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  • Mahlon Buck Interview With Jack Burke of Listen to Mahlon's interview with Jack Burke regarding Captives.  Mahlon discusses how learning about Captives transformed his insurance agency and resulted in a tripling of agency revenue over a ...
    Posted Jan 31, 2014, 8:35 AM by Mahlon Buck
  • Go Ahead, Hit the Snooze Button Weary Workers Learn to Count Sheep Using Special Lighting, Office Nap Pods By LAUREN WEBER Turns out a good night's rest is good for business.One-third of American ...
    Posted Jan 31, 2013, 10:59 AM by Mahlon Buck
  • IBM's Ginni Rometty looks ahead She's earned the No. 1 spot in our annual ranking of the Most Powerful Women in Business. But to keep Big Blue growing, Rometty will have to sell IBM ...
    Posted Jan 31, 2013, 11:04 AM by Mahlon Buck
  • There's no quit in Michael Porter He has influenced more executives - and more nations - than any other business professor on earth. Now, at 65, he and an all-star team aim to rescue the U.S ...
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Mahlon Buck Interview With Jack Burke of

posted Jan 31, 2014, 8:31 AM by Mahlon Buck   [ updated Jan 31, 2014, 8:35 AM ]

Listen to Mahlon's interview with Jack Burke regarding Captives.  Mahlon discusses how learning about Captives transformed his insurance agency and resulted in a tripling of agency revenue over a seven year period. 

Go Ahead, Hit the Snooze Button

posted Jan 31, 2013, 10:59 AM by Mahlon Buck

Weary Workers Learn to Count Sheep Using Special Lighting, Office Nap Pods

Turns out a good night's rest is good for business.

One-third of American workers aren't sleeping enough to function at peak levels, and that chronic exhaustion is costing billions of dollars in lost productivity, according to researchers from Harvard Medical School.

Sleep-deprived American workers ultimately cost their employers $63 billion in lost productivity, according to a 2011 Harvard Medical School study. Lauren Weber joins The News Hub with a look at some companies making a business case for a better-rested workforce. Photo: Reuters.

Managers at a growing number of companies, among them Procter & Gamble Co., PG +0.71%and Goldman Sachs Group Inc., GS -0.21%are waking up to the problem, investing in programs from sleep-hygiene courses to melatonin-regulating lighting to help employees improve their slumber.

The Centers for Disease Control and Prevention estimates 40.6 million American workers, or 30% of the civilian workforce, don't get enough rest. And the Harvard scientists estimated in 2011 that sleep deprivation costs U.S. companies $63.2 billion in lost productivity per year, mainly because of "presenteeism," people showing up for work but operating at subpar levels. One example, from a separate team at Singapore Management University: Workers waste an extra 8.4 minutes online—checking email, refreshing the home page, and so on—for every hour of interrupted sleep the previous night.

Managers struggle to motivate exhausted workers. During busy holiday periods at the Park Hyatt Beaver Creek resort in Avon, Colo., long hours sometimes lead to short fuses among staff. "You have to try to figure out who's feeling frustrated and help them cut loose to get some rest," said Scott Gubrud, director of sales and marketing at the hotel, which last week began a series of better-sleep initiatives for both employees and guests.

"If we treated machinery like we treat the human body, there would be breakdowns all the time," said James Maas, a former Cornell University psychologist and author of "Sleep for Success."

Companies have been slow to grasp the effects of sleep deprivation on productivity, but it is now a hot topic even in hard-driving industries, such as finance, where pulling all-nighters is often viewed as crucial to getting ahead.

Sleep Working

  • 43% of Americans between 13 and 64 say they rarely or never get a good night's sleep on weeknights
  • 60% of Americans say they experience a sleep problem every night or almost every night, such as waking in the night, waking up too early, or feeling un-refreshed when they get up in the morning
  • 61% of Americans say they use a computer at least a few nights a week within an hour of going to bed
  • Americans drink, on average, three 12-ounce caffeinated beverages on a weekday
  • 74% of workers over 30 who report not getting adequate sleep say that sleepiness affects their work
  • 9% of Americans say they are likely to fall asleep at an inappropriate moment, such as during a meeting or while driving
  • 71% of Americans say they have a television in their bedrooms
  • 11% of those with televisions in the bedroom say they keep the TV on all night
  • 39% of Americans say they have a computer in their bedrooms
  • 40.6 million American workers – 30% of the civilian workforce – sleep less than 6 hours per night ("short sleep duration")
  • The problem is particularly acute for night-shift workers: 44% of them sleep less than 6 hours per night, compared with 28.8% of people who work typical daytime hours
  • Workers between the ages of 30 and 64 were more likely to report short sleep duration; workers over 65 were least likely to report short sleep duration
  • Workers with college degrees or more education were least likely to report short sleep duration
  • Segmenting the data industry by industry, workers reported anywhere from 24.1% (other services, except public administration) to 41.6% (mining) incidence of short sleep duration. Some industries relevant to our readership: finance and insurance industry (27.4%); professional, scientific,and technical services (28.2%); and information (28.3%)
  • 23.2% of American workers suffer from insomnia
  • People with insomnia did not report higher levels of absenteeism compared to non-sufferers, but reported significantly higher levels of presenteeism (lower productivity while at work)
  • Workers with insomnia lost an average of 7.8 days of work performance per year due to presenteeism related directly to sleep problems
  • Generalizing to the total U.S. workforce, insomnia costs American companies $63.2 billion

