The man who reinvented IBM

Yet behind IBM's relentless progress over the past decade is a game plan that has been anything nevertheless 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 organisational reflexes.

Investors, but, haven't been bored. The company's share price has surged. In November, Warren Buffett, who typically shuns innovation stocks, announced he had accumulated $US10 billion of IBM shares, a stake of more than 5 per cent.

During his tenure, IBM 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 startups and entrepreneurs.

The pursuit of excellence in those four dimensions shaped the strategy. To focus on doing in a class by itself work, with its higher profits, meant getting out of low-margin businesses that were fading. IBM's long-range innovation assessment in 2002 concluded that the personal computer business would no longer present much possibility for technology, anyway 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 centres, connecting to all kinds of devices, including PCs. Today, in other words called cloud computing; when IBM started promoting the concept several years ago the company called it on-demand computing.

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," Palmisano says. "Nevertheless if you decide you're going to move to a different space, where there's research and consequently you can do unequalled things and get some premium for that, the PC business wasn't going to be it."

In 2004, IBM sold its PC business to Lenovo of China. 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, IBM 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 Palmisano sold off generated near $US20 billion a year in sales, otherwise a lot of profits.

The divestitures meant that IBM

The divestitures meant that IBM was no longer the world's largest information innovation company. Hewlett-Packard took that title and took a different strategic path as then, doubling its bet on PCs by acquiring Compaq in 2001.

IBM invested heavily elsewhere, buying the business consulting firm PricewaterhouseCoopers Consulting, for $US3.5 billion in 2002, for its expertise in specific industries.

For IBM, the emphasis was to move up from selling clients computers and software to helping them use innovation to solve business challenges in marketing, procurement and manufacturing.

Combining innovation, specialised skills and sophisticated innovation is the recipe behind IBM's Smarter Planet initiative, begun in 2008. It now has more than 2000 projects worldwide, applying computer intelligence to create more efficient systems for utility grids, traffic management, food distribution, water conservation and health care.

"For IBM, the emphasis was to move up from selling clients computers and software to helping them use innovation to solve business challenges in marketing, procurement and manufacturing."