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Gerstner Remembers Lest We Forget?

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When Lou Gerstner was hired by IBM in 1993, the company had just lost $5 billion and was about to lose another $8 billion. It had recently laid off 45,000 employees, and one of Gerstner's first duties would be to lay off another 35,000. IBM's market share had dwindled by 50%, and the company that had once been described as "the best-run company in the world" had become the laughing stock of the industry, with competitors and customers wondering if it could survive.

In fact, many in the industry expected that Gerstner would parcel up the company to staunch the flow of blood. But he didn't. Instead, under his leadership, IBM was resurrected--not as a computer company, but as the technology organization that today leads the industry. When he retired as Chairman and CEO this last year, IBM's profits were $8 billion after eight straight years of profits, and its employment rolls are now 35,000 greater than when he took the job. This year, IBM will once again lead the world in the number of new patents. In addition, the company that once epitomized the closed proprietary operating systems of the 1980s is now one of the driving factors behind the open-source movement. How did he do it?

The IBM World According to Gerstner

Gerstner's new memoir, Who Says Elephants Can't Dance?, (HarperBusiness; ISBN: 0060523794) describes the IBM business culture that he experienced and the steps he and others took to turn the behemoth around. It's a witty retrospective that describes a culture that was steeped in its own arcane history with insular customs and traditions that have long ago become the stuff of legends (the blue-suit uniform , the THINK signs, the daily calibration of the office clocks...all the observations that Gerstner has frequently used in his speeches to customers and Business Partners).

Yet, even today, when IBM retirees reflect on the impact of Gerstner's tenure at the helm, many get chills down their spines. And this perspective--an insider's perspective of the changes that IBM was undergoing--is not a part of the memoir. For these employees, the motto "IBM Listens" was a frightening phrase because, at the time of Gerstner's ascent, what IBM employees were hearing seemed like a death knell to all that they had been taught to believe. The engineering culture that stretched back to the company's roots was under attack, the bean counters had gained the summit of power, and the customer--that unreliable, impenetrable imbecile that was then preoccupied with personal computers--was actually calling the shots!

What IBM Lost

What was worse, for many of these so-called "lifers," was that the sacred tenet of "life-time employment" within IBM was shattered, with layoffs becoming a new way of life. Company loyalty was a thing of the past, and the days when the planning of the annual IBM Christmas party--with uniformly wrapped presents for every child of every employee--would consume mainframe cycles of calculations and the full-time attention of executive secretaries at the highest management level were long gone. The business climate had changed, needed to change, was required to change, but the costs to families and personal careers was often devastating. After you've worked your entire career--from college to middle age--within IBM, where do you go?

Hard Choices or Simply Facts of Life

There is no question that Gerstner's leadership saved the company, but too often the legendary complaints of inefficiency levied against IBM might have been levied against any number of large, family-oriented companies in the early 1990s. Why? Because the culture of the family-oriented, employee-vested, value-focused corporation was about to succumb. Companies that felt they owed something to their loyal employees were experiencing exceptional competition from both within and outside of the United States borders. Customers, in the grip of recession, could not afford the depth of services that IBM was offering--services that were marketed as "life-long relationships." Likewise, IBM was struggling with a massive reorganization of those services and products to compete in a new meaner and leaner business climate. Those plans were already in the works when Gerstner arrived. How much changed when he took the helm is often debated within and outside of IBM.

However, what really set Gerstner apart was, quite simply, his sense of proportion within this new business realm. Unlike his predecessors, he was the first IBM leader to arrive at the helm from outside the organization. He was not a computer engineer. In fact, a large part of his career in various positions was as an actual IBM customer. He knew the new forces that were shaping the world economy firsthand, and he had the skill to help chart those waters in ways that were new to the IBM culture. Moreover, he had the wisdom, as a CEO, to recognize that rewarding talent within the organization was not the same as serving the needs of customers on the outside.

Reinventing Innovation

Finally, Gerstner understood that the future success of IBM would be measured not by its real innovation of products within the marketplace, but by its perceived innovation by the stock market. By tying its fluctuating employee roles and expense budgets directly to its projected quarterly earnings reports, Gerstner was able to finesse the stock market into believing that IBM was making a turnaround and a comeback based upon innovation, when in many cases it was simply re-engineering and remarketing technologies that were gaining currency in the rapidly expanding technology sector.

It's no wonder then that IBM began abandoning proprietary technologies in favor of more open-standards-based initiatives. R & D is cheap in a corporation when others in a larger global community are setting the goals and delivering pieces of the solution. Sending an engineer to a standards committee meeting is incredibly cheap, compared to inventing and funding radical new technology in-house. Windows, Unix, TCP/IP, and a thousand other technologies gained ascendancy within IBM in direct proportion to IBM's abandonment of its own inventions of OS/2, OS/400, SNA, and many others.

"Give the customer what he wants" has always been Gerstner's credo. "But sell them what's on the truck" has always been his punch line. Indeed, under Gerstner's reign, selling has always been the most important part of his message. Thus, in transforming IBM's Business Partner structure, Gerstner was successful in also transforming the expectations of what IBM was really all about. Today, instead of customers, IBM has Business Partners who sell to customers. Instead of products, IBM has "solutions" that span the major technology architectures in the industry. What was once a floundering old-model, family-oriented corporation that helped to build other corporations, IBM is now a technology franchise, offering solid stock values, expensive comprehensive IT services, and "world class" technologies created in an "open-standards" environment. Innovation, when it occurs, is by degrees; revolutionary technology is the last thing on its agenda.

Gerstner may indeed have taught the elephant to dance, and we have him to thank for showing IBM and the rest of us how to boogie. But though its grace on the dance floor may be flawless, it's forgotten many of the steps that once made it great as a technology innovator. And customers--who now must look elsewhere for true innovation--must be constantly looking out for their toes.

Thomas M. Stockwell is the Editor in Chief of MC Press, LLC. He has written extensively about program development, project management, IT management, and IT consulting and has been a frequent contributor to many midrange periodicals. He has authored numerous white papers for iSeries solutions providers. His most recent consulting assignments have been as a Senior Industry Analyst working with IBM on the iSeries, on the mid-market, and specifically on WebSphere brand positioning. He welcomes your comments about this or other articles and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Thomas Stockwell

Thomas M. Stockwell is an independent IT analyst and writer. He is the former Editor in Chief of MC Press Online and Midrange Computing magazine and has over 20 years of experience as a programmer, systems engineer, IT director, industry analyst, author, speaker, consultant, and editor.  


Tom works from his home in the Napa Valley in California. He can be reached at ITincendiary.com.





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