Sources: National Sleep Foundation, Centers for Disease Control and Prevention, and "Insomnia and the Performance of U.S. Workers," Sleep, 2011

Mr. Maas, who says he coined the phrase "power nap" 36 years ago, gave a talk about sleep hygiene at Goldman Sachs in 2011 that was so oversubscribed it had to be broadcast via conference call to accommodate the 1,000 or so people who wanted to attend. He spoke last year at hedge-fund firm D.E. Shaw & Co., which has nap pods sprinkled around its offices.

Yet perceptions linger that sleep is for sissies and loafers, and neither Goldman nor Shaw would comment directly about why they're addressing employees' sleep habits. A 2012 University of Southern California study of young investment bankers suggests that punishing hours, and resulting sleep deprivation, contributed to physical and emotional ailments within four years on the job.

"People in investment banking have been my main clients for the last few years because they're so exhausted and under so much pressure," said Mr. Maas, adding that bankers usually don't want to hear about how to get more sleep. Instead, they want tips for performing well on five or six hours' rest.

The risks of fatigue are especially acute in professions like health care and manufacturing, which involve overnight shifts and where a single careless error can put lives in danger.

At Aurora Health Care, the largest hospital system in Wisconsin, more than 2,600 employees in 2012 took a six-week online course for insomnia sufferers after managers surmised that sleep deprivation was likely a problem among its workforce. The course, one of several health-coaching sessions offered at Aurora and developed by Johnson & Johnson's JNJ -0.41%Wellness & Prevention unit, requires participants to keep a sleep diary, and then makes recommendations based on individual sleep patterns.

Barb Stollenwork, age 53 and a wellness program coordinator at Aurora, kicked her nightly Tylenol PM habit after finishing the program at the end of 2011. For years, she said, she woke at 4 a.m., then lay in bed worrying about how she'd function that day. By changing her behavior—for instance, going to bed later—she began sleeping until her alarm rang at 5:30 a.m.

Based on follow-up surveys that asked about both sleep and work habits, Aurora sees an average of $672 in productivity savings per participant in the insomnia module, said Dr. David Smith, an Aurora vice president.

Procter & Gamble is talking with sleep expert Nancy Rothstein about creating a multiweek pilot program for two of its plants, one in Belleville, Ontario, that makes Always feminine-hygiene products, and the other in Lima, Ohio, that makes liquid laundry detergents. Paul DeLuca, North American learning and development manager, said he hopes to have both courses running by June, starting with a group of 15 to 20 workers in Lima and up to 300 in Belleville.

The plants operate day and night, so many employees work unconventional hours, a known risk for poor sleep and overall bad health. If the program helps workers get better rest, with resulting gains in productivity and concentration, Mr. DeLuca will argue for a broader rollout of the initiative.

P&G brought Ms. Rothstein to its headquarters in Cincinnati last year to give a 50-minute presentation emphasizing, among other things, the importance of shutting off screen devices an hour before bed because the blue light emitted by the screens interferes with production of the sleep hormone melatonin.

That's no easy order in the age of smartphones, laptops and late-night conference calls with the Beijing or London office. "The line between work and what's outside of work is graying," Mr. DeLuca said.

At the more extreme end of the intervention scale, some are calling upon Litebook Company Ltd., a Canadian maker of lights that help regulate the body's melatonin levels. The company, which supplies devices to the Philadelphia Flyers and Ottawa Senators to help athletes cope with jet lag and game schedules, said it is getting calls from corporations interested in making the lights available at workstations and desks.

Write to Lauren Weber at

A version of this article appeared January 23, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Go Ahead, Hit the Snooze Button.

