Who Says Elephants Can

8/6/2019 Who Says Elephants Can

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Who Says Elephants Can't Dance? is an account of IBM's historic turnaround as told by

Louis V. Gerstner, Jr., the chairman and CEO of IBM from April 1993 until March 2002.

Lou Gerstner led IBM from the brink of bankruptcy and mainframe obscurity back into the

forefront of the technology business. After a brief foreword and introduction in which

Gerstner provides his pre-IBM background, he jumps right into the story of his IBM

experience. The book is divided into five parts: "Grabbing Hold," "Strategy," "Culture,""Lessons Learned," and "Observations."

Part I, "Grabbing Hold," is the story of how Gerstner wrestled with the idea of taking the

IBM job (he turned it down at first), followed by highlights from his first year on the job. It

provides an interesting insider's view of the CEO recruiting process for a Fortune 50

company and describes how Gerstner addressed IBM's severe financial crisis in the early '90s

and managed to keep the company solvent. It also reveals just how precarious IBM's financial

position was during that time, which many readers (including myself) might not have known.

Still, although Part I is quite interesting, the real meat of the book is in the subsequent parts.

After stepping back to provide a brief history of IBM, Part II ("Strategy") dives more deeplyinto how Gerstner repositioned IBM's corporate strategy to keep the company together and

pull off a successful turnaround. When Gerstner came on board, the conventional wisdom,

from both industry pundits as well as many IBM insiders, was that the only way to save IBM

from eventual disaster was to break it apart. But Gerstner looked beyond this advice and

opted to preserve the real strength he believed IBM brought to customers. His decision to

keep the company together and "teach the elephant to dance" was "the first strategic decision,

and, I believe, the most important decision I ever made -- not just at IBM, but in my entire

business career," Gerstner writes.

Fixing IBM: "All about execution"

What Gerstner realized is that IBM had a unique and unequaled capability to "apply complex

technologies to solve business challenges." It was this unique value proposition that would

enable him to bring IBM back from near extinction. But to accomplish this, IBM needed not

only a corporate makeover, but also a complete facelift and some liposuction as well!

Gerstner likens his arrival at IBM to stepping through a time warp and arriving back in the

'50s. A massive, difficult, and painful reengineering feat was required to get the insular IBM

to focus on bringing value to the customer in the marketplace. Ultimately, though, this led to

the "new" IBM. It also gave rise to a hilarious statement that the book credits to a senior IBM

executive: "Reengineering is like starting a fire on your head and putting it out with a

hammer."

In Gerstner's own words, "fixing IBM was all about execution" and required "an enormous

sense of urgency." His whole approach was to drive the company from the customer's view

and "turn IBM into a market-driven rather than an internally focused, process-driven

enterprise." And it worked. It was all about execution -- and honest ways to measure its

effectiveness. Before Gerstner arrived, IBM had a tendency to fool itself with bogus indices

and data (e.g., customer satisfaction numbers generated from hand-picked samples;

subjective product milestones, etc.), but he changed all that. "People do what you inspect, not

what you expect," he explains.

I couldn't help thinking that perhaps Gerstner took a peek at Rational's mission statement andFive Field Measures to craft his IBM strategy, but then I know these things work because


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they are based on sound general business principles. As a new IBM employee, I was very

encouraged by Gerstner's maniacal attention to customers' notions of success and his single-

minded focus on responding to marketplace needs. If his market-driven approach to doing

business really does pervade the "new" IBM culture, then it will be no surprise if IBM ends

up dominating the technology landscape in this century, just as it did in most of the last one.

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Culture is everything

Part III (Culture) was particularly interesting to me because one of the main reasons I wanted

to work for Rational was the company culture, and I was concerned about its compatibility

with IBM's culture. Many Rational tech reps (myself included) say they have enjoyed

working at Rational because the company culture empowers individuals to make a difference.

Fortunately, company culture was another of Gerstner's main targets for change:

Until I came to IBM, I probably would have told you that culture was just one among several

important elements in any organization's makeup and success -- along with vision, strategy,

marketing, financials, and the like. I came to see, in my time at IBM, that culture isn't just one

aspect of the game; it is the game. In the end, an organization is nothing more than the

collective capacity of its people to create value.

Gerstner's most important and proudest accomplishment was to institute a culture that

brought IBM closer to its customers by inspiring employees to drive toward customer-defined

success. Now, the company's strong customer focus will allow Rational to continue pursuing

the same mission that has guided us for more than twenty years.

