Nick Donofrio: The IBM Years

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The IBM Years

Part II of Nick’s story focuses on his 44 years at IBM, and the evolution of his career. During his tenure he worked for seven of IBM’s eight CEOs. In 1967 when Nick joined IBM, Thomas Watson Jr. was the CEO of IBM. The following represents one of our numerous discussions with Nick. In Part II we examine Nick’s distinguished career with IBM, the company he loves more than any other. We pick up where we left off in Part I, and now it is the early ’70s. Having moved his family to Burlington, Vermont, Nick finds that the business of technology is changing very quickly. We start by inquiring what it was like at IBM during his early years:

Grant Lussier: How would you characterize the culture of IBM at the time that you joined the company?

Nick Donofrio: It was definitely a “command-control” type of culture, with lots of directives. That aspect of the company didn’t appeal to me much, but of course, I listened and did what I was told. I understood the hierarchy. Before Frank Cary, Vincent (Vin) Learson was the Chairman and CEO in the early ’70s. He was a tough guy. CEOs of their generation would say things like “I do not want to see you here ever again,” and they meant it literally.

I started in Burlington in ’71, and we were there for nine years. Toward the end of that time was when I first became an executive. I was one of the top six or seven people reporting to the lab director. So I was managing a specific function in the Burlington lab, in which I’d grown up as a technical person.

Grant Lussier: At this time IBM probably had what, four or five labs?

Nick Donofrio: Oh, no, gosh, probably a hundred other labs. IBM grew very wildly through the ’70s. It was very successful; they were doing a lot of hiring and building labs all over the world—in Japan, and Taiwan, in Europe, also Latin America. They had a big presence in Brazil, Mexico and Argentina.

Grant Lussier: What was the logic to this expansion?

Nick Donofrio: The thesis was that there are smart people everywhere. Moreover, they were taking the British Trading Company approach: the thought was that IBM was needed and wanted in many countries, and of course we could import and export, but the tariffs were huge. But it’s a different story when you build your product there. It was an interesting protective strategy. IBM headed for the countries that were hot. We were in Brazil, with the thought that it was going to grow quickly, as well as Argentina and Mexico. And then it formed the whole Latin American strategy around those three countries. They were pretty good at figuring that kind of program out. I can’t begin to tell you how many plants we had in Japan. And eventually, we had to close them all. After the fast-moving ’60s and ’70s, then we hit the slower-moving ’80s, and we hit the wall.

In 1980, I was an executive reporting to the lab director. I was told that I would be going to White Plains to work for Jack Koehler, the president of the General Technology Division. I would be the division’s planning director. I said, “I don’t know planning; I have no skills,” and was told, “Don’t worry about that; we’ll teach you that.”

So it was a training job. IBM was famous for rotating staff and investing in people. I didn’t know this, but they’d already marked me. I was thirty-five years old, and I was learning a lot about business. We had an across-the-board pricing policy, where the cost of our goods might go up 10 or 12 percent each year. Of course, this could encourage our buyers to go elsewhere. It got very complex, and I enjoyed it. It was a good intellectual challenge for me to figure out how we were going to pull that off.

Grant Lussier: During the 90’s I was a partner with Heidrick and Struggles and then Spencer Stuart. At that time, the concept of stretching executives was considered a best practice. It was adopted by IBM going back to 60’s when I was a child growing up in Buenos Aires, Argentina. Today I find that companies do not stretch their executives as much.

Nick Donofrio: IBM did that better than most. And recently, in November 2011, IBM again was rated number one in Fortune magazine’s survey for leadership, as the company that generates the greatest number of leaders. That was the second year in a row that IBM earned the top spot. And, of course, I think the fact that Ginni Rometty was chosen to take over for Sam as CEO is a good example of what we are talking about. I think IBM is blessed. They have a huge talent pool. They care about their leaders. I can go into a room with no prior knowledge, and I can pick the IBMers out. They stand out in a crowd. They just lead a different way.

Anyhow, it wasn’t long before I was told that my family and I would be moving to Manassas, Virginia. My kids were still in elementary school, and it was not easy to move them to a new town and school, but we went. The plant in Virginia was a test and packaging plant, and I ran the general technology side of the operation. Although I was a lab guy, and not really a manufacturing guy, I thought, “Alright, fine.” I oversaw about three thousand people.

