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[Music]
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[Music]
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this is Mike usim I'm a member of the
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Wharton School faculty and today I'm at
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the headquarters of IBM here in armont
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New York with Sam Pomano who joined IBM
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in 19 1973 became chief executive in O2
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and today having stepped down nine days
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ago as chief executive he continues as
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chairman of the company Sam it's my
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privilege to have a chance toh talk with
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you and I'm going to pick up on that
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moment when you did become chief
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executive here of the company back in O2
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and as you look back on the challenges
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you faced as you after many years with
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the company now we're responsible for
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the entire company just to reflect on
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those early days back in ' 02 what did
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you see as the biggest challenges for
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your leadership taking over at that time
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well I think it's you know and you first
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take over it's hard to separate uh your
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leadership from the company itself uh
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because basically when you're a brand
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new CEO I mean I was President for a
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period of time you know so 18 months or
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so and I had run all the businesses
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along the way I've been here all 40
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years now so it isn't like I didn't have
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experience with the operations of the
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IBM company
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but uh as L said to me and as I said to
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Jenny until you're in it you can't
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describe it and so you you start out
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just trying to manage the company which
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is a big complicated thing even though
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you grew up in it so your first reaction
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is I have to keep the performance going
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and uh and we had a wonderful financial
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performance we had writed the course
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financially uh I didn't believe at that
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time we had done the business TR
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transformation I mean remember we got
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ourselves in trouble uh we missed the
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shift and called the PC but we missed
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that client server shift and got
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ourselves uh financially in trouble
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because of that shift M margin pressure
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restructuring the company Etc so we've
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been through a lot of financial
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transformation or change but not
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business model transformation so I
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really believed in the beginning that
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when I had to keep the business going at
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the same time uh start the
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transformation of the business model I
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didn't think the business model as it
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was at that point in time was going to
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sustain itself over the next 10 or 15
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years just say why not well primarily
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because of technical Trends and the
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macroeconomic environment um and by that
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I mean when I say to start the
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technology Trends uh the doccom bubble
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had just collapsed so uh all of the
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valuations in Tech had been reset
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because of the bubble and also there was
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excess inventory uh because of a bubble
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and everyone in the industry was telling
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itself that it was going to return the
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PC would return it just was a a it was a
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cycle an economic cycle and we believe
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that IBM and I really strongly believe
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myself that it was a systemic shift that
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this platform that had propelled the
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industry for 15 or 20 years which these
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platforms do that's their course
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normally if you look at the history of
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our industry uh had run its course and
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it wasn't going to be the future and so
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if it wasn't going to be the future we
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needed to shift to the Future because we
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learned a lesson of when didn't shift
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because we missed the PC shift even
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though we invented it you know we didn't
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exploit it so I thought that was
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important and then the other one which
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was pretty obvious but now is extremely
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obvious is the fact that the world was
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going to economically begin to globally
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integrate and that these emerging
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countries were going to be as they are
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in 2012 The Lion Share of economic
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growth and that we needed to get that
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company positioned to take advantage of
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that both participate in the markets as
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well as access to skill and resources
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build the relationships you know all the
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things it takes to really take advantage
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of those kinds of opportunities I'm
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going to pick up on that and ask a
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question about how you saw the future
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five or 10 years out evidently better
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than many other people in the in the
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technology industry and I say that by
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way of uh picking up on the notion that
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to transform the company to become what
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it should be looking that far out you do
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have to have an appreciation for what's
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out there