IBM's Ginni Rometty looks ahead

posted Jan 31, 2013, 10:58 AM by Mahlon Buck   [ updated Jan 31, 2013, 11:04 AM ]

She's earned the No. 1 spot in our annual ranking of the Most Powerful Women in Business. But to keep Big Blue growing, Rometty will have to sell IBM like never before.

By Jessi Hempel, senior writer

FORTUNE -- Ginni Rometty's first customer conference as CEO of IBM (IBM) was an unusual affair, especially by Big Blue's buttoned-up standards. The June confab took place in an airy loft in Manhattan's hip Chelsea neighborhood. When the tiny elevator arrived to whisk a group of us to the meeting space, the doors opened and there was Rometty, flanked by a couple of visibly nervous assistants. "Really good to see you!" she said, clasping my hand warmly as her handlers checked their watches. The presentation was about to begin and Rometty still wasn't wearing her microphone. "Isn't this neat?" she asked.

The program started late. At 5-foot-11, with blond hair tucked behind a headband, Rometty, 55, has an almost regal bearing, but on this day she flubbed her entrance, bounding onto the stage before she could be introduced. She laughed it off. When an audience member's ringing cellphone interrupted the events, she joked, "I hope that isn't mine!"

You wouldn't catch Lou Gerstner or Sam Palmisano trying to smooth over someone else's faux pas. Rometty's two predecessors also are unlikely to have hosted a sales meeting in a loft, and they definitely wouldn't have described the proceedings as "neat." But they surely would have approved of Rometty's agenda that June day. She had assembled some familiar faces, the chief information officers who buy billions of dollars of software, tech services, and hardware from IBM (No. 19 on the Fortune 500), but she had also invited their chief marketing officers. (Thus the trendy venue.) Her ambitious -- and yes, unusual -- plan: Get the marketers to use IBM tools to sort their data for nuggets that will help them better reach customers and sell more stuff.

MORE: Ginni Rometty - No. 1 Most Powerful Women in Business

When Rometty (pronounced ro-MET-ty) became IBM's ninth CEO -- and its first woman chief executive -- she took control of the 19th-largest company in the world by revenue (2011 sales surpassed $107 billion) and, at presstime, the fifth largest by valuation, with a market cap of $235 billion. Her influence on the world of technology and her company's impact on the financial markets earn her the No. 1 spot in Fortune's annual ranking of the Most Powerful Women in Business. She inherits a company with an enviable growth record for its enormous size. Over the past decade, the company has increased profits by an average 16% every year, returning 12% annually to shareholders.

She also needs to live up to almost ridiculously high expectations: IBM has said it will add $20 billion more in revenue growth in the next three years. To put that in perspective, that's a business roughly the size of Nike (NKE), No. 136 on the Fortune 500.

Not that any of this is a surprise to Rometty, a 31-year veteran of IBM who is known to have thick binders of background material and data prepared for her in advance of meetings. Indeed, the most surprising thing about her June customer debut was how loose and improvisational it was. She's not a stiff -- "There's nothing imperious or imperial about her," notes Harvard Business School's Rosabeth Moss Kanter -- but Rometty rarely leaves anything to chance. For example, she declined to be interviewed in person for this article, and would answer questions only via e-mail.

Rometty was at Palmisano's side for much of his decade-long tenure, and became a serious candidate to succeed him about four years ago. And she was personally involved in setting the high bar that she must now clear. She and other senior leaders helped him develop the five-year plan -- dubbed "2015 Roadmap" -- that has IBM targeting more than $125 billion in revenue that year.

For Rometty the challenge of meeting that goal is only partly about inventing new technologies to sell to her existing clients. Growth at IBM's scale also means creating new markets, much the way it did with its Smarter Planet campaign, which sold nontechies such as mayors and police chiefs on the idea of using software to monitor and manage traffic, water systems, and sanitation trucks. Now Rometty is making a similar pitch to marketing executives, promising that technology will change the way they do their jobs. It won't be an easy sell: Marketers are less apt than bureaucrats to be wowed by a charismatic CEO or statistics about petabytes. Many are accustomed to seeing computing as a tool to support their creative endeavors, not the starting point.

The rising star (from left): featured in the IBM 2000 annual report; at an IBM facility in 2002; talking with clients at the CIO-CMO event in June

The rising star (from left): featured in the IBM 2000 annual report; at an IBM facility in 2002; talking with clients at the CIO-CMO event in June

But if she can pull it off, Rometty could initially help change the way corporations communicate with their customers -- and ultimately the way they use technology to build and sell their products. "This is a mindset shift, not a market shift," Rometty explained to the CMOs at the Manhattan event. "It changes everything." She was talking about her customers, but she could just as easily have been talking about IBM.

