Speeches

Samuel J. Palmisano
IBM Chairman and Chief Executive Officer
Final Remarks, as prepared

2009 CIO Leadership Exchange
Shanghai, China
February 11, 2009

"Building a Smarter Planet: The Next Leadership Agenda"

Welcome to Shanghai and the third IBM CIO Leadership Exchange.

Let me start by commenting on why we started these sessions three years ago. I don't think it's an overstatement to say that IBM has relationships with more CIOs, in more places in the world, over a longer period, than any other company. As a result, we hear a lot about what's on the minds of CIOs.

Several years ago, it became clear that something was happening with the role and profession of the CIO. We convened our first session with several hundred CIOs—including some of you—to talk about it.

At that first forum in Monte Carlo, we came away with a consensus that, yes, the CIO profession was changing profoundly...

Because of the need to integrate technology into the core of your businesses... Because of the arrival of global integration... Because of changes in the fundamental model of computing... And because of the necessity for every business to be more innovative in everything it does, in order to compete.

The CIOs who were there and many more since then have asked IBM to help facilitate the development of contemporary skills that you and future generations of CIOs would need... and to help foster a global community of CIOs, who like you, are committed to pushing themselves and the profession forward.

We advanced that effort at our second CIO Leadership Exchange in June 2007 in New York City. Harvey Koeppel, the Executive Director of our Center for CIO Leadership, which was launched at that Exchange, will tell you more tomorrow about our progress. And now we are gathered again in Shanghai... the epicenter of much of the change that's driving the world... and a crucible for many of the transformative solutions that are now possible, as we saw last night.

At this conference we will take stock of where we are and what more we can do together.

Obviously, our work and discussions will be significantly affected by the global economic crisis. The world has certainly changed since our last gathering.

Could anyone have predicted that the global economy would be facing its most severe crisis since the Great Depression? Could anyone have anticipated that the world's financial markets would be restructuring themselves in a fundamental way—or that entire sectors would be turned upside down, or disappear entirely? Did any of us foresee the emergence of a global consensus for radical change—or leadership coming from some unexpected places?

Without question, we find ourselves together here at an extraordinary moment. And let me just say... I think it speaks volumes about you and your organizations that you are here. So, on behalf of all my colleagues at IBM, let me extend a welcome—and a thank you—for making this conference a priority.

Something Meaningful is Happening

Now, as difficult as it is to see past the current global economic crisis, I would say to you that there is something else happening in the world that will have profound implications to our companies, organizations and to your role as CIOs. I want to talk about that.

We have given much thought to this at IBM. We know today that the world is smaller... and we also know that it's "flatter."... but it's also about to become a lot smarter.

When I say the world is getting smarter, I'm not being metaphoric. I mean the infusion of intelligence into the way the world actually works—the systems and processes and infrastructure that enable physical goods to be developed, manufactured, bought and sold... services to be delivered... everything from people and money to oil, water and electrons to move... and billions of people to work and live.

Why is this happening?

Infusion of Intelligence into the Way the World Actually Works

First, our world is becoming instrumented: The transistor, invented 60 years ago, is the basic building block of the digital age. Now, consider a world in which there are a billion transistors per human, each one costing one ten-millionth of a cent. We'll have that by 2010. There will likely be 4 billion mobile phone subscribers by the end of this year... and 30 billion Radio Frequency Identification tags produced globally within two years. Sensors are being embedded across entire ecosystems—supply-chains, healthcare networks, cities... even natural systems like rivers. Second, our world is becoming interconnected: Very soon there will be 2 billion people on the Internet. But that's just the beginning. In an instrumented world, systems and objects can now "speak" to one another, too. Think about the prospect of a trillion connected and instrumented things—cars, appliances, cameras, roadways, pipelines... even pharmaceuticals and livestock. And then think about the amount of information produced by the interaction of all those things. It will be unprecedented. Third, all things are becoming intelligent: New computing models can handle the proliferation of end-user devices, sensors and actuators and connect them with powerful back-end systems. How powerful? Last year IBM's Roadrunner supercomputer broke the "petaflop" barrier—one thousand trillion calculations per second. Roadrunner is made from the same chips that go into consumer game consoles and the no-cost operating system Linux. Put them together with advanced analytics and new computing models like "clouds," and you can turn mountains of data into intelligence... intelligence that can be translated into action, making our systems, processes and infrastructures more efficient, more productive and responsive—in a word, smarter.

