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The most powerful captains of industry, such as the boss of IBM, Sam Palmisano, have virtually unlimited power within their corporate realms and, usually, beyond. There are, however, times and events that starkly reveal the limits of their strength, moments that turn out to be not so much a test of will as a measure of character. IBM has been caught in a dangerous undertow. Its financial results are awash in a tide of red ink. And it is not yet clear what Palmisano can do about it.
Palmisano is in difficult circumstances. What if he concluded there is nothing he can do to overcome the forces battering Big Blue, except batten down the hatches?
About a thousand years ago, King Canute, leader of the Vikings and ruler not only of Denmark, Norway, and part of Sweden but also of England, was rattled by flattery in his court. Those around him said he was so great that he could command the tides. This deeply offended Canute, who felt that his strength and achievements, and indeed the powers of any king, counted for little in the greater scheme of things.
Canute had his throne brought to the seashore at low tide. He sat in it as the tide rolled in. He commanded the sea to hold back. Of course, it did not. He said, more or less, "Let all men know how empty and worthless is the power of kings, for there is none worthy of the name but God, whom heaven, earth, and sea obey."
Four score years ago, Knute Rockne, a fellow with Norwegian roots and essentially the same first name as the great Viking king, was football coach at Notre Dame. Notre Dame's Knute also had experiences with forces far beyond his control. In December 1920, Rockne lost George Gipp, a student, to a severe bacterial infection. Gipp was arguably the best football player Rockne had ever encountered. In the wake of that tragedy, whenever Notre Dame was under overwhelming pressure on the football field, Knute Rockne would exhort his team, "Win one for the Gipper." And, often, it worked.
A variation of the phrase is popular among corporate defense attorneys, who urge their litigation teammates to "Win one for the gypper."
On July 7, Commander Richard Farrington of HMS Nottingham, a British warship whose motto is foy pour devoir, meaning "faith for duty," managed to locate one of the largest and best known rocks in the South Pacific. He did this by running his ship into it. The rock was near Lord Howe Island, between Australia and New Zealand. It made a pretty big hole in the ship.
Efforts to rescue the stricken vessel began immediately and are still underway. The Australian government sent water pumps by helicopter, and, as a result, the ship, which was apparently in danger of sinking, has remained afloat, and so, too, for the moment, has its commander's career.
An explanation of just how the Nottingham stove its hull in may eventually emerge from the inquiry that will ensue. Commander Farrington will undoubtedly be questioned about the proper role and attitude of a skipper. He might be asked about his understanding of the Nottingham's motto and whether, as a man of the sea, he might have failed to exhibit the sort of humility so brilliantly epitomized by King Canute. It will not go well for Farrington if, as the Nottingham was heading for the rock, he shouted at the ocean, "Don't make waves!"
July 7 was also crunch time for another vessel in the region, a tall ship called Windeward Bound that is retracing the route Captain Matthew Flinders took two hundred years ago in HMS Investigator. Flinders is the great sailor who first circumnavigated Australia. Windeward Bound even has a cat named Trim, named after Flinders' own beloved mascot.
The Sunday Telegraph reported that the commander of HMS Nottingham had gotten into trouble and, in a separate story, that the skipper of Windeward Bound had been severely criticized by some present and former members of the crew. The story said the criticism of Windeward Bound's Captain, Sarah Parry, was personal, not nautical; Captain Parry is well regarded as a sailor.
In any event, Captain Parry is undergoing a transformation as great and perhaps as controversial as IBM's transition from a manufacturing company to one deriving the bulk of its revenue from services. Captain Sarah Parry was, until 1997, Brian Parry, survivor of two marriages and a couple of kids, not merely a naval officer but a commando and a Vietnam War veteran who is still on good terms with former navy colleagues and their families. The captain remains a member in good standing of the Vietnam Veterans' Association. How about that!