My wife and I loved the area. We found a tiny little house in a cute little development where nobody actually knew what IBM was. It took a while for the kids to settle in, but eventually, they did. It got hot there in the summer, and I promised my wife that if it got too hot I’d put a pool in the backyard. So I doubled down. It was the first time in my life I ever took a second mortgage. We were enjoying it, and I said, “Unpack everything, we’re staying; I’ve got a good five years’ worth of work here,” given the projects I was overseeing. But the next year I was told, “Costs are becoming a bigger problem, and we don’t have the right technology in Vermont. We want you to go back to Burlington. You’re going to become the lab director.” This was a big deal for me, really a change in career, because I was an engineer. But I didn’t look forward to the conversation with Anita.

Grant Lussier: You had to make sacrifices—and be flexible—to stay on the fast track.

Nick Donofrio: Yes, each move was a trauma of sorts for my family, and yet each move for me was toward a better job. I recall that my son, Michael, said to me, “If we go back to Vermont, I am not moving. I’m starting high school in Ver-mont, and I’m finishing high school in Vermont. You got it?” I couldn’t argue with him, and I became the lab director in ’82. But if Anita and I were smarter, we would have figured out that with each step on the corporate ladder, there was another step. In ’84, they came knocking again. I had been asked to go to corporate headquarters to become the secretary to the corporate management board. That time she and I agreed that we wouldn’t move, but that I’d come back every weekend.

I went to work for John Opel, the CEO, transitioning to John Akers. I was the committee’s technical assistant, helping them write the agenda, documenting it, and keeping things moving. I got a chance to play, as it were, with everybody behind the scenes. The group was responsible for deciding everything: marketing, sales, personnel, every decision anyone made was reviewed there. For me, this was a great broadening experience, because I got to see the entire company and meet everyone who ran it, up close and personal. This position was a great path forward for someone like me. I was told
it would be about a yearlong assignment, and that was right.

From there, I was sent back to Vermont, to become the general manager of the Burling-
ton site. I was responsible for manufacturing as well as development at that time, about ten or twelve thousand employees, with about a dozen direct reports.

Then  I was assigned the job of corporate director of development at the headquarters in Purchase. I told Anita that we would not be going back to  Vermont;  staying there meant my career was capped. Of course, our son graduated. At that point, our daughter extracted the same promise that he had, she was determined to finish high school where she started it. It was tough because she was by herself now. She had to find a peer group and start all over again.

It was a big job; I was in charge of all hardware development around the country. I thought, “Man, this is it. I have made it.”

Grant Lussier: Did you feel that you’d fulfilled your aspirations?

Nick Donofrio: No. Then I thought to myself, “I’m going to be the corporate vice-president. I need it, I am going to be there. I can feel it.” I was forty-two years old. Even my father was actually saying things like “I’m proud of you.”

Grant Lussier: This is when IBM started to hit the wall, right? So help us understand how that came to be.

Nick Donofrio: IBM hit the wall essentially because it was not paying attention to what its clients want. It was making better and better things every year, but they were not the things that people wanted to buy. They were ranked the number one company in the world in the ’80s, so they were everybody’s envy. It was a slow and gradual degradation. In a few years, it started to fall off the backside.

Grant Lussier: Microsoft had already been in business for quite some time, and the famous thinking was that IBM missed the boat early on in not investing in software when it could have, allowing Gates to take off and run with it.

Nick Donofrio: Well, note that by developing the PC, IBM put Microsoft in business. But, that said, the director of software, my compatriot, was trying to fix that problem, while I
was trying to deal with the hardware development issues. I had many worries. When the only way you can close your plan for the is by a price increase, you’re pretty much cooked. Plus we were reorganizing the company, which was one of John Akers’s response to the downshift. Terry Lautenbach asked me to serve on a reorganizing committee.

Grant Lussier: Who was in that group?

