a progress report 1-2 pages

User Generated

AvxxvCNCN

Writing

Description

The analysis based on the book I attached.

I also attached my progress report 1.

NO NEED other outsourcing.

Progress Report 2 required:

  • provide a summary of the analyses performed since Report 1 (e.g., organizational culture, leadership, change management, ethical issues)
  • highlight any outstanding issues
  • provide a date and ;me for the final presentation (confirm with TA or professor, and invite representatives from the organization)
  • Final Presentation: April 9th 10a.m.

    PLEASE use the same format with the progress report 1

Unformatted Attachment Preview

Who Says Elephants Can’t Dance? Leading a Great Enterprise Through Dramatic Change Louis V. Gerstner, Jr. This book is dedicated to the thousands of IBMers who never gave up on their company, their colleagues, and themselves. They are the real heroes of the reinvention of IBM. Contents Foreword vii Introduction 1 PART I-GRABBING HOLD 7 1 The Courtship 9 2 The Announcement 18 3 Drinking from a Fire Hose 29 4 Out to the Field 41 5 Operation Bear Hug 49 6 Stop the Bleeding (and Hold the Vision) 56 7 Creating the Leadership Team 73 8 Creating a Global Enterprise 83 9 Reviving the Brand 88 10 Resetting the Corporate Compensation Philosophy 11 Back on the Beach 93 103 PART II-STRATEGY 111 12 A Brief History of IBM 113 13 Making the Big Bets 121 14 Services—the Key to Integration 128 15 Building the World’s Already Biggest Software Business 136 16 Opening the Company Store 146 17 Unstacking the Stack and Focusing the Portfolio 153 18 The Emergence of e-business 165 19 Reflections on Strategy 176 PART III-CULTURE 179 20 On Corporate Culture 181 21 An Inside-Out World 189 22 Leading by Principles 200 PART IV-LESSONS LEARNED 217 23 Focus—You Have to Know (and Love) Your Business 219 24 Execution—Strategy Goes Only So Far 229 25 Leadership Is Personal 235 26 Elephants Can Dance 242 27 IBM—a Farewell 253 APPENDICES 259 Appendix A—The Future of e-business 261 Appendix B—Financial Overview 277 Index 287 ABOUT THE AUTHOR CREDITS COVER COPYRIGHT ABOUT THE PUBLISHER Foreword I have never said to myself, “Gee, I think I want to write a book.” I am not a book writer. Until now I haven’t had the time or the inclination to lean back and reflect on my thirty-five years in business. I haven’t had the patience it takes to sit down for a long time and create a book. Throughout my business life I have been wary of telling others how to manage their enterprises based on my personal experiences. And, frankly, I wasn’t sure if anyone would be interested in reading my thoughts. I read a lot of books, but not many about business. After a twelve-hour day at the office, who would want to go home and read about someone else’s career at the office? I have always believed you cannot run a successful enterprise from behind a desk. That’s why, during my nine years as Chief Executive Officer of International Business Machines Corporation, I have flown more than I million miles and met with untold thousands of IBM customers, business partners, and employees. Over the past two years, after people began speculating that my retirement might be just around the corner, I thought I’d get a lot of big-picture questions that outgoing CEOs get about the economy, the world, and the future. Instead, I have been surprised by how many times—at big meetings and small ones, and even at private sessions with CEOs and heads of state—I was asked: “How did you save IBM?” “What was it like when you got there?” “What were the problems?” “What specific things did viii / LOUIS V. GERSTNER, JR. you do to bring the company back to life?” “What did you learn from the experience?” They wanted to know, many of them said, because their own companies, organizations, or governments faced some of the same issues IBM had encountered during its very, very public near collapse in the early 1990s. Businesspeople outside the United States, confronted with the need to transform tradition-bound enterprises into tough and nimble players in a world economy, seemed particularly interested in the subject. More recently, after I had announced my intention to retire, I was amused to read an editorial in an American newspaper, USA Today, that said, in effect, it hoped Gerstner was going to do something more useful than write a book and play golf. Nice thought, but since the announcement, I got thousands of letters and e-mails, and the most frequent sentiment was, again, that I should tell what I had learned from my tenure at IBM. (I was also invited to appear in a TV commercial with golf pros Jack Nicklaus and Gary Player.) You might say that I concluded, a little reluctantly, that the easiest way for me to fulfill all this “popular demand” was to write a book and to hold off on serious golf for the time being. So, here I am, ready to tell you the story of the revival of IBM. Of course, this book would never have appeared without the heroes among my IBM colleagues who helped me restore IBM to a position of leadership. In many respects this is their book as much as it is mine. There were many such leaders, but clearly among the most important were Dennie Welsh and Sam Palmisano, who built our services company; John Thompson, who created our Software Group; Abby Kohnstamm, who took a cacophony of confused messages and melded them into one of the most powerful brand statements in the world; Nick Donofrio, who was my translator from the world of high tech to the world of management; Jerry York, Rick Thoman, and John Joyce, three great financial executives who instilled a level of productivity, discipline, and probing analysis into a company that WHO SAYS ELEPHANTS CAN’T DANCE? / ix appeared to value these quite lightly when I arrived; Larry Ricciardi, my colleague of many years, who brought his intellect and counsel to many of our critical decisions; and, finally, Tom Bouchard, who as head of Human Resources stood tall and took the heat as we transformed the IBM culture. There are many more. In fact, there are thousands of IBMers who answered the call, put their shoulders to the wheel, and performed magnificently as we undertook an exhausting—at times frightening, but always exhilarating—journey to restore this extraordinary company. To all of them, I dedicate this book. I wrote this book without the aid of a coauthor or a ghostwriter (which is why it’s a good bet this is going to be my last book; I had no idea it would be so hard to do). I am responsible for any mistakes or confusion the reader may endure. The views expressed are mine and are not necessarily those of the IBM Corporation or any other IBMer. I did have a great deal of help from some longtime IBM colleagues. They include Jon Iwata, Mark Harris, and Mike Wing, who made substantial contributions. Michele Andrle managed production of every draft and redraft deftly and patiently—an unbelievable amount of stitching and restitching. I want to thank them and everyone else who helped me. Introduction T his is not my autobiography. I can’t think of anyone other than my children who might want to read that book (and I’m not 100 percent sure they would, either). However, in the spirit of trying to provide some contextual background for my views, what follows is a brief historical perspective. I was born on March 1, 1942, in Mineola, New York—the county seat of Nassau County, Long Island. My father started work as a milk-truck driver and ultimately became a dispatcher at the F&M Schaeffer Brewing Company. My mother was a secretary, sold real estate, and eventually became an administrator at a community college. Along with three brothers—one older, two younger—I lived in the same house in Mineola until I left for college, in 1959. We were a warm, tightly knit, Catholic, middle-class family. Whatever I have done well in life has been a result of my parents’ influence. My father was a very private man with a great love of learning and inner strength that needed no approbation or reinforcement from broader audiences. My mother was enormously disciplined, hard-working, and ambitious for all her children. She drove us toward excellence, accomplishment, and success. Education was a high priority in the Gerstner household. My parents remortgaged their house every four years to pay for schooling. I attended public grade school, then Chaminade, a Catholic high school in Mineola. I graduated in 1959 and was almost on my way to 2 / LOUIS V. GERSTNER, JR. Notre Dame when Dartmouth College offered me a substantial scholarship. It was a major benefit for our family finances, so I packed off for Dartmouth in September 1959, without ever having set foot on its campus. Four years later I graduated with a degree in engineering science. I immediately went to Harvard Business School for two years. (Back then one could leave undergraduate school and go directly to business school, a practice that has since, for the most part, been abandoned by business schools.) Then, at the tender age of 23, I emerged from Harvard and went into business. I joined the management consulting firm of McKinsey & Company in New York City in June 1965. My first assignment was to conduct an executive compensation study for the Socony Mobil Oil Co. I’ll never forget my first day on that project. I knew nothing about executive compensation, and absolutely nothing about the oil industry. Thank goodness I was the low man on the totem pole, but in the McKinsey world one was expected to get up to speed in a hurry. Within days I was out meeting with senior executives decades older than I was. Over the next nine years I advanced to the level of senior partner at McKinsey. I was responsible for its finance practice and was a member of its senior leadership committee. I was the partner in charge of three major clients, two of which were financial services companies. The most important thing I learned at McKinsey was the detailed process of understanding the underpinnings of a company. McKinsey was obsessive about deep analysis of a company’s marketplace, its competitive position, and its strategic direction. When I reached my early thirties, it became clear to me that I didn’t want to stay in consulting as a career. Although I enjoyed the intellectual challenge, the fast pace, and the interaction with topranking senior people, I found myself increasingly frustrated playing the role of an advisor to the decision makers. I remember saying to WHO SAYS ELEPHANTS CAN’T DANCE? / 3 myself, “I no longer want to be the person who walks into the room and presents a report to a person sitting at the other end of the table; I want to be the person sitting in that chair—the one who makes the decisions and carries out the actions.” Like many other successful McKinsey partners, I had gotten a number of offers to join my clients over the years, but none of the proposals seemed attractive enough to make me want to leave. In 1977, however, I received and accepted an offer from American Express, which was my largest client at that time, to join it as the head of its Travel Related Services Group (basically, the American Express Card, Traveler’s Checks, and Travel Office businesses). I stayed at American Express for eleven years, and it was a time of great fun and personal satisfaction. Our team grew Travel Related Services earnings at a compounded rate of 17 percent over a decade; expanded the number of cards issued from 8 million to nearly 31 million, and built whole new businesses around the Corporate Card, merchandise sales, and credit card processing industries. I also learned a great deal. Early on I discovered, to my dismay, that the open exchange of ideas—in a sense, the free-for-all of problem solving in the absence of hierarchy that I had learned