Rometty had always been a top performer, but she caught the eye of executives at headquarters in Armonk, N.Y., in 2002 when she managed the integration of IBM's $3.5 billion purchase of PricewaterhouseCoopers' IT consulting business. As general manager for IBM's global services division -- the unit that had been at the heart of Gerstner's now legendary resuscitation of the company -- Rometty pushed early for the acquisition and helped negotiate the deal. Overnight IBM became the world's largest consulting business. And then Rometty had to figure out how to integrate 30,000 PwC consultants into her group of 150,000 IBMers.

It was a mishmash of cultures that could have gone horribly wrong, but Rometty managed the integration with a particular sensitivity to its impact on employees. IBM was buying talent, after all. The acquisition wouldn't be successful unless Rometty persuaded the consultants, particularly the 1,000 or so incoming PwC partners, to stick around. She began planning for how the two cultures would fit together even before the dealmakers set financial terms. It was particularly challenging to navigate differing compensation packages. To bring salaries in line with IBM peers', some of PwC's top executive partners had to take as much as a 40% cut in cash compensation -- and forgo perks like club memberships. To make up for the cash reductions, Rometty negotiated stock options that motivated the new employees to stay for at least four years. Ultimately, top performers could earn a higher payout.

She also reached out to all PwC employees personally. The morning the acquisition was announced, they arrived to the blinking red light of a voicemail notification on their phones. "Got to admit feelings were mixed," wrote Tereza Nemessanyi, then a principal consultant at PwC, on her blog. "As a creative type, I was nervous of what I knew as a very rigid culture." The following two-minute message welcomed her personally to IBM, assured her that IBM would retain the best elements of the PwC culture, and most important, got her excited. "Jeez, that woman leaves some seriously good voicemail," wrote Nemessanyi, who tells me she was tempted to move to IBM but ended up staying with PwC's parent.

MORE: Big Blue's big brass - 9 IBM CEOs

This personal approach to leadership is the quality that resonates most with IBMers who have worked for Rometty. It's one reason she has been able to keep talented, entrepreneurial employees like Manoj Saxena, a general manager in charge of commercializing the Watson technologies. A serial entrepreneur, Saxena arrived at IBM in 2006 after the company purchased Webify, his business-to-business software startup. "At first my venture capitalist friends were taking bets on how many quarters I'd stay," he says. Rometty promised Saxena more resources and the opportunity to have a bigger impact at IBM, but she sold Saxena on the company a few years ago when he had a health issue. By that time Rometty was managing several hundred thousand people, but she regularly dropped him a personal e-mail to see how he was feeling. "She leads from both her head and her heart," Saxena says.

Customers get head and heart too. Nick Donofrio, who worked closely with Rometty before his retirement from IBM in 2008, remembers helping her address the concerns of a large Midwestern client sometime around 2005. The client had installed some new IBM products that weren't working well. Rometty called Donofrio, who was then executive vice president of innovation and technology, and told him they had to fly out immediately to see the client in person. The pair spent a day working closely with the client to get the project on track. But a day after they got back to New York, the client's system wasn't working again. Rometty insisted they fly out a second time to help the client fix the problem. "Most people wouldn't go twice," said Donofrio. "They'd send a junior person." As it turned out, it wasn't entirely IBM's fault -- the client hadn't followed instructions. But Rometty said nothing. "Ginni's not thinking, Did we do it wrong?" says Donofrio. "That's not where her head is. She's thinking about the client's success." (Perhaps tellingly, Rometty says she doesn't recall this particular example.) The customer, says Donofrio, has become an even larger customer.

IBM is constantly restructuring its workforce, and the coming changes are sure to test Rometty's leadership style. As IBM becomes more global, it will continue to bolster its ranks internationally, leaving the U.S. (an estimated 105,000 employees today) with a smaller number of workers -- mostly researchers, executives who focus on sales and marketing, and talent coming from startup acquisitions. For many current employees -- some of whom already feel taxed by the long hours and penny-pinching that IBM demands -- the process will be wrenching: They'll need to either reinvent themselves, or more likely, move on. And unlike when she was running global services, Rometty won't be able to leave them all a voicemail.

Rometty, 55, caught the eye of her bosses by successfully integrating PwC's consulting business in 2002.

