IBM Executive Reshuffle Puts Focus on CEO Succession

Who Will Be IBM's Next CEO?
Who Will Be IBM's Next CEO?

IBM (IBM) has realigned its executive suites and expanded the roles of four of its top managers, according to an internal memo sent to employees Monday -- a move that potentially paves the way for one of them to become the successor to CEO Sam Palmisano.

Big Blue announced the changes following its second-quarter earnings report Monday, which disappointed Wall Street with its lower than expected revenues. Speculation over Palmisano's replacement has been increasing in recent months as the long-time IBMer approaches 60, the typical age at which IBM CEOs retire, notes a Bloomberg report.

Of the four executives who were promoted, Virginia Rometty, 52, senior vice president of global sales and distribution, may be the odds-on favorite to replace Palmisano, given her age and all the talk around IBM's watercooler, according to Bloomberg. Rometty also picked up the additional duties as head of marketing and strategy in the executive shuffle.

But Michael Daniels, senior vice president of global technology services, increased his oversight to include more than half of IBM's business in this reshuffling. Daniels, 55, will now also oversee IBM's global business services, making him responsible for $13.7 billion of the $23.7 billion in revenues IBM generated in the second quarter. Services has a particularly sweet spot in Palmisano's heart: The CEO was highly acclaimed for pushing Big Blue deeper into that sector, which has tended to carry higher profit margins and served as a faster growing business.

Steve Mills, senior vice president and group executive of IBM's software group, also inherited a larger chunk of IBM's business with the addition of its hardware operations to his portfolio. That will make Mills responsible for $9.3 billion of IBM's business, nearly on par with Daniels. Mills's name often comes up when companies are hunting around for CEOs, according to executive recruiters, but one issue that he may have to contend with if he hopes to ascend to the top job at IBM is his age: He's 58.

And, finally, Mark Loughridge, IBM's chief financial officer, will also take on the responsibilities of senior vice president, finance and enterprise transformation.

Setting a More Collaborative Course

In a copy of the memo, Palmisano stated:

Over the past several years we have seen great value in working collaboratively, starting with the example set by the senior management team. Today's changes have that in common -- they will further strengthen teaming in support of our strategies and initiatives.

For example, we know that IT infrastructure performance is greatly enhanced when every element – from microprocessors and storage through operating systems and middleware -- is designed and brought to market as tightly integrated, optimized systems. There are logical synergies across our services units, including the increasing value of leveraging our intellectual property in business process management and transformation projects for our clients. In this way we can help them achieve quantifiable value sooner. And we know that in order to achieve the productivity goals of our 2015 EPS Roadmap we need to drive both efficiency and process transformation throughout the company.

Today's announcement is not about organization. Rather, it is about how we work together -- making our culture even more collaborative, in support of our integrated business model and grounded in client value as we strive to build a Smarter Planet.

The executive shuffle may also bring greater clarity as the business environment changes, and allow IBM to accelerate the speed at which it responds. IBM apparently surprised Wall Street by posting a second consecutive decline in its services business, when it had previously indicated back in April that it expected to see an increase, according to a report in The Wall Street Journal which first noted the executive changes.

IBM declined to comment on speculation about Palmisano's retirement or any potential successors.