at McKinsey—doesn’t work so easily in a large, hierarchical-based organization. I well remember stumbling in my first months when I reached out to people whom I considered knowledgeable on a subject regardless of whether they were two or three levels down from me in the organization. My team went into semi-revolt! Thus began a lifelong process of trying to build organizations that allow for hierarchy but at the same time bring people together for problem solving, regardless of where they are positioned within the organization. It was also at American Express that I developed a sense of the strategic value of information technology. Think about what the American Express Card represents. It is a gigantic e-business, although we never thought about it in those terms in the 1970s. Millions of people travel the world with a sliver of plastic, charging goods and 4 / LOUIS V. GERSTNER, JR. services in many countries. Every month they receive a single bill listing those transactions, all translated into a single currency. Concurrently merchants are paid around the globe for transactions completed by hundreds, if not thousands, of people whom they do not know and may never see again. All of this is done for the most part electronically, with massive data processing centers worldwide. The technology imperative of this business was something I wrestled with for many years. This was also when I first discovered the “old IBM.” I’ll never forget the day one of my division managers called and said that he had recently installed an Amdahl computer in a large data center that had historically been 100-percent IBM equipped. He said that his IBM representative had arrived that morning and told him that IBM was withdrawing all support for his massive data processing center as a result of the Amdahl decision. I was flabbergasted. Given that American Express was at that time one of IBM’s largest customers, I could not believe that a vendor had reacted with this degree of arrogance. I placed a call immediately to the office of the chief executive of IBM to ask if he knew about and condoned this behavior. I was unable to reach him and was shunted off to an AA (administrative assistant) who took my message and said he would pass it on. Cooler (or, should I say, smarter) heads prevailed at IBM and the incident passed. Nevertheless, it did not go out of my memory. I left American Express on April 1, 1989, to accept what some in the media called at the time the “beauty contest” of the decade. RJR Nabisco, a huge packaged-goods company that had been formed a few years earlier through the merger of Nabisco and R. J. Reynolds Tobacco Company, was rated the ninth-most-admired company in America when the headhunters called me. The organization had just gone through one of the wildest adventures in modern American business history: an extraordinary bidding contest among various investment firms to take the company private through a leveraged WHO SAYS ELEPHANTS CAN’T DANCE? / 5 buyout (LBO). The winning bid was made by the venture capital firm of Kohlberg Kravis Roberts & Co. (KKR). Soon afterward, KKR sought me out to become chief executive of the now private and heavily indebted company. For the next four years I became immersed in a whole new set of challenges. While I understood well from my American Express days the ongoing demands of a consumer products company, I really spent most of my time at RJR Nabisco managing an extraordinarily complex and overburdened balance sheet. The LBO bubble of the 1980s burst shortly after the RJR Nabisco transaction, sending a tidal wave of trouble over this deal. In hindsight, KKR paid too much for the company, and the next four years became a race to refinance the balance sheet, while trying to keep some semblance of order in the many individual businesses of the company. It was a wild scene. We had to sell $11 billion worth of assets in the first twelve months. We had debt that paid interest rates as high as 21 percent a year. We had lender and creditor committees galore and, of course, the cleanup from the profligate spending of the prior management. (For example, when I arrived we had thirty-two professional athletes on our payroll—all part of “Team Nabisco.”) That was a difficult time for me. I love building businesses, not disassembling them. However, we all have an opportunity to learn in everything we do. I came away from this experience with a profound appreciation of the importance of cash in corporate performance—“free cash flow” as the single most important measure of corporate soundness and performance. I also came away with a greater sense of the relationship between management and owners. I had experienced this at McKinsey, which was a private company owned by its partners. The importance of managers being aligned with shareholders—not through risk-free instruments like stock options, but through the process of putting their own money on the line through direct ownership of the company—became a critical part of the management philosophy I brought to IBM. 6 / LOUIS V. GERSTNER, JR. By 1992 it was clear to all that while RJR Nabisco itself was doing quite well, the LBO was not going to produce the financial returns the owners had expected. It was clear to me that KKR was headed for the exit, so it made sense for me to do the same. This book, which starts on the next page, picks up my story from there. PART 1 Grabbing Hold 1 The Courtship O n December 14, 1992, I had just returned from one of those always well-intentioned but rarely stimulating charity dinners that are part of a New York City CEO’s life, including mine as CEO of RJR Nabisco. I had not been in my Fifth Avenue apartment more than five minutes when my phone rang with a call from the concierge desk downstairs. It was nearly 10 P.M. The concierge said, “Mr. Burke wants to see you as soon as possible this evening.” Startled at such a request so late at night in a building in which neighbors don’t call neighbors, I asked which Mr. Burke, where is he now, and does he really want to see me face to face this evening? The answers were: “Jim Burke. He lives upstairs in the building. And, yes, he wants very much to speak to you tonight.” I didn’t know Jim Burke well, but I greatly admired his leadership at Johnson & Johnson, as well as at Partnership for a Drug-Free America. His handling of the Tylenol poisoning crisis years earlier had made him a business legend. I had no idea why he wanted to see me so urgently. When I called, he said he would come right down. When he arrived he got straight to the point: “I’ve heard that you may go back to American Express as CEO, and I don’t want you to do that because I may have a much bigger challenge for you.” The refer 10 / LOUIS V. GERSTNER, JR. ence to American Express was probably prompted by rumors that I was going to return to the company where I had worked for eleven years. In fact, in mid-November 1992, three members of the American Express board had met secretly with me at the Sky Club in New York City to ask that I come back. It’s hard to say if I was surprised—Wall Street and the media were humming with speculation that then CEO Jim Robinson was under board pressure to step down. However, I told the three directors politely that I had no interest in returning to American Express. I had loved my tenure there, but I was not going back to fix mistakes I had fought so hard to avoid. (Robinson left two months later.) I told Burke I wasn’t returning to American Express. He told me that the top position at IBM might soon be open and he wanted me to consider taking the job. Needless to say, I was very surprised. While it was widely known and reported in the media that IBM was having serious problems, there had been no public signs of an impending change in CEOs. I told Burke that, given my lack of technical background, I couldn’t conceive of running IBM. He said, “I’m glad you’re not going back to American Express. And please, keep an open mind on IBM.” That was it. He went back upstairs, and I went to bed thinking about our conversation. The media drumbeat intensified in the following weeks. BusinessWeek ran a story titled “IBM’s Board Should Clean Out the Corner Office.” Fortune published a story, “King John [Akers, the chairman and CEO] Wears an Uneasy Crown.” It seemed that everyone had advice about what to do at IBM, and reading it, I was glad I wasn’t there. The media, at least, appeared convinced that IBM’s time had long passed. The Search On January 26, 1993, IBM announced that John Akers had decided to retire and that a search committee had been formed to con WHO SAYS ELEPHANTS CAN’T DANCE? / 11 sider outside and internal candidates. The committee was headed by Jim Burke. It didn’t take long for him to call. I gave Jim the same answer in January as I had in December: I wasn’t qualified and I wasn’t interested. He urged me, again: “Keep an open mind.” He and his committee then embarked on a rather public sweep of the top CEOs in America. Names like Jack Welch of General Electric, Larry Bossidy of Allied Signal, George Fisher of Motorola, and even Bill Gates of Microsoft surfaced fairly quickly in the press. So did the names of several IBM executives. The search committee also conducted a series of meetings with the heads of many technology companies, presumably seeking advice on who should lead their number one competitor! (Scott McNealy, CEO of Sun Microsystems, candidly told one reporter that IBM should hire “someone lousy.”) In what was believed to be a first-of-its-kind transaction, the search committee hired two recruiting firms in order to get the services of the two leading recruiters—Tom Neff of Spencer Stuart Management Consultants N.V., and Gerry Roche of Heidrick & Struggles International, Inc. In February I met with Burke and his fellow search committee member, Tom Murphy, then CEO of Cap Cities/ABC. Jim made an emphatic, even passionate pitch that the board was not looking for a technologist, but rather a broad-based leader and change agent. In fact, Burke’s message was consistent throughout the whole process. At the time the search committee was established, he said, “The committee members and I are totally open-minded about who the new person will be and where he or she will come from. What is critically important is the person must be a proven, effective leader—one who is skilled at generating and managing change.” Once again, I told Burke and Murphy that I really did not feel qualified for the position and that I did not want to proceed any further with the process. The discussion ended amicably and they went 12 / LOUIS V. GERSTNER, JR. off, I presumed, to continue the wide sweep they were carrying out, simultaneously, with multiple candidates. What the Experts Had to Say I read what the press, Wall Street, and the Silicon Valley computer visionaries and pundits were saying about IBM at that time. All of it certainly fueled my skepticism and, I believe, that of many of the other candidates. Most prominent were two guys who seemed to pop up everywhere you looked, in print and on TV—Charles Morris and Charles Ferguson. They had written a book, Computer Wars, that took a grim view of IBM’s prospects. They stated: “There is a serious possibility that IBM is finished as a force in the industry. Bill Gates, the software tycoon whom everybody in the industry loves to hate, denies having said in an unguarded moment that IBM ‘will fold in seven years.’ But Gates may be right. IBM is now an also-ran in almost every major computer technology introduced since 1980.