IBM is currently selling off, at a huge paper loss, its disk manufacturing operations. The deal is complex and mainly secret. IBM says Hitachi is buying 70 percent of the business up front for just over $2 billion and that it would pick up the remainder within three years. The most interesting parts of the deal, such as IBM's obligation, if any, to buy disks from its former factories, have been kept under wraps. IBM is also selling its original big factory in Endicott, New York, while contracting with the group buying the plant to lease back some of the facility and to keep 2,000 people, half of the current staff, on the payroll for an unspecified period. Work done in Endicott was to be shifted to a factory in China, according to a report published more than a year ago by Alliance@IBM, a group hooked up with the Communications Workers of America; though it's not clear what ultimately occurred.
IBM has dropped out of manufacturing quite a few products, including dumb tubes, networking apparatus, printers, tape transports, and desktop PCs. In some cases, IBM has stayed in the related markets, selling equipment made by others but bearing the IBM brand. In other cases, IBM has arranged for another firm to inherit the discontinued business.
While there is nothing unusual about IBM adjusting what it makes according to changes in market conditions, for most of IBM's history it added net manufacturing capacity year after year. This is no longer the case, and, unless Big Blue reverses a course it has proclaimed will be its route for the future, IBM will continue to shut down manufacturing plants, even as it strives to boost sales of both goods and services.
IBM's big change in strategy occurred when Sam Palmisano's predecessor, Lou Gerstner, was at the helm. There is little likelihood Palmisano will alter IBM's general direction, even as he tacks in an effort to keep his company moving forward against strong economic headwinds.
Far more often than not, customers buying products from IBM will neither know nor care whether the machinery was made in an IBM plant. iSeries customers who have opened up their machines and seen disk drives with Seagate, rather than IBM, labels might have been a bit shocked at first, but none of them returned the equipment.
Still, in the hard-hitting world of computer marketing, IBM's competitors are going to try to turn any sign of IBM weakness into a sales opportunity. Hitachi, for example, may be able to win some storage deals by persuading prospects that its vertical integration is the basis of superior quality, value, and performance. Similarly, third-party maintenance companies may ask hesitant customers, "Just what genuine IBM parts are you worried we might not be able to supply?" They may say, hyperbolically, as part of their sales pitch, that these days there are no genuine IBM parts, or at most a few.
Even IBM software is changing, as Linux becomes part of the stack IBM says is the future of computing on its platforms. Users who think their IBM systems software is sacred might remind themselves that even in the elite mainframe segment, the popular VSE environment is supported but basically frozen and VM development has been largely confined to aspects of the code that can create Linux partitions on mainframes.
Could the same thing happen to OS/400? Could its future development be restricted to improvements in its ability to surround other systems software? If that turns out to be the case, would it make any difference to customers who are satisfied that OS/400 already meets their requirements and consequently does not need to be altered or extended, as far as they are concerned?
And what if less of their hardware were actually made by IBM? What if their machines, like their disk drives, came from one of IBM's suppliers?
Whether or not most IBM customers are thinking about these questions, Palmisano most certainly is. It is his job to decide just what elements of the complex IBM business cement the relationship between Big Blue and its customers, and to compare the value of each with its cost.
IBM is in stormy seas and must ask itself whether it can keep all of its sails, for if it does not, it could be dismasted. Yet if it cuts too much, it will no longer be able to move forward, nor will it be able to navigate the reefs and shoals of the markets it plies.
In addition to the decisions that Palmisano can make and that his team can execute effectively, IBM must reckon with the element of surprise. Whatever happens, Palmisano and his company must try to hold on to those special things to which, for whatever reason (or none at all), customers are attached. This may turn out to be impossible.
Captain Matthew Flinders, who mapped the Australian coast 200 years ago, managed to keep his beloved Trim safe year after year. The pair even survived a shipwreck. Trim became so famous that the Mitchell Library in Sydney boasts a statue of the creature. The library holds Flinders' maps, journals, and other papers.
As for the original Trim — the one born at sea in 1797, not the one sailing around with Captain Sarah Parry — its nine lives ran out. Captain Flinders was captured and imprisoned on the island of Mauritius in 1803 and remained a jailbird until he was released by Napoleon in 1806. Trim lived with the incarcerated captain, according to the Flinders Web site, until the day he was abducted and eaten by slaves.
— Hesh Wiener July 2002