IBM: The Most Innovative Company of the Year

Portraits of transformation: A look at four IBM executives reveals Big Blue's new colors.

-- Movers & Shakers, 6/1/2000

Big Blue. The name itself conjures up images of a lumbering corporate giant in pinstripes and wingtips. This is IBM, the orderly, paternal monolith founded by Thomas Watson Sr in the early 20th century and later shaped by his son, Thomas Jr, into the most dominant computer company in history. Yet history rarely fails to entertain us with its cunning. So when IBM bestowed corporate legitimacy on the personal computer in 1981, it seemed inevitable that things would take a paradoxical turn. And so they did, as a bumper crop of smaller, less bureaucratic tech companies sprang up and left Big Blue behind.

In those unhappy years, IBM's labs still practiced top-shelf science, but the company failed to transform that raw technology into products. The process appeared tangled up in reams of paper and rolls of gray flannel. Between 1991 and 1993, IBM, which had once offered lifetime employment to deserving employees, cut 117,000 jobs and reported losses of $16 billion.

Then, in April 1993, Louis V Gerstner Jr became CEO, and the company began a wrenching adjustment to the faster realities of the marketplace. The company ultimately reshaped itself from a monolith into a multidimensional portfolio of leaner companies, all of which, whenever possible, were integrated with the e-business boom.

Today, rather than locking customers into proprietary technology, IBM now drives open industry standards, whether pushing Java (IBM employs more Java programmers than Sun Microsystems), embracing Linux for corporate systems, or helping to plan Internet II.

And IBM even empowers many of its employees to act more like entrepreneurs. Here's a look at a quartet of IBMers who exemplify this newer shade of Blue.

Up close and personal

'We're taking a much more pro-active approach than we have in the past.'

Anne Fitzpatrick is a 42-year-old native of North Carolina and a graduate of St Louis University, a fine Jesuit school, so it's probably not wise to argue with her, although she may be able to tell you how many angels can waltz across a pin. Fitzpatrick has been with IBM for four years, and at the moment she manages business development and strategy for the Enterprise Services for Microsoft Technologies (ESMT) group. Part of IBM Global Services, ESMT is only 14 months old and was the brainchild of the Corporate Executive Committee, which includes CEO Lou Gerstner and others on the highest rungs of the ladder.

'IBM has provided services around Microsoft technologies for a long time,' Fitzpatrick says. 'But with the increased demand for integrating Microsoft technologies into the enterprise, IBM had the impetus for setting us up as an official 'offering,' meaning a business inside the Global Services portfolio.'

The fastest-growing part of IBM, with more than 138,000 professionals in 160 countries and 1999 revenues of approximately $32 billion, Global Services is the world's largest IT services provider. The unit offers consulting, application development, technical support, implementation, and training. IBM employs more than 6,000 Microsoft certified system engineers worldwide.

'ESMT allows us to work much more closely with customers,' Fitzpatrick says. 'We help them build their environment and their solutions. We're taking a much more pro-active approach than we have in the past....One of our key assets is the fact that IBM has so much information about such a wide base of solutions and technologies that we are able to help our customers avoid mistakes early on.'

IBM's Microsoft services portfolio is a very small part of its Global Services division, but it represents a significant change for the IT industry.

Less than a dozen years ago IBM and Microsoft were locked in a battle over OS/2, an operating system that the two companies developed to replace MS-DOS on the PC. Microsoft eventually won that battle when it introduced Windows, but now, it seems, IT services offer an alternative path to profit.

Microsoft hasn't been able to secure a meaningful position in that space, and so in March 2000 the company announced a $1 billion venture with Andersen Consulting. Reuters reported that during a conference call Microsoft Chief Executive Steve Ballmer said that his company had 'never been able to form a partnership to serve this market super, super well....We have a number of great partners and will continue to have a number of great partners, but let's confront a little reality here...The only [company] that you can say approaches Andersen is IBM Global Services, and that's who we generally end up competing with.'

Right now, though, for Anne Fitzpatrick the goal remains clear.

'ESMT is small and focused,' she says. 'And we're going to assist our customers in building new business models. It helps that we have the size and scope and leverage of the rest of IBM behind us.'

The quick and the dead

'In the world of microelectronics there is a simple and enduring truth: The one who's first wins'

Dr John E Kelly III combines the best of the old and the new at IBM. Like some illustrious early executives, the 46-year-old Kelly has spent his entire professional life at Big Blue. Today, he personifies IBM's new spirit of speed and responsiveness.

Kelly joined IBM 20 years ago, with a doctorate in materials engineering from Rensselaer Polytechnic Institute. After a variety of positions in semiconductor development and manufacturing, CEO Lou Gerstner made him general manger of the Microelectronics Division in January 1999.