…Traditional big computers are not going to disappear overnight, but they are old technology, and the realm in which they hold sway is steadily shrinking. The brontosaurus moved deeper into the swamps when the mammals took over the forests, but one day it ran out of swamps.” Their book concluded that “the question for the present is whether IBM can survive. From our analysis thus far, it is clear that we think its prospects are very bleak.” Morris and Ferguson wrote a longer, more technical, and even grimmer report on IBM and sold it to corporations and institutions for a few thousand dollars per copy. Among others, it frightened a number of commercial banks that were lenders to IBM. Paul Carroll, IBM’s beat reporter at The Wall Street Journal, published a book that year chronicling IBM’s descent. In it, he said: “The world will look very different by the time IBM pulls itself together— WHO SAYS ELEPHANTS CAN’T DANCE? / 13 assuming it can pull itself together—and IBM will never again hold sway over the computer industry.” Even The Economist—understated and reliable—over the span of six weeks, published three major stories and one lengthy editorial on IBM’s problems. “Two questions still hang over the company,” its editors wrote. “In an industry driven by rapid technological change and swarming with smaller, nimbler firms, can a company of IBM’s size, however organized, react quickly enough to compete? And can IBM earn enough from expanding market segments such as computer services, software, and consulting to offset the horrifying decline in mainframe sales, from which it has always made most of its money? “The answer to both questions may be no.” And, said the usually sober Economist, “IBM’s humiliation is already being viewed by some as a defeat for America.” The Decision The turning point in my thinking occurred over Presidents’ Day weekend in February 1993. I was at my house in Florida, where I love to walk the beach, clearing and settling my mind. It’s very therapeutic for me. During an hour’s walk each day that weekend, I realized that I had to think differently about the IBM situation. What prompted my change of heart was what was happening at RJR Nabisco. As I noted in the Introduction, it had become clear that KKR had given up on making its leveraged buyout work as planned. There were two reasons for this. First, as discussed in Bryan Burroughs and John Helyar’s book Barbarians at the Gate, in the fury and madness of the bidding process in 1988, KKR overpaid for RJR Nabisco. This meant that despite achieving all of the restructuring objectives of the LBO, there simply wasn’t enough operating leverage to produce the projected returns. Second, the operating returns from the tobacco business were under pressure as a result of a price war started by Philip Morris soon after 14 / LOUIS V. GERSTNER, JR. the RJR Nabisco buy out. Philip Morris was simply following the advice of Ray Kroc, founder of McDonald’s, who’d once said, “When you see your competitor drowning, grab a fire hose and put it in his mouth.” KKR obviously was working on an exit strategy. As I walked the beach that February, I decided I should be doing the same thing. And so, as much as anything else, the view that I would not be at RJR Nabisco too much longer was what got me thinking more about the IBM proposal. I called Vernon Jordan, the Washington attorney who was a longtime friend as well as a director of RJR Nabisco, and asked his advice. He confirmed my feeling that KKR was ready to move out of RJR Nabisco and that this phase of the company’s tumultuous life was coming to an end. Also, it was clear that Jim Burke had already talked with Vernon, because Vernon knew I was on the IBM list. His advice was, as usual, to the point. He said, “IBM is the job you have been in training for since you left Harvard Business School. Go for it!” I suppose there was a second reason I changed my mind. I have always been drawn to a challenge. The IBM proposition was daunting and almost frightening, but it was also intriguing. The same was true of RJR Nabisco when I’d joined it in 1989. I think it is fair to say that from February 15 on, I was prepared to consider taking on IBM and its problems. Vernon got word to Jim Burke that I might be in play after all. I began to organize my questions and concerns for Burke and his committee. When Burke called later that week, I told him that I would take a look at the IBM job. I told him I would need a lot more information, particularly about the company’s short- and intermediate-term prospects. The dire predictions of the media and the pundits had me worried. I had learned a hard lesson at RJR Nabisco: A company facing too many challenges can run out of cash very quickly. I told Burke that I wanted to meet with Paul Rizzo. Paul had been an executive at IBM in the 1980s. I had met him on several occa WHO SAYS ELEPHANTS CAN’T DANCE? / 15 sions and admired him greatly. He had retired from IBM in 1987 but had been called back by the IBM Board of Directors in December 1992 to work with John Akers to stem the decline of the company. I told Burke during that February phone call that I wanted to go over the budget and plans for 1993 and 1994 with Rizzo. Jim moved quickly, and on February 24, at the Park Hyatt hotel in Washington, D.C., where I was attending a meeting of The Business Council, I broke away for an hour and a half to meet secretly with Paul in my hotel room. He had brought me the current financials and budgets for the company. The discussion that ensued was very sobering. IBM’s sales and profits were declining at an alarming rate. More important, its cash position was getting scary. We went over each product line. A lot of the information was difficult to evaluate. However, Paul clearly underscored the make-or-break issue for the company: He said that mainframe revenue had dropped from $13 billion in 1990 to a projection of less than $7 billion in 1993, and if it did not level off in the next year or so, all would be lost. He also confirmed that the reports in the press about IBM pursuing a strategy of breaking up the company into independent operating units was true. I thanked Paul for his honesty and insight and promised to treat the material with total confidentiality. When he left the room, I was convinced that, on the basis of those documents, the odds were no better than one in five that IBM could be saved and that I should never take the position. A consumer products company has long-term brands that go on forever. However, that was clearly not the case in a technology company in the 1990s. There, a product could be born, rise, succeed wildly, crash, disappear, and be forgotten all within a few years. When I woke up the next morning, I was convinced IBM was not in my future. The company was slipping rapidly, and whether that decline could be arrested in time—by anyone—was at issue. Still, Jim Burke would not give up. His persistence may have 16 / LOUIS V. GERSTNER, JR. had more to do with a growing desperation to get anyone to take this job than it did with a particular conviction that I was the right candidate. I wondered at this point if he was just trying to keep a warm body in play. Two weeks later I was back in Florida for a brief vacation. Burke and Murphy insisted on a meeting to pursue the issue one last time. We met in a new house that headhunter Gerry Roche and his wife had just built in a community near my own. Roche only played the role of host. In his new living room, it was Burke, Murphy, and me alone. I remember that it was a long afternoon. Burke introduced the most novel recruitment argument I have ever heard: “You owe it to America to take the job.” He said IBM was such a national treasure that it was my obligation to fix it. I responded that what he said might be true only if I felt confident I could do it. However, I remained convinced the job was not doable—at least not by me. Burke persisted. He said he was going to have President Bill Clinton call me and tell me that I had to take the job. Tom Murphy, who tended to let Burke do most of the talking in our previous meetings, spoke up more frequently this time. Murph, as he is called by his friends, was quite persuasive in arguing that my track record as a change agent (his term) was exactly what IBM needed and that he believed there was a reasonable chance that, with the right leadership, the company could be saved. He reiterated what I’d heard from Burke, and even Paul Rizzo. The company didn’t lack for smart, talented people. Its problems weren’t fundamentally technical in nature. It had file drawers full of winning strategies. Yet, the company was frozen in place. What it needed was someone to grab hold of it and shake it back into action. The point Murphy came back to again and again was that the challenge for the next leader would begin with driving the kind of strategic and cultural change that had characterized a lot of what I’d done at American Express and RJR. WHO SAYS ELEPHANTS CAN’T DANCE? / 17 At the end of that long afternoon, I was prepared to make the most important career decision of my life. I said yes. In retrospect, it’s almost hard for me to remember why. I suppose it was some of Jim Burke’s patriotism and some of Tom Murphy’s arguments playing to my gluttony for world-class challenges. At any rate, we shook hands and agreed to work out a financial package and announcement. In hindsight, it’s interesting that both Burke and Murphy were operating under the assumption provided by the management of IBM that a strategy of breaking up the company into independent units was the right one to pursue. What would they have said if they realized that not only was the company in financial trouble and had lost touch with its customers, but that it was also barreling toward a strategy of disaster? I drove home that afternoon and told my family of my decision. As usual in my wonderful family, I got a mixed reaction. One of my children said, “Yes, go for it, Dad!” The other, more conservative child thought I had lost my mind. My wife, who had been quite wary of the idea originally, supported my decision and was excited about it. 2 The Announcement O ver the next ten days we worked out an employment contract. Doing so was not easy, for several reasons. The big one was the fact that RJR Nabisco was an LBO, and in an LBO the CEO is expected to align himself or herself with the owners and have a large equity position in his or her company. Consequently, at RJR Nabisco I owned 2.4 million shares and had options for 2.6 million more. In IBM, stock ownership was a de minimus part of executive compensation. The IBM board and human resources (HR) bureaucracy apparently did not share the view that managers should have a significant stake in the company. This was my first taste of the extraordinary insularity of IBM. Somehow we worked everything out, and my next task was to tell KKR and the RJR board of my decision. That weekend, March 2021, was the annual Nabisco Dinah Shore Golf Tournament. Nabisco invited all of its major customers to the event, and it was important for me to attend. I also knew that Henry Kravis, one of KKR’s senior partners, would be there, and I decided that I would discuss my decision with him then. My name had already surfaced in the media as a candidate for the IBM job, and I knew that KKR and the RJR board were nervous. In meetings with KKR over the preceding weeks, there WHO SAYS ELEPHANTS CAN’T DANCE? / 19 was a noticeable tension in the air. So, on Sunday, March 21, in my hotel room at the Dinah Shore tournament, I told Henry Kravis I was going to accept the IBM job. He was not happy, but true to form, he was polite and calm. He tried to talk me out of my decision, but I was firm that there was no going back. While we never discussed it, what was implicit in that conversation was the knowledge we shared that both of us were working on our exits from RJR. I just happened to finish sooner. (KKR started its