Who Says Elephants cant DanceLou Gerstner

Who Says Elephants cant DanceWhen Lou Gerstner took charge of IBM, the company was about to collapse. The computer industry was changing too rapidly for it to keep pace.Breaking up the company was one of the solutions being advocated by the experts.Lou Gerstner and his team though took a contrarian view, and set about restoring the companys former dominant position and as a hugely profitable company.The book is about how Lou Gerstner spent nine years as Chairman and CEO of IBM and he crafted what is possibly one of the greatest turnaround stories in business history.

Decisions, Decisions, Decisions, Decisions(four major decisions)On April 1, 1993, the day Lou Gerstner came to IBM as Chairman and CEO, he realised the magnitude of the job ahead of him the company was about to announce a loss of 16 B$.Everyone was convinced the first step would be to break up the company into smaller more manageable units.Not Lou though he simply spent a few months learning about the company the scale, size and complexity of the operation that IBM was conducting. This was time well spent, as this gave him an insight into the wealth of experience and talent that existed within the organisation, and the right way to exploit this talent to move ahead on the path to recovery.He had made his first decision.

United We Stand Decision 1Against all the sensible advise, and amid all the din to break up the company, Lou decided to keep it together instead. He had very rational reasons for doing that.Histrorically IBM had always sold a complete package to its customers, including the hardware, software, services and support. Over the years though, the PC industry had changed this trend and it was now getting increasingly acceptable for a technology company to find a niche position in any one of the available lines.Lou correctly identified this trend as the reason why the analysts were advocating a breakup of the company and decided instead to buck the trend. He recognised the depth and breadth of experience available at IBM to forge ahead as a provider of Integrated services this is where he knew the company could most effectively exploit its talent.He made the decision to keep the company together.

No more Waste Decision 2IBM had a major disadvantage vis--vis its competitors back in 1993 and that was that its operating expenses were higher by about 30% compared to other companies in the same or similar verticals. This meant that IBM was not in a position to compete on price.Lou Gerstner decided to take the situation head on and embarked on a massive cost cutting exercise. The first casualty was of course the workforce more than 30,000 people lost their jobs at IBM. Apart from the direct benefit of savings on the wage bill, this move probably also helped to create a leaner organisation with reduced hierarchy and so promoted faster decision making.Additionally he also ensured that other sources of wasteful expenditure were identified and duly eliminated to whatever extent it was feasible.

Change on the inside Decision 3Lou felt at this stage that the way the company used its own systems and processes internally would have a direct bearing on the way it delivered value externally to the customer. This meant in turn that any expense made to improve itself on the inside would actually turn out to be a wise investment for the future. Armed with this insight, he went about making large scale changes to the way the company used its own supply chains, internal processes, accounting systems, inventory systems and a myriad other systems, large and small, that helped the juggernaut to move more efficiently, more quickly and with more sure footedness.

Cut your losses Decision 4While taking the unpleasant decision of reducing shareholder dividend in 1993, Lou also made the other bold decision to sell the nonproductive assets of the company. This included such white elephants as the companys collection of fine art, a part of the corporate jet fleet, and several underutilised buildings and large tracts of undeveloped land that the company had been carrying on its books of accounts for several years. This freed up a large amount of working capital at almost no cost to the company.

Cut to the chaseWe get an insight into the way he was thinking in July 1993 if we analyse what he said at an analysts conference then. He told the analysts, in no uncertain terms, that if they were expeting him to unfold a vision for the company, they would be disappointed. What the company needed, at that time, was a no-nonsense approach that involved strategising to come up with a series of concrete steps that the company could take to reduce expense, improve profitability, and increase market share.This was also the time when Lou announced to the world that IBM intended to continue betting on the client/server strategy and also intended to continue exploiting its resources as a full service provider company in fact the only company in the industry to do so.Lou expected to achieve all this by aligning all the resources of the company towards providing a superior quality of service to its customers.