Nick Donofrio: It was a microcosm of the company, people that John Akers trusted. We had a person from manufacturing, from software, fi-nance, HR, myself, marketing, sales. I was taken aback by the seemingly unscientific nature of the process. I thought, “My God, is this how it is done?” But it seemed like the answer was yes, completing the task and getting everybody back to work was of prime importance. It was the end of ’87, and we needed to have our kick-off meeting at the beginning of ’88. So we did it.

The business was continuing to slow down, however. In April of ’88, I was asked by Terry Lautenbach, my supervisor at the time, to “fix the PC company.” I would have to travel to offices in the South. By this time, IBM had announced PS2, and OS2 and was having trouble. It wasn’t getting adopted, and we were having all kinds of technical problems. We did all the wrong things. I spoke then with the president of my division, and he just said “Take on whatever you’ve got to do, go back and fix it. And be aware that we are going to have to collapse; we can’t afford all the places we have. We’re going to start to move people out of Austin and Ra-leigh.”

So I went to the lab in Boca Raton and dug in. I was blessed because I had one very smart guy assigned to me who knew everything, Lou Bifano. He actually designed PC/AT, which is a very successful product. He helped me understand where the problems were, and what I needed to do. They were bringing in a leader from Japan, to head up the Boca lab, but he wouldn’t arrive for another three months. And the business couldn’t wait. I was told, “Whatever you’ve got to do, go ahead and do it.”
So I did—I basically took the lab in Boca apart. The soft-ware people were pretty skeptical about taking orders from me, a guy who knew nothing about software and PCs. But I was determined, and I had Lou right by my side. Eventually, the new lab director showed up. While he wasn’t happy with everything I’d done, nonetheless he agreed that we needed to focus on shoring up our products and make decisions faster. It was a problem-intense time.

With the new lab director in place and the new strategy the

Boca Lab was running in the right direction. It didn’t take long for my tenure in Boca to expire. In November of ’88 I got yet another call from Terry, asking me to go to Austin to manage the Advanced Workstation Division. They were making com-plex/advanced work stations that used high performing computing capabilities and high visualization. This was a tough market, which SUN had cornered with the SUN-OS their UNIX-based operating system. Because it was a bit antithetical to the main frame SAA (Systems Application Architecture), IBM was just not comfortable with UNIX. Although we had very smart people in research, we weren’t getting anywhere and were falling further and further behind. They wanted to make me the president of the division—not to move, just travel back and forth. I told Anita that it would be stressful and that I’d have to be there every week.

Grant Lussier: This was considered the future of growth for the company, wasn’t it?

Nick Donofrio: Yes, absolutely. So of course, I went to Austin, it was Christmastime of ’88, and I was there by myself. I knew that I didn’t know everything, yet everything was my responsibility—the hardware, the software, the business model, the sales, the support, everything. John Akers told me that we had to ship all of the Advanced Workstation products by September of 1989. I began to immediately realize that there was no way we were going to make anything the next year. We had an operating system that needed to consist of about 1.5 million lines of code. We had only 150,000 of them done. That’s a big gap. And software needs to cook for a while and you need to test it and test it and test it… He agreed to let me try to figure it out and to come back to Armonk once a month to report to the corporate management committee.

Interestingly enough, the technology that they were using in Austin was based on the work I’d done years before in Burlington. So at least I was comfortable that the hardware was in reasonably good shape, but we were still missing so many pieces, with so many unanswered questions about which model was best, and whether any of it could be manufactured. It was a mammoth undertaking. We needed to literally release ten major products.

Lou Bifano started to work for me again, and as I said, he was my go-to guy about everything. I was trying to build up a strong team, but my chief technical person was needed elsewhere and as a result, a lot of people in the software development area quit. We fortunately found a wonderful person to take over, and she did a great job. There was so much to do; we were trying to enter a brand-new business… A few months after I started I had to tell John that we’d get it done, but not by Septem-ber.

To bring the Austin staff together, we started to have an open meeting every Friday. Everybody had to show up, and I asked everyone to be very candid about their status and how they felt about what they were accomplish-ing. I knew that not everything was perfect, but we had good leaders and I saw great progress. We reset our target date to the to February 14, 1990, Valentine’s Day, and also the day of Akers’s annual launch meeting. 

Grant Lussier: What were you trying to create? How did it compete in the marketplace?

