Johns Hopkins University president Ron Daniels recently met with Sam Palmisano, A&S '73, the former president and chief executive officer of IBM. Their conversation ranged from Palmisano's time at Johns Hopkins to his career at IBM, and included discussion on higher education, U.S. global competitiveness, nurturing innovation, and fostering change at large institutions.
RD OK, Sam, thanks for doing this. We're going to just let this kind of run very loose in a number of different directions. We thought we'd start at the beginning. You're the son of working-class parents. How did you get to Johns Hopkins?
SP That's a good question. I grew up in Baltimore in a section called Northwood, maybe five miles from Hopkins.
How many siblings?
I had my sister and my brother.
Was it always clear that you were going to end up in university?
It was clear that I was going to do well in school. I mean that was very clear. In an immigrant family, at least mine, they realized that the way to the future was education. And there was no give. I was drifting academically as a teenaged male, and the hammer came down. The expectation was very high grades. In eighth grade, I spent the summer doing biology at a school and Saturdays doing algebra in the seventh and eighth grades.
So how long were you in academic receivership?
Not long. In a month or two, I was out of the program. It was enough of a task to prove that I could do it without supervision because it was better that way, you know? I think I was about . . . I wasn't in high school yet so maybe I was like 13.
After that time, through the rest of high school you were pretty much with the program?
Yeah. When I was at Calvert Hall [College High School], I was playing sports, but the school had to bring in college professors for math because six of us had passed the stage of what the school offered. I was being recruited for big-time football. I forget how many letters I received, a lot of offers from serious programs like Clemson, all that kind of stuff, the Naval Academy, Notre Dame. But I sort of came to the conclusion that I really wasn't going to be that successful [at football] and I'd probably get my brains beat in. I just thought I'd be better off going someplace where I could get an education and maybe still play sports. I applied to a lot of schools but at Hopkins I liked the coach, Alex Sotir. I was offered a scholarship and financial aid based upon the income of my parents, and I negotiated with my family that I was not going to live at home. I would go get the money [for room and board] myself but I wasn't going to live at home. Actually, I moved right into a fraternity house. I skipped the dorm.
Four years in a fraternity?
No, my senior year we moved to Guilford Avenue. Behind Beta and Phi Gam there was an open area, which is now the Roland Park School. There was a lacrosse field back there, so that's what we did, basically, played lacrosse and hung out.
Can we talk about your time at Hopkins? You played football throughout the four years?
Yeah, the whole time.
And you were playing jazz at the time, too?
I stopped that once I got in school. I got through my freshman year and then that was about it.
When did you get the gig as backup for the Temptations?
That was when I was . . . I think my junior or senior year in high school. That was an education.
And that was serious coin for you in terms of—
Well, I bought a car! I went out and I bought a car. A station wagon. That was my big success.
Why does a guy in high school who gets $1,000 [for backing up the Temptations] go out and buy a station wagon?
'Cause I needed to drive all the [musical] instruments around. Remember, we had all this stuff.
Go back to Hopkins. You graduated with a major in—
Behavioral social sciences. You know, liberal arts. But I went through all the math and science. I got through my sophomore year barely surviving linear algebra and all that kind of stuff, calculus and chemistry and all those sorts of things that we went through, and then—
The upper years, the humanities?
Economics and the humanities, micro/macroeconomics. I remember when I was hired to work for John Akers, who was the chairman [at IBM] before Lou Gerstner. He looked at my background, because here there's an engineering culture. He looks at my background and goes, "How did we ever hire you?"
I was going to ask that question.
I said I was pretty good at deductive reasoning. He goes, "Oh, that's probably a good criterion." I said, "Well, maybe I can make you laugh since I'm a liberal arts guy." He goes, "Well I do need a laugh." So I became his executive assistant. He said, "There's a lot of pressure around here. I need a laugh once in a while. I'll put you in the job."
Sam, the value that corporate America places on liberal arts training is a very live issue. If you look at what's happened in American higher education over the last several decades in undergraduate majors, there has been a surge in the percentage of business majors, while the percentage of majors in the humanities has declined. This is driven by students' belief that the liberal arts and humanities are less relevant than business to someone interested in a business career. Does this make sense to you?
