IBM's Palmisano Jolts Management Team

IBM plans to redouble its efforts to produce tightly bundled computer systems that feature chips, middleware, and business software designed from the ground up to support cloud computing and other new-wave IT architectures.

Toward that, CEO Sam Palmisano has placed his key hardware and software divisions under the watch of a single executive. IBM on Monday also streamlined its services, finance, and sales organizations in a major management shakeup that aims to boost collaboration across the company's worldwide operations and pull related departments and product groups closer together.

Longtime IBM software chief Steve Mills adds responsibility for hardware to his remit. He now carries the newly created title of senior VP and group executive for Systems and Software. Rod Adkins, senior VP for the Systems & Technology chips, server and mainframe group, will no longer report directly to Palmisano but instead will be under Mills' organization.

In a memo to employees Monday, Palmisano said combining hardware and software will spur IBM's efforts to deliver bundled, plug-and-play systems. "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," Palmisano said.

The move comes as IBM's rivals are taking a similar approach to a market that is moving toward bundled systems that reduce complexity on the customer end, making it easier for them to implement key programs like virtualization, cloud computing, and data center consolidation. Oracle bought out Sun Microsystems last year for $7.4 billion to support Larry Ellison's "applications-to-disk" strategy, while HP and Microsoft earlier this year unveiled a $250 million initiative under which they'll jointly engineer servers and software.

IBM this week plans to unveil the next generation of its System z mainframe technology. The company said the new System z platform will deliver 40% better performance on various workloads than existing z10 hardware.

IBM is looking synergies not just on the product side, but across all its business lines and functions. IT outsourcing chief Mike Daniels now assumes broad responsibility for all IBM Global Services operations under the new title of senior VP and group executive, Services. CFO Mark Loughridge adds Enterprise Transformation duties to his finance role, and senior sales VP Ginni Rometty takes on marketing and strategy oversight.

"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," Palmisano said in his memo, a copy of which was obtained by InformationWeek. "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," Palmisano said.

IBM has publicly stated it wants to deliver annual earnings per share of $20 by 2015. On Monday, the company reported second quarter EPS of $2.61, on net income of $3.39 billion and revenue of $23.72 billion.

Pundits are suggesting that the four executives given added responsibilities in Monday's shakeup—Mills, Rometty, Loughridge, and Daniels—may be the lead candidates to succeed Palmisano atop the company. Palmisano has given no indication of stepping down, but he is 59 and IBM leaders traditionally retire at 60.