Nick Donofrio: This was the fastest-growing part of the mar-ket at the time, it was providing high-computational products. Sun and DEC and HP were all in this market. It was definitely the direction that the world was moving in. And then I was told, “By the way, the RT PC”—which was the lab’s product then—“doesn’t actually work. It actually makes a mistake every time it rounds off a number.” I realized that I had to take back every one of them, the 62,000 computers in-stalled in the market-place. They were in a large retailer and high-tech manufacturing company and I had to go talk to their people. t. It was a real challenge. I heard a lot of, “Are you crazy?

You sold us this, and it doesn’t work?” In the end, we turned the product into an incredible sales opportunity because when we were ready to ship the new one in 1990, we offered every-body a 50 percent trade-in. So users got a chance to get rid of their old one and get a brand-new one for half-price. By the end of 1990, the Advanced Workstation Division had gone from a fundamentally negative business to a billion-dollar business. We managed to do everything we said we would. We introduced the products in February at Mr. Akers’ annual leadership meeting and we shipped them by the end of May.

Grant Lussier: You were an actual hero. I mean there you were, becoming the president of a small company, a start-up, right? It looks like you were getting tracked as the fix-it guy inside of IBM.

Nick Donofrio: Perhaps. I remember presenting the Advanced Workstation products to IBM’s board of advisors, and I was shaking in my boots because while I felt that we were doing the right and smart thing, it was very unorthodox. I thought it was going well when Vin Learson, who was CEO in the early ’70s, stood up in his seat, pointed his finger at me and said, “So you are the guy who is going to drive this company into the ground.” Learson continued, “All these price performances that you’re putting into the marketplace, we’re going to have to take down the price in the mainframe.” I waited for him to finish, and said, “Thank-you Mr. Learson, but with all due respect, I am not the guy doing any of this.

That is what the market is doing. I am the guy who’s trying to build a company response to the market. And if along the way any-thing you just said happens, what better position could we be in?” Later I got a call from Terry Lautenbach and John Akers thanking me and telling me what a great job I did in front of the advisory board. Then, after the success with the Ad-vanced Workstation Division, in ’91 Terry and John asked me to take over the mainframe business, which was in deep, deep trouble. I said to myself, “So,this is how you get rewarded?”

But of course, I took it. I did what they told me to do. It’s very interesting, during my entire career with IBM, the only job I got to pick was the first one. Every other job was a job the told me to do. I couldn’t say no.

Grant Lussier: Where did the mainframe business stand relative to IBM’s other businesses and companies?

Nick Donofrio: It was the largest business, and it was in great decline. By then there was a reduction in the price-performance curves, and a lot of money was coming out of IBM’s pocket. We needed, as it was put to me, a “safe landing.” I was told to go work with Carl Con-ti—a group executive—he was an icon. He ran the mainframe, hard-disk drive, and storage businesses. I think that there were four group executives then, and he was one of them. I started working for him, and we soon got in each other’s way. It was different from the advanced workstation situation because in Austin they had the right stuff, they were just doing it poorly. But in Poughkeepsie they had the wrong stuff altogether.

I saw just how badly the mainframe business was being run. We were in the wrong technology; we were investing way too much money and getting no return. But try to understand, entering into the mainframe business at IBM was like entering holy ground. Everyone there believed that the business was incredibly important. Thankfully, there were some brilliant people in the mainframe business, and they shared with me some great ideas about what the company could do to make it more competitive.

Slowly but surely I was getting Carl to see my perspective, but it was hard for him to change all the things he put in place. In my efforts elsewhere in the company, I’d seen repeatedly that a willingness to really rethink your product or your business was crucial to your success. And to make a major shift in the mainframe area, in particular, was a bit like pulling up your last, heaviest anchor. I asked him if we could have a talk, and he invited me into his office, the copy room of all places if you can believe it. He said, “Well before you talk to me, I want to tell you that I’m leaving. And I’m turning this whole thing over to you.” I was floored because I’d intended to tell him that I was going to leave. He said, “No, it’s got to go through too much change for me. I don’t know that I can do it.” So I gulped and said, “Thank you, Carl.”

A week later they announced his departure.

Grant Lussier: You became one of the top four leaders of the company. How old were you at that time?

