Smooth Succession: How IBM Set Records in the Realm of CEO Transition
SIGMA believes in ongoing learning and development. One of the most efficient ways to do this is to learn from the successes and failures of others. These cases highlight some of industry’s most powerful lessons in succession planning, drawn from the example of those who went before us.
Case Study
SMOOTH SUCCESSION: HOW IBM SET RECORDS IN THE REALM OF CEO TRANSITION
A business case for succession planning, and how one of the world’s largest tech companies got it right – and set records along the way.
Download our case on IBM’s 2012 CEO succession to learn:
- The importance of a succession planning process
- The value of having a plan
- The distinction between a person and their position
Sneak Peek: What’s Inside
In October 2011, IBM set a record for smooth succession when they announced that Virginia (Ginni) Rometty would replace Samuel Palmisano as the company’s CEO. The official succession would occur a few months following, on January 1st, 2012, but the process of succession planning had already been underway for years. Unlike other companies, where succession follows fatal illness, abrupt retirement, or public scandal, IBM set an exemplary model for a peaceful and planned transition. How did they do it? Let’s take a look.
The Problem
In October 2011, Samuel J. Palmisano announced that he would be retiring from IBM after eight years of serving as the tech giant’s President, CEO, and Chairman of the Board. Prior to taking the helm as the company’s leader, Palmisano had also served as senior vice president (SVP) and group executive (GE) of the Personal Systems Group, SVP and GE of IBM Global Services, and SVP and GE of Enterprise Systems. [i] As IBM’s most senior leader, Palmisano reorganized IBM into a “globally integrated enterprise,” oversaw the acquisition of PriceWaterhouseCoopers’ consulting, and re-oriented IBM’s strategy toward customer-focused solutions with personal computers and disk drives.[ii] In doing so, Palmisano effectively led IBM through the transition from a hardware producer to a software/services powerhouse. With this significant change, as well as a 39-year career at IBM under his belt, one would think that Palmisano’s retirement caused upheaval in the company and the stock markets. In reality however, Palmisano’s succession was one of unparalleled success, described by Washington Post and countless other analysts as “noticeably smooth.”[iii] How did they do it? With the help of a well-oiled succession planning process.
The Solution
When Palmisano made his announcement in October of 2011, he not only announced his retirement, he also announced his successor and explained what the transition process would look like. Palmisano was to be succeeded by Ginni Rometty, who would take over as President and CEO at the beginning of 2012, while Palmisano remained Chairman of the Board until September 2012. After a few months of transition, Rometty then assumed full leadership of the company as President, CEO, and Chairman of the board. Rometty’s promotion was no surprise, as stakeholders had long known she was a front-runner for the position. Rometty also had a long history with IBM and had demonstrated that she was well-equipped for the role. She began working at IBM in 1981 and climbed the ladder from an entry-level position to SVP and Group Executive for Sales, Marketing and Strategy before her promotion to Chairman and CEO.[iv] Under her leadership, IBM continued to thrive. Rometty built new business capabilities in hybrid cloud, security, quantum computing, data, and AI, both organically and through acquisition. During her tenure, IBM acquired 65 companies, including Red Hat, the world’s leading provider of enterprise open source solutions, like Linux, cloud, container, and Kubernetes technologies. Red Hat was the largest acquisition in IBM’s history.[v] Under Rometty’s leadership, IBM also became the first tech corporation to win the Catalyst Award for advancing diversity and women’s initiatives after Rometty achieved record results in diversity and inclusion. This was made possible particularly through an extended parental leave and ‘returnship’ program, which made it easier for women to return to work with hands-on training in emerging technologies.5 Rometty certainly did her job well, and her transition to leadership was commendably smooth. This was made possible only through an established leadership development process and a robust succession plan.
How They Got There
IBM intentionally prepared Rometty for the role of CEO, but her succession was also imbedded within a larger leadership development process. This is a crucial step of succession planning that many companies miss. Rather than selecting and training a single successor, true succession planning consists of ongoing employee development. IBM invested in such a process, perhaps most notably in their Workplace Management Initiative (WMI). This initiative was launched after the company recognized their need for a transparent and comprehensive view of their talent supply, requirements, and implications for business strategy. The initiative consisted of a process for talent identification and development, as well as standardized tools for project planning, talent assessment, and performance management. The system was implemented by over 80% of IBMers and became a way for them to plan and track their own development, as well as for managers to assess talent requirements and availability.[vi]
Under IBM’s WMI, “dual-hatting” became a popular phenomenon. The term was used to refer to HR leaders performing tasks that not only benefitted functional areas in personnel, but also directly impacted IBM business areas (ex. HR Business Development assumed the role of “business leader” for the Software segment, as this segment had historically performed the most acquisitions). The dual-hatting model meant that there would be a much stronger connection between talent management and business operations. It also meant that business leaders had to have a stronger understanding of proper recruitment, training, and development strategies. Putting this understanding into practice then allowed managers and executives to build their teams to suit the game they’re playing. Rich Calo (VP, Global Workforce Relations) used an ice hockey analogy to liken dual-hatting in the succession planning process as a model that allows HR to “skate to where the puck is going to be.”7
In addition to a robust leadership development process, IBM did an outstanding job of selecting Palmisano’s successor. Most notable is the fact that they selected a true successor, rather than a cookie-cut replacement. Unlike Palmisano, who holds a bachelor’s degree in history and began working at IBM as a salesman, Rometty has a bachelor’s degree in science with high honors in computer science and electrical engineering.5 In addition to their education, Rometty and Palmisano differed in their path along IBM’s leadership pipeline. While Palmisano stepped into the role of CEO after being the COO,[vii] Rometty transitioned into her leadership from an executive position in sales, marketing, and strategy rather than operations.[viii] This distinction is important, because far too often successors are chosen because look and act like the leader who is being replacing. This may not be ineffective, but it falls short of true succession. Instead of focusing on the person, a robust succession plan identifies and develops the best candidate for the role. Palmisano himself commented on this when pressed on the demographic differences between him and his successor “Ginni got it because she deserved it,” he told The New York Times. “It’s got zero to do with progressive social policies.”[ix]
Finally, Rometty’s succession was able to occur smoothly because it was planned. At no point in the process were any stakeholders surprised. Investors were aware that Rometty was a frontrunner for the position, as were other executives and employees at IBM.12 In addition to announcing his successor in advance, Palmisano also outlined the planned process for succession. It was to occur over the following 12 months, with Rometty stepping into the role of CEO in the new year while Palmisano remained Chair of the Board through to September. Not only was this process transparent, it was also timely as the transition was neither rushed nor dragged out. In this way IBM set an example for strong succession planning, one of the few cases in life when boring (or at least predictable) is better.
