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IBM's HR takes a risk: with a $100 million restructuring effort, HR at IBM has a lot to prove--and it relishes the challenge.

Article Excerpt
When Sam Palmisano took over as IBM's chairman and CEO in 2003, the worst was over. His predecessor, Lou Gerstner, handed over a company in much better financial shape than it was in 1993 when Gerstner took the helm and the company was nearing bankruptcy.

With solid financial footing, Palmisano was able to focus on his vision for IBM, the company where he spent his entire career. Palmisano set out to recreate IBM as a globally integrated enterprise that broke away from the pack on the strength of its human capital--not solely on its portfolio of products.

When Palmisano announced his signature Business Transformation initiative, he called for IBM to establish an "on demand" global supply chain that provides customers with IBM products and services--software, hardware, business processing, consulting and more--wherever and whenever they need it. He then eliminated layers of management bureaucracy and moved the workforce closer to its global clients so that the company could compete on service delivery.

Today, under Palmisano, the IT giant generates more than $90 billion in revenues. With 330,000 employees, it is among the 15 largest publicly traded companies in the world.

Central to its resurgence is IBM's recognition that human capital is its most distinctive and manageable asset. Companies that rely on technological or manufacturing innovation alone cannot expect to dominate their markets indefinitely. Competitors can and do catch up. The quality and strategic deployment of talent is what separates winners from the also-rans.

That's why Palmisano chose to center IBM's business strategy on the belief that its people are, and will continue to be, IBM's key market differentiator. HR and talent management--not computers--are IBM's core business.

HR at Center Stage

As a result of Palmisano's initiative, HR finds itself in the spotlight. No need to fight for a seat at the table. No struggle to convince line executives that HR should be their business partner. HR's job is to deliver the people, to establish a ready supply chain of talent that will outperform the competition from top to bottom, from the executive suite to the factory floor. Palmisano has made it clear that if the company begins to lose revenue or market share, HR's piece of the responsibility will come from not delivering the right people to the right jobs at the right time.

The game is not for the faint of heart. When IBM wins, HR gets to share the champagne; if the company loses, HR's head is on the block.

In this case, the head belongs to Randy MacDonald, senior vice president of HR. A seasoned HR executive, MacDonald has Palmisano's ear and the respect of his fellow executives in the C-suite. His fingerprints are all over the key strategic and operational decisions of the corporation. "They know Randy can...