And the winner is...Sam Palmisano, by a length. Experts see a leaner, tighter and friendlier Big Blue under the new regime. (Succession).

Seven years ago, Sam Palmisano was in a small IBM conference room in Somers, N.Y., with a group of communications managers, preparing for an upcoming press briefing. He had just taken over the company's ailing Personal. Computing division, based in North Carolina. He was traveling light, no briefcase, no entourage. No jacket, no tie, shirtsleeves rolled halfway up.

Palmisano's mind was not on the press but squarely on fixing the business, as someone who attended that meeting recalled. "We've got to become a high-performance, in-your-face, speak-your-mind culture because that's what this industry requires," Palmisano said, occasionally banging the table to emphasize a point. He had begun by making small changes-"tweaking the dials," as he put it-emphasizing the need to increase sales and get products out the door faster. He had just returned from a trip to Raleigh, where the division was headquartered, and he implored all managers to streamline their units and cut waste wherever they saw it. But he was also practical. He wasn't going to worry about the whole company. "That's Lou Gerstner's job," he added.

Now it's his. This month, Samuel J. Palmisano, 50, becomes the eighth CEO to assume command of the worldwide computer giant. Both he and Gerstner declined to be interviewed for this article.

The choice was no surprise to insiders, who have had their eyes on Palmisano since last September when he was given day-to-day responsibility for IBM's entire operation as president and COO. This hands-down favorite appears to have a near-perfect resume for the job, save the criticism that, in an industry where frequent movement among firms is common, he has spent his entire 28-year career with IBM.

Headhunters had tried unsuccessfully for years to lure him to a bigger sandbox. If money was an incentive, he could certainly have earned more than the $1.5 million to $2 million he was already getting in salary and bonuses with stock options that could easily reach an additional $20 million. When Gil Amelio was ousted as CEO of Apple after 17 tumultuous months at the helm, Palmisano's name reportedly appeared at the top of the short list. He never considered it, according to a former aide, who said Palmisano never even opened FedEx packages from headhunters, which arrived regularly.

But some thought he should have. "He's got incredible energy; he's a great salesman," says Mike Szeto, a former IBM executive and now a managing director of J.P. Morgan. "He also hasn't seen enough of the outside world in other businesses. He would've been better off if he had left IBM, gone and run Apple for a while, and done something else, and then come back."

Not everyone agrees. "Sam is an individual who has been on this path for a long time," argues Sam Albert, a former IBM manager who is now a private technology consultant. "He has the widest perspective of the marketplace of anybody in the company.

The insider: A return to tradition

As a home-grown IBMer, Palmisano represents Big Blue's return to tradition. Lou Gerstner, the outgoing CEO who will stay on as chairman until the end of 2002, remains the only outside steward in the company's 88-year history. Gerstner, who had been the head of R.J.R. Nabisco, parachuted into IBM in 1993, when the company was in serious trouble and its stock price was so low that mutual fund managers were screaming at the board for change.

Gerstner leaves Palmisano a much tidier balance sheet than the one he inherited from John Akers. A decade after Gerstner took over, IBM is flourishing once again. But it took Big Blue several years to chart a new course in the IT marketplace. "The problem four years ago was that the economy was outperforming IBM," said Howard Anderson, president of investment group Yankee Tech Ventures. "IBM is now outperforming the economy." Indeed, PC sales have slowed across the board and recession has tightened corporate IT spending budgets considerably. "The real challenge for Palmisano," Anderson says, "is to get the engines going to grow. And that's something that Gerstner just did not know how to do."

In the past, Palmisano has shown he can grow revenue as well as cut costs. Ten years ago, the services division was just a blip on IBM's radar. Along with Senior Vice President Dennie Welsh, Palmisano created a new business by signing McDonnell-Douglas to a long-term contract worth $3 billion. IBM consolidated and ran the aircraft maker's entire technology infrastructure--27,000 stations among six different sites. After that first big deal, Palmisano quickly signed up a number of new customers, including Hertz, Target, Equifax, Amtrak, Federal Pacific Railroad, Chase Manhattan and Hibernia National Bank. Today, IBM's $35 billion Global Services pulls in more than 40 percent of total revenues.

