Who says Elephants can't dance? Louis Gerstner, Jr. - Review

 

When a large organization tumbles down a survival crisis, the complexity to deal with, happens to be of enormous proportions. When it occurs to a crown jewel like IBM which was seen as a pride of US nation, it had to be rejuvenated and necessary course correction brought in place, because it wasn’t just another firm, IBM was an ecosystem in itself and the repercussions could be felt across the industry. Between 1990 to 1993, IBM had 1.2 lakh employees either resigning or getting fired, it was a significant break in trust since the organization was known for paternalism which is in short means a job for life that was literally guaranteed during the hay days. On top of it, the flagship mainframe product System 360 was dropping in sales and seriously getting out of customer’s preference.

Given the context, how can a individual with no IT industry background survive at the helm of affairs, let alone bringing in a turnaround? Louis had similar doubts himself and didn’t take initial attempts to rope him in seriously. But the persuasion of a bunch of senior IBM folks pitched in a different tune, there were a couple of key points that were put forth, the organization needed a change agent who had transformed large scale firms both in terms of strategy and culture. Louis did exactly that during his tenure in RBR Nabisco and American Express. The convincing second point was that Louis owed it to America and the IBM top management was willing to push to the extent of having Bill Clinton persuade Louis, if their attempt failed. Their proposition now gave a national pride in the mix and Louis decided on to step up.

Here are the small list of problems Louis had to encounter in the beginning of his stint with IBM back in 1993.

-IBM has started making loses in 1992

-IBM’s market share dipped to close to 20% from 30% which is a significant loss not just in terms of customer perception but importantly in terms of competitiveness.

-System 360, it’ flagship product is failing big time

-Enormous cash flow crunch to deal with

-The market was moving towards decentralized data processing and the clients didn’t want to be married to a single firm for all the pieces of the stack. In essence open architecture was becoming the in-thing.

-Market dynamic was radically changing with players like Microsoft, Sun Microsystems and Intel making serious in-roads.

-Importantly, IBM has nurtured an inward looking, self-obsessed culture while customer focus was clearly lacking. In essence, superior customer service meant servicing IBM machines in client premises rather than understanding the pain points or needs of the customers.

Given all the challenges, Louis began to work on making the firm lean and cut down components that weren't adding the expected level of value. The workforce was reduced by another 45k, unproductive assets were sold and part of low margin business unit sold to federal govt raise more cashflow. Interestingly, IBM had owned fine arts worth 31 million dollars which were stored in crates and out of sight from anyone.

Ever since Louis stepped in, the prevailing wisdom was to disintegrate IBM into multiple business units to bring in efficiencies. However, Louis insisted on staying as an integrated unit as he foresaw the potential to create value as organization moved ahead. 

From a strategy standpoint moving all the servers, OS, middleware, programming tools and chip set from proprietary to open architecture was an extremely courageous move, in case it had backfired, Louis would have been the fall guy. The focus was to be an expert in middleware when the rest of the industry possessed superior capabilities on frontend and backend of the stack. 

One of the perplexing case was the tussle between OS/2 and windows, the technical team convinced that OS/2 was much superior than windows. So, the customers will eventually drift towards IBM's operating system was the expectation. However, Microsoft had much better understanding of customer expectations and positioned windows in such a fashion wherein any PC had windows as default operating system. By early 90's windows had a market share of 90% which proved to be tough to beat. As a result, OS/2 was shifted many rungs below in terms of organizational priority, superior product needs to be married with deep customer insights as well. 

What surprised me the most the lack of marketing head in IBM back in the early 90's. There were 70 different ad agencies roped in across different geographies which resulted in a range of themes being showcased. There wasn't a coherent and consistent picture that was provided from an organizational standpoint. To cut short all the ad agency and boil down to O&M as the sole ad agency was a radical shift in itself. 

There were occasions when Louis felt as a misfit when the discussions deep dived into technology related topics with arcane terminology. But Louis had made it clear right from the start that it's the job of the leaders to translate technology into business context, an approach that's easier said than done. 

Long story short, Louis finds a way to get IBM back on track in the 2nd year itself, as profits starts rolling in. As he aptly puts across in one of his mails addressed to the entire organization, profits lead to stability and ultimately to long standing growth. By the mid 1995, the recovery part was well established and well on course to being a leader again, the crown jewel of American economy was saved of all ignominy.

Louis felt as an outsider when he joined the company but strangely the feeling remained the same even as he chose to pass on the reins to Sam Palmisano nine years later. 

An interesting segment in the book is the collection of emails (Annexure 1) that Louis sent across during his tenure. I got to read only a few of them but the tone and narration would definitely give insights on corporate communications during difficult times. 

Good read !