What Will A Rometty-Run IBM Look Like?

Jennifer LeClaire, <a href='http://www.newsfactor.com'>newsfactor.com</a>

In a changing of the guard at IBM, Virginia Rometty is taking the CEO reins from Samuel Palmisano on Jan. 1. Rometty is certainly qualified for the role and few were surprised by the appointment of Big Blue's first female CEO.

Rometty joined IBM in 1981 as a systems engineer. She climbed up the ranks and is senior vice president and group executive for sales, marketing and strategy at Big Blue. The 54-year-old is accountable for revenue, profit, and client satisfaction in the 170 global markets in which IBM does business. She is also responsible for IBM's worldwide results, which exceeded $99 billion in 2010.

"Ginni Rometty has successfully led several of IBM's most important businesses over the past decade -- from the formation of IBM Global Business Services to the build-out of our Growth Markets Unit," said Palmisano, who will remain IBM's chairman.

"But she is more than a superb operational executive. With every leadership role, she has strengthened our ability to integrate IBM's capabilities for our clients. She has spurred us to keep pace with the needs and aspirations of our clients by deepening our expertise and industry knowledge."

Palmisano's Big Shoes

Rometty has some big shoes to fill. Since Palmisano became CEO, IBM has set records in pretax earnings, earnings per share, and free cash flow. During his tenure, IBM increased EPS by almost five times, generated more than $100 billion in free cash flow, and invested more than $50 billion in research and development -- creating more than $100 billion of shareholder value since 2002 through an increase in market capitalization and dividends paid.

What challenges will she face? Charles King, principal analyst at Pund-IT, said Rometty's immediate challenges would be to keep executing the IBM strategies currently in place -- not always as easy as it sounds in a $100 billion organization working in 170 global markets -- and to prepare the company, its customers, and partners for the continuing evolutionary changes ahead.

"On the plus side, she's taking on the CEO responsibilities at a time of remarkable stability at IBM, while at the same time many of its biggest competitors -- HP and Oracle, particularly -- are either in some disarray or transitioning to new and essentially unfamiliar business models," King said. "On the minus side, while that should provide Rometty and IBM some breathing room in the short term, it would be a mistake to expect competing vendors to be fumble-footed forever."

Rometty's Reinvention

Along with being a terrific choice to replace Palmisano, King said, Rometty also demonstrates IBM's devotion to managerial excellence and its ability to develop and nurture a deep executive bench. Overall, he noted, she appears to be a sterling example of why competitors' shareholders are likely envious of IBM's well-considered, planned and executed transition for its new CEO and president.

"Today, IBM's strategies and business model are correct. Our ability to execute and deliver consistent results for clients and shareholders is strong," Rometty said. "This is due to Sam's leadership, his discipline, and his unshakable belief in the ability of IBM and IBMers to lead into the future. Sam taught us, above all, that we must never stop reinventing IBM."

So what will a Rometty-run IBM look like? That remains to be seen, but the markets seem appeased. IBM maintains a strong buy rating from S&P, with five stars. The shares are trading at close to its 52-week high.