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Wisdom and Insights

There are nuggets of wisdom throughout the last two sections of the book. In "Lessons

Learned" and "Observations," Gerstner points out that some integrator, fundamentally acting

in a service role, controls every major industry. This was the basis for building IBM Global

Services. Another shrewd Gerstner insight is that every major industry is built around open

standards. It was this realization that led IBM Software to enable and build on open standardsin a network-centric world, and Gerstner provides a compelling argument for abandoning

proprietary development and embracing software standards (e.g., J2EE and Web Services). In

fact, Gerstner argues that the most valuable technology companies are OEM suppliers who

leverage their technology wherever possible; therefore, IBM must actively license its

technology in order to be successful. The book's three appendices contain, respectively, some

interesting e-mail correspondence, Gerstner's vision of e-business (including the IBM IT On

Demand, autonomic, and grid computing initiatives), and a financial overview of IBM from

1992 to 2002.

The latter clearly demonstrates that Gerstner got results. Although many people criticized

IBM for selecting a non-technical CEO, based on IBM's performance during his reign (andthe insight he reveals in this book), Gerstner was definitely the right person for the job. His
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reinvention of IBM was one of the most dramatic corporate turnarounds of the twentieth

century, and the numbers in Appendix C of this book will certainly shut the mouths of any

would-be critics.

Before opening this book, I had assumed it was Gerstner's autobiography and would highlight

not only his IBM career, but also his years at the consulting firm McKinsey and Companyand his executive tenure at American Express and RJR Nabisco. I also assumed that, as is

typical of many books by high-profile executives, the book was ghostwritten in part. Gerstner

dismisses both of these assumptions in the foreword. Not only did he write the book himself,

he claims, but also the book deals (as the subtitle "Inside IBM's Historic Turnaround"

suggests) almost exclusively with Gerstner's IBM years.

Under other circumstances I might regard this book as just another well written and

interesting memoir from a captain of capitalism; both Rational employees and Rational

customers now have a stake in the success of IBM and will gain a better understanding and

appreciation of the company by reading this book.

Power Point: 5 tips from IBM's

turnaround champ

Former IBM CEO Lou Gerstner

It's been 15 years since IBM (IBM) set what was then the record for the biggest annual loss in

U.S. corporate history. Today, thanks to growth in emerging markets, Big Blue is one of the

tech industry's big success stories -- and is expected to report healthy second-quarter sales

and profits after the market closes today. IBM is also one of only four stocks on the Dow 30
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that are up over the past year (the others are Procter & Gamble (PG), Johnson & Johnson

(JNJ), and McDonald's (MCD)).

The man who started IBM on the path to recovery, Lou Gerstner, copped a Legend in

Leadership award at the Yale CEO Summit in New York in last month. At the podium,

Gerstner, CEO of IBM from 1993 to 2002 and now chairman of private equity giant CarlyleGroup, dished up some wise tips on the topic he knows best: how to transform a Fortune 500

company. Here's an edited transcript of his advice:

1. It's very important to distinguish between a transformation and a turnaround. A turnaround

involves a company that has fallen off the rails and has executed poorly. It takes a driven

executive, but it's not that bad. A transformation is truly difficult. The company must

fundamentally change its model. It's very, very problematic.

2. If you're trying to transform a dodo, you're not going to make it. I agree with Warren

Buffett's rule: "When a management with a reputation for brilliance tackles a business with a

reputation for bad economics, it is usually the reputation of the business that remains intact."

3. It's all about culture. You have to transform the culture, not just the strategy. Culture is

what people do when no one is watching.

4. Integrate as a team. When I arrived at IBM, there were "Team" signs all around. I asked,

"How do people get paid?" They told me, "We pay people based on individual performance."

5. You have to understand what people do everyday -- the processes, the values, the rewards.

It requires immense involvement by the CEO. If you're a CEO who tells employees, "That's

it. You know where we're going," you'll find yourself with no followers.

Was Louis Gerstner a turnaround specialist at IBM?

Posted by anil underAcademic, Leadership,MBA,Strategic Management

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Behaviors(dysfunctional) existent at IBM

Despite having talented workforce, great technology and a sound strategy, IBM was

underperforming and was suffering from near collapse before Gerstner took over.