Most IBM executives don't anticipate any radical shakeups after the transition. "Basically, IBM's strategy -- ebusiness -- is in place," says one Merrill Lynch technology analyst. "The vast majority of what Palmisano is doing now, and what he'll be doing as CEO, is the same thing IBM is doing. I think he's going to have a major impact on the services business, and he'll make a big effort to gain market share in the networking and server business." Servers are critical to the growth of network-based businesses; virtually every company with a Web presence needs them. The bigger the company, the more they need. Gerstner was an excellent strategist, the analyst adds, but "Palmisano knows how to implement. He's a great executor."

Palmisano already has made a difference. He helped reshape IBM's entire business by publicly stumping for the Linux operating system, a direct competitor to Microsoft's long-dominant Windows. Palmisano rallied the powers at Big Blue--and convinced Gerstner--to make a $1 billion investment in Linux in R&D, sales, marketing and support. According to IBM's Internet guru, Irving Wladawsky-Berger, IBM decided to all but "bet the company" on this system, immediately enabling all its products to run Linux if customers wanted it. Palmisano, now the company's ranking Linux evangelist, delivered the keynote speech at last year's LinuxWorld conference.

Look for Palmisano to run a tight, lean ship. IBM has been famous for "Golden Circle" cruises to exotic resorts to recognize those who achieve sales goals. Gerstner curtailed some of that. But Palmisano has never hidden his distaste for these traditional awards extravaganzas that cut directly into the company's bottom line. After all, aimless trips to warm-weather resorts that include a couple of lectures, seminars and team-building workshops simply add up to three days those top performers aren't designing, building and selling computers.

From rising star to chief executive

Palmisano grew up in a middle-class household in Baltimore and attended a Catholic high school. His father was an auto repair shop owner. He played football in high school and college, which helped form his philosophy that hard work is the path to rewards. He played center on the Johns Hopkins football team, perhaps the least glamorous position, but he was co-captain. Charles Pinksy, a teammate who was a linebacker, recalled, "He worked hard on the drills, much harder than anyone else. He's a very competitive guy. It was small-time college football, and not everybody took it seriously. But he did."

Palmisano started his career in IBM's data processing group, went through management training there and quickly gained the attention of senior officials. In addition to the PC company, Palmisano headed a variety of IBM's large units, including the server business, the services division and outsourcing. He did two stints in Japan, as well, and was the only American IBM executive to manage IBM Japan, as opposed to running the company's Asia-Pacific division. "The Asia-Pacific job was bigger because it covered more countries," said one IBM vice president. "But Sam insisted on working among Japanese businessmen, not other Americans. He wanted to immerse himself and his family in the culture."

As a rising star, he landed a plum assignment as former CEO John Akers' executive assistant. It was considered an important place to get your "ticket punched," in corporate parlance, because not only did he learn how the corner office functioned, he entered the arena of high-level networking among the captains of industry. At IBM high-potential managers, or "hi-po" people, as they're called, get the best assignments. Palmisano was identified as one early in his career, says one source. It's no surprise that Palmisano has had dinner with GE's ex- CEO Jack Welch, according to a former IBM manager who worked with him. "Sam began meeting decision-makers early in his career," he says. "His wife is the daughter of a prominent Maryland banker, and this undoubtedly opened doors. After that, of course, he did it on his own."

Palmisano also is well-connected politically. He has played golf with two U.S. presidents. The Palmisano family socialized with the senior George Bush's family well before he was elected president; in fact, they bought a summer house owned by the former president in Ken-nebunkport.

Observers seem to agree that Palmisano will want to leave his own mark on the company, and his management style will allow him to build a coalition of top lieutenants. "Sam likes to be up close and personal," says Salomon Smith Barney analyst John Jones, also an ex-IBMer. "Lou is a chess master, more of a hands-off guy, in my view. Gerstner liked to sit and strategize, and Sam likes to go out and feel the pace. He wants direct contact with the businesses, whereas Lou doesn't manage by walking around." Another former senior IBM official says, "He's an interesting combination of someone who's incredibly personable, but if you're not getting the job done, watch out. He's a little like Jack Welch in that way.

Palmisano is collegial, informal and approachable. Where Gerstner has a reputation for being abrupt and gruff, Palmisano is warmer, "a nicer guy," says Yankee Tech Ventures' Anderson. His college teammate Pinsky, who still sees Palmisano occasionally, says, "I'm struck by the fact that he's the same guy I knew in college."

