IBM Reorganization Puts Former AS/400 Head at Top of Server Division

IBM’s recent senior management shake-up has inevitably trickled down past the highest levels of the company, and with the appointment of Bill Zeitler as new head of the server division, this major change will undoubtedly affect the future of the AS/400, as well as the company as a whole.

Perhaps even more significant for the AS/400 division is the fact that Zeitler has a strong history and affiliation with the platform.
The executive reorganization IBM chairman Lou Gerstner kicked off several weeks ago led many industry experts to speculate it might be a sign that Gerstner’s departure as IBM’s chief is imminent. While IBM would not confirm such rumors, the senior management changes, which included the appointment of Samuel J. Palmisano as the first president under Gerstner’s tenure, have nevertheless caused a stir, both within the company and throughout the industry.

Gerstner startled many with his July 24 announcement that the 48-year old Palmisano, then senior VP of IBM’s server division, had been appointed to the position of president and chief operating officer. In addition to Palmisano’s promotion, the company announced that software group senior VP and group executive John Thompson, 57, had been named vice chairman. The new positions took effect Sept. 1.

According to IBM, the new structure will allow Palmisano to primarily be responsible for daily operations, overseeing eight divisions of the company. Thompson’s role will be to explore future directions for the company’s products and services, concentrating on such areas as the Internet and wireless technology.

In examining the significance and potential impact of this high-level reshuffling, analysts are debating whether there is any truth to the rumors of Gerstner’s coming departure, and if not, what might have been the motivation behind this major executive overhaul, the first at IBM in seven years.

Brad Day, VP of computing infrastructure for Giga Information Group (Cambridge, Mass.) says he does not see the announcement as any definite indication that the 58-year-old Gerstner, whose contract expires March 2002, is planning to step aside. However, he says, he would not be surprised if this reorganization represents the early stages of preparing for Gerstner’s successor to take the reins, even if that occurs much further down the road than some might suspect.

“Rather than whether Gerstner is leaving IBM, I think a better question is, will this reorganization be the last before Gerstner feels comfortable in moving on?” Day says. “The way I see it, this could be an organization that could exist if Gerstner left.”

Even if Gerstner is planning to leave the company, those changes would not take place for some time. In the meantime, the management shifts can be expected to herald some notable changes in IBM’s strategy and direction, affecting many aspects of the company other than personnel.

Zeitler, the 63-year-old head of the IBM S390 division and former head of the AS/400 division, has been selected to succeed Palmisano as vice president in the server division. His appointment as Palmisano’s successor came as no surprise to the analysts who spoke with MIDRANGE Systems.

“That’s brilliant. The Zietler move is a good one,” says Joe Clabby, group vice president for compute platforms and architectures, Aberdeen Group (Boston). “He’s a results guy. The field loves him – he knows how to work the IBM internal organization and get results – he’s really well respected.”

Perhaps even more significant for the AS/400 division is the fact that Zeitler has a strong history and affiliation with the platform. As head of that division in the mid-90s, Zeitler took some concrete steps to move the AS/400 ahead technically and made some fundamental changes to begin to bring the platform out of a struggling period.

“He was really involved in some of the critical aspects to making the AS/400 what I call a ‘swing server,’” Giga’s Day says. “Under his development, it became a server not only to run business applications but to run a Java virtual machine environment, and he was instrumental in getting it really geared-up for e-business. He didn’t want to isolate the 400 by restricting it to OS/400; he spearheaded the ability to run NT applications.”

Clabby says he thinks Zeitler will be able to easily and successfully translate his experience with the AS/400 division to his position as head of the general server division.

“The way he turned that division around was he focused on building relationships with value-added resellers and independent software vendors to make the AS/400 a preferred platform, and he can emulate that approach across IBM’s AIX, Netfinity, S/390 and Linux lines,” he says.

Other analysts say they agree this approach is critical to IBM’s future, and see it as a central element of what Gerstner has designated as the next stage of IBM’s turnaround. A critical step in keeping IBM moving forward is, first, to show a balance in the company’s emphasis on its hardware, software and services businesses. Day says overall, the industry might expect to see another “tweaking” of upper-level management to better ensure that each of these business sectors are represented equally, before Gerstner considers stepping down. Even more important, he says, IBM will be actively looking to court ISVs, emphasizing the value they can offer through their Global Services division. In this respect, Day and Clabby argue, Palmisano’s experience in each of these areas, as well as his reputation as a risk-taker, likely played a large role in his promotion.

“Not only does he have a strong hardware background, he has a good link to the services side and an extremely strong background in software,” Clabby says. “In Palmisano’s case, they finally gave him the title he deserves. He’s been doing those jobs for years.”

Day also sees evidence of both of these strategies in Zeitler’s appointment to the server division.

“Zeitler has not only had the server group responsibility, but he’s also had some experience in the software area,” Day says. “And I think that’s a new direction you’re gonna see developing, because that’s gonna be a major element of turning things around – looking at ... what kind of new programs they’re going to have to put in place, first to maintain the ISV business partners they have, and then to continue to attract new ISVs. They’re going to have to be able to show that they’re very innovative in their platforms.

“What will move a server platform forward is not just the technical power of the platform itself, it’s how the ISVs perceive it. What’s the encouragement for them to use one over the other?"

Neil Goldman, director of Internet computing strategy for Boston-based Yankee Group, agreed that this effort will be critical and says he will be interested to see what IBM does to reposition itself to emphasize software and services as well as hardware. However, Goldman is decidedly more skeptical about the impact Gerstner’s reshuffling will have on IBM’s operations and outlook.

“I don’t see any real change,” he says. “It’s not like I see (Palmisano) now coming in as president and saying, ‘Ok, I’m taking IBM in a new direction.’ Nor do I see the other comparison you tend to hear about, the parallel with Microsoft, with Steve Ballmer coming in and Bill Gates sort of stepping aside. They had a problem that tends to be solved by that kind of reorganization, which was, ‘where’s Microsoft going now?’ And that’s what Bill Gates is good at, so he got back into that. ... It’s not like (Gerstner’s) gonna say, ‘There’s somebody here running the day-to-day, I’m going to go off somewhere and figure out what’s wrong with IBM.’”

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