Unfortunately, the culture that was prevalent at IBM was that of arrogance. It was not in tune

with the times and with customers needs.
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Gersner was able to quickly diagnose the problems at IBM and sought to find immediate

remedies to fix the shortfall in revenues and stabilize the company, make good strategic

choices and turnaround IBM. But there were some behaviors which Gersner found

unacceptable. These include:

Large dysfunctional bureaucracy, committee decisions, tacit compromise and actionscommitted to serve group interests. IBM had a dress code that again had outlived its

times. Management presided rather than acted. Meaningless meetings, far-flung

business units operating independently, with little accountability, divisions

competing against each other both internally and in the field and the entire company

was dangerously preoccupied with itself rather than customers.

Obsession with perfection, system of several layers of checks and approvals, slowed

down decision making and delayed product launches and response times. Employees

served themselves better than their customers.

The company and its people had lost touch with external realities. It was widely

believed that what was happening in the marketplace was essentially irrelevant to the

success of the company. IBMs dominant position had created a self-contained, self-sustaining world for the company.

IBM was mired in the tradition and culture of its own success, it was unable to respond to the

pace and behaviors of the new economy. Customer service absolved itself from paying

attention to customers needs and business. Employees perceived employment at IBM as

life-long with ensured benefits. Product portfolio still focused on products which were

losing market share and had no bright future in a networked model of technology. New Kill

initiatives which provide new direction were killed in works if did not receive consent from

other units. Compensation system was focused on fixed rewards, commonality, internal

benchmarks and entitlement. This culture insulated IBM and it employees from market

realities and the emerging competition from client-server technology, emergence of PCs

and high pricing of IBM products signaled the death spiral for IBM. IBM lost market share

and was running into losses. The mainframe segment was falling apart and the company was

struggling to survive.

Gerstner completely transformed the culture of the organization through, for example,

modeling desired behavior and abolishing IBMs notorious dress code to reflect better the

attire of their customers. He took the bold step of listening to customers and cutting the price

of their cash cow, the 360, to raise cash. Performance based pay and differentiation was

introduced. Compensation was not tied to business unit performance, rather was based on

company performance. He made strategic decisions towards service-oriented, network-ledbusiness transformation. Customer focus was given top priority followed by company

interests. Most of the efforts paid off and IBM turned profitable after few quarters.

Behaviors(postitive) at IBM

IBM had a great culture of respect, hard work, and ethical behavior. It was known as a leader

in diversity. Employees take pride in commitment committed to their company and

committed to what their company does. These values were engrained and institutionalized by

the early founders at IBM.

Excellence in everything IBM does Superior customer servicer


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Respect for the individual

These beliefs were reflected in compensation and benefits systems, in training programs, in

marketing and customer support. The three behaviors which Gersner found acceptable were:

Ability to provide integrated solutions for customers, handle internal complexity agreat talent pool, experience, knowledge, maturity, and character.

Employees who never give up on their company, their colleagues, and themselves

Are energized, motivated and stimulated, who demonstrate commitment towards

company goals.

IBMs existence as a whole was the only competitive advantage IBM had and Gersner

believed that the breakup was not needed.

Vision and strategy

Mr. Gersner was a visionary who could see the future and predict opportunities. He exposing

that vision is not the same as strategy. Fixing IBM was all about execution. As Mr.Gerstner stated, We had to stop looking for people to blame, stop tweaking the internal

structure and systems. I wanted no excuses. I wanted no long-term projects that people could

wait for that would somehow produce a magic turnaround. I wanted IBM needed an

enormous sense of urgency. He did not form any long-term strategic plan, but took strategic

initiatives and implemented them for the short-term. He believed that a long-term vision for

the company will emerge from the essential restructuring work and needed to cope with the

sheer stuff of the rescue plan before he can get to grips with my new vision. He understood

the emerging technology trends and wanted to position IBM to take advantage of it. He

emphasized the relevance of networked model, the retention of network storage and leverage

service as the next big market segment to offer complete hardware and software solutions.

As part of this effort, IBM global services was started in 1996, Lotus, Tivoli and Rational

were acquired and technology was licensed to third parties.

After taking stock of the situation, consulting the customers, competitors and business

divisions, Mr. Gerstner formulated strategy and pushed it gain employee readiness. IBM

moved from a product based, rule based company with deep divisions into a nimble service

company with competitive advantages where decisions are made quickly by empowered and

capable employees acting with a customer centric bent of mind.