Our World is Getting Smarter

What all of this means is that the digital and physical infrastructures of the world are converging.

Computational power is being put into things we wouldn't recognize as computers. Indeed, almost anything—any person, any object, any process or any service, for any organization, large or small—can become digitally aware and networked.

And let's not forget that each of these areas of technology I've just described continues to make rapid progress.

For instance, consider that petaflop computer. It's a huge advance for humanity—and we just signed a contract with the U.S. Dept. of Energy to build a 20 petaflop system.

But IBM Researchers are already hard at work on achieving the next major milestone in computing speed—the exaflop computer—1 quintillion calculations per second. That's a 1 with 18 zeros after it—or 1000 times faster than Roadrunner. This level of computing is still a few years away, but the pace of technological progress remains pretty breathtaking.

With so much technology and networking abundantly available at such low cost, what wouldn't your company put smart technology into? What service wouldn't you provide a customer, citizen, student or patient? What wouldn't you connect? What information wouldn't you mine for insight?

The answer is, you—or your competitor—will do all of that. Because you can—because the technology is both available and affordable.

But there is another reason we will make our companies, institutions and industries smarter... because we must. Not just at moments of widespread shock and global crisis, but integrated into our day-to-day operations.

The World is Getting Smarter: Because it Must

These mundane processes of business, government and life are not smart enough to be sustainable.

Consider how much energy we waste: The world's power grids lose enough energy annually to power India, Germany and Canada combined for an entire year. If the U.S. grid alone were just 5 percent more efficient, it would be like permanently eliminating the fuel and greenhouse gas emissions from 53 million cars. Consider how gridlocked and polluted our cities are: A recent study found that over the course of a year in just one small business district of Los Angeles, cars cruising for parking created the equivalent of 38 trips around the world, burning 47,000 gallons of gasoline and producing 730 tons of carbon dioxide. Consider how inefficient our supply chains are: Consumer products and retail industries lose about $40 billion annually, or 3.5 percent of their sales, due to supply chain inefficiencies. Indeed, guesswork, excess inventory and markdowns are endemic across global retail. Think about our wasteful food chains: In a world where 820 million people are undernourished, it is a tragedy that grocers and consumers throw away $48 billion worth each year in the U.S. alone, according to the United Nations. Plus, we don't just need to supply food; we need to protect its purity. The Centers for Disease Control estimates that there are 76 million cases of food-borne diseases each year, resulting in 325,000 hospitalizations and 5,000 deaths. We're all aware of how antiquated our healthcare system is: In truth, it isn't a "system" at all. It doesn't link from diagnosis, to drug discovery, to healthcare providers, to insurers, to employers, to patients, to communities. Meanwhile, the volume and speed with which data proliferates is inundating practitioners. And for patients, the consequences are real. Personal expenditures on health now push more than 100 million people worldwide below the poverty line each year. Finally, of course, there is the recent crisis in our financial markets: This will be analyzed for decades, but one thing is already clear. Financial institutions spread risk, but weren't able to track risk. And that uncertainty... that lack of knowing with precision... undermined confidence.

If you think I'm exempting our own industry from this indictment, I'm not.

The average commodity server rarely uses more than 6 percent of its available capacity. In some organizations, 30 percent of servers aren't utilized at all; they simply waste energy and valuable data center space. IT energy consumption is expected to double in the next five years. And as we well know, 70 percent of IT budgets can be devoted to managing, maintaining, securing and upgrading systems, rather than building new capabilities, services and applications.

And then consider what's coming: those hundreds of billions of smart things sensors, cameras, cars, shipping containers, intelligent appliances, RFID tags by the hundreds of millions all becoming interconnected.

Think about staying ahead of that data tsunami.

The World is Getting Smarter: Because We Want it To

We know that systems, processes, infrastructures and industries can become what we call "smarter." How do we know?

Because we did an analysis last year. We looked at about two dozen of the most successful and transformative solutions that we had created and deployed with our clients.

And we saw a pattern. We saw technologies being created and deployed in very different ways... to create business and societal value that was quite startling.

This was not just a picture of 24 happy clients. Within their industries, within their societies... we saw the future of how banking will work... how telco will work... how energy and healthcare and transportation and retail and oil and entire cities and societies will work.

It was a foreshadowing of how the world will literally become smarter.