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that's better than a lot of your
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competitors many want to become more
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Savvy about where the industry and where
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the markets are going uh here at IBM
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youve probably done that better than
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most out there so what Sam was your
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secret of coming to know what that
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future entailed well I think the from
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the technology side we have a wonderful
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research organization and uh I know a
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lot of people under business model
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pressure really curtail reseearch
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Investments we have obviously have not
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we still spend six billion a year on
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research and development but it's a huge
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brain trust so uh we have we do this
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thing called the global technology
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Outlook it's about a 10-year View and we
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argue about these Trends and they
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they're real debates at the top of the
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business it's almost like a faculty
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environment you know it's a peer review
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in a sense the research scientists come
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in they say these are the technology
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Trends the business guys will argue that
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they don't see it that way or what the
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business model impact of that Trend you
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know the usual debates that you'd have
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and it goes on and uh so I think that
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you know probably a lot of companies had
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those debates as I would say I don't
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think there was anything in the
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technology that we were seeing that
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others weren't seeing we just decided to
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act upon it you know right and so uh
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others chose not to act upon it uh and I
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understand that because when the PC
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thing came along we almost failed we saw
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the trend we invented it with Microsoft
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and Intel but we didn't exploit it
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because we were wedded to the Past a
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business model called the
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Mainframe uh there there were people
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that were phenomenally successful in the
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PC era that were wedded to a business
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model and I said well what is act two
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and IBM's case is like act five because
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we're 100 years old but lot a lot of
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companies have a hard time seeing what
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I'll call the act two because they get
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so wetted to the product so wed to the
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financial uh rewards of their business
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model if they've been successful and
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they just don't see or if they see they
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uh have a a conservative view upon
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acting they're slow down act you know
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right they think well maybe it's wrong
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maybe it's really not going to happen
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I'm making so much money in this
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business do I really want to take the
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risk of transformation kind of get the
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people there I mean you know these are
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all questions that you you're going to
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ask yourself before you take this on let
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me ask if you were haunted as you did
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take charge back in ' o02 by the not so
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far back in the past near-death
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experience that IBM went through in the
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early 1990s that's when lner came in got
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to ship back ont course but that was uh
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pretty tense there in 1993 1994 you were
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here at the time to what extent did that
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near-death look affect your thinking as
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you took charge in O2 well I mean you
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learned the impact of missing the shift
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you know I mean we all knew it because I
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mean you can put it in Stark terms we
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went from a peak of uh 412,000 people
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down to a bottom of 27 so 200,000 of our
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friends were no longer here you know
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right and most people companies that
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wouldn't have the balance sheet or the
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cash flows of IBM would never have made
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it you know you wouldn't have gotten
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through it but because of our strength
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of our balance sheet and our cash assets
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and things we could get through that
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right uh and deal with all the
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restructuring charges that we had to
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take so uh you learned it and if you
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look at the history of IBM and uh this
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is our Centennial year I've been sort of
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studying this anyway getting prepared
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for the Centennial if you go back to the
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Watsons what they were really good at
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they they didn't miss the shifts they
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always moved to the Future even though
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it was a father and a son they moved
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from you know scales and meat weighing
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and all that cheese slicing machines to
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tabulators to Modern to Office Products
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typewriters selectric typewriter to
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Modern Computing that's what the sun did
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to the 360 huge bet on the product
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called the 360 bet the company at the
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time like an entrepreneur would you know
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different than you see I think in a
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large company today but that was the
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Father's son and they rolled the dice
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and so that became the modern Computing
