IBM's Unique, Highly Successful "Ground Rules"

A textbook case in how to drive change, IBM has been so consistently successful that it is almost boring. Even more surprising is the size of its workforce in contrast to other tech firms: IBM has more employees than Microsoft, Intel, Dell, Cisco, Apple, Amazon and Google all put together. Furthermore, only HP pulls in more revenue than IBM. 

What’s the secret to IBM’s success? 

In an interview with Steve Lohr, Sam Palmisano, the retiring CEO, says that the firm’s pursuit of excellence around four dimensions—ground rules—shaped the strategy and focus over the past four years. Palmisano boils his ground rules down to four questions: 

  • Why would someone spend their money with you—so what is unique about you?
  • Why would somebody work for you?
  • Why would society allow you to operate in their defined geography—their country?
  • Why would somebody invest their money with you? 

These questions cut new territory in the business world in a number of differing ways, providing especially relevant insight into the 21st century orientation to talent management, careers, and socially responsible businesses. The third, why society allows you to operate in their geography, was rarely considered in the past. Today, although many ignore the question and social responsibility, more are beginning to take notice and get involved. Indeed, Rosabeth Kanter points out six strategic reasons for serving, a highly relevant necessity in today’s world. Palmisano not only read speeches and memos from the founder, Thomas Watson, but he had lunch regularly with Watson Jr., once a month. The Watsons, he says, always defined I.B.M. as a company that did more than sell computers; they believed that it had an important role to play in solving societal challenges. It’s old-fashioned, but it’s motivational, he says. 

The second, “why would someone work for you,” has become a significant matter in the battle for brainpower in a day in which the so-called talent war has gone global, along with talent shortages. It’s a reminder that although all kinds of employees are out of work, more and more businesses are having a difficult time accessing needed talent, even in states like Michigan. Skills shortages are widespread. Dan Pink’s comment back in 2001 is even more relevant today: “Talented people need organizations less than organizations need talented people.” Palmisano found that social responsibility resonated with the young people IBM is recruiting. 

A couple of times a year, Mr. Palmisano speaks to groups of elite students whom I.B.M. is trying to woo to its research labs. The pitch, he says, is that I.B.M. is a place where you can make a difference and do deep science.

“You can change the world, and you can compete for a Nobel prize,” he says, referring to I.B.M.’s five Nobel winners.

(Eighty-seven percent of the candidates who were offered jobs by I.B.M. Research this year joined the company.)

Mr. Palmisano’s appeal to young technologists is just one example of an answer to one of his four questions.  

The first question, why someone would spend their money with you, goes straight to the heart of business strategy. This is an issue that has gotten much attention since Drucker, and continues to be the beneficiary of much thinking, refining and focusing. 

Viewed individually, these questions are not especially unique, excepting the talent focus, but together they are a phenomenal set of ground rules. My response when I first read the ground rules was, “my god, this guy is really a thinker, a great thinker. Not just the typical business yeoman who performs in workmanlike fashion to achieve the company’s objectives.” Taken together, his ideas are client focused, but at the same time, they force a scintillating inward focus upon the operations of the firm. They impact the culture, the strategy, the workforce morale, the commitments of its employees, finances and the clients’ expectations. It’s no wonder that Warren Buffett, who normally shuns technology, to accumulate $10 billion of shares, amounting to a stake of 5%.

"The hardest thing is answering those four questions,” Mr. Palmisano says. “You’ve got to answer all four and work at answering all four to really execute with excellence.”  

Finally, it should be noted that Mr Palmisano was not bred a techie, but came up through the ranks of IBM sales with a Johns Hopkins history major. His thinking is highly indicative of the strengths of that liberal arts background. History people are weaned on the big picture, and thrive on the intellectual ideas that initiate and maintain change in a sea of competing ideologies. This critical tool is especially useful for analyzing the sequence of events leading up to massive changes and reformations, and adept at forecasting the consequences of ideas for good or ill. History is one of two or three fundamental critical tools of global human thinking and analysis, and Palmisano’s thinking reflects that background. It’s paid off superbly for the firm over his CEO tenure.

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