> October 31, 2002
> The New Leader of I.B.M. Explains His Strategic Course
> By STEVE LOHR
> THE NEW YORK TIMES
>
> http://www.nytimes.com/2002/10/31/business/media/31ADCO.html?todaysheadlin
> es
> WITH a speech in New York yesterday at the start of a costly and quirky
> marketing campaign, Samuel J. Palmisano, I.B.M.'s chief executive,
> declared his company was making a $10-billion bet on a strategic shift
> toward what it calls "on-demand computing."
> Mr. Palmisano told the business executives and industry analysts in
> attendance that on-demand computing would allow corporate customers to
> purchase computing resources as needed as a utility-style service, almost
> like electricity. Beyond cost savings, Mr. Palmisano explained that the
> utility model would help companies become more flexible and fast-moving by
> integrating more closely internal operations like procurement, marketing
> and manufacturing. The company also expects it to improve communications
> with partners, suppliers and customers.
> The new marketing push from the WPP Group's Ogilvy & Mather Worldwide will
> account for most of I.B.M.'s $500 million-a-year advertising budget and is
> the sequel to I.B.M.'s "e-business" campaign. That effort, though
> initially derided by rivals when it began in 1997, proved quite
> successful, by explaining the practical uses of the Internet to I.B.M.'s
> mainstream corporate customers.
> But the new I.B.M. initiative - called "e-business on demand" - faces a
> tougher challenge. Unlike the late 1990's, today the economy is weak and
> corporate technology spending has collapsed. The grand promises of
> technology's benefits, made with such confidence a few years ago, remain
> unfulfilled.
> Yet Mr. Palmisano observed that he had seen "some encouraging signs" that
> the worst of the technology slump may be over and that corporate customers
> have not given up their faith in the productivity benefits of technology.
> His mildly encouraging comments helped prop up the stock market yesterday,
> and shares of I.B.M. rose $1.93 a share, to close at $78.67.
> I.B.M's new campaign begins today with television advertisements and
> eight-page ad inserts in The Wall Street Journal, The New York Times and
> The San Jose Mercury News. The ads poke fun at fantastic gadgets - a time
> machine, a "universal business adapter" and "magic business beans," for
> example.
> Chris Wall, head of the creative team at Ogilvy that developed the I.B.M.
> campaign, said the use of the zany machines was meant to be a humorous
> slap at the hype of the Internet bubble days. By contrast, I.B.M., the ads
> say, has the technology, people and skills to solve the real-world
> problems of company's grappling with the challenges in a turbulent
> economy.
> "Humor translates as confidence," Mr. Wall noted, "and that works well
> with I.B.M. these days."
> The campaign also has broader objectives. It gives I.B.M.'s work force,
> and perhaps others in the industry, a goal to pursue and champion at a
> time when the industry is in the doldrums. Mr. Palmisano announced
> yesterday that Irving Wladawsky-Berger, an I.B.M. executive and scientist
> who led the company's drive to embrace the Internet, will lead the
> on-demand computing initiative.
> I.B.M.'s competitors - Hewlett-Packard, Sun Microsystems, Microsoft - are
> all working on utility computing, and some claim to be ahead in some
> areas. Yet the campaign is also meant to present I.B.M., which has by far
> the largest research budget in the industry, as the company with the most
> ambitious, far-reaching vision of an emerging direction in computing.
> The glue for the on-demand model will be clever hardware and software,
> which I.B.M. hopes to supply. And helping corporate customers figure out
> how to move to the lower cost, more flexible world of business could
> generate a lot of new business for I.B.M.'s big services arm.
> "What I.B.M. is doing is putting a big budget behind its effort and a
> label on it that will appeal to a business audience," said Frank Gillett,
> an analyst for Forrester Research.
> The campaign also gives Mr. Palmisano, 51, who became chief executive in
> March and chairman on Tuesday, a highly visible strategic plan to claim as
> his own. His predecessor, Louis V. Gerstner Jr., who guided I.B.M. back
> from deep troubles in the early 1990's, is regarded as a brilliant
> business strategist.
> Industry analysts view Mr. Palmisano, a 29-year I.B.M. veteran, as an
> outstanding salesman and operations executive, though they were waiting to
> see what strategic course he would set.
> In his speech yesterday, Mr. Palmisano placed many of the moves that had
> been made recently - opening an advanced semiconductor plant, the
> acquisition of a string of software companies, the $3.5 billion purchase
> of PwC Consulting, and the new marketing campaign - as all part of the
> on-demand computing strategy. All those investments added up to the
> $10-billion figure he used.
> "It's a bold bet, no doubt about it," he said. "But I don't think it is a
> risky bet. It's what our customers want."
>

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