'Lou gave me very specific instructions,' Kelly remembers. 'He said, 'Drive this business as fast as you can.' And that's what we've done. Because in the world of microelectronics there is a simple and enduring truth: The one who's first wins.'

By the time Kelly took over the microelectronics unit, IBM had embarked on one of the most controversial moves in company history--selling and licensing its once-secret, cutting-edge technologies to other enterprises, regardless of whether those companies were competing with other IBM divisions. At the time, press reports and analysts suggested that Big Blue's days were numbered, since its desperation for revenue was forcing it to sell pieces of itself.

'That position represents an uninformed view of the IT world,' Kelly says. 'We would like to see a whole host of products built from IBM components, and we are going to sell all of our technology to maximize growth.' Semiconductor technology is changing very quickly, far faster than Intel cofounder Gordon Moore predicted, Kelly argues. Moreover, the number of products requiring new chip technology is also growing. 'So we have been--and will continue to be--very successful with our strategy of selling technology,' he says. 'Of course, it helps when that technology comes from the IBM labs.'

With approximately 3000 scientists and an annual budget of between $5 and $6 billion, the labs have always provided IBM with a technological edge. In the bad old days, however, bureaucracy and manufacturing logjams slowed the translation of technology into profits. 'We have done our best to make our process seamless from research to manufacturing to customer,' Kelly says.

It appears to be working. IBM's semiconductor business drove OEM revenue growth in 1999. By January 2000, just 15 months after becoming the industry's first supplier of copper chips, Big Blue shipped its two millionth copper chip. Since becoming the first company to introduce silicon germanium chip-making technology into volume manufacturing in October 1998, IBM has shipped 5 million SiGe chips, and now expects to ship an average of 5 million per month. IBM has also grown its custom-logic business by more than 75 percent. And according to 1999 marketshare figures from market-research firm Dataquest, IBM has now replaced Lucent as the number one worldwide supplier of ASIC chips.

This represents a remarkable turnaround for IBM, according to Will Strauss, principal analyst and president of Forward Concepts.

'When IBM got into the chip business, in some ways they got lost because their biggest customer was IBM, and they only had to make one customer happy,' Strauss says. 'By choosing to sell their technology outside of the company, IBM has actually altered their corporate culture. And John Kelly's approach highlights this new way. Kelly brings a new kind of accessibility to the outside world.'

Kelly counts meeting with customers and analysts as one of the most significant and enjoyable parts of his job. 'I spend nearly half my time with customers,' Kelly says. 'And I'm involved in technical decisions. Actually, right before our interview I met with a top-tier computer maker, and we changed the design on our next processor based on something this customer wanted the computer to do. We did it on the fly, and now it's done. In this business, you can never be fast enough.'

Invisible computing

'Right now, mobile phones and PDAs are outselling PCs three to one, and show no signs of slowing down.'

If you're starting to believe that one day you'll be able to access the Internet by holding your shoelace up to the sun and spinning your shirt buttons due west, then perhaps you should have a conversation with Dr Mark F Bregman.

As general manager of IBM's Pervasive Computing unit, the youthful 42-year-old is leading Big Blue's charge into the post-PC era. 'The post-PC era doesn't mean that PCs are going to disappear,' Bregman says. PCs will still have their place, but we will see a profusion of computing devices with the ability to tap the Internet.

'People use cell phones all the time,' Bregman says, 'and most rarely consider the fact that they are using a computer--a device that requires microchips and software. That's what the post-PC era will be like, only there will be a lot more devices.' Ease of use will be a paramount characteristic of these network-connected client devices, such as personal digital assistants (PDAs) and screen phones, which we'll simply think of as tools.

Bregman became an IBMer on a whim. After completing his doctorate in physics at Columbia University in 1984, he was driving past IBM's T. J. Watson Research Center in Yorktown Heights, NY, and he impulsively stopped and asked for a job application. IBM soon offered Bregman a job in its lab, which he accepted because it paid far better than his postdoctoral fellowship.

Bregman spent 31/2 years in technical management posts in Yasu, Japan, before returning to the United States in 1993 to become a vice president for research. Two years later, he became technical assistant to CEO Lou Gerstner.

'The first week I was there I asked Lou what exactly I was supposed to be doing,' Bregman says. 'He told me to read the press, talk to people, be his eyes and ears. Then Lou added something I'll never forget. He said, 'I want you to focus on ease-of-use, on the interface between people and computers....I'm worried that [the high-tech industry] is going to run out of steam because computers are just too hard to use.'

