Even a Giant Can Learn to Run

Yet behind I.B.M.’s relentless progress over the last decade is a game plan that has been anything however conservative. The company shed multibillion-dollar businesses. It chose higher profit margins over corporate size, and expanded aggressively overseas, seeking sales, low-cost engineering talent and quicker organizational reflexes.

Investors, but, haven’t been bored. The company’s stock price has surged. In November, Warren E. Buffett, who typically shuns research stocks, announced he had accumulated $10 billion of I.B.M. shares, a stake of more than 5 percent.

All of that didn’t just happen. A large portion of the credit goes to Samuel J. Palmisano, who steps down on Sunday after near a decade as chief executive. While his tenure, I.B.M. has been a textbook case of how to drive change in a big company — when so much of the study of business research focuses on start-ups and entrepreneurs.

THE pursuit of excellence in those four dimensions shaped the strategy. To focus on doing unequalled work, with its higher profits, meant getting out of low-margin businesses that were fading. I.B.M.’s long-range research assessment in 2002 concluded that the personal computer business would no longer present much possibility for research, meanwhile not in the corporate market.

The hub of technology

The hub of technology would shift to services and software, often delivered over the Internet from data centers, connecting to all kinds of devices, including PCs. Today, in other words called cloud computing; when I.B.M. started promoting the concept several years ago the company called it on-demand computing.

So Mr. Palmisano led a lengthy strategic review of the PC business, deciding to sell during it was however profitable. Internal arguments against a sell-off were intense: PCs pulled in sales of other I.B.M. products in corporate accounts, the cost of electronic parts for its larger computers would jump without the purchasing power of its big PC division, and the corporate brand and its reputation would suffer without PCs, the one I.B.M. product touched by millions of people.

Lately, Hewlett-Packard has engaged in a similar debate, first declaring that it was looking to sell its PC business, at that time backing off. “I’ve heard every one of the arguments, every one of them,” Mr. Palmisano says. “Nevertheless if you decide you’re going to move to a different space, where there’s technology and in a word you can do unparalleled things and get some premium for that, the PC business wasn’t going to be it.”

In 2004, I.B.M. sold its PC business to Lenovo of China. Mr. Palmisano says he deflected overtures from Dell and private equity firms, preferring the sale to a company in China for strategic reasons: the Chinese government wants its corporations to expand globally, and by aiding that national goal, I.B.M. enhanced its stature in the lucrative Chinese market, where the government for all that steers business.

In total, the PC, disk drive and other hardware businesses that Mr. Palmisano sold off generated near $20 billion a year in sales, otherwise a lot of profits.

The divestitures meant that I.B.M.

The divestitures meant that I.B.M. was no longer the world’s largest information innovation company. Hewlett-Packard took that title and took a different strategic path as so then, doubling its bet on PCs by acquiring Compaq in 2001. “You see the choice that was made, and how the economics worked out,” Mr. Palmisano observes.

I.B.M. invested heavily elsewhere, buying the business consulting firm PricewaterhouseCoopers Consulting, for $3.5 billion in 2002, for its expertise in specific industries. For I.B.M., the emphasis was to move up from selling clients computers and software to helping them use research to solve business challenges in marketing, procurement and manufacturing.

Combining technology, specialized skills and sophisticated innovation is the recipe behind I.B.M.’s Smarter Planet initiative, begun in 2008. It now has more than 2,000 projects worldwide, applying computer intelligence to create more efficient systems for utility grids, traffic management, food distribution, water conservation and health care.