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europea but that's what it was you know
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so you saw the fact if you miss the
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shift the impact of missing the shift
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you see you see it all the time uh
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especially in uh it's true in technology
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Industries because most of the companies
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are so young so if you look at a lot of
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the people that have a great start they
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could run for 10 15 maybe 20 years but
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then there's no act two the founder the
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entrepreneur retires what have you maybe
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they physically can't go any longer
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whatever and then there isn't this act
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too so if they don't come back
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management comes in but they really
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struggle with moving to the Future
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that's the challenge uh and I just think
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technology is more ruthless I mean is as
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an industry because it's not forgiving
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versus other Industries where it's not
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as abrupt and as harsh in its correction
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you know among the ways that you
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transform the company O2 through today
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were some of these Landmark decisions
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for example to acquire PWC right to sell
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the PC line back there in 0405
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to get into the cloud before some other
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people did yes talk a bit about how you
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reach those critical transformative
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decisions well if you go through um
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let's start the I think you know they
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they're all different in a way um so
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I'll take them very quickly I won't
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dwell on each one but uh price water
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house was really about the fact that we
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felt that the technology was going to
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become embedded in the business process
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so it was going to be buy a computer and
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apply a computer there was no separation
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we called this thing sensors and and and
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realtime information Now smarter planet
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right we saw that occurring so we needed
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more knowledge of the business process
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when we did the PWC acquisition I mean
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we had a good valuation for it but
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besides that you know people asked me
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well you know what was this all about I
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said well we're already the largest IT
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services company so it's not about being
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bigger when you're the largest it's
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about having assets and skills we didn't
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have and PWC had really deep insight
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Healthcare and financial systems and the
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like where we understood technology we
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understood how to apply technology to a
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banking system or to the healthare
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system but we didn't know the process of
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a payment system or trading derivatives
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or what have you and the Deep process
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knowledge and so the our the colleagues
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that came from PWC gave this that
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knowledge now we married it to the
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technology guys we married it to the
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research and that led to a lot of the
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things that become smarter Planet but
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that's what we were missing so we were
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trying to add to a technology gap or
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skill Gap really in that sense uh to me
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PC was um culturally hard but simple
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economically I mean it was the easiest
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business decision I've ever made now how
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you do it and who who do we partner with
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that was complicated but when you looked
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at the PC and where it was headed and
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again this is we looked this is 203 we
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did the transaction I believe in ' 05
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but we ran the model uh and you could
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see you could see it was going to become
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consumer and we were positioned in the
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Enterprise um andell was also
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Enterprise uh HP was more consumer
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because of their printer business and
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you had the uh tashias of the world the
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aces of the world you had a lot of guys
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that are very consumer oriented and but
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D and IBM were primarily the Enterprise
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guys and so was the old compact but
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compact then moved the HP which became
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more consumer when you saw this thing
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moving cons consumer you could see that
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the uh the economics of the business
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were not going to be be as attractive as
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they were and they already weren't great
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I mean they really weren't I mean you
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were looking at a you know operating
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margin a 4% business a 3% Business
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Without subsidies from Microsoft and int
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Intel and people say well what do you
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mean by Subs so it's in all the justice
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department suits so it's not like it's
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not public information when I say this
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that's what do you mean sub well just
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read this filings I mean you know it's
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all there we're not making it up at IBM
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we Haven to be part of it so we
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understood it but uh it's not a great
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business and so and it was going to be
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under pressure because of moving to the
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consumer space more consumer electronics
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like than Enterprise like so the things