His transformation efforts included

Pushing a service oriented company that could provide a total solution to any

customers problem

Look outside to measure success via customer satisfaction and increased shareholder

value

Operate as an entrepreneurial organization with minimum of bureaucracy and never

ending focus on productivity

Never lose sight of strategic vision, direction & mission, reward teamwork

removing power and status as key elements of the rewards system created a more

market and profit focused company

right size layoff 100k employees and shut down unprofitable departments

Customer segmentation and customer centric sales force


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Service marketing innovate software, segment service and provide integrated

solutions

Culture-shaping strategy

The greatest barrier to change in any large corporation is the culture. Any major shift instrategy or structure requires culture shift to create alignment. Mr. Gerstners strategy

involved the following phases:

1. Diagnose & define (define current and future state) met customers, competitors,

senior executives, financial analysts, and consultants to get a grip on outstanding

issues. Accepted feedback, paid attention to divergent ideas and opinions

2. Unfreeze & educate (shift behaviors) Influencing skills, was results oriented,

interested in short-term results without considering long-term, overall results and

outcomes, had limited perspective, in time and scope, encouraged ideas off the beaten

track and embraced new ideas and innovation, accepted criticism of the organization,

3. Reinforce (treasure long term change) convinced people of the strategy and broughttheir buy-in for implementation

4. Apply to Strategies (address business issue) Mr. Gerstner regrouped IBM by

providing one single leadership at the top. Reversed the core IBM mainframe business

by cutting prices and becoming customer focused. Synergized the IBM messaging

division by providing single message globally. Intelligently put his bet on Services,

Software and e-Business. Realigned the employee incentive system to encourage the

culture that promotes customer oriented actions.

5. Measure progress (monitor progress) Compensation system base on

Differentiation, Variable rewards, External benchmarks and Performance. Tied

employee compensation to the performance of the whole company rather than to the

employees particular division

The cultural change required at IBM (and at just about every large organization that I can

think of) Product based to customer based, do it my way to do it the customers way, from

manage to morale to manage to success, from decisions based on anecdotes to decisions

based on data, from relationship driven to performance driven (and measured), from

conformity to diversity, from looking good to accountability, from US to global, from rule

driven to principle driven, from silo to holistic, from analysis paralysis to make decisions and

move forward with urgency (80%/20%), from not invented here to learning organization,

from fund everything to prioritize. IBM was facing the PC dilemma, the emerging e-

Business, shedding OS/2 due to stiff competition, new focus on middleware technology, newsoftware acquisitions, networked model, and services as key to integration etc. These external

factors played a huge role in shaping IBM strategy and its eventual transformation from a

product-centric to service-centric organization.

Most of the changes introduced by Gerstner were successful. With proper strategy and

efficient leadership, he brought about significant changes in organization culture and business

direction and was able to restore IBM to stability.

Personal Leadership

Mr. Gersner was an embodiment of most competencies characteristic of an effective leader drive, motivation, integrity, self-confidence, intelligence, business knowledge and emotional


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intelligence. Other noticeable key competencies include tenacity, openness, assertiveness and

trustworthiness. He has an excellent past as a transformational leader at American Express

and RJR Nabisco one who can bring about significant change in organizations by inspiring,

motivating and leading people in new direction. He is noted for his significant

accomplishments as a change agent and when offered the job at IBM by Mr. Jim Burke, he

was little hesitant to take the job. His was in a dilemma whether to accept the offer or not.He was emotionally strong and knew his capabilities of self-awareness, self-management,

social-awareness and relationship management. The factors which led to his job acceptance

offer were:

1. KKR was planning on an exit strategy and Gersner knew that chances of RJRs return

to profitability were slim. So Gerstner was looking for an exit and the IBM job proved

to be an attractive alternative.

2. b. Being optimistic, achievement and initiative oriented, and adaptable, Gersner

decided to take up the challenging offer.

3. c. He had a feel for the problems at IBM after meeting Paul Rizzo, an executive at

IBM.4. d. He had the backing of his family in this endeavor

Factors which worked against taking the job offer include:

1. Apprehensive how a non-technocrat can turnaround a technology company. He had

no prior knowledge of working in technology industry.

2. His initial analysis showed the severity of problems at IBM and doubted the success

of recovery efforts.

3. Unlike a consumer products company, technology products can be extremely

successful or disappear within a short period of time.

By reflecting back on his past achievements, Gersner decided to take the job. He looked at

IBM not as an enterprise but as a national treasure that was well worth the colossal efforts

needed to restore it. Gersner always saw his values in action in personal work behaviors,

decision making, contribution, and interpersonal interaction.

