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How Lou Gerstner Got IBM To Dance

19.04.2008

How Lou Gerstner Got IBM To DanceIf Louis V. Gerstner Jr.'s book Who Says Elephants Can't Dance? gets one point across, it is that nobody but an unaffected outsider like Gerstner could have saved IBM from crumbling. Business leaders looking to apply some of Gerstner's medicine to their own companies' ills will be disappointed. The author says that IBM's problems, challenges, complexity and culture are unique, and the fixes he applied are unlikely to be easily transferred. The answers to the question of how Gerstner saved IBM, the major business decisions, are known. What's less understood is how he managed to change a culture that he generously describes as "inbred and ingrown." For Gerstner, the first order of business was making the company solvent. Under his guidance, IBM cut billions in expenses (partly through massive layoffs) and raised cash by selling assets. Gerstner says that few people even understood how perilously close the firm was to running out of cash.

He famously put the brakes on a plan, which was already well under way, to break up the company into several operating units. Gerstner characterizes this as "the most important decision I ever made - not just at IBM, but in my entire business career." The rationale behind it was to leverage all of the pieces of IBM--hardware, services and software - to deliver top-to-bottom technology solutions. To colleagues, Gerstner may have expressed total confidence in that monumental decision, but here he concedes he didn't know how the company might deliver on the potential of that "unified enterprise."

Early on, he decided that the whole of IBM was greater than the sum of its parts. But its many parts were far-flung and operated independently, with little accountability. Rather than work together as a team, divisions competed against each other both internally and in the field. He writes that management "presided rather than acted," and the entire company was dangerously preoccupied with itself rather than customers.

It is from this that we learn most about IBM's transformation. Changing a culture is not easy. That is probably why so many once-great companies disappear. Gerstner and his advisers decided to tie employee compensation to the performance of the whole company rather than to the employee's particular division. This, the thinking went, would force them to cooperate and venture outside of the fiefdoms in which they operated.

In that vein, IBM consolidated its many advertising agencies down to one, Ogilvy & Mather. The goal was to create one common brand message for all IBM products and services around the world. To drive this change, IBM began rewarding teamwork and essentially put an end to consensus building. Gerstner learned, though, that it wasn't enough - "People don't do what you expect but what you inspect," he says - and therefore created a new way to measure results. Employees needed to know that their competitors were outside of IBM, not across the hall. Secondly, there would be no more "obsessive perfectionism" and "studying things to death." In the new IBM, people would be rewarded for getting things done fast.

Indeed, every employee would make three "personal business commitments," or actions to fulfill broader IBM commitments. Performance against those commitments was directly tied to salary. Gerstner says he estimated it would take five years to turn around IBM's culture. He underestimated. In some ways, it's still a work in progress.

That Gerstner had no emotional attachment to long-suffering products ultimately worked in IBM's favor. Could an insider have made the decision to cut OS/2 loose? Gerstner writes that his colleagues were "unwilling or unable to accept" that OS/2 was a "resounding defeat" that, despite its technical superiority, "was draining tens of millions of dollars, absorbing huge chunks of senior management's time, and making a mockery of our image."

But even worse, focusing on the desktop ran counter to IBM's view of where the tech world was headed. By the end of 1994, IBM ceased new development of OS/2 software. It was the same story with big corporate software applications. IBM spent mightily to develop them, but they were losers in the marketplace.

It's almost humorous to get a glimpse of how Gerstner - who cut his teeth as a consultant at McKinsey, then served as president at American Express and RJR--adapted (or didn't adapt, as the case may be) to the rough-and-tumble tech world. Who Says Elephants Can't Dance? is about IBM, not Lou Gerstner. So readers get no real sense of the person behind the executive who says he "hates, hates, hates to lose."

Source: http://www.forbes.com

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