Rometty, 55, caught the eye of her bosses by successfully integrating PwC's consulting business in 2002.
The former Virginia Nicosia is the oldest of four children raised by a single mom outside Chicago. Her mother, with whom she remains very close, was among her strongest influences. By the time she arrived at Northwestern University in 1975, Rometty had matured into a striking, intelligent student who was popular among her peers and successful in the classroom. She pledged the elite sorority Kappa Kappa Gamma, and her pledge mom, Erin McInerney, remembers they connected in part because both came from modest backgrounds. "Unlike most of the other girls, we'd had summer jobs and were on scholarships and had loans," she said. By senior year, Rometty was sorority president.

While many of her classmates studied the arts, Rometty was one of just a few of women to study computer science. In the late '70s, Northwestern's sole academic computer was so large that the university dedicated an entire building, the Vogelbach Computing Center, to housing it. Rometty and her fellow students learned to program it using punch cards. When Rometty needed help on an assignment, a KKG sister coaxed a fellow student named Craig Berman into tutoring her in exchange for dinner at the sorority house -- probably the only place on campus where students were served meals on tablecloths. One Sunday morning Nicosia appeared in Berman's fourth-floor dorm room, "a statuesque blond" who "kicked aside some dirty clothes stacked near the doorway." She had a list of written questions and programming issues, and when he tried to answer the questions, she pushed him instead to explain his method for reaching the solution. "A lot of people look like they are listening, but she really listened," he says.

Berman, who is now a vice president at Jeffries & Co. (JEF), describes his classmate as quiet, focused, always early, and organized. "If she fell off the sidewalk and into the lake, she would have come out wearing a scuba suit," he says. And she had good advice as well. A professor once marked Berman's homework incorrectly. In class he had an opportunity to show the professor up, proving he had the right answer. When he raised his hand, Rometty shoved it down, whispering, "You'll win your argument in private later or lose it in public now."

Rometty graduated in 1979 with a bachelor of science degree with high honors in computer science and electrical engineering. She had attended Northwestern on a scholarship from General Motors (GM), where she had interned between her junior and senior years, and she moved to Detroit to work for the automaker after graduation. There she met her husband, Mark Rometty, now an oil futures investor. The pair, who do not have children, enjoy scuba diving (as a matter of fact) and the occasional Broadway show together, as well as golfing near their Bonita Springs, Fla., home. (Rometty stays in a hotel-run condo in Westchester County when she is in New York.)

She credits her husband with being a great support to her. She describes a moment early in her career when her boss asked if she'd like to take a big promotion. She told her manager she didn't feel ready, and asked for the night to think about it. At home she discussed it with her husband. "He just looked at me, and he said, 'Do you think a man would have ever answered that question that way?' " Rometty took the promotion.

In 1981, Rometty took a job in IBM's Detroit office as a systems engineer -- a technical consultant of sorts -- for banking customers. In the decades that followed, she moved up through a series of sales and management jobs, working with clients in all of IBM's most important industries -- banking, insurance, telecommunications, manufacturing, and health care. Before moving into senior management, Rometty spent the '90s working in sales, a job for which her tech prowess and people skills made her uniquely qualified. Salespeople who met their annual sales quotas received commemorative pins and luxurious weekend getaways as a reward for earning membership in the prestigious 100% club. Rometty never missed a year.

Three weeks before Rometty was named CEO last fall, we sat together for an onstage conversation at Fortune's annual Most Powerful Women Summit. By then speculation had begun that IBM would soon announce her promotion. I asked her what she'd learned from Palmisano. Rometty reflected. "What he always says is, 'Nothing is inevitable.' " She went on to explain, "Whatever business you're in -- it doesn't matter -- it's going to commoditize over time. It's going to devalue. You've got to keep moving it to a higher value."

To put it another way, Rometty learned that IBM must keep evolving. There is always a new shift coming in technology, and if she doesn't help IBM become the first to discover and commercialize it, the company will lose its shirt.

It's sage advice that came through experience. The company is still haunted by the near-death experience of the early '90s, when it missed the technology shift to personal computers and came within a quarter of going bankrupt. Palmisano was the first CEO to step into the role after Gerstner turned the company around -- and he responded by making bold research-based decisions about the future of the business, and enforcing maniacal discipline over how those decisions were carried out. Perhaps most important, and somewhat unusual for contemporary corporate culture, he nurtured a consistent team of senior executives -- mostly IBM lifers -- with very little turnover.

