How IBM's Sam Palmisano Might Fix the US Economy

By Rob Enderle August 09, 2011

Last week I attended a truly amazing talk by IBM’s CEO who was talking about how IBM got to be 100 years old and in honor of opening up a new exhibit on the revolutionary 2000 year history of technology, Revolution, at the Computer History Museum.    Clearly that talk got me thinking about what an IBM’er like Sam Palmisano would do to fix the US economic problem.  

Part of the reason that Sam is so good is because IBM has in place one of the few CEO training programs that exist in the world, unlike a US president, who is often thrown into a job that is both very powerful and very unique. All but two of the IBM CEOs (the founder Thomas Watson and Louis Gerstner who was hired from outside) were trained and groomed for decades before being given control over the company. This is one of the reasons IBM has lasted for 100 years, even though 99 percent of large firms fail in the first 40 years.  

It is interesting to note that in the late 80s and early 90s, IBM almost went under because it forgot one of the most important rules to survival.   But in pulling out of the tailspin it practiced solid IBM basics even though there was, initially, a non-IBMer at the helm. 

While clearly the US government is far more complex than IBM, IBM went from being in nearly as much trouble as the US is to one of the most successful companies in the world by doing a few simple things. I think those things are worth noting.

Where’s the Profit?

One of the things that is drilled into you when you are going through the CEO training at IBM (yes, I too participated) isn’t just that you are put in classrooms with the leading minds of the time, but that, at the end of the day, the company has to be profitable.   If you can’t be profitable it doesn’t matter what you do philanthropically or with regard to employee benefits, you’re still not going to survive as the CEO because the company will fail around you.  

For instance, when faced with the very real problem that IBM liabilities associated with benefits, particularly the pension, were exceeding revenue, IBM management took the painful path to cut the benefits. This landed them in the Supreme Court but, had the company failed, the pension plan would have likely failed as well.    This is in contrast to the new National Health Plan which, in effect, increased costs to government beyond what it could afford to pay.    Given that US healthcare costs are the highest in the world, an IBM exec would have instead focused on getting those costs down before even considering a more comprehensive health program.  

IBM found it couldn’t win in the printing and PC business and exited both.    Wars you can’t win are pointless and under an IBM manager the Iraq, Afghanistan, terror, and drug wars would likely be discontinued and/or dramatically changed. In all of these wars it isn’t even clear how you would win it let alone who would surrender.    Going to war against individual human behavior is stupid and IBM doesn’t do stupid.    These foolish “wars” would be replaced by programs that better matched the costs and focused on the core problems.

This would be carried to other subsidies like transportation and oil.  If the cost of a program, like giving $3,000 ticket subsidies to support small regional airports, couldn’t be they would be discontinued.  

In short, a trained IBM executive would pragmatically cut anything that didn’t make financial sense and wasn’t part of the US’s core values, and they would restructure anything that was a core value in order to better align the value to the cost.   

You might say an IBM manger is a pig hunter, because Pork Barrel spending would be hunted to extinction. 

Investing for the Future

IBM spends a substantial amount of its net profit on investing in the long term future of the firm, one area that the US seems to underfund.   The stimulus package seemed only to defer the economic problem and had no chance of eliminating it.   An IBMer like Palmisano would instead focus on things that would address the balance of trade, like eliminating the US dependency on foreign oil or increasing the ability to export goods, like those based on solar technology, to increase the revue associated with exports.   He might dramatically increase the development of alternative energy technology so that it could be exported rather than just building solar energy farms.  

So one area where he would likely raise investment is in things that would eventually allow the US the change the balance of trade into its own favor.   Somehow this key measure of country profitability has been lost and an IBM trained CEO would immediately focus back on it.   

Wrapping Up  

As we look at how badly the US and other governments are being managed, it seems to be increasingly wise to introduce trained executive management into the mix in order to fix the underlying problems.   IBM is one of the few places you could find where the necessary skill set is actually trained into people and that is one of the reasons why it has lasted 100 years.   Granted, getting sanity through a government system that requires consensus from people who are clearly part of the problem may be a near impossible task, but so was the IBM turnaround and once you do “impossible” it should get easier next time around.   

In any case, underneath all of the recriminations between political parties in the US is some of the most horrid business management I’ve ever seen. IBM is one of the few companies that has the skill set to actually fix the problem.   What the country needs is hope, and at it is clear that Sam Palmisano could, at the very least, teach that aspect of his job to President Obama.   Here is my hope that he gets the chance to do that.   

In the end, though, the way Sam Palmisano would fix the economy would be to invest in things that make the country money and to stop spending on things that are money losers. He’d also focus people like a laser on eliminating graft, and inefficiencies because that, at the end of the day, is what IBM does for itself and its customers. 

To hear more from IBM, visit the company at ITEXPO West 2011. To be held Sept. 13-15 in Austin, TX, ITEXPO is the world’s premier IP communications event.  Mike McCarthy, vice president of Cloud Computing Services at IBM, is giving a Keynote speech on Tuesday, September 13 from 5:00pm-5:30pm. Don’t wait. Register now.

Stay in touch with everything happening at ITEXPO… follow us on Twitter.

Rob Enderle is President and Principal Analyst for the Enderle Group. To read more of his articles on TechZone360, please visit his columnist page.

Edited by Jennifer Russell

President and Principal Analyst, Enderle Group

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