exit a year later.) The next day, Monday, I returned from California for the beginning of a very eventful week. The IBM board was meeting a week later. It became obvious that the search committee had begun to shut down its operations—because, one by one, the other rumored candidates for the IBM job started to announce or to leak to the media that they were not interested in the job. On Wednesday The Wall Street Journal reported that I was the only candidate; the next day, so did every other major business publication. It was time to get this whole ordeal over with. Burke and I agreed to announce on that Friday, March 26. That set off a mad scramble to organize both internal and external messages in the midst of a firestorm of leaks and headlines. IBM made the announcement on Friday morning (even though the cover story of Business Week, published that morning, already stated I had taken the job). A press conference began at 9:30 A.M. at the Hilton hotel in New York City. John Akers, Jim Burke, and I spoke. Burke wanted to explain the search process that had seemed so public and disjointed for three months. He made these comments during his opening statement: “There was only a handful of people in the world who were capable of handling this job. I want you to know that Lou Gerstner was on that original list, but we then did a worldwide search of well over one hundred twenty-five names, which we processed and kept reducing…and pretty well got back to the list that we started with. We gave those people on the list code names in an attempt to keep it out of the press—a vain attempt, I might add. You might be 20 / LOUIS V. GERSTNER, JR. interested that Lou Gerstner was the first person I talked to on that list and consequently had the code name ‘Able.’ I knew all the other candidates—and I knew them all well. There isn’t another candidate that could do this job any better than Lou Gerstner will. We made one specific offer for this job and only one, and that was to Louis Gerstner. While many people felt that technology was the key to this, there’s a list of the specifications that we as a committee put together from the beginning. The fact is, there are fifteen things on the list and only one statement of the fifteen: ‘Information and hightechnology industry experience [are] highly desirable, but not opposed to considering extraordinary business leaders.’ All of the others list qualities which are inherent in Lou Gerstner.” I knew my life was changing forever when I walked to the podium and three dozen photographers surged forward, and I had to conduct an entire press conference through nonstop, blinding camera flashes. As visible as American Express and RJR had been, this was something altogether different. I was now a public figure. This wasn’t just any company—even any very big company. IBM was an institution—a global one—and its every move was scrutinized by the outside world. I was taking on a daunting challenge, and I’d be doing it in a fishbowl. I am by nature a private person and, to be frank, I don’t enjoy dealing with the press. On top of that, I looked around the industry, and as far as the eye could see there were (and still are) senior executives seeking the highest personal profile they could manage. I felt then, and I feel today, that while that kind of relentless publicity seeking generates a lot of coverage, and may even help the company in the short run, in the long run it damages corporate reputation and customer trust. So I faced the cameras and lights that morning with mixed emotions. I was as full of adrenaline as I had ever been in my life. At the same time, I knew this was the big show and there was no escaping it. WHO SAYS ELEPHANTS CAN’T DANCE? / 21 My own remarks were brief. I was just trying to get through the ordeal without dealing with a lot of specific questions about why I felt I was qualified for the job and what I was going to do to fix IBM. But those were exactly the questions I got in a lengthy Q&A following the formal remarks. Needless to say, I provided little nourishment for the reporters. I simply had no idea what I would find when I actually arrived at IBM. Meeting the IBM Team After the press conference came a series of internal IBM meetings. As I look back at my schedule, I see that the first meeting the IBM human resources people had set up was a telephone conference call with the general managers of all the country operations around the world, underscoring that the power base of the company was the country leaders. We then raced from Manhattan by helicopter some thirty miles north to the company’s worldwide headquarters, in Armonk, New York. While I had been in some IBM facilities before as a customer, I had never been in the headquarters building. I will never forget my first impression. It reminded me of a government office—long, quiet corridor after long, quiet corridor of closed offices (quiet that was broken only by the presence of the almost blindingly bright orange carpeting). There was not a single indication in the artwork or other displays that this was a computer company. There was no computer in the CEO’s office. I was ushered into a large conference room to meet with the Corporate Management Board—roughly the top fifty people in the company. I don’t remember what the women wore, but it was very obvious that all the men in the room were wearing white shirts, except me. Mine was blue, a major departure for an IBM executive! (Weeks 22 / LOUIS V. GERSTNER, JR. later at a meeting of the same group, I showed up in a white shirt and found everyone else wearing other colors.) When John Akers had suggested this meeting earlier in the week, he had assumed it was going to be simply an opportunity for me to meet the senior members assembled. However, I viewed it as a critical opportunity to introduce myself and, at least, set an initial agenda for my new colleagues. I worked hard in advance organizing what I wanted to say to the group. (In fact, in researching this book, I discovered detailed notes I had prepared—something I don’t do very often for informal meetings.) After John introduced me, the group sat politely, expecting nothing more than a “welcome and I’m delighted to be part of the team” salutation. Instead, I spoke for forty or forty-five minutes. I started out explaining why I took the job—that I hadn’t been looking for it, but had been asked to take on a responsibility that was important to our country’s competitiveness and our economy’s health. I didn’t say it at the time, but it was my feeling that if IBM failed, there would be repercussions beyond the demise of one company. I indicated that I had no preconceived notions of what needed to be done and, from what I could tell, neither did the board. I said that for each of them (and for me!) there would be no special protection for past successes. But I clearly needed their help. I then dealt with what I described as my early expectations: “If IBM is as bureaucratic as people say, let’s eliminate bureaucracy fast. Let’s decentralize decision making wherever possible, but this is not always the right approach; we must balance decentralized decision making with central strategy and common customer focus. If we have too many people, let’s right-size fast; let’s get it done by the end of the third quarter.” I explained that what I meant by right-size is straightforward: “We have to benchmark our costs versus our competitors and then achieve best-in-class status.” I also remarked that we had to stop saying that IBM didn’t lay off people. “Our employees must find it duplicitous and out of touch with what has been going WHO SAYS ELEPHANTS CAN’T DANCE? / 23 on for the last year.” (In fact, since 1990, nearly 120,000 IBM employees had left the company, some voluntarily and some involuntarily, but the company had continued to cling to the fiction of “no layoffs.”) Perhaps the most important comments I made at that meeting regarded structure and strategy. At the time, the pundits and IBM’s own leadership were saying that IBM should break itself up into smaller, independent units. I said, “Maybe that is the right thing to do, but maybe not. We certainly want decentralized, market-driven decision making. But is there not some unique strength in our ability to offer comprehensive solutions, a continuum of support? Can’t we do that and also sell individual products?” (In hindsight it was clear that, even before I started, I was skeptical about the strategy of atomizing the company.) I then talked about morale. “It is not helpful to feel sorry for ourselves. I’m sure our employees don’t need any rah-rah speeches. We need leadership and a sense of direction and momentum, not just from me but from all of us. I don’t want to see a lot of prophets of doom around here. I want can-do people looking for short-term victories and long-term excitement.” I told them there was no time to focus on who created our problems. I had no interest in that. “We have little time to spend on problem definition. We must focus our efforts on solutions and actions.” Regarding their own career prospects, I noted that the press was saying that “the new CEO has to bring a lot of people in from the outside.” I pointed out that I hoped this would not be the case, that IBM had always had a rich talent pool—perhaps the best in the world. I said, “If necessary, I will bring in outsiders, but you will each first get a chance to prove yourself, and I hope you will give me some time to prove myself to you. Everyone starts with a clean slate. Neither your successes nor failures in the past count with me.” I went on to summarize my management philosophy and practice: 24 / LOUIS V. GERSTNER, JR. • I manage by principle, not procedure. • The marketplace dictates everything we should do. • I’m a big believer in quality, strong competitive strategies and plans, teamwork, payoff for performance, and ethical responsibility. • I look for people who work to solve problems and help colleagues. I sack politicians. • I am heavily involved in strategy; the rest is yours to implement. Just keep me informed in an informal way. Don’t hide bad information—I hate surprises. Don’t try to blow things by me. Solve problems laterally; don’t keep bringing them up the line. • Move fast. If we make mistakes, let them be because we are too fast rather than too slow. • Hierarchy means very little to me. Let’s put together in meetings the people who can help solve a problem, regardless of position. Reduce committees and meetings to a minimum. No committee decision making. Let’s have lots of candid, straightforward communications. • I don’t completely understand the technology. I’ll need to learn it, but don’t expect me to master it. The unit leaders must be the translators into business terms for me. I then proposed that, based on my reading, we had five ninetyday priorities: • Stop hemorrhaging cash. We were precariously close to running out of money. • Make sure we would be profitable in 1994 to send a message to the world—and to the IBM workforce—that we had stabilized the company. • Develop and implement a key customer strategy for 1993 and 1994—one that would convince customers that we were back WHO SAYS ELEPHANTS CAN’T DANCE? / 25 serving their interests, not just pushing “iron” (mainframes) down their throats to ease our short-term financial pressures. • Finish right-sizing by the beginning of the third quarter. • Develop an intermediate-term business strategy. Finally, I laid out an assignment for the next thirty days. I asked for a ten-page report from each business unit leader covering customer needs, product line, competitive analysis, technical outlook, economics, both long- and short-term key issues, and the 1993-94 outlook. I also asked all attendees to describe for me their view of IBM in total: What short-term steps could we take to get aggressive on customer relationships, sales, and competitive attacks? What should we be thinking about in our long-term and short-term business strategies? In the meantime, I told everyone to go out and manage the company and not to talk to the press about our problems, and help me establish a travel schedule that would take me to customers and employees very early. “Let me know the meetings you are scheduled to hold over the next few weeks and recommend whether I should attend or not.” I asked if there were any questions. There were none. I walked around and shook everyone’s hand and the meeting ended. As I look back from the vantage point of nine years’ tenure at IBM, I’m surprised at how accurate my comments proved to be. Whether it was the thoroughness of the press coverage, my experience as a customer, or my own leadership principles, what needed to be done—and what we did—was nearly all there in that forty-fiveminute meeting four days before I started my IBM career. 