Rometty (from left): watching the Masters golf tournament in Augusta, Ga., in April; giving a speech in Beijing last year; with businessman David Koch at the Time 100 Gala this year

Rometty (from left): watching the Masters golf tournament in Augusta, Ga., in April; giving a speech in Beijing last year; with businessman David Koch at the Time 100 Gala this year

IBM likes its leaders to keep a low profile, preferring a ruthless focus on customers to coverage in the press. Earlier this year when the all-male Augusta National Golf Club, which has historically offered membership to CEOs of companies like IBM that sponsor the event, did not offer Rometty a membership, she kept mum about the affair, even as the snub ignited a media firestorm. Though she hasn't explained herself, one gets the sense that her greatest contribution to feminism won't be helped by speaking out on issues so much as making IBM successful. She has a company to run.

So in keeping with IBM's traditional long-term approach to management, Rometty has been fulfilling the goals she helped her predecessor draft in IBM's 2015 Roadmap. To hit the massive $20 billion goal, Rometty has spelled out four high-growth areas for the company to focus on. It will continue the Smarter Planet work, in which it infuses the traditional systems that make our towns and cities work with new forms of computing. Revenue from this initiative jumped 50% last year as IBM began to attach the word "smarter" to new market categories like cities and commerce. The company will also invest in helping companies adopt aspects of cloud computing, and it will supercharge its work in business analytics. Rometty will spend a good deal of her time personally nursing along deals in growth markets, which are expected to provide up to 30% of IBM's revenue by 2015.

To that end, Rometty has been crisscrossing the globe since January. She set an early goal for herself of meeting 100 client CEOs in her first two months, and she quickly surpassed it. In April she traveled to Brazil to spend nearly a week hammering out the details of her first big CEO transaction, a deal with the energy business magnate Eike Batista, who calls her "transparent and straightforward." IBM will take over the IT operations for Batista's EBX Group in a contract that is estimated to be worth $1 billion over the next decade, and it will buy a 20% stake in an EBX subsidiary that provides tech services to industries like mining, energy, and shipbuilding.

MORE: What does power really mean?

As much as Rometty is acting on the strategy Palmisano laid out, she has put her own signature on the company as well. One big challenge with which IBM struggles is its reputation for being slow to execute projects, which are sometimes lumbered by layers of bureaucracy. So Rometty is attempting a fix. IBM's most senior executives have long served on three teams -- operating, technology, and strategy -- to help guide the company. Rometty created a fourth leadership team, the Client Experience Team, which she chairs. There are no senior executives on the team. Rather, she appointed a series of client-facing executives to meet with her once a month. They bring in other business leaders -- recently they hosted Ritz-Carlton chief sales and marketing officer Chris Gabaldon -- to hear how other companies manage customer relationships. Rometty says it's not about "clearing away roadblocks" so much as creating the "signature IBM relationship." IBM hopes it will help the company's reputation with customers as well.

As Rometty marches the company into IBM's second century, technology is again shifting. Rometty says we are entering the "cognitive era" of computing. History has produced only three computing eras so far, she explains. The first encompassed machines that counted and tabulated -- the calculators and punch-card machines that Thomas Watson first manufactured. The second era, which began in 1960, brought programmable computers to market. "Everything you know today -- the iPad in front of you -- is just programmable," Rometty told the audience at that first customer conference. What comes next? "This era is machines that learn."

The best example of this is IBM's Watson supercomputer, which soundly defeated the two men holding the longest Jeopardy! winning streaks. The computer system understands natural language. It can generate hypotheses, recognizing that there are different statistical probabilities for each outcome. And it learns as it goes along, refining its responses. When Rometty talks about the cognitive era of computing, that is what she means.

Jeopardy! champ Ken Jennings competes against IBM's Watson supercomputer.

Jeopardy! champ Ken Jennings competes against IBM's Watson supercomputer.

Watson came from IBM's labs, where the company invests an average of $6 billion annually. Now IBM is unleashing Watson on the business world. Longtime IBM customer Lori Beer drove to Yorktown Heights, N.Y., to watch that final match live, and that's where she first met Rometty. Beer, an EVP who oversees tech purchases for health insurer WellPoint (WLP), thought maybe Watson could be useful. She visited IBM Research, and Rometty made several visits to WellPoint. "She actually spent the time to get to know us," Beer says. "She really made sure she understood what the issues are."

By September 2011 the companies had hammered out a deal for WellPoint to use Watson's data crunching to help suggest treatment options and diagnoses to nurses and doctors. When presented with information about a new patient in the future, Watson will look for data on those with similar symptoms, as well as the treatments that have been most successful. It will provide a range of treatment options, going so far as to suggest how likely it is to be right about each selection. Less than a year after the contract was signed, the first pilots were rolled out in August with WellPoint nurses who manage complex patient cases and review treatment requests from medical providers. Meanwhile, Watson's computers are being put through a medical school of sorts, absorbing medical records and other data so that by the end of 2013 they can be deployed in oncology practices to help doctors treat cancer patients.