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that we could do robust engineering the
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great mobile ThinkPad weren't going to
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be as valued in that space and so that
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was a simple economic decision the
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complexity of the decision was the part
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who to partner with who should we sell
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the asset to could you get it approved
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that was phenomenally complex let's
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dwell on that for just a second in that
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arguably a vital feature of anybody's
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leadership is the ability to think
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strategically to appreciate all the
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pieces and all the players out there I
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know you talked with tpg about acquiring
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the PC line uh you thought about Dell
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right ultimately you sold to China's
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Lenovo which had been a purely Chinese
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company up till that point why why did
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you pick Lenovo well the reason we did
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and you know this is one of these things
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that um if you look at it tactically the
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the easiest transaction for us would
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have been a private Equity transaction
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the guys know what they're doing tpg is
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a very professional firm we know the
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guys or there others as well General
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Atlantic you know they guys that are
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really good at this stuff they know
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exactly how to conclude a transaction
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you know right very little issues with
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government approval you know
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straightforward financial transaction
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right um however when we looked at it uh
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we kind of came to the
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conclusion uh that China was going to
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huge space I mean we were uh small there
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uh even with the PC business in the
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company IBM China and that if you looked
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at the economic model of China or the
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goals of the government they were trying
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to expand Beyond just be a domestic
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manufacturer the largest you know
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Manufacturing Company in the world the
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big outsourcer for manufacturing right
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and that was uh the government's
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ambition you know the premier and the
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president when and who that was their
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goals right and so
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uh we believe as we do believe that you
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know as part of our rol as of companies
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why do you get permission in society to
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operate well you need to partner with
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the societ is where you operate you you
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just can't kind of be anti the society
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and expect a partnership and so we felt
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that strategically I felt very strongly
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about this that that this was a better
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strategic transaction for IBM even if
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the economics maybe weren't as
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attractive but long term this would be a
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better deal if we could align with a uh
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one of their Champions by Lenovo and so
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uh now that added the whole neev another
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level of
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complexity uh there were a lot of people
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that advised me to' be really hard to
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get this done uh and their advice was
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right it was hard to get this done I
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mean they were not misguided but they
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also believed we could get it done but
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it was just going to be hard uh and so
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we took a shot and uh it worked out and
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so we were fortunate enough to be able
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to have a partner Lenovo well Clos the
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transaction from a a deal perspective
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and we we worked with both the US and
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the Chinese government both sides uh to
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get the thing through and it was complex
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uh but both governments ran a fair
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process and this thing called CIF is
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here but if you run a fair process and
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as the governments defined it uh it
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should have been approved and it was
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approved uh as long as it doesn't become
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politicized that's a whole different you
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know discussion we didn't think it would
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become size it was a PC after all I mean
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it wasn't some big National secret we
00:16:03
were selling all the stuff was
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manufactured in China anyway so it
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wasn't like we were giving something to
00:16:08
away they didn't already have but you
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know we were fortunate the process
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didn't get politicized because if it had
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become politicize I it might have become
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a different outcome you know these
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decisions to acquire PWC to sell off the
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PC line really helped Define your
00:16:24
leadership of the company another
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defining element I believe believe is
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the bringing to
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IBM uh a commitment to develop
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leadership throughout the ranks and if
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if L gersner the prior CEO's signature
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or or stamp on the company was to
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transform the culture I think one of
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your has been to think about to focus on
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building leadership among the some
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50,000 managers you have why had you why
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had you earlier on chosen to give it
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that focus and how how does that work
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right well it goes back to the business