After so many years at IBM, Gersner learned three fundamental aspects of leadership that

define a successful enterprise and executive.

Focus meet the challenges during tough times and undergo transformation

Execute getting things done, not crafting strategy but implementing it. Lead create high performance culture, set goals, measure results and ensure

accountability

Gersner was quite frank and open about issues and his opinions which helped revive IBM.

Through a strategy of listening to customers needs, partnering with customers, competitors

and other industry leaders, right sizing, eliminating compensation and recognition systems,

Gersner was able to bring IBM back into profitability.

Execution of strategy must be built on three attributes world class processes, strategic

clarity and a high performance culture. Leadership is all about making things happen.

Achieving success requires energy, organizational leadership, marketplace leadership and


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personal qualities. Organize resources around customers, not products, or geographies.

Measure the future, not the past and walk the talk.

Organizational leadership

Mr. Gresners leadership style is marked by strong emotional intelligence and ability to leadpeople with passion and commitment. We can see six different styles of leadership in Mr.

Gersner- authoritative style, the affiliative, democratic, coaching, pacesetting and coercive

styles, all demonstrated in varying strengths.

Mr. Grestner was able to resonate with employee emotions and have a shared desire to be a

part of something effective and meaningful. This emotional resonance was established

through leadership styles based on emotional intelligent acts. By establishing this connection

and creating resonant teams and culture, Gersner was able to improvise and sustain it till his

retirement. As an authentic leader he was able to influence work outcomes and organizational

performance.

He was a man with convictions and followed his instincts. He was not carried away by what

his critics said. He was more into fire fighting, a fixit personality who felt the urgent need

to rescue IBM. His focus was on short-term strategies and did not set long-term strategic

goals since he believed irreversible actions will bring radical shifts which may disrupt his

turnaround efforts at IBM.

He was an avid observer and excellent problem solver. He could identify the emerging

technological trends to shape new strategies. He understood the importance of customer and

devised strategies to address their immediate needs and concerns.

Mr. Gersner followed a systematic approach to address business issues. In order to diagnose

problems, he met customers, competitors, senior executives, financial analysts, and

consultants to get a grip on outstanding issues. After learning about IBMs strengths and

weaknesses, he launched his turnaround plan. Instead of focusing on grand vision, he

motivated employees through business success which translated into job security and higher

pay. He understood the immediate need to have open lines of communication with his

employees and having candid feedback. As part of the grand vision, individuals executed

tasks which made them an integral part of the transformation effort.

By being democratic, he sought alternatives and convinced others of the need to discontinue

support for unattractive products. Gerstner gives credit to many people that were instrumentalin the turnaround. He was coercive when he disbanded the management committee and

relayed this news across the organization. His affiliative style of leadership resulted in

building strong relationships amongst teams. This is reflected in his new set of management

principles that reinforce teamwork and harmony. He made employees equity holders of

company to align them with company goals.

As a pace-setter, he showed strong faith and confidence in employee abilities and set high

performance standards. An authoritative style emerged when Mr. Gersner resorted to right

sizing which may have created some negative impact (emotional dissonance) from the

affected employees who were laid off.


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Mr. Gersner could spot emerging talent and personally mentored them to lead new divisions

within IBM. This was reflective of his coaching style of leadership. He shunned conservative

approach and instead took huge risk in transforming IBM from a product-focused

organization to a service-oriented, networking-led model organization. Mr. Gersner played

his style by gauging the readiness of his employees to foster change. He leveraged employee

abilities and willingness to accomplish specific tasks.

As an effective leader, Mr. Gersner seamlessly shifted from one style to the other to garner

best results possible. His repertory of leadership styles is extensive and he used them as the

situation warranted to deliver positive outcomes.

Since Mr. Gersner was in a fire fighting mode, he had to apply the right mix of various

leadership styles according to the context. I would be acting in the same way that Gersner did

to get IBM out of distress.

Though I agree with most of the actions taken to restore IBM back to profitability, I would

like to wean away from some harsh decisions and mend my leadership style to some extent. Iwould try not to be intensely competitive, blunt, focused and tough. I will try to be more

personable, willing to learn and share business knowledge and have empathy towards others.

I may introduce IBM as a way of life that is based on values rather than just on being first.

Any cost cutting measure involving layoffs will need to be used as a last resort only after

exhausting all alternatives. In conformity with Gersner, I would admit failures and try, fail,

learn and move on, than never to try at all.

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Who Says Elephants Can