Rometty, of course, believes that Watson has great promise beyond medicine. That's why she had Beer speak at her first customer conference, the one that brought together technologists and marketers. The predictive nature of the technology could reinvent any company flooded with increasingly large amounts of data -- nowadays basically every business in every industry. But first, Rometty will have to translate the idea to a host of new customers who never fancied themselves all that technically minded. And like the eight men who have run this iconic company before her, she'll have to sell them on it.

This story is from the October 8, 2012 issue of Fortune.

Update: An earlier version of this story incorrectly said Rometty's last name is pronounced RAH-metty. It is ro-MET-ty.

There's no quit in Michael Porter

posted Jan 31, 2013, 10:57 AM by Mahlon Buck

He has influenced more executives - and more nations - than any other business professor on earth. Now, at 65, he and an all-star team aim to rescue the U.S. economy.

By Geoff Colvin, senior editor-at-large

"We've never done this before, and shame on us, frankly": Porter in his Harvard office.

FORTUNE -- Right this minute, in offices around the world, business-people are holding high-level meetings to talk about strategy. They're trying to figure out if they can really achieve the lowest costs, or if they should focus on differentiating their product or try to dominate a niche in the business, and someone is suggesting they try to do a little bit of each, and someone else is replying they'd be doomed. "Should we really be doing all the activities in the value chain?" "No! We need to outsource!" The meetings are getting heated because everyone realizes the decisions could mean life or death.

If you interrupted one of these meetings and asked the participants why they're discussing these questions, they'd look at you funny. It's perfectly obvious, after all, that these are the most crucial issues. We talk about them because we have to, and everyone has been talking about them since the dawn of time, they would tell you. But they would be mistaken.

Generally without knowing it, they -- we -- are speaking the language of Harvard's Michael Porter, the most famous and influential business professor who has ever lived. Incredible as it seems, there was a time when these concepts were not the foundation of most business thinking. Says Roger Martin, the longtime dean of the University of Toronto's Rotman School of Business and a former colleague of Porter's: "Everyone who talks about sustainable competitive advantage and how they're going to get it -- they don't say, 'This meeting is occurring because Mike Porter said it's important.' But that is why."

Businesspeople aren't the only ones who speak Porter's language. Leaders of nations, regions, and cities use his "diamond model" to frame their plans for becoming more competitive. Environmental policymakers apply the Porter hypothesis. Health care reformers study his work on transforming that broken industry.

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Now Porter aims to change the conversation on another vast topic: America's competitiveness. The Harvard Business School's U.S. Competitiveness Project, led by Porter and professor Jan Rivkin, is unlike anything the school has attempted: recruiting scholars from inside and outside the school to achieve a specific goal -- making the U.S. more competitive. "We've never done this before, and shame on us, frankly," Porter says. "Look at the tremendous goodwill and influence we have. People listen, and we have to take advantage of that." Porter takes pains to point out that dozens of people besides him are working on the project. But it's clear that if he hadn't agreed to be involved -- to be "the tip of the spear," as Rivkin puts it -- the project might not have happened.

One of the project's central theses is that most debates about U.S. competitiveness are wrong to focus almost entirely on federal government action. That's why Porter and Rivkin have written this article describing how companies can make America more competitive while also advancing their own interests. In this, as in everything he does, Porter wants to exert influence: "We want every businessperson to read that article and put it down and say, 'You know what? Damn it, we're gonna do this!'"

Team HBS: Porter (far right) with Jan Rivkin (left) and dean Nitin Nohria

Team HBS: Porter (far right) with Jan Rivkin (left) and dean Nitin Nohria

You might suppose that Porter, at 65 and having exerted a career's worth of influence, might be ready to hang it up. He isn't. He looks 55 and has more energy than the average 35-year-old. "What I'm particularly fortunate about," he says -- he talks a lot about how lucky he has been -- "is that I really love doing this stuff. I mean, I'm not tired of it. I'm not fatigued. So many academics get tired."

In a recent typical week, he wrote during a flight back to Boston from London, met editors at the Wall Street Journal, did a video interview at the Huffington Post, and appeared on CNBC; he held several meetings or conferences at Harvard, spoke twice at a large conference of the Initiative for a Competitive Inner City, a nonprofit he founded in 1994, and advised Kohlberg Kravis Roberts, Newark Mayor Cory Booker, a Fortune 500 CEO, and the government of Rwanda. He seems to subsist on air. Joan Magretta, a former consultant who became a Harvard Business Review editor and wrote a book called Understanding Michael Porter, says, "I've worked with Mike for 30 years and have never seen him eat a meal."

