Software Group Essentially Gone With Steve Mills Retirement

January 11, 2016 Timothy Prickett Morgan

The old guard at Big Blue has been gradually retiring over the past several years, and one of the most influential leaders of IBM and one of the more intelligent, successful, and well-spoken of the company’s top brass, retired at the end of 2015. We are talking, of course, about Steve Mills, who ran the Software Group conglomerate for the past decade and a half.

While it may not have been apparent to many of us on the outside, something was brewing during IBM’s reorganization this time last year, where a slew of new executives were given new divisions and responsibilities and where Mills was given the title of executive vice president of software and systems. That title was significant in that Mills is the only executive vice president in IBM’s history–all of the other top leaders have been senior vice presidents or, in rare cases, the CEO-in-waiting is given the title of president and chief operating officer. Last January, some software assets were moved into various IBM groups (including a new IBM Cloud group) and in vertical stacks that also have their own managers (such as the new IBM Healthcare group that was also created), and Mills was tapped to keep track of all of the software assets as a whole and keep everything humming. But what we had not fully processed–and perhaps no one else did, either–is that at that moment Software Group, for all intents and purposes, was gone except as an amalgamated category for financial reporting to Wall Street.

Frankly, we have argued this has been the case all along, and that IBM should talk about its systems with its own software as one category and then all of the software it sells for other iron as another. In a way, IBM is listening.

Mills often incorrectly gets credit for being the first executive in charge of Software Group, a construct that former IBM CEO and chairman Louis Gerstner came up with alongside Systems Group and Global Services in the mid-1990s as he positioned IBM to chase services on its own platforms as well as those of others, and to sell a slew of services it might have otherwise bundled on its systems. But Mills did not found Software Group. It was John Thompson, who was chairman of IBM Canada and who ran the AS/400 Division in the pivotal 1993-1995 years when Windows NT began its assault on the datacenter, who was tapped to be the first head of Software Group. Mills took over Software Group in 2000 as part of the reorganization that put Sam Palmisano in as president and heir apparent in October 2000, with Gerstner retiring as chairman and Thompson as vice chairman in March 2002 and Palmisano taking over as CEO. Ginni Rometty, IBM’s current CEO and chairman, took over from Palmisano in October 2011.

While Palmisano had a hand in creating Software Group at Gerstner’s urging and Thompson ran it for five formative years, the acquisition tear that IBM went on to transform its software stack happened under the watch of Mills. And Rometty said as much in the internal IBM memo announcing Mills’ retirement. “In concrete and meaningful ways, Steve was the father of IBM’s software business, which he has led for the last 15 years. He has continuously opened new frontiers in technology and the marketplace, and has had far-reaching impact on what our company offers to our clients and to the world. IBM simply would not be what it is today had Steve Mills not been here.”

Mills, who started out at IBM in 1973 just like Palmisano, was a possible contender for the CEO position when Palmisano retired, but like long-time midrange systems executive Bill Zeitler, who was an assistant to Thompson and who ran the AS/400 Division in the late 1990s and then Systems Group and was a contemporary and complement to Mills, he was too old (by IBM’s standards, not ours) to rise to the top. Traditionally, IBM’s top exec retires at 60, and Mills was pushing that when Palmisano started looking around for a replacement. Zeitler started at IBM in 1969, when the System/3X division was first set up–Zeitler actually ran sales and marketing for the young Software Group before running the AS/400 Division–and retired in May 2008 as head of Systems and Technology Group. Zeitler was a programmer who took over systems and Mills was a sales, marketing, business development, and finance executive who took over software. (Mills also ran IBM’s Santa Theresa Laboratory in Silicon Valley–a lovely campus where I have found some beautiful jasper in a creek where I was not supposed to be–before taking the software helm.) These two together helped pull IBM out of a tailspin in the mid-1990s and find growth and at least a piece of the dot-com and Y2K booms. Mills presided over a stunning 30 acquisitions of software companies in his 14 years running Software Group.

But in actuality, Software Group as we think about it is gone. Operating systems and related high availability, cloud controller, and system management tools were rolled into Systems Group under Tom Rosamilia in last January’s reorganization, and middleware, under Marie Wieck, was moved into Systems Group, too. Last January, Rometty created three cross-platform business units: IBM Analytics, led by Bob Picciano; IBM Commerce, led by Deepak Advani; and IBM Security, led by Brendan Hannigan. The IBM Watson group, for cognitive analytics, has been led by Mike Rhodin since last year.

With the reorganization announced by Rosamilia internally to IBMers on January 7, chunks of the software stack are being rolled into the IBM Cloud group, which is led by Robert LeBlanc. Specifically, bits of IBM’s middleware software and cross-platform integration tools are now in the cloud bucket instead of the systems bucket. Interestingly, Rosamilia said in his note to Systems Group employees that the System z mainframe software team remains inside of Systems Group and that, interestingly, John Dunderdale, who was formerly general manager of solution sales for North America, is now global head of software sales for all of IBM and reporting to Rosamilia.

So, for a while, systems were subservient to software at IBM, and now it looks like Big Blue has remembered its identity and software serves the larger systems ideal. Big Blue has remembered that it is a systems company–but it has to get that message out there and get companies to believe in its systems.

We have said this before and we will say it again: Rosamilia is young enough and has been cross-trained enough to be IBM’s next CEO, and we think he is the front runner for the day when Rometty wants to retire. Rosamilia ran the vast WebSphere business under Mills, has run various IBM divisions and then took a year off to engineer the divestitures of the chip and System x businesses and the acquisition of Softlayer for cloud before returning to take over Systems Group.

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