26 / LOUIS V. GERSTNER, JR. The Official Election On Tuesday of the following week, March 30, 1993, I attended the regularly scheduled IBM board meeting. It was at this gathering that I was elected Chairman of the Board and Chief Executive Officer, effective to begin two days later. I walked into the meeting with a certain degree of trepidation. Jim Burke had told me a week earlier that there were two board members who were not totally happy with my selection as the new CEO. As I walked around the room shaking hands and greeting each of the seventeen directors in attendance (one was missing), I couldn’t help but wonder who the two doubters were. There are several things I remember well from that first meeting. The first was that there was an executive committee. Three of the eight members were current or former employees. I was taken by the fact that this board-within-a-board discussed in more detail the financial outlook for the company than the subsequent discussion held with the full Board of Directors. The full board meeting focused on a wide range of subjects. It seemed to me from the agenda that it was a business-as-usual board meeting. There was a presentation from the Storage Division, which was being renamed AdStar as part of the overall corporate strategy to spin off the operating units. There were reports on business from the heads of domestic and international sales, discussion of a regulatory filing, and the approval of a proposed $440 million acquisition. If the directors felt there was a crisis, they were politely hiding it from me. The meeting got a bit more animated during a report on financial affairs. Among the items reported was that the March quarter’s gross margin on hardware had declined nineteen points from the prior year and that System/390 mainframe prices had declined 58 percent over the same period. The projection was for a loss of 50 cents a share for the quarter ending the next day. The cash situation was de WHO SAYS ELEPHANTS CAN’T DANCE? / 27 teriorating fast. A major item of business was to approve a new financing plan authorizing the company to increase committed lines of bank credit to $4.7 billion and to raise $3 billion through the issuance of preferred stock and/or debt and securitization of United States trade receivables (selling, at a discount, “IOUS” from customers in order to get cash sooner). It was clear there was a high degree of uncertainty surrounding the financial projections. The meeting ended. There were polite statements of “good luck” and “glad you’re here,” and everyone left. John Akers and I then met to talk about the company. John and I had served together on the New York Times Company Board of Directors for several years, saw each other frequently at CEO-level events, and had a solid personal relationship prior to his departure from IBM. We were as comfortable as two people could be under the circumstances. We talked mostly about people. He was surprisingly candid about and critical of many of his direct reports. In reviewing my notes from the meeting, I guess I subsequently agreed with 75 percent of his appraisals. What struck me was why he could be so critical but still keep some of these executives in place. He had two favorites. One turned out to be one of my own. The other I let go before a year had passed. Regarding business issues, John was preoccupied that day with IBM’s microelectronics business. I learned that the company was deep into discussions with Motorola to form a joint venture and, in so doing, secure a partial exit from what John called the “technology business.” I asked how imminent the decision was, and he said “very.” Somewhat related to the Motorola deal was a proposal to license manufacturing rights for Intel microprocessors. He said the basic research unit was not affordable and needed to be downsized. He was quite concerned about IBM’s software business, mainframe business, and midrange products. As I look back at my notes, it is clear he understood most, if not all, of the business issues we tackled over the ensuing years. What’s striking from my notes is the 28 / LOUIS V. GERSTNER, JR. absence of any mention of culture, teamwork, customers, or leadership—the elements that turned out to be the toughest challenges at IBM. John moved that day to an office in Stamford, Connecticut, and as far as I know, to his credit, he never looked back. I went home with a deepening sense of fear. Could I pull this off? Who was going to help me? 3 Drinking from a Fire Hose O n April 1, 1993, I began my IBM career (perhaps appropriately, April Fools’ Day). IBM’s stock stood at $13.1 An op-ed piece in The New York Times greeted me with yet more advice on how to fix the company: “IBM has plenty of brains and buttondowns. What it needs is bravado.” An IBM company car picked me up at my home in Connecticut at 6:45 A.M. and drove me not to the headquarters building, in Armonk, but to another of the many office complexes IBM owned at the time in Westchester County, New York. Consistent with my message to the senior management team the previous week, Ned Lautenbach, who then headed all of sales outside the United States (what IBM called “World Trade”), invited me to a meeting of all the country general managers that happened to be scheduled for that morning. When I arrived at this large and spacious office building (it is now the headquarters of MasterCard International), I walked up to the front door and it was locked. A card reader was next to the door, 1 Adjusted for subsequent stock splits. 30 / LOUIS V. GERSTNER, JR. but I had not yet been issued a badge by IBM security. There I was, the new CEO, knocking helplessly on the door, hoping to draw someone’s attention to let me in. After a while a cleaning woman arrived, checked me out rather skeptically, then opened the door—I suspect more to stop my pounding on the door than from any sense on her part that I belonged on the inside rather than the outside of the building. I wandered around and eventually found the conference room where the meeting was just about to begin. I’ll never forget my first impression of an IBM meeting. Arrayed around a long conference room were all the nobles of IBM’s offshore, geographical fiefdoms. Behind them was a double row filled with younger executives. All the principals were white males, but the younger support staff was far more diverse. The meeting was an operations review, and each of the executives commented on his business. I noticed the backbenchers were scribbling furiously and occasionally delivered notes to the people at the table. It looked like a United States congressional hearing. During a coffee break, I asked Ned Lautenbach, “Who are all these people who are clearly watching but not participating?” He said, “Those are the executives’ AAs.” And so it was at my first meeting on my first day at IBM that I encountered its solidly entrenched and highly revered administrative assistant program. Hundreds, if not thousands, of IBM middle- and senior-level executives had assistants assigned to them, drawn from the ranks of the best and brightest of the up-and-coming managers. The tasks were varied, but from what I could understand, AAs had primarily administrative duties and even, at times, secretarial chores. For the most part, AAs organized things, took notes, watched, and, hopefully, learned. What they didn’t do was interact with customers, learn the guts of the business, or develop leadership competencies. However, several such assignments in a career were de rigueur if one wanted to ascend to IBM senior management. WHO SAYS ELEPHANTS CAN’T DANCE? / 31 I broke away from the meeting late that morning and went to Armonk headquarters to have lunch with Jack Kuehler. Jack was president of the company, a member of the board, and John Akers’s chief technologist. Kuehler controlled all key technology decisions made in the company. Over lunch he was congenial and easygoing and offered his support. Consistent with my Akers discussion, it was clear that IBM had an obsessive focus on recapturing the ground lost to Microsoft and Intel in the PC world. Jack was almost evangelistic in describing the combined technical strategy behind PowerPC and OS/2—two IBM products that were developed to regain what had been lost to Intel in microprocessors and Microsoft in PC software. The technology plan was sweeping and comprehensive. It sounded exciting, but I had no idea whether it had any chance of succeeding. After lunch I raced back to the World Trade executive session to hear more about the outlook for our business around the world. In general, it was not good. I then traveled to yet another IBM building to meet with a group of young executives who were in a training class. I returned once again to Armonk to tape a video message for employees, then ended the day with the head of IBM’s human resources department, the legendary Walt Burdick. Burdick had announced his decision to retire before the completion of the CEO search, but I wanted him to stay for at least a short transitional period. IBM’s HR department had been well recognized for years for its leadership in many areas, including diversity, recruiting, training, and executive development. Walt Burdick had been in charge of that department for thirteen years, and he was arguably the dean of HR professionals in America. What perhaps is not as well known is that Burdick was a powerful force behind the throne, one of IBM’s highest-paid executives for many years and a major player in creating and enforcing the dominant elements of IBM’s culture. His primary interests were structure and process. In fact, after his departure, someone gave me one of the most remarkable documents I have ever seen. Roughly sixty pages 32 / LOUIS V. GERSTNER, JR. long, it is entitled “On Being the Administrative Assistant to W. E. Burdick, Vice President, Personnel, Plans, and Programs.” It was written on March 17, 1975, and illustrated some of the suffocating extremes one could find all too easily in the IBM culture. The instructions for an AA in Burdick’s office included: • White shirt and suit jacket at all times. • Keep a supply of dimes with you. They are helpful when WEB (Burdick) has to make a call when away from the building. • Surprise birthday parties for WEB staff should be scheduled under the heading “Miscellaneous” for fifteen minutes. Birthday cakes, forks, napkins, and cake knife are handled by WEB’s secretary. AA takes seat closest to the door to answer phones. • WEB has three clocks: one on desk; one on table; one on windowsill outside your office. All three should be reset daily. Call 9-637-8537 for the correct time. • WEB enjoys Carefree Spearmint sugarless gum. When empty