A book on understanding Porter is worthwhile because he's often misunderstood. He is widely and rightly regarded as the all-time greatest strategy guru, but that view gets the emphasis wrong. His first important book, published in 1980, was Competitive Strategy. Next came Competitive Advantage, followed by The Competitive Advantage of Nations and On Competition; there's his Initiative for a Competitive Inner City, and of course he's now working on the U.S. Competitiveness Project. Are you noticing a theme?

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Competition and winning have defined Porter's work and in large part his life. He has said that sports were the center of his existence as a kid, and at Monmouth Regional High School in New Jersey he was an all-state football and baseball player. At Princeton, where he majored in aeronautical engineering, he made the NCAA All-America golf team and graduated Phi Beta Kappa. He went directly to the Harvard Business School, where he realized he wanted to teach and where he became a Baker Scholar, a distinction reserved for the top 5% of the class. He then made the unorthodox move of crossing the Charles River to get a Ph.D. in Harvard's economics department; he won the prize for the year's best thesis. Then he recrossed the river to teach at HBS.

Eight years after graduating from high school, he was teaching at the world's No. 1 business school.

He already knew what the focus of his research would be. As an HBS student, he had absorbed "the practitioner view of competition," but back then it didn't include many general insights; each case was unique. As an economist, he understood "the more abstract view of competition that one saw in industrial economics," and it was the opposite: Individual firms were all pretty much the same and not interesting. "It was the juxtaposition of these various kinds of training that made it sort of obvious what some of the rich opportunities were," he says. So those were what he worked on.

He explained the results in Competitive Strategy, which quickly became the bestselling business book ever up to that time. Every company, he said, is subject to five forces: the competitors it currently faces, the threat of new competitors, the threat of substitutes for its products or services, the bargaining power of its suppliers, and the bargaining power of its customers. Within that environment, every company must choose a strategy, and there are only three: achieving the lowest costs, differentiating its products and services, and dominating a niche. Trying to do some of each -- getting "caught in the middle" -- prevents a company from realizing the benefits of any of these strategies, and as a result it will lose to competitors who choose just one.

The book revolutionized managerial thinking around the world and made Porter famous. It also sparked another widespread reaction: "The highest compliment, I've come to understand, is, 'Oh, that's obvious,'" Porter says. "I used to get really mad about that, but now I understand that's the goal -- to take a complex problem and make it seem really clear and obvious." Real-world practitioners agree. "The five-forces framework is as valid today as it was then," says Adrian Slywotzky, a consultant.

A great paradox of Porter's career is that he has achieved the summit of academic distinction while loudly rejecting the No. 1 rule of the academic game. It states that all advancement depends on publishing as many articles as possible in the few dozen top-tier academic journals. Porter has scarcely bothered, publishing just seven such articles in his 39-year career. His many articles in the Harvard Business Review don't count; that's a mere "practitioner journal" in the view of academics. Yet Porter holds a University Professorship at Harvard, the highest honor the school can bestow, held by about 1% of the faculty; it means he isn't tethered to any particular school within Harvard, not even the business school, but can roam across the entire university wherever his interests lead him.

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Another measure of his academic success, telling and ironic: In the many footnotes that follow every article in academic journals -- the journals Porter has so frankly disdained -- he has been cited far more often than any other writer on business or economics.

The U.S. Competitiveness Project is the largest example yet of Porter's real-world influence. "We are judging this project on impact," says Rivkin. "It's successful to the extent we help companies operating in the U.S. compete in the global economy and raise the standard of living."

With the U.S. Competitiveness Project well under way, what might Porter try to change next? He is taking advantage of his University Professorship, working in the School of Public Health to improve health in China, working at the Medical School on health care delivery in Africa, and teaching at the Kennedy School of Government. And Harvard has a lot more schools. "Yesterday I was meeting with the dean of the education school at Harvard, and we were talking about education," he says. "There's an opportunity to reframe that field. And I'm very tempted."

Porter knows he's trying to do too much. A lesson he has learned belatedly is to "enroll others" in his projects, with the U.S. Competitiveness Project as exhibit A. But taking on too much seems to be in his nature, so he'll probably keep doing it. At least until he gets tired. Which right now is not a real-world concern.

This story is from the October 29, 2012 issue of Fortune.

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