IBM's Management Makeover

It was at a client meeting in San Francisco in October 2002 that Sam Palmisano, IBM's new CEO, first unveiled the initiative he hoped would transform his company. His idea: The Internet really did change everything (the crash of the New Economy notwithstanding). In a hyperconnected world, IBM's clients needed to become "on-demand" companies, their every business process exquisitely calibrated to respond instantly to whatever got thrown at them. And to help them, IBM would have to do exactly the same thing.

When she heard about the new strategy, Donna Riley, IBM's vice president of global talent, remembers wondering whether the company had the right managers for its new direction. "If leadership is stuck in the past, and the business has changed, we have a problem," she says. By the spring of 2003, Palmisano and his leadership development team realized the strategy would indeed demand a new breed of boss -- leaders who were as sensitive to changes in their environment as Indian scouts.

For help, Riley turned to the Hay Group, a consultancy that specializes in executive development. Hay had done work for IBM before, most notably in 1994 when, at former CEO Lou Gerstner's behest, the firm had interviewed a group of the company's top managers. As part of his turnaround strategy for the troubled company, Gerstner wanted to develop a new style of leader who could help transform its failed culture. Ultimately, Hay distilled 11 competencies from the interviews that would guide IBMers' performance as they pulled off one of the most remarkable corporate rebounds in history.

In the summer of 2003, Hay Group returned to conduct another set of interviews with 33 executives who had been identified as outstanding leaders in the new on-demand era -- the folks who really got the new strategy and who were on the cutting edge in a high-performance culture. They were drawn from every division of the business, every part of the world, united by their extraordinary ability to get the job done. The plan was to put these top players under a microscope, to divine how they thought about their jobs and the company; how they interacted with clients, peers, and subordinates; how they set goals and went about meeting them -- in short, to extract the best practices from the best leaders to see if they could be duplicated.

In a series of three-and-a-half-hour interviews, the managers discussed circumstances in which they had been successful -- or not. The interviews were supplemented by surveys of the people they worked with. Researchers then combed through the stories and accompanying data, looking for characteristics and qualities that distinguished these high performers.

The results were stunning. "The experts predicted maybe a third of the competencies would be the same, a third would be slightly different, and a third would be brand new," says Riley. "Much to their surprise -- and ours -- we found it truly is a new book," requiring all new skills.

To begin with, the best executives no longer thought of the folks to whom they sold stuff as customers; they saw them as clients. The difference? "A customer is transactional," says Harris Ginsberg, IBM's director of global executive and organization capability. "A client is somebody with whom you have a longstanding relationship and a personal investment." It's no longer enough to sell a customer a server. An IBMer should be so focused on becoming a long-term trusted partner that she might even discourage a client from buying some new piece of hardware if it's in the client's best interest to hold off.

The 33 leaders were also adept at a skill IBM calls "collaborative influence." In a highly complex world, where multiple groups might need to unite to solve a client's problems, old-style siloed thinking just won't cut it, and command-and-control leadership doesn't work. "It's really about winning hearts and minds -- and getting people whose pay you don't control to do stuff," says Mary Fontaine, vice president and general manager of Hay's McClelland Center for Research and Innovation.

For example, Frank Squillante, an IBM vice president, has only four direct reports. To do his job -- devising the strategy for the company's intranet, and then developing and deploying applications for 325,000 people and 100,000 business partners -- he must be a master at cajoling people over whom he has no real power. "I use 'collaborative influence' every minute of every day," he says. "If I tried to pull one of these, 'I'm in charge so you have to do this' maneuvers, the whole thing would break down."