But IBM entered the pervasive-computing market to serve business customers. IBM came to realize that as companies integrated e-business into their enterprises, their employees would need to access the Web, and they would need devices other than traditional desktops and notebook computers to do it. IBM believed businesses would adopt pervasive computing far faster than they had adopted computers or the Web in the first place.

'Right now, mobile phones and PDAs are outselling PCs three to one, and show no signs of slowing down,' Bregman observes. 'Gartner Group analysts are predicting that between 2003 and 2005, the number of mobile phones deployed worldwide will exceed 1 billion. People will have more phones than PCs and will spend more of their time near a phone than near a PC. By 2004, 70 percent of new cellular phones and 80 percent of all new PDAs will have some form of access to the Internet. And by then, more than 80 percent of new applications deployed to mobile workers and other consumers will be designed for non-PC devices.'

During the last year, IBM has signed up more than 200 pervasive-computing customers, to whom Big Blue provides hardware, software, and services. 'We're estimating that by 2003, the opportunity in pervasive computing will reach $120 billion,' Bregman says.

No one can accuse Bregman of not being a true believer. He carries a regular mobile phone, an Internet-ready mobile phone, a pager, a messaging pager, and a PDA. 'I need a new belt because my pants are always falling down,' he says. 'Let me tell you where the real money will be in the post-PC era: the companies manufacturing belts and bandoleers so we can carry all of this stuff around.'

The father of e-business

'IBM has always provided solutions to its customers, and we saw that the best way to do that was involve the whole company with the Internet.'

While IBM now has its share of young wizards, Big Blue also relies on those with a longer view of the past. Perhaps no one is more representative of this breed than 55-year-old Dr Irving Wladawsky-Berger.

A 30-year IBM veteran, Wladawsky-Berger is responsible for IBM's overall Next Generation Internet (NGi) initiatives, for advanced architectures and technologies in enterprise systems, and for the strategy and development of Big Blue's UNIX and Linux software.

IBM plans to focus enormous resources on the open-source Linux operating system in order to drive the company's enterprise server growth and give birth to the next generation of e-business. To lead the charge, IBM's top executives chose Wladawsky-Berger, one of the company's most respected figures.

IBM believes that the next generation of e-business will require applications to run across a variety of environments. If a free operating system like Linux wins broad acceptance, it will place enormous price pressure on the operating systems from Sun and Microsoft. Furthermore, customers will shed their OS obessions and turn their attention instead to the company that can provide the highest-quality technology--a competition that IBM is confident it can win.

As Wladawsky-Berger once told the New York Times, IBM is betting that Linux is a fundamentally disruptive technology, like the microprocessor and the Internet. Only time will tell if the bet will pay off. But if the history of the man overseeing the push is any indication, IBM is likely to prevail.

Wladawsky-Berger's parents were Jewish refugees from Eastern Europe. They fled to Cuba, where his father became a shopkeeper. In 1959, when Fidel Castro took over Cuba, Wladawsky-Berger's family once again took flight, winding up in Chicago.

Wladawsky-Berger had studied English in Cuba, so he finished high school, then earned an undergraduate degree and a doctorate in physics at the University of Chicago. He joined IBM's Thomas J. Watson Research Center in 1970. By 1985, he was involved in product development and managing several IBM businesses.

Today, IBMers often refer to Wladawsky-Berger, unofficially and off-the-record, as the 'father of e-business.' They quickly add that Lou Gerstner is the 'godfather,' since he was the one who, in the mid-1990s, turned Wladawsky-Berger and his minions loose to pursue the emerging technology.

The value of the Web wasn't immediately obvious, Wladawsky-Berger says. IBM had helped to link super-computer centers and universities, and even used the Internet for email. 'What I didn't foresee was how important the Internet would become to business,' he recalls. 'That defining moment didn't happen until Netscape's IPO in the summer of 1995, when I saw that the infrastructure itself could be used as a distribution vehicle and a creator of communities.'

The Monday after Thanksgiving of that year, Wladawsky-Berger met with Gerstner, who gave him the green light to create an Internet division.

'By then, Federal Express had stunned everyone by making it possible for customers to track packages on the Web, which I believe was the first major business use of the Net,' Wladawsky-Berger recalls.

From the beginning, Gerstner and Wladawsky-Berger saw that the Internet would permeate the entire company. 'IBM has always provided solutions to its customers, and we saw that the best way to do that was involve the whole company with the Internet,' Wladawsky-Berger says. Four years after its founding in 1996, IBM disbanded the Internet unit, sowing its people into other divisions.

While Wladawsky-Berger is proud of IBM's accomplishments in the last five years, he seems to feel that the current gamble on Linux will represent a far grander step in the history of computing. 'It will finally cut the cord between the development and deployment of applications,' he says.