Palmisano: Staying The Course Is The Right StrategyPalmisano: Staying The Course Is The Right Strategy

Samuel Palmisano, who becomes IBM's eighth chief executive on March 1, said Wednesday that he's confident the direction set by his predecessor, Lou Gerstner, is the right course for the company as the computer industry enters a new phase. In his first major public appearance since his appointment earlier this month, Palmisano assured business partners gathered at the company's annual PartnerWorld in San Francisco that IBM's focus on services that help companies build and integrate computing systems and the infrastructure software to run those systems is a strategy that fits the future of computing. Palmisano predicted that 2002 would be a "very tough" year for computer companies, but said IBM's business would remain strong.

That strategy gives IBM the opportunity to sell hardware, software, and consulting services in a market that accounts for 82% of the potential revenue within the high-tech industry, Palmisano said. Helping companies integrate applications across the enterprise and convert business processes from paper-based to electronic-based is a lucrative business. "The E-business era is all about end-to-end integration," he said.

Integration has grown in importance because mainframes that were introduced in the 1960s as part of a centralized computing model later evolved into a client-server architecture and then a distributed application paradigm. That has left companies with a mishmash of technology that all needs to communicate in order to build an E-business, Palmisano said. To address the integration problem, he said, IBM has called for more open industry standards to bridge proprietary systems.

Palmisano reminded the PartnerWorld audience that during the dot-com era, IBM stayed its course and didn't go after Internet companies that later went belly up. Instead, the company built a services division and technology focusing on core problems such as integration. Integration "is not about voodoo economics or business models that make no sense," he said.

Many of IBM's competitors are looking to adopt the same business model as IBM, Palmisano added. He gave the proposed Hewlett-Packard and Compaq merger as one example and hardware vendor Sun Microsystems' focus on software and Linux as another. "We don't see the need for any major strategic shift like our competitors," he said. Not surprisingly, Palmisano is expected to stay the course Gerstner set--at least for the near term. In his various positions at IBM, where he has worked for 28 years, Palmisano was instrumental in building the company's services business, was a chief advocate of its Linux strategy, and pushed for the company to exit the consumer PC business.

Taking a swipe at his more flamboyant counterpart at Sun, Palmisano reminded partners that Scott McNealy showed up at an analysts meeting at Sun dressed as a penguin, the mascot of Linux, the open-source operating system. "The fact that Sun sees the need to adopt Linux as an open platform is a strategic shift," Palmisano said. "I won't comment on the attire." IBM has long been a supporter of Linux and has invested $1 billion in its development. Palmisano, dressed in gray slacks, a navy blue sports jacket, and a stripped shirt--no tie--is the opposite of McNealy, known for his wit and acerbic attacks on competitors. Palmisano's presentation would have been as suitable for the boardroom as for the crowded hall at the Moscone Center.

In discussing IBM's view of the future, Palmisano said the company would continue to invest heavily in a technology known as grid computing, which IBM and many researchers believe is the next evolutionary step for the Internet. Proponents believe the technology behind grid computing will turn the Internet into a massive supercomputer whose processing power and information resources could be accessed by anyone with a desktop machine or handheld device. Today, the Internet is used for communication, primarily E-mail and instant messaging.

Palmisano said the company's focus on computing infrastructure allows it to provide its business partners with a safe harbor as the technology seas change. "You need to minimize risk, you need to think of an alternative platform, and IBM would like to be there with you," he said.

Following the keynote, Francis Ford Coppola, Academy Award-winning director of Apocalypse Now and The Godfather trilogy, told the audience that he has believed since the 1970s that digital technology would transform the art and entertainment industry. While praising the innovation that business has brought to the entertainment industry, Coppola, who has experienced several bankruptcies in his pursuit of art, called on technology companies to temper the demands of commercialism with allowing artists more freedom to create: "Unleash the artist and let us be what we want."