Sam Palmisano’s Advice to Younger Tech Titans: Don’t Show Up to Davos in a Hoodie

April 10, 2014 11:23 AM EDT

IBM has been, in many ways, the Teflon tech company. At a time when big Silicon Valley firms like Apple, Google, Yahoo and others have been under fire for everything from tax avoidance, to offshoring, to playing fast and loose with privacy, the 101 year old Armonk, NY giant has managed to look like the model for socially responsible business. It has garnered good press for everything from its educational initiatives, to its support for local supply chains in the U.S. Its Smarter Cities initiative, in which it works with local leaders to knit together public transport, economic development, energy, and digital strategies is another example of how the company deftly manages to bridge the global/local divide.

A good chunk of the credit for this goes to former IBM CEO Sam Palmisano, who led the company between 2003 and 2011, during which time it achieved record performance, in part by successfully shifting its business model from hardware to services, but also for connecting social goals in areas like education, health and safety with revenue building, under the “Smarter Planet” strategy. Basically, IBM figured out not only how to make money serving local governments by building out city infrastructure, providing products and services in schools, hospitals and elsewhere, but how to avoid some of the globalization backlash that typically plagues big tech companies with fat margins and multinational reach.

I’ve always been interested in how the company pulled all this rare feat off. That story is one of the things that Palmisano is touting in his new eBook, Re-Think: A Path to the Future, which is meant to be a roadmap for how to build a 21st century multinational. The title is unsexy, and, truth be told, so is much of the book itself. But Palmisano, who is now a director at the Center for Global Enterprise (which aims to research and roadmap the practices of the most successful and sustainable firms around the world, from family owned businesses in Germany to American blue chip multinationals) does have some interesting insights and old school corporate wisdom that the younger generation of Silicon Valley techies, as well as any number of other corporate leaders, should pay attention to. Below, his five most interesting takeaways:

“Don’t show up to Davos in a hoodie.” That was Palmisano’s tongue in cheek answer to my question about why tech is no longer Teflon. But his point is actually serious. Too many corporate leaders are inward facing, focused mainly on themselves and their own corporate cultures. 21st century leaders are going to be dealing with a much broader range of stakeholders – both public and private – in a bigger array of geographies than ever before. It’s important to reflect and understand those cultures, not just your own.

Localnomics matter. The brilliance of IBM’s Smart Planet strategy is that it’s totally global, but feels local. “To succeed as a globally integrated enterprise today, you have to connect with the local agenda,” says Palmisano. Smart Planet allows IBM to embed its products and services in local schools, sanitation services, hospitals, and power companies. They become a go to player in providing basic public services – thus building trust in local communities.

Cities are more important than countries. They are where over 50% of the world’s population, and most of its money, is. “Life comes together in cities, not in countries,” says Palmisano. IBM builds its business around the biggest and most important ones.

Values can be motivational. When he was faced with the challenge of trying to get a bunch of patent holding IBM engineers who’d spent a lifetime building a PC business to ditch that and come up with a new technology strategy around services, Palmisano issued a challenge: “What can this company do to create a safer and more secure society?” The result, after several years, was Smart Planet. Of course, it didn’t hurt that he threw $100 million in blue-sky money at them to help develop promising ideas.

Which goes to the final point – think long-term and ignore the bankers. When Palmisano realized the company had to evolve or die, back in 2006, he decided to take a radical step and refuse to issue quarterly earnings guidance to the Street. “I knew we had a good plan, but I also knew we needed time to execute it, and it was going to be tough to have the operational flexibility we needed,” with Wall Street analysts watching for an earnings bump every few months. The long-term thinking paid off – two years later the stock soared. Palmisano believes more companies, particularly high performing ones, should make the same decision. “If you are trying to squeeze a few more cents out every quarter, it can be hard to make the best long term decisions.”

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