box appears in out-basket, reserve box should be put in his desk and new reserve box purchased. Burdick and I spent nearly all of our time that day discussing two critical searches that were under way before I had joined IBM: the search for Burdick’s replacement, and the search for a Chief Financial Officer (CFO). The prior CFO, Frank Metz, had retired under pressure in January following the same board meeting that had created the CEO search committee. Nothing was more important to me on that first day than filling these jobs. Parachuting into a $65 billion company that was hemorrhaging cash and trying to turn it around is a daunting enough task. Trying to do it without a good CFO and HR director is impossible. By 6:30 P.M., I finally had the first quiet time of the day. I sat with my longtime assistant, Isabelle Cummins, whom I had talked into coming to IBM despite her desire to retire. Isabelle is an extraordinary WHO SAYS ELEPHANTS CAN’T DANCE? / 33 person of enormous talents and one of the many heroes of this book. Had she grown up in a later era, she would have been a senior female executive in corporate America, and one of the best. However, that was not the case, and instead she had been my teammate for fifteen years before I came to IBM. I talked her out of retiring because I knew it would have been impossible for me to make it through the early IBM crises—the toughest ones—if she had not been there. At the end of that first day, we shared our experiences and both of us felt totally overwhelmed. (Isabelle, who had always worked with me one-onone, discovered that nine people, including several AAs and one person responsible for creating and maintaining organization charts, reported to her.) Early Priorities The next two weeks were filled with meetings with my direct reports, interviews with candidates for the CFO and HR jobs, and visits to key IBM sites. One of the most important meetings occurred on my second day. I had asked my brother Dick to come by and talk to me about the company. Dick had been a fast-rising star at IBM for many years, having joined the company right out of college. He had served in Europe and, at one point, had headed up the powerful Asia-Pacific region. My guess is that he had been on track to become one of the top executives—a member of the elite and revered Management Committee—but he was tragically cut down by undetected Lyme disease at the height of his career. He had gone on medical leave about six months before John Akers had left, but several executives had asked him to come back and do some consulting for the company. His most important task was working with Nick Donofrio, then head of the Large-Scale Systems Division, to figure out what to do with the mainframe. Dick (or Rich, as the family has always called him) and I were 34 / LOUIS V. GERSTNER, JR. close as children, he being the oldest and I always the follower in his footsteps—not uncommon, I guess, for two relatively successful siblings. We went our separate ways in adult life, but we always enjoyed each other’s company at family gatherings. I never felt any sense of rivalry as each of us climbed the corporate ladder. Nevertheless, it had to be a poignant moment as he came into the CEO’s office at IBM and saw me sitting where, quite realistically, he might have sat had health problems not derailed his career. He came extremely well prepared. In fact, his was the most insightful review anyone had given me during those early days. In particular, he argued against the premise that the mainframe was dead and against a seemingly hysterical preoccupation in the company to allocate all its resources to winning the PC war. I quote directly from the papers he gave me: “We have allowed the info industry to endorse the paradigm that the mainframe is expensive, complex, not responsive, and workstation solutions are cheap, simple to operate, and responsive to business needs. While there is no truth to this paradigm, we have allowed competitors, opinion leaders, and our customers to exaggerate the differences. The result is a dramatic falloff in S/390 (mainframe) sales, increased credibility for Amdahl and Hitachi alternatives, loss of credibility for CIOs (Chief Information Officers) at major corporations, and loss of confidence that IBM had the customers’ best interests in mind in its sales organization. “We should cut the price of hardware ASAP, simplify software pricing, focus development on simplification, implement a hardhitting communication program to reposition the mainframe and workstations, and underscore that the mainframe is an important part of the CIO’s information portfolio.” As I think back on the three or four things that really made a difference in the turnaround of IBM, one of them was repositioning the mainframe. And nobody pointed it out sooner or more clearly than my brother Dick. He also gave me a few tips that he labeled “brotherly advice”: WHO SAYS ELEPHANTS CAN’T DANCE? / 35 • Get an office and home PC. Use PROFS (the internal messaging system); your predecessor didn’t and it showed. • Publicly crucify shortsighted proposals, turf battles, and backstabbing. This may seem obvious, but these are an art form in IBM. • Expect everything you say and do to be analyzed and interpreted inside and outside the company. • Find a private cadre of advisors who have no axes to grind. • Call your mom. Over the next few months I would have liked more advice from Dick, but there was a very watchful group of people at IBM waiting to see if I was setting him up as my own force behind the throne. I didn’t want to do that to him or to me. We talked several times, but briefly, and not with the impact his first meeting had on me and the company. On April 13 I interviewed Jerry York at IBM’s office in New York City. Jerry was then Chief Financial Officer at Chrysler Corporation and was one of two candidates I was seeing that week for the CFO job. It was a truly memorable interview. Jerry arrived in a starched white shirt and a blue suit, everything crisp and perfect—West Point style. He was not coy and did not pull any punches. He basically said he wanted the job and then proceeded to outline a series of things that he thought needed to be done as soon as possible. I was impressed by his frankness, his lack of guile, and his candor, as well as his analytical capabilities. It was clear to me that he was tough—very tough—and just what I needed to get at the cost side of IBM. I spoke to another candidate later that week, but I decided Jerry was the right person. He joined us on May 10. I also saw Gerry Czarnecki, a candidate for the HR job. Gerry was an operations executive at a bank but had been an HR professional years before. Over the next couple of weeks we met several times, both by phone and in person. Although I liked Gerry’s energy and his directness, I wasn’t certain he was prepared to go back into the HR func 36 / LOUIS V. GERSTNER, JR. tion. He said, “Probably not anywhere else, but to be part of the turn-around of IBM, I’m prepared to do it.” That turned out to be one of the few hirings that didn’t work out as planned during my early years at IBM. It soon became clear to me that it was proving very hard for Gerry to go back and lead the professional HR community. Within four months he appeared to be acting and sounding more like a vice CEO. It wasn’t that Gerry’s ideas were wrong—in fact, he was a major proponent of substantial cultural change. However, the organization wasn’t going to accept from Gerry what it would accept from me. He burned his bridges with his colleagues very soon and he left IBM within a year of his hiring. Of course, my top priority during those first few weeks was meeting privately with each of the senior executives. A few of them had prepared the ten-page briefing I had requested; most of them offered a more ad hoc analysis of their businesses. In all the meetings over those several weeks, I was sizing up my team, trying to understand the problems they faced and how they were dealing with them, how clearly they thought, how well they executed, and what their leadership potential really was. The person I relied on most during those early days was Paul Rizzo. As I said earlier, he had been called back from retirement by the board to help John Akers. Paul had been a senior executive at IBM for twenty-two years. After retiring, he became dean of the Business School at the University of North Carolina and was building a new house in that state. The last thing he needed was to come back to IBM, but he did because he loved the company and he didn’t want to see it die. When I arrived, Paul was responsible for the program of federalism—breaking up the company into individual, autonomous units. Not that Paul created the strategy, but in the absence of a CFO, he was basically overseeing the finance function for the board. He was also in charge of watching all the investment bankers who were scrambling over most parts of the company, dollar signs in their eyes as they WHO SAYS ELEPHANTS CAN’T DANCE? / 37 planted their flags into each business unit. It reminded me of a gold rush. Each one saw an initial public offering of stock (IPO) for the unit or units that he or she advised. We were spending tens of millions of dollars on accountants to create the bookkeeping required for IPOs because IBM’s financial system did not support stand-alone units. Paul was also deeply involved in the financing activities that were under way to raise additional capital. For me, asking Paul to stay on was an easy decision, and I’m grateful he did. Over the next year he was a tower of strength, a wise mentor, and an insightful partner in evaluating strategy and people—another important hero of the IBM turnaround. A special moment occurred during those first weeks of April. I walked out of my home one morning at my usual early hour. However, when I opened my car door, I suddenly realized there was someone sitting in the back seat. It was Thomas J. Watson, Jr., former IBM CEO and the son of IBM’s founder. Tom literally lived across the street and had walked up my driveway to surprise me and ride to work with me. He was 79 years old, and he had retired as CEO of IBM in 1971. He was animated and, perhaps better stated, agitated. He said he was angry about what had happened to “my company.” He said I needed to shake it up “from top to bottom” and to take whatever steps were necessary to get it back on track. He offered support, urged me to move quickly, reflected on his own career, and, in particular, the need he had seen over and over again to take bold action. At the end of our ride together, I had the feeling he wished he could take on the assignment himself! On April 15 I made my first official visit to a nonheadquarters site. I had chosen it carefully: the company’s research laboratory in Yorktown Heights, New York. If there was a soul of IBM, this lab was it. 38 / LOUIS V. GERSTNER, JR. Appropriately named the T. J. Watson Research Center, it contained the intellectual fervor that had led IBM over decades to invent most of the important developments that had created the computer industry. It was my first “public” appearance inside IBM, and it was important because I knew this was my greatest immediate vulnerability. Would the researchers reject me as an unacceptable leader? Some in the company were calling me the “Cookie Monster” because of my previous job at Nabisco. I spoke from a stage in an auditorium. The house was full, and my remarks were broadcast to an overflow of employees in the cafeteria. Other IBM research facilities around the world picked up the broadcast as well. The stereotype of researchers says they are so focused on big ideas that they are disconnected from the real world. Well, not these