No, I think what you need is both today. You need some deep skill in today's global world. It can be engineering, it can be arts, it can be theater, it can be math. It can be finance, just something you're deep in. But whatever you're deep in, you need to balance with the other side of it. So if you're deep in math and science or engineering, you've got to balance it with the humanities because you have to work in these multicultural global environments in the broadest sense of diversity. All religions. All cultures. All languages. You know in this place [IBM] we deal with 170 countries, so you have to demonstrate that you have that ability to listen and understand and be sensitive to cultural issues as well as deep and smart in some discipline. But if you're not deep and smart in some discipline, you're going to have a hard time competing.
So talk about how corporate America can fill that breach. What can it do better to diminish the gap between where the skills are and where the jobs are?
I think the most important thing is to work with universities and give our input to the curriculum. We have a good relationship with a lot of different schools. We've actually done a lot in the U.S., we've done a lot in China and India and places around the world. One of the issues that I have with some of the processes around college admissions is the fact that they want to get a diverse class with a lot of students who are different. And we want a diverse individual. As an employer I'm looking for a diverse individual, not a narrow individual in a diverse environment.
Do you think corporate America, and in particular IBM, has been effective in communicating that demand to the student population? Do they really understand, for instance, that you're looking for that kind of diversity?
We interface with the schools, we tell them this is what we're looking for, we actually give them suggestions on the curriculum, right? For example, you take today. It's biomedical engineering [that we're looking for], it's comp sci, and it's biology and chemistry, all those things, plus a little humanities in there, too. A language would be great, you know? The other thing we do is we have these programs here called Corporate Service Corps. We initiated it so that people younger in their careers will get on a global team from all over the world. They go to Tanzania, Kenya, wherever, some emerging country, the Philippines. They work on projects. They get a little bit of language sensitivity training. They go deep on a project with an NGO or a government. But the point to them is to learn how to work in this diverse, multicultural, completely foreign environment that they never could imagine they'd have found themselves in, and the learning is off the charts. I mean, they come back and they call this a life-changing event. And they have to mentor the next group, they have to get them ready. So they have a role when they return.
A lot of our students have internships abroad. A number of them do junior years abroad. But you can't say that virtually every graduating undergraduate will have had that kind of experience. Should they?
If you think about the world, Ron—which is completely different than 40 years ago when I entered the job market—the global interconnection has only just begun. I can debate both the positives and negatives about that, [but] it's an economic fact, right? And by that I mean, when I got out of school, a lot of these countries were more focused on their own domestic policies. Then 20, 25 years ago, they woke up and said, "You know, for us to take care of our population, we need to engage in the global economy." And they engaged, right? You take this year's economic growth, 2012. I think the majority of it is going to come out of the BRICs [Brazil, Russia, India, China]. The number's like 400 to 500 million people entering the middle class in these emerging countries. I added Africa to that number, so say 300 million without Africa, right? And you can't resist that world. They're educating people and providing for the middle class of their societies. You gotta engage it. If you don't engage it, you can't grow. I mean, the U.S. and Europe cannot grow unless they engage those economies. So you need people prepared for that.
So Sam, when you look at this burgeoning middle class in the developing world, again the question goes back to how are we doing in the United States in preparing for this reality?
I don't think we are.
What do you worry most about?
Well, you start with the fact that we're not preparing the country with the education level required, the skills required to compete. If you can't do analysis in the future, analyze all this data from all these smart systems and things, then it's going to be pretty tough to work, you know, because that's what's going to be required.
So where does that lead?
You've got to worry about high school completion rates.
Yes, and graduating from the right types of curricula. College is mandatory now. Look at the statistics. If you have the education, there are plenty of jobs out there. So I think the education issue is paramount.
You're describing something I worry a lot about from my perch at Johns Hopkins. In a lot of ways, particularly in the K-to-12 arena, we're playing a game of catch-up. But catch-up [alone] isn't sufficient. If you look at the vaunted strengths of the American economy and American society, it's about creativity. Are we maintaining our edge there?