And it's already underway. More and more enterprises, institutions, cities and governments are rethinking their operations and applying instrumented, interconnected and intelligent technologies in new ways.

Smart traffic: Stockholm's intelligent traffic system has resulted in 20 percent less gridlock, a 12 percent drop in emissions and a reported 40,000 additional daily users of public transport. IBM is building smart traffic systems in cities from London to Brisbane to Singapore—with many more being planned. Smart power grids: We're partnering in the U.S. with Centerpoint Energy on a smart utility that allows remote sensing and operation of the electric grid, including connection and disconnection of service and automated reads of smart meters. This means fewer and shorter outages, improved customer service and more efficient and reliable delivery. We just announced the creation of the world's first national electric grid for the entire island-nation of Malta. Our smart grid solution will also instrument and monitor Malta's water systems. The infusion of digital intelligence will help with the integration of new, environmentally friendly power sources such as wind and solar, as well as the charging of plug-in electric vehicles. IBM today is leading seven of the world's top ten automated meter management projects. Smart food systems: IBM built a system for Norway's largest food supplier that uses RFID technology to trace meat and poultry from the farm, through the supply chain, all the way to supermarket shelves. Smart money: Foreign currency exchange is the world's largest single market. Thanks to the smart financial system IBM developed for CLS, intraday settlement risk for more than $2 trillion in daily volume—more than 60 percent of the world's foreign exchange transactions—has been eliminated. Smart telecommunications: IBM is helping traditional telcos, mobile and broadband providers and broadcast media transform their networks and services. For example, Bharti Airtel, India's leading private telco is using IBM's digital platform to deliver new services dynamically to hundreds of millions of people. And right here in China, China Telecom is using our Innovation Factory software platform to collaborate directly with its subscribers to create new services. Smart healthcare: The cost of care is being lowered by as much as 90 percent. ActiveCare Network, for example, is using IBM technology to monitor the proper delivery of injections and vaccines to more than 2 million patients in 38 states. And just last week, we announced new software that will enable personal medical devices to feed a patient's electronic health record... partnering with Google and the Continua Health Alliance.

In every one of these examples, we see better productivity... greater efficiency... better responsiveness... better profitability... and more societal benefit.

And it all comes at a remarkably fortuitous moment.

Because $3 trillion in economic stimulus is about to be injected into the global economy, by governments all over the world...and much of it will be devoted to smart infrastructure.

Why? Most governments realize that they need to do more than just repair what's broken. They need to prepare for competitiveness and prosperity in a very new economy and new world.

As I travel the world, I see countries and companies everywhere leapfrogging—not only to the latest technology and to digital infrastructures, but to the most modern business designs and models. This will be a significant competitive advantage for them.

Indeed, that's another reason we thought it was important to host this year's conference here in Shanghai... So all of us could see first-hand what that leapfrogging looks like... and to see it on a grand scale.

Because Shanghai—already one of the world's premier "global cities"—is determined to be a smart city... as I think we all saw last night at the Shanghai Urban Planning Exhibition Center... and as I expect we'll see at the brand-new Shanghai Port International Cruise Terminal, built in preparation for the Shanghai World Expo in 2010, when we have our dinner there tonight.

This kind of visionary planning should be a wake-up call and an inspiration to all of us.

Implications for the CIO

In many ways, the idea of a Smarter Planet is the distillation of everything our industry and your function have been saying for years about how the world is changing.

It's also directly aligned with how your CIO Leadership Exchange has been working over the past three years to transform our own roles, in order to succeed in this new environment.

So it's a good thing we got going. And a good thing we created the IBM Center for CIO Leadership.

In just a little over a year, 1,500 CIOs from 50 countries have engaged with the Center and its partners. Those partners include universities like Harvard, Insead, and Tsinghua here in China. There have been both online and in-person sessions tailored to the community. Among its outstanding programs, the Center has developed a unique peer-to-peer mentoring program that fosters CIO learning and career development.

I know many of you are already members. Those who are not will have a chance to register tomorrow at the Center's breakfast that Harvey is hosting.

If we look back just 17 months, to when the Center was established, it's clear that we've made real progress together.

That progress is also evident in the study we've just released, reflecting the insights of almost 300 CIOs from 45 countries and 32 industries. It reinforces the increasingly strategic role that CIOs are playing as leaders in their companies and as drivers of innovation.

Harvey will describe the study's findings in more detail tomorrow.