researchers! I saw the pain of IBM’s problems on their faces. I don’t know if they were curious or apprehensive, but they certainly came to listen. I gave what soon became my stump speech on focus, speed, customers, teamwork, and getting all the pain behind us. I talked about how proud I was to be at IBM. I underscored the importance of research to IBM’s future, but I said we probably needed to figure out ways to get our customers and our researchers closer together so that more of IBM’s great foundry of innovation would be aimed at helping people solve real, and pressing, problems. There was applause, but I wasn’t sure what they were thinking. The Shareholders’ Meeting Perhaps the most traumatic event of my first month at IBM was the annual shareholders’ meeting. It had been scheduled, I’m sure, several years in advance for April 26 in Tampa, Florida. Needless to WHO SAYS ELEPHANTS CAN’T DANCE? / 39 say, it was a daunting challenge to chair my first shareholders’ meeting when the company had such major and visible problems. I had been there for only three weeks, could barely identify the products, let alone explain what they did, or, God forbid, describe the technologies inside them. Moreover, it was clear IBM’s shareholders were angry and out for blood—perhaps deservedly so. IBM stock had dropped from a high of $43 a share in 1987 to $12 a share the day of the shareholders’ meeting. That was less than half its price at the previous year’s meeting. There were 2,300 shareholders waiting impatiently for the show to start when I walked out onto the stage at 10 A.M. that day—in the biggest convention hall I had ever seen. You couldn’t help but notice a sea of white hair—obviously, a lot of retirees in Florida owned IBM stock. I made a brief speech in which I asked for some patience, but I made it clear that I was going to move quickly, make all changes necessary, and return the company’s focus to the customer. I got polite applause, and then the fireworks started. Shareholder after shareholder stood up and blasted the company, and frequently the Board of Directors, all of whom were sitting in front of me in the first row of the auditorium. It was a massacre. The directors took direct hit after direct hit. The shareholders were reasonably kind to me in terms of not holding me accountable for the problems, but they also showed little patience for anything other than a fast recovery. It was a long, exhausting meeting—for everyone, I think. I remember flying back to New York alone that evening on an IBM corporate airplane. My thoughts turned to the Board of Directors. It was clear from the annual meeting that board changes would be necessary—and sooner rather than later. I turned to the flight attendant and said, “This has been a really tough day. I think I’d like to have a drink.” She said, “You don’t mean an alcoholic drink, do you?” “I certainly do!” I replied. “What kind of vodka do you have?” 40 / LOUIS V. GERSTNER, JR. “We have no alcohol on IBM airplanes. It is prohibited to serve alcohol.” I said, “Can you think of anyone who could change that rule?” “Well, perhaps you could, sir.” “It’s changed, effective immediately.” 4 Out to the Field I t was crucial that I get out into the field. I didn’t want my understanding of the company to be based on the impressions of headquarters employees. Moreover, the local IBM princes and barons were eager to view the new leader. So the day after the annual meeting, I flew to France to meet with the mightiest of all nobles—IBM Europe, Middle East, and Africa (we call it “EMEA”). I visited France, Italy, Germany, and the United Kingdom, all in one week. It was dawn-to-midnight business reviews with senior executives, employee “town hall” meetings, and customer visits. IBM EMEA was a giant organization operating in 44 countries with more than 90,000 employees. Revenue had peaked at $27 billion in 1990 and had declined since. Gross profit margin on hardware had dropped from 56 percent in 1990 to 38 percent in 1992. Very important was the fact that in the face of this huge decline in gross profits, total expenses had dropped only $700 million. Pretax profit margin had declined from 18 percent in 1990 to 6 percent in 1992. Wherever I went, the business message was the same: rapidly declining mainframe sales, much higher prices than those of our competitors, a lack of participation in the rapidly growing client/server (PC-centric) segment, and an alarming decline in the company’s 42 / LOUIS V. GERSTNER, JR. image. One of the most disturbing statements in my advance reading material was: “We estimate our net cash change at negative $800 million in 1993. We expect to be self-funding but will not be able for some time to pay dividends to the corporation.” While I learned a lot on this trip—the meetings with customers were particularly useful—perhaps the most important messages were internal. It was clear that at all levels of the organization there was fear, uncertainty, and an extraordinary preoccupation with internal processes as the cause of our problems and, therefore, a belief that tinkering with the processes would provide the solutions we needed. There were long discussions of transfer pricing between units, alternative divisions of authority, and other intramural matters. When EMEA executives summarized their action program for the company, number one was: “Use country as prime point of optimization.” I returned home with a healthy appreciation of what I had been warned to expect: powerful geographic fiefdoms with duplicate infrastructure in each country. (Of the 90,000 EMEA employees, 23,000 were in support functions!) I also came away with an understanding that these were enormously talented people, a team as deeply committed and competent as I had ever seen in any organization. I reached this conclusion repeatedly over the next few months. On the flight home I asked myself: “How could such truly talented people allow themselves to get into such a morass?” The Click Heard Round the World As Paul Rizzo had said in our secret meeting in Washington, D.C., IBM’s sustainability, at least in the short term, depended heavily on the mainframe. More than 90 percent of the company’s profits came from these large “servers” and the software that ran on them. It didn’t take a Harvard MBA or a McKinsey consultant to understand WHO SAYS ELEPHANTS CAN’T DANCE? / 43 that the fate of the mainframe was the fate of IBM, and, at the time, both were sinking like stones. One of the first meetings I asked for was a briefing on the state of this business. I remember at least two things about that first meeting with Nick Donofrio, who was then running the System/390 business. One is that I drove to his office in Somers, New York, about fifteen miles north of Armonk, and experienced a repeat of my first day on the job. Once again, I found myself lacking a badge to open the doors at this complex, which housed the staffs of all of IBM’s major product groups, and nobody there knew who I was. I finally persuaded some kind soul to let me in, found Nick, and we got started. Sort of. At that time, the standard format of any important IBM meeting was a presentation using overhead projectors and graphics on transparencies that IBMers called—and no one remembers why—“foils.” Nick was on his second foil when I stepped to the table and, as politely as I could in front of his team, switched off the projector. After a long moment of awkward silence, I simply said, “Let’s just talk about your business.” I mention this episode because it had an unintended, but terribly powerful ripple effect. By that afternoon an e-mail about my hitting the Off button on the overhead projector was crisscrossing the world. Talk about consternation! It was as if the President of the United States had banned the use of English at White House meetings. By the way, in the telling of that story, I’m in no way suggesting that Nick didn’t know his business. In many ways he was the godfather of the technology that would end up saving the IBM mainframe, and his strong technical underpinnings, combined with his uncanny ability to translate technical complexities into common language, were a great source of reassurance to me in the days ahead. We had a great meeting, and there is a straight line between what I heard that day and one early major decision at IBM. 44 / LOUIS V. GERSTNER, JR. The Mainframe Decision In a subsequent meeting in the conference room near my office in Armonk, the mainframe team documented a rapid decline in sales and, more important, a precipitous drop in market share in the last fifteen months. I asked why we were losing so much share, and the answer was, “Hitachi, Fujitsu, and Amdahl are pricing 30 to 40 percent below our price.” I asked the obvious: “Why don’t we lower our prices so they don’t keep beating us like a drum?” The answer: “We would lose substantial revenues and profits at a time when we need profits badly.” I had hoped to follow the advice of all the management gurus and try to avoid making major decisions in the first ninety days, but that only happens in guru world. The company was hemorrhaging, and at the heart of it was the System/390 mainframe. But almost immediately after joining the company, I had to do something. It became clear to me at that point that the company, either consciously or unconsciously, was milking the S/390 and that the business was on a path to die. I told the team that, effective immediately, the milking strategy was over and instructed them to get back to me with an aggressive price reduction plan that we could announce two weeks later at a major customer conference. The financial people gulped hard. There was no doubt that a new CEO could take the alternative strategy: Keep S/390 prices high for a number of years, since it wasn’t easy for customers to shift to competitive products in the near future. The revenue—hundreds of millions of dollars—would have been a powerful short-term underpinning of a restructuring of the company. But it would also have been painful for customers and contrary to what they were pleading with us to do, which was to fix the problem rather than walk away WHO SAYS ELEPHANTS CAN’T DANCE? / 45 from it. Over the longer term, we would have destroyed the company’s greatest asset—and perhaps the company itself. So we made a bet on a dramatic price reduction on the product that produced virtually all of IBM’s profit. We made another important decision that day—or, better said, I reaffirmed an important decision that had been made a number of months before I’d arrived. The technical team in the 390 division had staked out a bold move to a totally different technical architecture for the System/390: to move from what was known as a bipolar to CMOS (pronounced “C-moss”) technology. If this enormously complex project could be pulled off, it would permit substantial price reductions in the S/390 without commensurate loss in gross profit, thus improving dramatically the competitiveness of the S/390 versus alternative products. If the project failed, the 390 was dead. But it didn’t fail! And the technical wizards from labs in Europe and the United States who pulled it off deserve a place among the heroes of the new IBM. I have always been thankful (and lucky) that some insightful people had made that decision before I’d arrived. My job was simply to reaffirm it and to protect the billion dollars we would spend on it over the next four years. I am convinced that had we not made the decision to go with CMOS, we’d have been out of the mainframe business by 1997. In fact, that point has been proven more or less by what happened to our principal competitor at the time, Hitachi. It continued development of bigger and bigger bipolar systems, but that technology eventually ran out of gas, and Hitachi is no longer in this business. The CMOS performance curve was staggering on paper, and it didn’t disappoint us. We’re building bigger, more powerful systems today than anyone ever dreamed about with bipolar technology. So if you want to think about the return on the $1 billion investment we made back in the early 1990s, I think one fair measure is highend server revenue from 1997 forward—$19 billion through the end of 2001. 