The edge that we've had for a long time has been a university system that creates an environment where people can be very innovative. We've also had a system of great collaboration for research because at the end of the day you need money behind these things. We're one of the few corporations left that still does research in a big way. Because corporations are under so much short-term pressure from the investment community, they cut back on the R&D and say, "We'll get it from the universities now." Universities like Hopkins do a great job, but that's not enough. It's not enough.
Even more than that, what we are terrified about is that as the federal government continues to grapple with the deficit, one of the things that will be served up [for cuts] is investment in research.
It's the easiest thing to cut. In the private sector, the financial pressure is for short-term quarterly results, but as you know, in research you don't know if it's going to pay off in three years, or five years. Watson [the supercomputer]? This machine that was going to compete on Jeopardy! was somebody's idea in a bar. I mean, who knew, right? But the private sector has checked out [of funding research]. Very few of us are left. The other easiest thing to cut in the federal government is what nobody's going to see. Who's going to see it in the short term if you cut out NIH [the National Institutes of Health] or NSF [the National Science Foundation] and all that sort of stuff?
So do you get a sense, Sam, that the traditional compact that has fueled and distinguished this country is the public/private partnership?
This three-legged stool.
Other countries seem to be getting this. In some instances they've taken our model—
China, India, Singapore.
—they've taken our model and they're breathing life into it. So how do we get it back?
You have to establish an agenda for the future. In this [IBM] centennial year I get asked a lot, "How do I make it to 100 years?" The average company can't make it 20 or 30. And the reason is because we've always moved to the future. The only time we ever got in trouble was when we invented the PC and we didn't exploit it. We'll never make that mistake again. If we invent it, we're going to exploit it. It's no different for a country. The United States—you have to have a strong point of view of what you want the future to be, because if you don't have a point of view, you can't do the prioritization. You have to have a point of view and you have to defend it. You also have to demonstrate measured results. We had a leadership forum in New York and this guy Aquino from the Philippines [Benigno Aquino III, president of the Philippines], he said, "These are the four things I'm going to do and you measure me on those four things. If I don't do it, throw me out. If I do it, hopefully you'll re-elect me." That was his speech. I was floored. The president of the Philippines. He got it.
Let's talk a bit about the ingredients here at IBM. When you were at Johns Hopkins for the Centennial Lecture, you talked a lot about the extraordinary survival of [IBM] against the odds. Is it dumb luck or is it something else?
If you look at the history of the place—which is one of the benefits of a liberal arts education—it's because the Watsons never defined themselves as a "business model" or a product: "I got a smash hit and that defines the company. Xerox copying machine. That's what I do. I do copiers." Now Xerox has changed, but they struggled along the way. Kodak film is a more obvious one. Kodak might not make it.
So you've got to transcend the technology or a product.
You can't define yourself. "I love this business model, so I can't invest in these other things because I don't like the economics of the other things." Or, "I have this smash product and I'm going to hold on as long as I can to my hit." Whenever you do that, you get in trouble.
So in the end, at IBM is it some distinct culture?
I think a lot of it has to do with culture and leadership, because you need people at the top who are going to push the future agenda. We have the benefit of having gone through a bad spell, so those of us who got through it certainly have learned the lesson. Not all companies have the pleasure of surviving when this happens.
What is the core competence of IBM that's shaped leadership for 100 years?
Create intellectual property and develop talent. It sounds like the future of the United States, doesn't it?
It sounds, at least in part, like the future of the university as well.
There's no substitute for talent, and you've got to build it if you can't get it. I don't think people come out of graduate programs with what we need, so we have it build it ourselves.
Let's talk just a bit about the complexity of managing this colossus. You're in over 170 different countries, 400,000-plus employees. How do you create a common sense of identity when you're up against different countries, different cultures, different religious groups, different political systems? How do you knit that together?
You have to have values, because you need something that gets people to come together. When I first took over, we asked four questions, which you can ask at Hopkins: Why would somebody give me their money? Why would somebody work here? Why would an investor put their money here? And why would a society allow me to operate within its country? We worked for 10 years answering those questions. Once you've done that, well, how do you bring all that together? You need some common value system that people can agree to. At IBM we had this big debate, because the employees have to develop their own value system, and they did. They came down to three values. One was innovation for the world and for IBM. Another was integrity and personal responsibility. The third is dedication and commitment to the client or your society.