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model and and by that I mean um I
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believe and I believe then that you
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can't run IBM from here I Happ we're
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happy to be seing our corporate
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headquarters in our monk today for the
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audience you can't do it uh and it's 170
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countries today 426,000 people different
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cultures different religions different
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local priorities and you need talent to
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do that and you need people who can deal
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in a complex Global world and and so um
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and we had this thing called globally
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integrate the IBM company and lower the
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center of gravity which meant move
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delegate more decision making down and
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it wasn't just an efficiency statement a
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lot of people say well you're doing that
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because you want to get rid of overhead
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of course we need to get rid of overhead
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we need to be competitive I mean that's
00:17:46
obvious but that's not necessarily some
00:17:49
people don't connect that with have the
00:17:50
talent on the ground to actually operate
00:17:53
this company and then have the Business
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Systems so they can do the analysis
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without having thousands of people do
00:17:58
the analys is for them the analytics and
00:18:01
of course we should be good at computer
00:18:02
models given the business that we're in
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but nonetheless you have to connect the
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two so we felt it was really really
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important that we developed that skill
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base and so we invested uh numerous
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programs but many of the programs were
00:18:16
Beyond just traditional management
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development and a lot of it was to give
00:18:20
people a global perspective because if
00:18:22
you're going to globally integrate the
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company and you're going to expand in
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all these markets they need to be able
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to operate in a multicultural
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environment
00:18:29
so one of the things we actually came up
00:18:31
with called the corporate uh citizens
00:18:33
core we actually took younger people in
00:18:35
their careers and said go off and work
00:18:38
in Ghana or Tanzania or these emerging
00:18:40
places Nigeria or have you uh
00:18:43
Philippines and do some work with NOS or
00:18:46
the government do some you know uh
00:18:48
through the foundation do worthwhile
00:18:50
projects but establish relationships
00:18:52
work in a multicultural team because the
00:18:54
team was formed from Young town all over
00:18:56
the world you know and spend to n months
00:18:59
doing that and then come back and teach
00:19:00
your colleagues what you've learned and
00:19:02
we'll have more teams established that
00:19:04
was that kind of the um early management
00:19:06
level the executive level we created
00:19:07
these things called get teams to go out
00:19:09
and decide how we should enter in Egypt
00:19:12
or what should we do to transform
00:19:13
lowering the center of gravity and we
00:19:15
sent those guys around the world but the
00:19:17
goal was to give an IBM project but then
00:19:20
put them in a multicultural environment
00:19:22
uh the reason why we got there I worked
00:19:26
overseas before I was in the old model
00:19:28
go off I was in Japan mostly worked in
00:19:31
IBM Japan to tail and I was in our Asian
00:19:34
operation uh so I learned what it was
00:19:36
like to work in a non- US country IBM
00:19:39
Japan with 20 those days 23,000 Japanese
00:19:42
and two ging two Sams CFO and myself I
00:19:45
was the operating guy um and I learned a
00:19:49
tremendous amount about how do you have
00:19:51
to work in a different culture uh which
00:19:53
was much harder than just the business
00:19:55
problems we were trying to solve and so
00:19:58
I was sort of uh very sensitive to the
00:20:01
importance of that you know that just
00:20:04
because people aren't comfortable with
00:20:05
English as their native language that
00:20:07
doesn't mean they don't have a lot to
00:20:08
say I mean and how you communicate all
00:20:11
those subtleties of language and culture
00:20:13
and so it was really really important
00:20:16
and if you believed like we believed and
00:20:18
it's obvious today that you know most of
00:20:21
the economic growth was not going to
00:20:23
come out of the G7 uh and that was a
00:20:25
demographic statement I mean you know
00:20:27
people say well what you mean what do
00:20:29
you mean by that so well it's obvious
00:20:31
because if you say once these
00:20:33
governments decided they were going to
00:20:35
engage in the global economy and their
00:20:38
middle class was going to emerge it had
00:20:40
to be I mean if you have four or 500
00:20:42
million people entering the middle class
00:20:44
they're going to have to have Health
00:20:45
Care Systems they're going to demand
00:20:47
clean water they're going to want a
00:20:48
banking system they'll have debits and
00:20:49
credits they'll buy homes I mean that's
00:20:51
what happens you know and so that's what
00:20:54
we do I mean we do all the it associate
00:20:56
with all those things so that was a h
00:20:58
obvious you know right that that was
00:21:00
going to occur I mean people argued the
00:21:02
stability of the governments and all
00:21:04
that but if you take a longer term view
00:21:07
which we did we felt that we might as
00:21:08
well get ahead of the curve so you
00:21:10
needed people that was the economics of
00:21:12
it uh the business model was globally
00:21:14
integrated IBM and operate as one not
00:21:16
100 companies and then you needed the
00:21:18
people who had the management acument
00:21:21
and the cultural sensitivity to do that
00:21:24
and we spend a lot of time we do spend a
00:21:27
lot of time and money on that I mean um
00:21:29
I think the best example of it is this
00:21:33
most recent SEC secession we just went
00:21:35
through I mean uh Jenny was great she
00:21:38
earned the job it's been here for 30
00:21:40
years I mean she's been all over the
00:21:41
company just like I had been all over
00:21:43
the company uh there were lots of other
00:21:45
candidates for the job you know but she
00:21:47
won I mean to her credit let's dwell on
00:21:49
that for a second around the issue of
00:21:52
mentoring and
00:21:54
coaching and I know that an axial
00:21:57
principle of your leadership here is to
00:21:59
provide lots of coaching lots of
00:22:01
mentoring looking back on your own
00:22:02
career prior to O2 who would you single
00:22:06
out as the most important Mentor you had
00:22:09
along the way well it's interesting you
00:22:11
know because I think the thing I've had
00:22:13
so many people help me and the key to
00:22:16
having people help me as I say is you
00:22:18
have to be a good
00:22:19
mentee right because you have to listen
00:22:22
and what happens as you become
00:22:24
successful you forget the ingredient of
00:22:26
getting a good Mente tea right which is
00:22:28
is listening to the people that are men
00:22:29
toing you but I've had uh obviously lots
00:22:32
of previous managers previous CEOs John
00:22:35
Acres Lou gersner other guys on the
00:22:38
outside they're always willing to help
00:22:40
you know uh very successful if you ask
00:22:42
and listen you know people are always
00:22:44
willing to help you I find that people
00:22:46
aren't always willing to listen and
00:22:49
so uh that's I think if you say what's
00:22:52
the the the shortcoming in being Mentor
00:22:55
you have to be able to want to be mentor
00:22:58
know right it starts with that and I and
00:23:00
I see it so often um and the that is the
00:23:05
key but you know you have lots of Role
00:23:08
Models uh along the way uh you know
00:23:11
people that were always uh a good role
00:23:13
model for me is they never put
00:23:14
themselves first uh they always put
00:23:17
their institution or Society or their
00:23:19
Enterprise first and usually they get
00:23:23
better results and if you watch if you
00:23:25
say well why does it work because you
00:23:28
get people more excited because they can
00:23:30
contribute versus an individual trying
00:23:32
to take all the bows for the team and so
00:23:35
uh I actually you know you could say
00:23:38
well I'm comfortable in that style but
00:23:39
if you put that aside for a second I
00:23:41
actually think it's a more successful
00:23:44
product at the end of the day let's go
00:23:45
back on John Acres then who was chief
00:23:47
executive through
00:23:49
1993 question about John if you can
00:23:52
single out one thing that you picked up