Nick Donofrio: I was forty-five. It was ’91, and I was then named the general manager of large-scale computers. I told John Akers about our plan to revitalize the business, which required switching technology and investing billions of dollars. We would win in the end, but it was going to be pretty ugly in the beginning. We would have to lay off about thirty thousand people, scrap a couple of billion dollars’ worth of assets, and rely on the Burlington plant to be our technology provider. “Oh, Nick,” he said, “I would have never expected this of you.” I was never sure what he meant by that. In the end, John left IBM in the early part of ’93. We were going to break the company in two.

The mainframe business and a few other businesses were going to become the “Old Co”. The PC Company, the Advanced Workstation Division and other businesses were going to become the “New Co.” I was getting ready to meet a major challenge and certain that I was sure about what we what we needed to do, switching to CMOS as fast as we could and putting processors together. Of course, I knew I was in the “Old Co.” bucket, and not the “New Co.” bucket.

But having to reduce the workforce by thirty thousand peo-ple, I still had to worry about the remaining thirty thousand employees, and I was going to get that end of the company fixed. Ninety-two was a tough year for me.

The more I learned about the mainframe’s capabilities, the more I thought to myself, “My God! This is an incredible franchise.” I was swept away by what a terrific job we could do; this was a never-fail technology, it’s a different mind-set altogether. It was then that I really learned why businesses had bet on their mainframes, and why there were clients, encouraging us to keep the business alive.

When Lou Gerstner took over in April of 93, his brother, Dick, was working for me at the time as a consultant. Although he had to leave due to a conflict of interest, am certain somewhere along the way he explained to Lou why the mainframe was important and what he saw as necessary to move forward. I had had John behind me, but with Lou, I told myself, “Okay, they chose him.

We are going to find a way to work together or it is simple, I leave.” But we got along quite well, and although he regularly put me through my paces in reviews, he understood what I needed to do, and how ugly it was going to be. I explained to him that we would build larger systems to satisfy our clients, but it would take time. We were going to switch everything at our end and ask our clients to change nothing at their end. We were going to enhance the System 360 client value proposition as articulated by Mr. Watson. Jr. when he introduced the System 360 to the world in April 1964; a family of systems compatible with itself and with your investments dear client capable of growing when as you need to grow, up or down. We would lessen the dependency on the technology curve for our clients to respond to their business needs.

With a parallel mainframe system, they could more readily add or sub-tract capacity. They could upgrade their processors when the technology was ready but also change their capacity whenever they were ready. We put a great deal of technology to work in a very short period of time (hardware, software and system technologies) to address the issues of the mainframe but in the end, being true to the System 360 client value proposition of 1964 truly insured our success. In the end, technology mattered, but the client value proposition saved the day and the mainframe. The team did a great job!

Then in ’95 Lou asked me to head up the server group. As its group executive, I was responsible for the RS/6000 (advanced workstations and all), S/390 (the mainframe), AS/400 (general business mid-range), and PC servers. It was a very large piece of the IBM Company.

Grant Lussier: How many employees do you think you had in that group?

Nick Donofrio: Over one hundred thousand people.  A very large piece of the company that was constantly under attack by its competition everywhere around the globe.

Grant Lussier: So, you are saying the market is large enough for the server business, worldwide to have multiple players?

Nick Donofrio: Right. It was then for sure. In order to successfully grow, we often forged partnerships and relationships with the very folks we competed with day in and day out. Alliances, industry organizations, standards, all these and more become part of the daily routine. The only way for anyone to survive and thrive was to find partners Cooperation and competition quickly turned into ‘coopetition’. If you build a large enough ecosystem, it turns out they really do come! The only way for anyone to survive is by finding a partner to deal with…it’s a different direction from the way we had functioned previously…. And that’s become the mantra moving forward.

Grant Lussier: Was anyone envisioning moving from a pre- that there was nothing wrong with not being first, or not Gerstner legacy-heavy hardware company to a software-based
analytics company? Did anyone have an idea about the whole smarter Planet, services-oriented paradigm that IBM is in today?

