimized systems,” Palmisano explained in his email. “There are logical synergies across our services units, including the increasing value of leveraging our intellectual property in business process management and transformation projects for our clients. In this way we can help them achieve quantifiable value sooner. And we know that in order to achieve the productivity goals of our 2015 EPS roadmap we need to drive both efficiency and process transformation throughout the company.”

This seems to me to be about having one executive be in charge of services, one in charge of systems (meaning hardware and software), one in charge of sales, marketing, and communication, and the last being in charge of counting the money and cutting costs. It’s two pillars instead of four, and two overlays instead of many. So I would think the reorganization is about rationalizing products and pursuing profits and cutting down on fiefdoms where executives try to protect their territory. Basically, there is no territory. Mills and Daniels own it all.

The reorganization is less about trying to sort out succession than many have thought, although this is something that is clearly on the minds of IBM’s board of directors. IBM’s top executives have traditionally retired at 60, but I am beginning to think that this being the 2010s and not the 1950s, Palmisano might decide to stick around until he is 65, if not as CEO then as chairman. The current financial roadmap that IBM has been talking up in recent months runs to 2015.

I am also beginning to think this is not just a power of five or a coincidence. All of the top brass at IBM are too close in age to Palmisano to take over the company right now. So having Palmisano wait until he is 65 would give Big Blue more time to transform its business and find the next generation of executives and groom them to take over. They may be names we know, and then again, they may not be.

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