00:23:53
from John i' like to hear about that
00:23:55
then separately from L gers who served
00:23:57
before you from
00:23:59
1993 through 02 and then just to
00:24:02
complete the question as you've worked
00:24:04
with your successor now what did you
00:24:07
pass on to her that in your view was
00:24:09
among the most critical coaching
00:24:11
elements that you provided you're
00:24:13
probably best asking her she might find
00:24:17
coaching she's the recipient of my uh
00:24:20
tutelage no uh I think you know the
00:24:22
thing uh I've learned a lot from
00:24:24
everybody and one of the things that
00:24:27
John did that was most impactful to me
00:24:29
anyway he's the one that sent me to
00:24:31
Japan and I was uh in his office CU we
00:24:35
had this program at the time and you
00:24:36
know he had been the executive assistant
00:24:38
to carry and opal to Watson who was
00:24:40
another CEO so it was one of these
00:24:41
things where they groomed young people
00:24:43
it was a part of management development
00:24:45
so he worked for the chairman and the
00:24:47
CEO as a flunky basically but you did
00:24:49
learn a lot I mean but you were as
00:24:51
flunky I mean I don't want to you
00:24:52
weren't Chief of Staff or something
00:24:53
trying to glorize the position but uh
00:24:56
you were a refined Administrative
00:24:58
Assistant
00:24:59
so anyway but you know the thing was
00:25:01
that and I say that and I was being
00:25:04
offered all kinds of U very significant
00:25:07
promotions in the US and John said no
00:25:09
you should do this and there's a guy
00:25:11
over there by the name of Tak shinosan
00:25:14
he's a great executive and he'll teach
00:25:16
you a lot and I want you to go work in
00:25:18
IBM Japan and in Japan there's no
00:25:21
structure to the job I mean what's is
00:25:23
there is there a position nope you're
00:25:25
working for him he'll figure something
00:25:26
out when do I go go first of the year
00:25:29
and I had kids and family and you know I
00:25:31
mean all this sort of stuff but I think
00:25:33
you know what uh I learned from that was
00:25:37
what he was teaching me is that if
00:25:39
you're going to be successful you're
00:25:40
going to have to learn to operate in all
00:25:42
these different kinds of environments
00:25:44
and going back and doing something
00:25:46
comfortable even it's a big position in
00:25:47
the United States is not going to
00:25:48
prepare you for the future so to get
00:25:50
prepared for the future right you need
00:25:53
to really put yourself in an
00:25:55
uncomfortable
00:25:56
space uh y and you know not all not all
00:26:00
advice is always communicated but you
00:26:02
could see it you know now you should
00:26:04
just go do this you know right and so
00:26:06
and it that was exactly what it was that
00:26:08
was from John and then his successor Lou
00:26:11
gersner what would you single out there
00:26:12
the thing I learned about Lou is that uh
00:26:16
other than his phenomenal analytical
00:26:18
capability which I can't it's almost
00:26:20
unmatched but you know Lou always had
00:26:25
the ability to put the market or The
00:26:27
Client First M and not and and so the
00:26:30
analysis always started outside in you
00:26:32
know right and you could say got got
00:26:34
back connected with the marketplace or
00:26:36
the customer but that the point of it
00:26:37
was to get the court the company and the
00:26:39
analysis focused on outside in not
00:26:41
inside out and I think when you miss
00:26:43
these shifts you're inside out if you're
00:26:45
outside in you don't miss the shifts
00:26:47
because they're going to hit you now
00:26:49
acting on them as a you know as a
00:26:50
different uh uh characteristic right but
00:26:54
you can't miss the shift if you're
00:26:55
outside in if you're inside out it's
00:26:57
easy to delude yourself from the shift
00:26:59
so he taught me the importance of uh
00:27:02
always take the view of outside in the
00:27:05
other thing Lou does extremely well is
00:27:07
always take the opposite
00:27:09
position even if you believe the
00:27:11
position that that's being represented
00:27:13
you as the correct position and he does
00:27:16
he used to do that and it it drove a
00:27:19
high level of uh discussion really or
00:27:22
debate and you got to a better
00:27:24
conclusion and he was really good at it
00:27:26
I mean Al it was the McKenzie training
00:27:28
or whatever he was really really good at
00:27:30
taking the opposite even when it seemed
00:27:31
obvious to all of us he would take the
00:27:34
opposite position so therefore he had to
00:27:35
go through the analysis to make sure
00:27:38
that your uh your conclusions were
00:27:40
correct that your convic your
00:27:41
convictions were supported with data and
00:27:43
those sorts of things so outside in uh
00:27:46
John was more personal development so
00:27:49
completely different things I think the
00:27:52
key with Jenny which I've tried to you
00:27:53
know kind of really coacher through H is
00:27:57
that and it's a measure of I think is
00:27:59
the most important measure is you know
00:28:02
leave the Enterprise better than you
00:28:03
find it that should be your measure of
00:28:06
success don't get absorbed in the
00:28:08
external metrics of success you know I
00:28:12
mean yeah our stock is done extremely
00:28:14
well terrific I mean we like that right
00:28:17
obviously everyone's been rewarded
00:28:19
because of that but the company is much
00:28:22
better position today we have better
00:28:24
Talent the brand is stronger we're much
00:28:26
more innovative we have deeper client
00:28:29
relationships than we had that's why
00:28:31
large investors have come in because
00:28:33
they see what we have is more sticky as
00:28:35
to use their terminology uh so the
00:28:38
company is in better shape so think
00:28:40
about you know the next 10 years you
00:28:43
know not the next 10 quarters here what
00:28:46
can you do to make leave the your
00:28:47
company in better shape than you found
00:28:49
it and it's not about you the CEO it's
00:28:53
about the
00:28:54
Enterprise and you know and she'll do
00:28:57
that I mean I I think she's that kind of
00:28:59
personality she's not absorbed in
00:29:01
herself I mean she's absorbed in how do
00:29:03
I take this thing to the next level and
00:29:05
a lot of the stuff we just the analytics
00:29:07
smarter plan We've Just Begun I mean so
00:29:08
there's so much ahead of us going into
00:29:11
Africa we just started you know I mean
00:29:13
so people say well what more can be done
00:29:15
we just we just entered Africa I mean
00:29:16
you know it's going to be the next China
00:29:18
in 10 15 years and so those kinds of
00:29:20
things smarter Planet you know we have
00:29:22
thousands we started with a hundred
00:29:24
references they have thousands we should
00:29:26
have tens of thousands you know before
00:29:28
this thing's all said and done so it
00:29:30
really is about to me it's about that I
00:29:32
think it's the most important thing now
00:29:34
I mean I understand the whole time I was
00:29:38
in the job that the external measure is
00:29:41
very short-term oriented it's earnings
00:29:44
and stock performance they're distorting
00:29:46
compensation today tied to that it's a
00:29:48
huge Distortion my personal opinion uh
00:29:52
which will only destroy value of the
00:29:54
long term and that's driven by people
00:29:56
who don't understand value creat ation
00:29:58
either third parties or government
00:30:00
organizations who are looking for
00:30:01
something simplistic to measure reward
00:30:03
against something complex and it won't
00:30:06
work uh we were blessed in a way because
00:30:10
we came up with this long-term model the
00:30:12
2010 road map and now the 2015 road map
00:30:15
and we were uh lucky that we could
00:30:18
convince the investor that it was good
00:30:20
and it made sense if we hadn't been able
00:30:22
to persuade them then of course we would
00:30:23
have had to have changed but the
00:30:25
investor I mean I agree on the 2010 map
00:30:28
they all said we could never do it we
00:30:29
did a year in advance in the terrible
00:30:31
economy say well incredible now they
00:30:33
look at the 2015 road map and they say
00:30:35
well God they're going to beat that
00:30:37
they're well ahead of that already I
00:30:38
mean that's their conclusions you know
00:30:40
but my only point is we came up with a
00:30:42
methodology that fit where you could
00:30:45
take that longer term view you could
00:30:47
focus on the company it did did create
00:30:49
and stocks up 100% so it did create
00:30:51
shareholder value uh We've outperformed
00:30:54
everything uh so I'm going to pick up on
00:30:57
that and uh make the statement that your
00:31:00
leadership of the company the
00:31:02
forward-looking the outward looking in
00:31:05
is really a product of many events over
00:31:07
over your lifetime in your career so I'm
00:31:09
going to begin to conclude here with a
00:31:11
couple more personal questions on that
00:31:14
uh you came out of college you joined in
00:31:16
sales back in 1973 IBM your first job
00:31:19
out you did have an opportunity to try
00:31:21
out for the Oakland Raiders yes uh on a
00:31:25
very personal Frontier here have you
00:31:27
ever had a regret that you didn't
00:31:28
actually give that a try at the time I
00:31:30
no I I tell you it's a funny uh quick
00:31:34
funny story friends of mine actually we
00:31:36
were playing D3 foot division 3 football
00:31:38
which is you know it's below the ivies
00:31:41
even you know I mean uh nonetheless I
00:31:43
mean you know we play for them in
00:31:44
Columbia or something maybe you know we'
00:31:46
have a really hard time and Columbia
00:31:48
doesn't have a great record so that's
00:31:49
where we were that's our position in
00:31:50