But the story here is that you let the employees shape it.
We had to do it. They're too smart, they're too well educated, they're too sophisticated, they're too multicultural. They've got to figure it out.
Do you think part of being a CEO in today's environment is to have a much greater tolerance for chaos than in years past?
You've got to stand back from it. It's chaos, but you've got to let it go on, and you need to know when to insert yourself. I've inserted myself at times. It flows and evolves. There are dark moments in the job, like any top job. You have your ups and downs, and the downs are really down and the ups are really up. That's the nature of running IBM, an iconic organization, or Johns Hopkins, right? That's just the nature of the beast. But as far as when it evolves? It builds on itself. So we worked on the values. Then we said to people, "OK, are we living up to the values?" We had a [management] meeting and said, "You guys think that earnings were fine, we're doing a great job, yeah, managers are doing a great job. But what do the employees think?" Boom! "We stink." Wow. That could have been a dark moment. Instead you say, "Well, that's a constructive moment, because they just want this place to work. They're not trying to destroy the place. They had ideas as to how to make the place better, improve innovation, get rid of the bureaucracy, all the stuff you'd expect. The No. 1 on the hit parade, as I called it at the time, was, "Can I provide feedback on my manager? I want him to be better, or her to be better." It was not a negative thing. Just, "I want a better manager."
When you look at some of these difficult decisions that you've made over the last decade, do you have a theory of organizational change? How did you create the sense of urgency and resist the instinct to take refuge in the status quo?
Use analytics and appeal to their intellect. We did the analysis on the future, and the way you make it nonemotional is you don't take the next year, take the segment called PC and look at five years and say, "What will the economic returns be for hard drives? What will be the returns in five years, and do we like that economic state?" We went out and looked at [PCs] and concluded that this was an unattractive model. It could never cover our return rates required to go fund $6 billion in research. That was the analysis. So they do all the analysis, they come back and say, "That really stinks." Then you say, "OK, what are our strategic alternatives?" We chose a strategic decision that was much harder to accomplish than a tactical decision. But once our people saw the conclusion, they're smart people, they get it.
If you look at the proliferation of data and the number of sensors and the capacity to build complex networks and so forth, this is the upside of technology. Do you ever worry about the 1984 scenarios, the dark side of technology? Do you get queasy about interactions with authoritarian states and the possibility that the technology gets used in a wrong way?
They do whatever they do. We don't participate. Even where they're sort of in this gray area, if we have any sense whatsoever [that the technology is] going to be used in ways that wouldn't be consistent with our value system, we don't do it. We just turn the business down.
Let's go back to where we started, back to Johns Hopkins. Complete the sentence: In part, my success at IBM was because of Hopkins, in particular …
I show intellectual curiosity and independent, free thinking.
That you got at Hopkins.
Yeah. You know what I realized at Hopkins? I realized that there are a lot of really smart people and you need to get them to work with you, right? Because if you can get all these smart people to work with you and you don't take credit for their work, you might be successful even if you're not the smartest one there. It's so counterintuitive because I know everybody thinks you need to be the smartest person in the room or the best doctor or cardiologist or whatever, you know? "I am the shoulder guy," or "I am the knee guy." I hear them all the time. I came to the conclusion that I was never going to be that smart, but what I could do is learn how to work with them to accomplish something, and if I gave them credit for all their great work and didn't take credit myself, I'd be OK. And that's been it.
Last question, Sam. If you were to imagine what your teammates from the Hopkins football team would have said about the likelihood that there would be Barron's, Forbes, the New York Times, the Wall Street Journal paying homage to Sam Palmisano, what do you think they'd be saying?
First, they'd laugh hysterically, because they wouldn't believe it. They'd laugh about it but then maybe they'd say, "Well, maybe he has the personality to pull it off, because he doesn't have the brains." If you're sincere and care about whatever it is and don't put yourself first, people will do anything. They will do whatever you want them to do.