But many executives say he has no trouble being direct about his expectations, though he prefers to deliver them without histrionics. At a meeting, one of his managers began to speak, and he abruptly, but gently, cut him off. Palmisano said, "You lost $20 million in the first quarter. You don't have any opinions until you make money. I'll respect you if you make money.

Will there be an even "newer" IBM in the new millennium? We'll have to see. But one thing is certain: The 300,000 IBMers worldwide under Sam Palmisano's command will clearly understand how to earn his respect.

Doug Garr ([e-mail]) is the author of IBM Redux: Lou Gerstner and the Business Turnaround of the Decade, (HarperBusiness, 1999).

And They're Off!

AFTER DICK PARSONS edged out long-time favorite Bob Pittman for the CEO
spot at AOL Time Warner, succeeding Jerry Levin, it became clear once
again that favorites are never a sure thing. But if you're betting, you
have to go with the odds. Here are the front-runners, contenders and
might-have-beens in some of the most closely watched horse-races in
corporate America.

Out in Front

Company               Favorites                 Odds

Citigroup, nation's   Robert Willumstad,        Though CEO Sandy Weill
largest financial-    former head of            has vowed never to
services firm         Citigroup's consumer      retire, his appointment
                      operations                of Willumstad to the
                                                vacant position of
                                                president suggests
                                                he's the one to beat.

IHOP, which runs      Julia Stewart, former     Named president and COO
the International     president of domestic     in December, Stewart
House of Pancakes     division at Applebee's    could move into the
                      International             corner office as early
                                                as this summer, when
                                                CEO Richard Herzer is
                                                expected to retire.

Intel, world's        Paul Otellini, former     Otellini's promotion in
largest manufacturer  head of chip-making       January to president and
of semiconductors     division                  COO made the 28-year
                                                Intel veteran far and
                                                away the favorite to
                                                step into Craig
                                                Barrett's shoes when the
                                                CEO retires within
                                                three years

Merrill Lynch,        Stanley O'Neal, former    Komansky's heir apparent
No. 1 brokerage in    head of Merrill's U.S.    wasted no time making
the U.S.              brokerage business        his imprint since
                                                becoming president and
                                                COO last July. With
                                                O'Neal's wide
                                                restructurings, huge
                                                layoffs and other
                                                cost-cutting measures,
                                                Komansky may opt to
                                                Leave sooner than his
                                                planned 2004 retirement.

Out of the Race

Company               Favorites                 Odds

Eastman Kodak, the    Patricia Russo,           As second-in-command to
photography giant     Eastman's former          Eastman Kodak CEO Daniel
                      president and COO, now    Carp, Russo was at the
                      CEO at Lucent             top of the succession
                      Technologies              line until she left to
                                                head up Lucent.

Land Securities,      Peter Walicknowski,       CEO Ian Henderson was
the U.K.'s largest    director of strategy      expected to step down
property company      and business development  this year in favor of
                                                heir apparent
                                                Walicknowski. But
                                                Walicknowski surprised
                                                Henderson in December by
                                                resigning, as did board
                                                member Manish Chande who
                                                had in November
                                                expressed an interest in
                                                running the company.

Zurich Financial,     Constantine Iordanou,     Iordanou, heir apparent
Europe's third-       senior executive vice     to CEO Rolf Huppi,
largest insurer       president for group       resigned after reducing
                      operations                profit forecasts three
                                                times. James Schiro,
                                                former CEO of
                                                PricewaterhouseCoopers,
                                                became COO of finance,
                                                and Peter Eckert was
                                                named COO for insurance
                                                and asset management.

Too Close to Call

Company               Favorites                 Odds

Siemens, the German   Erich Reinhardt, head     Reinhardt, the favorite
engineering           of Siemens medical        to succeed Heinrich von
conglomerate          solutions division; Rudi  Pierer, was recently
                      Lamprecht, head of the    nominated to the
                      ICM mobile telephony      management board, a
                      division; Thomas          critical step; Lamprecht
                      Ganswindt, head of ICM    has quickly moved up as
                      fixed-line division;      a key player in mobile
                      Heinz-Joachim Neuburger,  networking equipment;
                      finance director          Ganswindt has gained
                                                favor with his shake-up
                                                of the transportation
                                                division, which won him
                                                the ICN position.
                                                Neuburger's assets
                                                include his foreign
                                                postings at J.P. Morgan
                                                and Siemens sales in
                                                Bombay.