football at Hopkins lacrosse is
00:31:52
different but this was football and so
00:31:54
anyway friends of mine actually did try
00:31:56
out for professional football but they
00:31:58
were receivers and punters and things so
00:32:01
I said and I was going to have to gain
00:32:02
weight I my playing weight was like 235
00:32:05
in those days I could have the position
00:32:06
I could be maybe 250 260 I would have
00:32:08
been midsized not like today' be 300 or
00:32:10
something but in those days 40 years ago
00:32:13
I could have put on 25 or 30 pounds um
00:32:16
of muscle not fat probably fat would
00:32:18
have been easier but no I asked my
00:32:19
friends I said so what was it like what
00:32:22
do you think and they said the position
00:32:24
you're playing like a center or a
00:32:26
defensive end it we made it two weeks as
00:32:29
receivers you'll be dead you're going
00:32:31
they're going to kill you so I said well
00:32:33
maybe I don't want to do that I should
00:32:35
they said yeah why you go to a diet lose
00:32:37
25 lbs not gain 25 lbs so um and that
00:32:41
was so I never had any regrets uh about
00:32:44
that at all I mean I I just didn't I
00:32:48
don't think had the physical
00:32:49
characteristics to have been successful
00:32:51
I mean maybe I would have been a
00:32:52
specialty player for a couple years but
00:32:54
then I would have been broken up you
00:32:55
know shoulders and knees what have you
00:32:57
right let's turn that around uh with a
00:32:59
great interest in football in your
00:33:01
college days not to mention music and
00:33:03
history how has sports music and history
00:33:08
informed how you lead in in years since
00:33:10
then well I think Pro probably the of
00:33:14
the thing that uh if you go through all
00:33:16
those
00:33:17
characteristics um history in a sense
00:33:20
that it does give you a sense of
00:33:22
perspective you know right and you see
00:33:24
things in a Continuum of time which is
00:33:27
uh one of the things I think uh that has
00:33:30
influenced me is this view that I me I
00:33:33
really did I grew up with the Watsons
00:33:35
but then I studied the Watson not just
00:33:37
because of the Centennial and then we
00:33:38
got back into the values I had read the
00:33:40
book A ACC company's beliefs when I
00:33:42
first took over to see a first annual
00:33:44
meeting even though I had to read it as
00:33:46
a new employee you know so I went back
00:33:47
through all that stuff again so you you
00:33:49
have this inclination to understand and
00:33:51
study what worked in the past
00:33:54
understanding that it repeats itself and
00:33:57
I'll give you a good example I mean at
00:33:58
post World War II The Watsons expanded
00:34:01
into a lot of the European markets at
00:34:03
that point in time expanded IBM's Global
00:34:05
footprint well ahead of its time you
00:34:07
know opened up facilities Berlin and
00:34:09
places like that but then of course as
00:34:12
Europe you know NATO and Europe
00:34:13
reconstructed itself right we had huge
00:34:17
benefit of those decisions that the
00:34:18
Watsons had made later but certainly
00:34:20
huge benefit associate with that well I
00:34:23
mean that today is the correlation is
00:34:25
with Jenny created the growth Market
00:34:26
units he's the chines the brazils the
00:34:29
indias the Russia the Eastern europees
00:34:31
the africas it's the same thing expand
00:34:33
the footprint you know right Beyond just
00:34:35
where you've been concentrated
00:34:37
historically so you can see how that
00:34:38
repeats itself I think on the sports
00:34:40
things you learn in sports really and
00:34:43
even in music you learn the importance
00:34:45
of orchestration or Teamwork because you
00:34:47
if you don't work together it doesn't
00:34:48
work right and you also especially in
00:34:51
sports you learn competitiveness and and
00:34:54
you uh you realize that you have to work
00:34:58
together you have to many ways to I was
00:34:59
in selfless positions and you know I
00:35:02
mean literally Center defensive end it's
00:35:04
a selfless position you know really I
00:35:06
was in the orchestra I wasn't the star
00:35:08
performer I was in a pit with a miners
00:35:11
helmet on a light reading music playing
00:35:13
my role was not exactly a big role right
00:35:16
I was just in the literally the pit with
00:35:19
a light on your head trying to read the
00:35:20
music you with 20 other people whatever
00:35:22
happened to be so you accept it for what
00:35:24
it was I was never the star performer so
00:35:27
you were all always in a role and you're
00:35:29
always trying to be part of this entity
00:35:31
or a team that made things successful so
00:35:33
I think that has an effect and you need
00:35:36
to be competitive I mean there's no
00:35:38
doubt that in to survive uh the job of
00:35:42
CEO for 10 years or even for any period
00:35:44
of time you have to have stamina
00:35:46
resilience and you have to be
00:35:48
competitive and some self-awareness
00:35:49
because you can't get through the ups
00:35:51
and the downs I mean there's a lot of
00:35:53
ups and downs you know let's take that
00:35:56
forward with this uh question question
00:35:58
in almost 40 years at the company a
00:36:01
decade as chief executive you've made
00:36:04
hundreds more than hundreds of major
00:36:07
decisions looking back on your bigger
00:36:10
decisions what was the toughest single
00:36:12
decision and why was that hard to make
00:36:14
at the time the hardest decision the
00:36:17
hardest decision for me was not the PC
00:36:19
every it had to be the PC it really
00:36:21
wasn't because it was so economically
00:36:23
straightforward the hardest decision for
00:36:25
me was dealing with the p problem uh
00:36:29
because you were touching the fabric of
00:36:31
the business and we had to I mean our
00:36:34
pension liability was bigger than our
00:36:36
revenue and we had to make the change uh
00:36:40
and you
00:36:42
know it's obvious to us uh you know the
00:36:46
Senior Management the company it should
00:36:48
be obvious today to State and local
00:36:50
governments and federal governments in
00:36:51
the like you know right but it takes a
00:36:54
lot of courage and will to make the
00:36:55
decision because you're touching so
00:36:57
people so you have to have the balance
00:37:00
of the change with fairness and so uh
00:37:03
and by that Ian I won't take you through
00:37:04
all the details how we did it but we we
00:37:07
we made sure that certain populations
00:37:09
that could have been more severely
00:37:10
impacted than others we gave them a more
00:37:13
uh attractive transition because it was
00:37:15
fair didn't make it easy you know for
00:37:18
anybody I mean we eliminated all the
00:37:20
executive plans as well so everybody was
00:37:22
affected top to bottom but again if you
00:37:25
stand back and you make that statement
00:37:26
our liability was is bigger than our
00:37:28
Revenue people say of course you had to
00:37:29
make the change but at the time was
00:37:31
controversial there were going to be
00:37:33
special bills in the legislature called
00:37:34
the IVM amendment that they were being
00:37:36
sponsored by people in the legislature
00:37:38
we almost ended up in the Supreme Court
00:37:41
I mean now you look at the states and
00:37:43
you look at the federal government
00:37:44
problems St with pensions and say well
00:37:46
it's obvious it's they're bankrupt it's
00:37:48
obvious well nobody's making a change uh
00:37:52
so that's hard I mean I used that
00:37:54
example that was a really hard
00:37:55
gut-wrenching decision because you're
00:37:57
touch in so many people's lives you know
00:37:59
you have to do it you're not going to
00:38:01
survive you can be an airline or a car
00:38:02
company you know you have a role model
00:38:04
out there that says if you don't this is
00:38:06
what you are you know I got it okay
00:38:09
right you don't want to be that but you
00:38:12
still have to do it and you know it's
00:38:15
it'd be could you push it off to your
00:38:18
successor you could you know right I
00:38:21
just didn't think it was the right thing
00:38:22
to do and it politically political
00:38:24
timing was not so great I mean because
00:38:27
these problems weren't as aware today I
00:38:29
think it'd be easier because everybody
00:38:31
sees what they are you look at the
00:38:33
problems you know but then this was a
00:38:35
well ahead of when they became obvious
00:38:37
to society Sam you were not shy about
00:38:40
making the big decisions facing up to
00:38:42
them getting them done executing around
00:38:44
them as you have coached others mentored
00:38:47
people that have come up through the
00:38:48
ranks in the company is there a line of
00:38:51
advice that you offer up for them to
00:38:53
make face up to and then make tough
00:38:56
decisions how would you phrase that if
00:38:57
you're with a mentee yeah the easiest
00:38:59
way if you don't put yourself first
00:39:01
they're easy decisions to make mhm if
00:39:03
you take yourself if it's not about you
00:39:06
and I mean it's in all sincerity because
00:39:08
if you're worrying about your reputation
00:39:10
or your legacy or whatever that you put
00:39:13
something first beyond the institution
00:39:16
then it's hard because your reasoning is
00:39:18
clouded right because you got these
00:39:20
dimensions of thought that aren't based
00:39:22
on reality because it's your own
00:39:23
personality right but if you just look
00:39:26
at it and say no it's not about me it's
00:39:28
about the future of the IBM company how
00:39:30
does IBM stay sustainable for the next
00:39:32
100
00:39:33
years it's simple but you know now
00:39:37
that's a you know it's not I mean it's
00:39:40
psychologically complex I guess you know
00:39:42
right for me it was always easy but you
00:39:44
know you can see people that dwell with