Action, not rhetoricLou took a number of positive steps at this time to ensure that the momentum the company had gained did not falter and that the strategy is reinforced through execution to achieve the ultimate objective of improved profitability. Some steps he took at this time included:Becoming more external focused this involved listening to the customer more proactively and designing products and services that the market demanded and not what the senior executives thought the market wanted.Not slashing the R&D budget so that IBM could continue producing newer and better technologiesMoving from an inherent geography based organisational structure to a more sophisticated global structure

more Action, less rhetoricMaking the Board itself thinner, leaner and more accountableMoving the IBM accounts from a plethora of advertising agencies to a single agency this was done to ensure that a common consistent message went out globally about what IBM really stood forRetaining faith in the mainframe businessChanging the companys entire approach to compensation moving from a predominantly fixed payout system to a stock ownership system where the payout inherently got linked to how well the company was performing

Predicting the Future (Correctly)Lou Gerstner dared to make two major predictions one, the direction that IBM should move into, and two, the general direction that the computer industry would take in the mid nineties. IBMs eventual success lay in these two predictions being correct.IBMs early success lay in the success of the mainframe computing systems. With faster operating systems and faster processors coming in rapidly, the entire paradigm was shifting in favour of Personal Computers. And this changed the entire playing field, as it was no longer necessary for the end user to be tied in to one manufacturer or supplier a system could be easily created out of integrating components received from varied sources.Client/Server arrangements were beginning to replace mainframes, and with that, IBM was beginning to lose its supremacy.

Leveraging existing StrengthsLou Gerstner dared to believe that a time would soon arrive when users of computing systems would no longer be willing to piece together various components of their systems by themselves. That is when, once again, they would prefer to leave that job a professional, and that is where IBM would step in to do what they were best at provide services instead of only products. For this to work, IBMers would have to change their mindset to accept that the user may not necessarily want IBM products and they should still be willing to integrate components procured from other suppliers. This required a major leap of faith, and this was something that Lou was able to inculcate within the organisation.None of this was straightforward.

Its about betting on yourselfA Services model is fundamentally different from a Products model for one thing, its a highly labour intensive approach. This brings with it its own set of issues like training, compensation levels, hierarchy, processes, and many others. IBM had to start learning these skills, and that is where Lou shifted his focus to create an organisation that could effectively leverage its own intrinsic strengths.IBM eventually succeeded because Lou aligned all the resources of the organisation to achieve the change required, based entirely on his assessment of the path ahead.

Which way is the wind blowing?Trimming the sailsIn 1994, Internet was not an integral part of life. If anything, it was on the outer fringes of the collective awareness of mankind. To bet on a piece of technology as a future of the entire industry, indeed entire mankind, could easily get you labeled as a cowboy.But thats exactly what Lou Gerstner did. He predicted, correctly once again, that networked PCs will do in the medium term future what the single PC, or even the mainframe was doing back then.This required yet another paradigm shift in thinking, in that in allowing the PCs to freely connect to each other it was important that there be no technological barrier to that connectivity. In other words, open and non-proprietary architecture was the way to move forward. In fact, there was a huge incentive to allow the maximum number of products as possible to join the network, even if these products were built by others. More the entities on the network, more the demand for integration, support and servicing. A potential win-win situation for IBM.

Creating your own playing fieldWith the imminent advent of the information super highway, Lou Gerstner speculated that there would be a huge surge in demand for computer systems to manage all that information flow along with a demand for better and more efficient networking systems. All this also meant that purchase decisions would be made at the highest levels within any organisation and that was something IBM was vary good at managing.None of this theorising meant that execution was going to be easy. More than ever before, Lou realised the enormity of the task ahead; the skills IBM was going to have to develop internally, so it could leverage the skills that already existed internally. All he had going for him at that time was the courage of his convictions that he has interpreted the future correctly.The future arrived eventually, to prove him right.

Stoking the fireTo support the decisions he had taken about the companys future direction, and about the possible path the industry at large will take, Lou also had to correctly startegise about a number of other steps the company needed to take to make the major decisions come true.Unlocking the potential in the software side of the business.Software was playing only a supporting role in the sale of hardware at IBM, till Lou realised the enormous opportunities software presented on its own. To this end, he took several steps including merging the software program management under a single authority; shifting focus to developing middleware (a niche position) instead of operating systems or application software; and buying out technology companies and ready made products like Notes from Lotus Development Corporation, which went on to give IBM very good returns for many years and decades ahead.

Loosen the reinsAt the beginning of Q2 1994, Lou Gerstner took the unprecedented, and till then unthinkable, step of making its own research technologies available to its competitors for a price of-course.While this may be counterintuitive at first glance, on closer scrutiny the merits do become obvious. For starters, by making its own technology available more easily, it was in fact maneuvering itself into a position where it could create its own standards and protocols perfect way to become a thought leader. Other benefits of this move included: commercialising of unused research products, thus opening additional revenue streams without additional cost; creating more demand for its computing products by creating more uses for these; opening related lines of business, for example, games console industry; and several other associated commercial benefits.