Key Takeaways
- Succession is a Process – IBM’s executive level takes succession very seriously. [x] Rometty was not selected as Palmisano’s successor the day he announced his retirement, she was trained and transitioned into her leadership role over time. This process is evidence of IBM’s mature, integrated, and global talent management program, and it provides an example of true succession planning rather than last-minute replacement hiring.
- Succession Requires a Plan – In addition to being a process, succession planning requires a plan. The process does not take place on its own. Developing candidates takes time, but it also takes intentional effort. Like IBM, it is important that you assess and develop your leadership candidates’ skills, and provide them opportunities to apply those skills, build connections, and gain experience.
- It’s About the Position, Not the Person – A common practice in succession planning is to choose leaders based on the qualities of the incumbent. Essentially, we are tempted to replace the person rather than fill the position. Not so at IBM. Rometty was chosen based on her merits, rather than qualities that matched her predecessor. She had a proven track-record of accomplishment in the past, and a vision and potential for how to carry IBM into the future.
SIGMA Can Help
Like IBM, your organization can establish a leadership development and succession planning process. SIGMA is here to help. To get you started, we’ve developed an engaging Succession Planning Certification Workshop. The workshop is delivered in two half-day virtual sessions, both of which are designed to provide concentrated and interactive succession planning training. By the end of this training, you will understand Succession Planning, hold a working Succession Plan for a position of your choice, and have the knowledge and tools to replicate the process across all levels of your organization. For more information, or to register for our upcoming session, visit our website today.
[i] The Center for Global Leadership. (2021). Samuel J. Palmisano. TheCGE. Retrieved from https://www.thecge.net/team/samuel-j-palmisano/.
[ii] George, B. (January 18, 2012). How IBM’s Sam Palmisano Redefined the Global Corporation. HBR. Retrieved from https://hbr.org/2012/01/how-ibms-sam-palmisano-redefin.html.
[iii] McGregor, J. (October 26, 2011). IBM sets an example with Ginni Rometty — and not just by selecting her as its first female CEO. Washington Post. Retrieved from https://www.washingtonpost.com/blogs/post-leadership/post/ibm-sets-an-example-with-ginni-rometty–and-not-just-by-selecting-her-as-its-first-female-ceo/2011/04/01/gIQArCqwIM_blog.html?utm_term=.2d847f866ff6.
[iv] Ang, A. (January 26, 2018). Succession Planning in Real Life: 3 Major Examples. TA Technology Advice. Retrieved from https://technologyadvice.com/blog/human-resources/succession-planning-real-life/.
[v] IBM. (2020). Virginia M. (Ginny) Rometty. IBM. Retrieved from https://www.ibm.com/about/ginni/.
[vi] Boudreau, J.W. (2010). IBM’s Global Talent Management Strategy: The Vision of the Globally Integrated Enterprise. SHRM. https://www.shrm.org/certification/educators/Documents/Boudreau_Modify%20IBM%20Case%20Study_PDF%20Only-CS5-partC-FINAL%20TO%20POST.pdf.
[vii] Reference for Business. (2020). Samuel J. Palmisano 1951-. Reference for Business. Retrieved from https://www.referenceforbusiness.com/biography/M-R/Palmisano-Samuel-J-1951.html.
[viii] Ang, A. (January 26, 2018). Succession Planning in Real Life: 3 Major Examples. TA Technology Advice. Retrieved from https://technologyadvice.com/blog/human-resources/succession-planning-real-life/.
[ix] McGregor, J. (October 26, 2011). IBM sets an example with Ginni Rometty — and not just by selecting her as its first female CEO. Washington Post. Retrieved from https://www.washingtonpost.com/blogs/post-leadership/post/ibm-sets-an-example-with-ginni-rometty–and-not-just-by-selecting-her-as-its-first-female-ceo/2011/04/01/gIQArCqwIM_blog.html?utm_term=.2d847f866ff6.
[x] Bersin, J. (October 26, 2011). Succession Management at IBM, Contrasted with Apple and HP. Josh Bersin. Retrieved from https://joshbersin.com/2011/10/succession-management-at-ibm-contrasted-with-apple-and-hp/.