00:39:46
that all the time they you can watch
00:39:47
them make this trade-off between
00:39:49
thems and the institution and whenever
00:39:53
they make that tradeoff my opinion one
00:39:56
individual when you bias it to yourself
00:39:58
versus the institution then it gets
00:40:00
really hard and you make the wrong
00:40:01
decisions you got to be able to almost
00:40:05
put yourself in this third party state
00:40:08
which I told them all those third party
00:40:09
State as if you're just that you're a
00:40:12
temporary St in
00:40:14
time and you know that's what you are
00:40:17
you're not you're not the charismatic Le
00:40:19
lead leader you're not going to be the
00:40:21
Messiah you're you're a tempor you're a
00:40:23
business guy you're a temporary Steward
00:40:25
of a wonderful institution and you're
00:40:27
role is to preserve the institution it's
00:40:29
not about yourself and if they pan you
00:40:30
they pan you they're going to pan you
00:40:32
okay fine so be it you know right don't
00:40:34
read your press Clips I learned that in
00:40:36
sports never read your press Clips you
00:40:38
know among your biggest decisions along
00:40:40
the way made every year actually is to
00:40:42
continue to invest in research and
00:40:44
development so your R&D budget is one of
00:40:47
the biggest out there in our
00:40:49
universe uh in in making that decision
00:40:53
uh it's pretty obvious but you you've
00:40:55
committed to the Future the through
00:40:57
technology and Innovation right stepping
00:41:00
back from that you want to share with us
00:41:02
some of the secrets of remaining
00:41:04
Innovative here at IBM oh yeah well the
00:41:07
key is I
00:41:08
mean you you have
00:41:10
to if you want
00:41:12
to be rewarded with higher margins you
00:41:15
have to do unique things you can't do
00:41:17
what everybody else does right so that's
00:41:19
why in technology it's research I think
00:41:21
it's true for any business by the way if
00:41:22
you don't do anything my question is why
00:41:25
would they give you your money why would
00:41:26
they invest you why would they work for
00:41:28
you why would Society let you operate
00:41:30
but why would they give you their money
00:41:32
as a client you have to do unique things
00:41:34
which means you have to innovate and you
00:41:35
have to invent right so that's the key
00:41:37
so you have to start with funding it and
00:41:38
you have to have the smart people uh
00:41:40
beyond that you need a process that
00:41:42
encourages it you know so you need to
00:41:44
let these guys come up with these ideas
00:41:46
and give them some Runway because not
00:41:48
everything is going to be perfect right
00:41:51
uh you know I mean for example there's a
00:41:53
great story around watts and the
00:41:54
Jeopardy machine which now we're
00:41:56
commercializing it but the wonderful
00:41:58
story was uh we were I was because I go
00:42:01
to research once a year and I tell these
00:42:03
guys show me what you're thinking about
00:42:04
what's going to change society what's
00:42:06
going to change business what's going to
00:42:07
be impact IVM so they had all these
00:42:09
Technologies and all these know you you
00:42:12
know you can barely understand them and
00:42:14
I'm around this stuff every day so I
00:42:16
said to the guys you know we need we
00:42:17
need this game you know we need
00:42:19
something people can understand you know
00:42:21
how about a game like a video game they
00:42:23
can play it and then we'll give
00:42:24
scholarships to the kids that win to
00:42:26
their schools if they get into top
00:42:27
school wouldn't that be great so these
00:42:30
guys are off and they're in a bar and
00:42:33
they're uh watching they're of course we
00:42:36
have you're doing the bar you're having
00:42:37
a beer whatever they're doing they're
00:42:39
watching Jeopardy and this guy Fu
00:42:41
actually is the the inventor behind the
00:42:43
David he looks up and goes you know we
00:42:45
could do that we could do that so he
00:42:48
goes into they had a research thought
00:42:50
they was Paul horn in those days and
00:42:51
that's John Kelly was Paul and said hey
00:42:54
we could do this we could we could we
00:42:55
could win that game we could we could
00:42:57
Jeff and we could win and uh and pug is
00:43:00
come on nobody can do this you know the
00:43:01
touring principles and all the scien he
00:43:03
arguing back and then the guy goes just
00:43:05
give me $10 million to get started just
00:43:08
give me $10 million to get started it's
00:43:10
not a lot of money and it's six billion
00:43:11
right he goes so P go here take the 10
00:43:13
million go hire some people and see what
00:43:15
you can do and then they came back three
00:43:16
whatever it was two three years later
00:43:18
and they invent this thing you know
00:43:20
right so you have to have a management
00:43:22
system that encourages these people you
00:43:25
know right and give them a little bit of
00:43:26
funding not get carried away you know
00:43:28
they'll give them $100 million to fo
00:43:29
around you know right but give them some
00:43:31
money to get them started and see where
00:43:32
it goes uh and I also think Innovation
00:43:35
also applies to the business model like
00:43:37
globally integrating IBM you know
00:43:38
running as one company and scaling it I
00:43:41
mean you can do the same thing on
00:43:42
business process too by the way as far
00:43:44
as how we operate the company applying
00:43:45
analytics and all those sorts of things
00:43:48
but you need to give people the
00:43:50
flexibility you know and the problem is
00:43:53
that if you trade it off um and I just
00:43:57
one guy's opinion I feel strongly about
00:43:58
this but six billion a year just think
00:44:00
how many quarters we could have made
00:44:02
cutting out the six billion you know we
00:44:04
didn't we still had record performance
00:44:06
you know we have record record record
00:44:08
record Cash record earnings record this
00:44:09
record that you know right but we didn't
00:44:11
and because we kept investing but you
00:44:14
know you you can respond to the uh the
00:44:18
pressures that are put on you multiple
00:44:19
different ways easy thing for us to have
00:44:21
been do just keep cutting that thing
00:44:22
down other companies in Tech have done
00:44:24
it and then you see what happens over
00:44:26
time so I really go back to this uh
00:44:29
create an environment or culture of
00:44:31
innovation uh put the Enterprise ahead
00:44:33
of the individual you know right you're
00:44:35
a temporary Mentor you're a temporary
00:44:37
Steward of time look at yourself in the
00:44:39
context I guess it's my history p major
00:44:41
look in the context of History which you
00:44:43
are not in the context of yourself at
00:44:45
the moment and you reach a different set
00:44:47
of conclusions uh you've presided for a
00:44:50
decade over a company that has more than
00:44:51
a hundred year history I think you've
00:44:53
had nine Chief Executives going back
00:44:55
over a hundred years this is a company
00:44:57
that indeed was built to last right as
00:45:00
people look back on your Reign here as
00:45:02
chief executive of
00:45:04
IBM what do you hope they will see as
00:45:07
your legacy I just hope I like I said
00:45:10
that that I left it better than I got
00:45:12
there you know if they if people would
00:45:14
say that adios I'd be happy as can be
00:45:17
and then the other thing is that uh the
00:45:20
ability to take IBM into more of these
00:45:21
Global markets uh and globalize the back
00:45:24
office of the company but most
00:45:26
importantly I mean that's how we got the
00:45:28
better than where we were when I started
00:45:30
but uh that's it uh it's too simple I
00:45:33
understand as I say it's so boring Soul
00:45:35
fashion it's like our earnings they're
00:45:37
so predictable and they're so boring
00:45:39
there's no surprise is it's a you know I
00:45:41
mean it's it's it's so dull it's like 30
00:45:44
years old nobody thinks that way anymore
00:45:46
but I really do believe that you know I
00:45:48
mean if you're a company that's 100
00:45:50
years old be consistent in what you do
00:45:51
that's a financial statement right be
00:45:54
consistent no surprises you're 100 years
00:45:56
old act like you're 100 years old you
00:45:57
know don't act like you're 100 months
00:45:59
old you know and then the other side of
00:46:00
it is just Define it as is the
00:46:02
institution better off because of the
00:46:04
time you spent there uh and it's it's
00:46:08
like I said it's so it's so boring
00:46:10
nobody's going to be excited about it
00:46:11
none of your students are going to go
00:46:13
jump up and down and say I really just
00:46:15
want to leave it better than I found it
00:46:17
that is uninspiring you know I got it
00:46:19
you know I have all these kids that go
00:46:20
to those schools like yours now so I
00:46:23
understand what they what motivates them
00:46:24
what they're taught but I uh for for me
00:46:27
it works you know right and I think it's
00:46:30
and it's worked in the only time I think
00:46:33
that we ever got in trouble at ivms we
00:46:35
missed the shift you know right and or
00:46:38
people put themselves ahead of the
00:46:40
company you know let me close by
00:46:43
thanking you Sam for your well your 40
00:46:45
years at the company your decade uh as
00:46:48
leader of the company for helping us
00:46:50
appreciate what it took to do what
00:46:52
you've done arguably you took a company
00:46:54
that was good under L gersner turnaround
00:46:57
and and made a great want to wish you
00:46:59
well you continue as chairman of the
00:47:01
board here and wish you well for
00:47:02
whatever lies ahead so thank you very
00:47:04
much oh great I enjoyed it thank you man
00:47:06
okay thank you great nice seeing you
00:47:10
[Music]