Nick Donofrio: I don’t think so. But IBM always took the opportunity to move to the higher ground—the better set of principles, the safer footing as opposed to just producing this or that piece of technology. As the Internet gained momentum, we exploited e-commerce to give us relevance in that marketplace. That was the mid-’90s. We thrived with the take off of the Internet because it required our hardware and software. As long as you can keep transforming your product to stay relevant to the purpose, you’ll do well. It’s really a matter of keeping your eye on the marketplace as well as on the quality of what you’re offering.

I think the two anchor points for IBM on the server side now are the advanced workstation products I worked on in Austin, now called the pSeries; and the mainframe I worked on
in Poughkeepsie, now called the zSeries, which is a “descendant” of the System/360. Software is an incredible pillar and source of both growth and profit now for IBM. When Sam Palmisano became the CEO in ’02, IBM became even more acquisitive and software opportunities led the list. It really made sense business-wise. As long as you have the
software to run on your platforms, it’s a good deal. That’s where the heavy lifting comes in, but it keeps you in the hardware business. I mean hardware without software is just the interesting box in a corner. You cannot do anything with it. Software without hard-
ware is the sheet music that is never played and therefore never heard. As
much as the world wants to separate them, they only have and create value together!

Grant Lussier: What do you think that you’ll be remembered for?

Nick Donofrio: When I look back at my career, seems like I was smart enough to take what I learned at RPI and continually reapply it in a time of very high transition and change! And that is how I made myself; that is how I made my name. Rather than be the guy with the first idea, I was the guy with the last idea. I learned that there was nothing wrong with not being first, or not being in the lead. As an engineer, I’m a problem solver at heart. That is what I did for a living; solved problems!

When it comes to getting along in the world, there’s nothing wrong with being a good, hard-working person, with caring a lot about people and trying to do the right things. So because I kept those ideas in mind, I always felt comfortable with myself. I never had to be something I wasn’t. And as a result, I was never afraid of change. I actually thrived on it! I hope the legacy I left behind is the sense that you can not change fast enough given how fast the world is changing around you.

Grant Lussier: So you would say that being good is more important than being great?

Nick Donofrio: Yes. And I think good people should always win. Even though they often don’t, even though life isn’t kind or fair, that doesn’t mean that someone should become bad or compromise them self to get forward in the world.

That doesn’t make any sense to me. I’ve been asked, “Why are you always willing to listen to people, and to reach out to people?” I guess that is just the way I was raised. I enjoy giving back and helping people and realizing that there are so many people so much brighter than me in the world who could so much more with just a little help.

Along the way, I also came to believe each one of us is the ultimate creator of our situation. You get either what you want or you get what you deserve. But whatever you have in the end, it is yours. You have no one to blame or to credit, but yourself. That is the truth as I see it. In the end, for people like you and me who’ve been at liberty to exercise our wills in life, it is a pretty sobering philosophy. If it didn’t work out well for you, it didn’t work out well for you because you decided that it didn’t work out well for you. If you didn’t really want it that way, you would have kept working to get something different. But you decided you were going to settle, right? Or you decided that you were powerless, right? There are only a handful of ways, if I remember correctly, to resolve conflict—you either fight, you flee, or you change. This stuck with me, as IBM developed me into a better and better leader and manager.

As for me, I really want you to understand that the leadership of IBM has fundamentally been very good to me. I didn’t know it always at that time. Sometimes I seriously questioned their judgment because of the things they asked me to do. But when I step back and look at it, my experience with the company was kind of uncanny—I started as a tech guy in Bur-lington, I left Burlington, and they sent me back to Burling-ton to fix the technology base, to bring in CMOS. And for me, this was a karmic decision, because the rest of my tech-nical and business career was built on a CMOS base. Everything I did after that, the advanced workstation overhaul and the mainframe transition, everything had CMOS at its core technology. I’m not saying I believe in destiny, but it’s a little scary when you think about how well it worked. I’ve often wondered, “Was some force driving this turn of events, or was it just luck?”

Grant Lussier: But you had the tools that probably nobody in the company had. It seems to me that they had problems, and you were the only guy with not only the wherewithal from a knowledge base but also the management gumption, to tackle those problems.

Nick Donofrio: Maybe you are right, Grant. Maybe you are right.

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