The key takeaway for me is that we have gotten to the right seat at the right table, and we've identified the right goals to make the most of that position.

And now, in this moment of crisis and decision... technology leaders are center-stage in a way we couldn't possibly have imagined... or fantasized.

You know the expression: "Be careful what you wish for... you might get it."

So, if we are going to realize the enormous potential of a smarter planet, we don't have much to do...

Just reinvent the IT of the 21st century in the same way that we industrialized our factory floors in the 20th—making it more efficient, more dynamic, less complex and less costly.

The question is, where to start?

In light of the current economic crisis, Job One for many of your companies is pretty clear: Save money, cut costs, preserve capital.

It's Job One at IBM, too.

But I would suggest that precisely because of this crisis, we have the chance to do more... to drive change that perhaps our companies, peers and bosses didn't have the appetite for, even a few months ago. For example:

Sharing. You know the value of sharing data centers, infrastructure, tools across the silos and organization structures of your company. It eliminates redundancy and duplication. It saves money. It gives you an end-to-end view of your data and operations. We also know what tends to get in the way of sharing. The vested interests, the organization and the political realities in most companies—ours included—have made that much harder than it should be. Everyone wants their own. Everyone is unique. But now the need is urgent, and the game has changed. Applications. For many CIOs, touching applications is like touching the proverbial third rail. Everyone, from line-of-business executives to programmers, has strong opinions about applications—how many, how they're developed, deployed and maintained. Yet, taking an enterprise-wide view of applications can unlock enormous benefits. Cloud. Don't believe the hype in our industry. The over-promises and the simplistic visions. Erich Clementi will discuss IBM's thinking on cloud later today—but I will say this about cloud. We do believe that clouds can save you money and give you flexibility. But if you want those benefits, you'll have to evaluate thoughtfully which workloads and applications can be moved to clouds, and which can't, without high risk.

I can go on, and so can you. No doubt many have been on your wish list for a long time. But we all know what the impediments are. Many of these require sharing, integration across your company, taking a more strategic view... and there are a lot of vested interests that defend the status quo.

The same is true, by the way, at my own company.

But if there's any advantage to the environment we're in today, there is greater receptivity to change than we've seen in many years... perhaps ever in our lifetime.

It's not a cyclical downturn. It's a major shift in the global economy. And the world knows it.

People everywhere—from board rooms... to cabinet rooms... to kitchen tables—are eager and open to undertaking big change... and doing so... fast.

Believe me, the CEOs I talk with—including some of yours—are going to want to seize this moment, in order to change the game. They're not just going to hold their breath longer than the next guy. They are going to reinvent themselves and their industries.

And right now... they are sizing up their teams, seeing who is going to help them do it.

So here's my little piece of advice to you. If you don't remember anything else from my talk, remember to this:

Put your ideas for radical change on the table. And drive execution relentlessly.

You can rely on IBM and the leadership of IBM to help you exit this period not only intact, but stronger.

Building A Smarter Planet

Information technology has taken us a long way in the past 50 years. But seizing the opportunities before us will depend on more than intelligent machines. It will depend on spreading intelligence across our technology infrastructures.

The good news is that the key precondition for real change now exists: People want it.

But this moment will not last forever. And in hindsight... when the circumstances that cry out for change are gone, when things have returned to "normal"... don't we always wish we had been more ambitious, gone faster, gone further?

At the end of their career, or their life, has anybody ever said, "Gosh, I wish I hadn't done so much? I wish I hadn't been that bold?"

In all periods of major disruption, there are winners and there are losers.

The losers, typically, are those who hunker down and just try to ride out the storm.

The winners are those who seize upon radical change and make it their own... who imagine what can lie on the other side of the disruption, and build it.

Moments like this one don't come around very often. Maybe once in a generation. Maybe once in a century. Times when the entire world is eager... desperate... for change.

Together, I believe we can come away from the next two days with important insights on how to seize this moment. How to expand the role of Chief Information Officer beyond anything it has ever been before.

I think one thing is clear: The world will continue to become smaller, flatter and smarter. We are moving into the age of the globally integrated and intelligent economy, society and planet.

The question is, what will we do with that?

The new world now taking shape is one of enormous promise. And I believe it is one that we in this room have a unique capacity to build—if we open our minds and let ourselves think about all that a smarter planet could be.

Thank you again for sharing your time with us here. I look forward to a productive and stimulating discussion.