Making friends with your enemiesLou took the decision to send some business to its competitors rather than compete with them on every front. Some of the ways this was implements was: divesting its memory chip manufacturing business; providing its own developed data network to telecom companies; stopped selling its own PCs and moved this function to direct sales channels.The benefits to IBM from this move included, for example, freeing up resources that could be better used elsewhere within the organisation, providing more integration services (its core strength) by partnering with more equipment providers, and generally cutting its losses in area which were not its core competencies.

Leading the computer revolution through e-businessLou Gerstner realised that a network of computers world wide will naturally see a dramatic rise in business conducted over the internet, or e-business, and that IBM was already well poised to take advantage of this forthcoming revolution by virtue of being a middleware expert.Some specific steps that IBM took to more effectively prepare for the impending revolution included: reorienting the organisation such that all operating groups will focus their activities around the internet; making all their existing pieces of software full internet compliant; popularising the very concept of e-business in public foras to bring it more sharply into public consciousness; starting specific lines of business around the internet, such as providing web hosting services.According to Lou Gerstner, .. I consider the e-business campaign to be one of the finest jobs of brand positioning Ive seen in my entire career.

Core values make all the differenceLou Gerstner seemed to be very clear in his mind that the culture of an organisation is the primary trigger for success (or failure). Its not the specific functions that a company performs that matter so much as the way these actions are performed. And these must be performed in the right way consistently.To create a more encouraging and nurturing culture at IBM, Lou came up with a set of eight principles that IBMers could live by, that would more or less ensure that the company, and the individual, would achieve a high degree of success in the long term.Teamwork is critical larger good will prevail over individual battles and petty triumphsCreate and maintain a spirit of entrepreneurship be pro-innovation, and be willing to take some risks

Fresh values Fresh perspectivesCompanies grow when people grow be sensitive to the needs of employees treat them wellServe the market IBM will succeed if the customers they serve succeedFast response matters thinking-planning-designing cannot replace a sense of urgency in responding to a situationEveryone pulls together never lose sight of the strategic vision, and everyone needs to be aligned to the common causeTechnology is what IBM is good at never lose sight of this fact and always come up with great products that will be appreciated by the customerCustomer satisfaction and shareholder value are the only two metrics that matter everything else is a means to achieve this.Lou also ensured that these principles are sincerely followed by putting in place a system to reward those who practiced these.

Learn your lessonsFocus on what needs to be done - wellGood business sense demands that you be aware what you are good at, and do only that in the best possible way. Curb the temptation to leverage your skills in unrelated fields skills are not easily transferable in that way.Dont stretch your resources by spreading these too thin in too many places. Strategic planning is important more detailed the better. Use these plans as guides to stay on track. Plans are useful vision is mere rhetoric.Visions can provide a feel good factor their usefulness in guiding a company to meet its objectives is limited. A well thought out strategic plan on the other hand can be invaluable in showing the path ahead.

Learn your lessonsExecution is the KeyGreat execution requires you to do a few things better than others Good organisations do these things better than others consistently. The four pillars of good execution are:Clarity of goals is critical for good execution if goals are clear and non-contradictory, everyone in the organisation can strive to achieve these easily. Create an environment where action can flow easily remove barriers to excellence. An environment where mediocrity is frowned upon and excellence is rewarded will help to raise the bar for everyone.Leaders should be ready, and willing, to intervene if things are not going according to plan. Also being solution focused is more valuable than being problem focused.Having good processes in place is important if you wish to go into battle with confidence.Execution is really the critical part of a successful strategy. Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future. Lou Gerstner

Learn your lessonsLeading from the frontQualities of great leaders:Highly visible always available to deal with all stakeholdersInnovative and adaptive quick response to changing external conditions, and always ready to changeKnowledgeable a good understanding of market dynamics and all the key elements of operating the business.Hands on not just preach; practiceInflexible on values no exceptions in things that really matterGood communicatorsMost of all, personal leadership is about passion. When I think about all the great CEOs I have known among them Sam Walton of Wal-Mart, Jack Welch of General Electric, Jurgen Schrempp of DaimlerChrysler, and Andy Grove of Intel I know that the common thread among them is that they were or are all passionate about winning. They want to win every day, every hour. They urge their colleagues to win. Its personal. They care a lot about what they do, what they represent, and how they compare. Lou Gerstner

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