46 / LOUIS V. GERSTNER, JR. The First Strategy Conference On Sunday, May 16, I convened a two-day internal meeting on corporate strategy at a conference center in Chantilly, Virginia. There were twenty-six senior IBM executives present. Dress was casual, but the presentations were both formal and formidable. I was totally exhausted at the end. It was truly like drinking from a fire hose. The technical jargon, the abbreviations, and the arcane terminology were by themselves enough to wear anyone down. But what was really draining was the recognition that while the people in the room were extremely bright, very committed, and, at times, quite convinced of what needed to be done, there was little true strategic underpinning for the strategies discussed. Not once was the question of customer segmentation raised. Rarely did we compare our offerings to those of our competitors. There was no integration across the various topics that allowed the group to pull together a total IBM view. I was truly confused, and that may have been the real low point of my first year at IBM. I walked out of that room with an awful feeling in the pit of my stomach that Murphy and Burke had been wrong—IBM needed a technological wizard to figure out all this stuff! I didn’t have much time to feel sorry for myself because that evening we began what may have been the most important meeting of my entire IBM career: the IBM Customer Forum. The Customer Meeting at Chantilly This meeting had been scheduled well before my arrival at the company. Nearly 175 chief information officers of the largest United States companies were coming to hear what was new at IBM. They represented many of the most important customers IBM had—and they could make or break us. WHO SAYS ELEPHANTS CAN’T DANCE? / 47 On Tuesday night, I met with several CIOs at dinner, and they shared the same perspective I had heard in Europe. They were angry at IBM—perturbed that we had let the myth that “the mainframe was dead” grow and prosper. The PC bigots had convinced the media that the world’s great IT infrastructure—the back offices that ran banks, airlines, utilities, and the like—could somehow be moved to desktop computers. These CIOs knew this line of thinking wasn’t true, and they were angry at IBM for not defending their position. They were upset about some other things, too, like mainframe pricing for both hardware and software. They were irritated by the bureaucracy at IBM and by how difficult it was to get integration—integration of a solution or integration across geographies. Early the next morning, I threw out my prepared speech and decided to speak extemporaneously. I stood before my most important customers and started talking from the heart. I began by telling my audience that a customer was now running IBM; that I had been a customer of the information technology industry for far longer than I would ever be an IBM employee; that while I was not a technologist, I was a true believer that information technology would transform every institution in the world. Thus, I had a strategic view about information technology, and I would bring that to IBM and its customers. I addressed the issue of the mainframe head-on. I said I agreed with the CIOs that we had failed in our responsibility to define its role in a PC world, that our prices were high, and that there was no question that we were bureaucratic. I shared with them some of my bad experiences with IBM as communicated to me by my CIOs when I was at American Express and RJR Nabisco. I laid out my expectations: • We would redefine IBM and its priorties starting with the customer. • We would give our laboratories free rein and deliver open, distributed, user-based solutions. 48 / LOUIS V. GERSTNER, JR. • We would recommit to quality, be easier to work with, and reestablish a leadership position (but not the old dominance) in the industry. • Everything at IBM would begin with listening to our customers and delivering the performance they expected. Finally, I made the big mainframe pricing announcement. Our team had been working hard over the past two weeks and literally was still putting the proposal together the night before this big meeting. I didn’t delve into the details—that was done later in the meeting—but I made it very clear that mainframe prices, both hardware and software, were coming down, and coming down quickly. The price of a unit of mainframe processing moved from $63,000 that month to less than $2,500 seven years later, an incredible 96-percent decline. Mainframe software price/performance improved, on average, 20 percent a year for each of the next six years. This program, probably more than any other, save IBM. Over the short term it raised the risk of insolvency as it drained billions of dollars of potential revenue and profits from the company. Had the strategy not worked, I would have been the CEO who had presided over the demise of the company—Louis the Last. However, the plan did work. IBM mainframe capacity shipped to customers had declined 15 percent in 1993. By 1994, it had grown 41 percent, in 1995 it had grown 60 percent, followed by 47 percent in 1996, 29 percent in 1997 63 percent in 1998, 6 percent in 1999, 25 percent in 2000, and 34 percent in 2001. This represented a staggering turnaround. While pricing was not the only reason IBM survived, it would not have happened had we not made this risky move. 5 Operation Bear Hug I n late April we had a meeting of the Corporate Management Board. This was the group of fifty top executives with whom I had met in March, the day I was announced as the new CEO. I shared with them my observations after three weeks on the job. I started by saying that I saw a lot of positive things going on, particularly in research, product development, and in the can-do attitude of a number of people. However, there were troublesome areas, including: • Loss of customer trust, supported by some disturbing customer ratings on quality. • The mindless rush for decentralization, with managers leaping forward saying “make me a subsidiary.” • Cross-unit issues not being resolved quickly. • Major tension in the organization over who controlled marketing and sales processes. • A confusing and contentious performance measurement system, causing serious problems when closing sales with customers. • A bewildering array of alliances that didn’t make any sense to me. 50 / LOUIS V. GERSTNER, JR. I announced Operation Bear Hug. Each of the fifty members of the senior management team was to visit a minimum of five of our biggest customers during the next three months. The executives were to listen, to show the customer that we cared, and to implement holding action as appropriate. Each of their direct reports (a total of more than 200 executives) was to do the same. For each Bear Hug visit, I asked that a one- to two-page report be sent to me and anyone else who could solve that customer’s problems. I wanted these meetings to be a major step in reducing the customer perception that dealing with us was difficult. I also made it clear that there was no reason to stop at five customers. This was clearly an exam in which extra credit would be awarded. Bear Hug became a first step in IBM’s cultural change. It was an important way for me to emphasize that we were going to build a company from the outside in and that the customer was going to drive everything we did in the company. It created quite a stir, and when people realized that I really did read every one of the reports, there was quick improvement in action and responsiveness. The Management Committee Dies That same day in late April, there was a meeting of the Management Committee (its inside-IBM name was “the MC”). It is important to understand that a seat on the MC was the ultimate position of power that every IBM executive aspired to as the apex of his or her career. When I’d joined the company there were six members, including Akers and Kuehler. The MC met once or twice a week, usually in formal, all-day meetings with lots of presentations. Every major decision in the company was presented to this committee. Some members of the MC had only recently been appointed. To their utter—and probably crushing—dismay, I told them that afternoon, at my first meeting, that it was unlikely this structure would WHO SAYS ELEPHANTS CAN’T DANCE? / 51 continue. I wanted to be more deeply involved personally in the decision making of the company, and I was uncomfortable with committees making decisions. While it wasn’t officially disbanded until months later, the Management Committee, a dominant element of IBM’s management system for decades, died in April 1993. In some ways, the rise and fall of the Management Committee symbolized the whole process of rigor mortis that had set in IBM. It seemed to me an odd way to manage a company—apparently centralized control, but in a way that ultimately diffused responsibility and leadership. The MC was part of IBM’s famed contention system, in which the recommendations of powerful line units were contested by an equally powerful corporate staff. As I think about the complexity of the technology industry and the risks associated with important business and product decisions, this approach may very well have been a brilliant innovation when it was created. The problem was that over time, IBM people learned how to exploit the system to promote their own agendas. So by the early 1990s a system of true contention was apparently replaced by a system of prearranged consensus. Rather than have proposals debated, the corporate staff, without executives, worked out a consensus across the company at the lowest possible level. Consequently, what the Management Committee most often got to see was a single proposal that encompassed numerous compromises. Too often the MC’s mission was a formality—a rubberstamp approval. I haven’t spent much time unearthing and analyzing IBM’s history, but I have been told that the administrative assistant network emerged as the facilitator of this process of compromise. Much like the eunuchs of the ancient Chinese court, they wielded power beyond their visible responsibilities. 52 / LOUIS V. GERSTNER, JR. Meetings with Industry Experts In the course of everything else during the first weeks of my being on the job, I scheduled a number of one-on-one meetings with various leaders in the computer and telecommunications industry. They included John Malone of TCI, Bill Gates of Microsoft, Andy Grove of Intel, Chuck Exley of NCR, and Jim Manzi of Lotus. These meetings were very helpful to me, more for their insights into the industry than for anything said about IBM. And, as you might expect, many of my visitors arrived with thinly disguised agendas. The meeting with Andy Grove was perhaps the most focused. In his wonderfully direct style, Andy delivered the message that IBM had no future in the microprocessor business, that we should stop competing with Intel with our PowerPC chip, and that, unless this happened, relationship between the two companies were going to be difficult. I thanked Andy, but, having no real understanding at that point of what we should do, I tucked the message away. The meeting with Bill Gates was not significant from the point of view of content. Basically, he delivered the message that I should stick to mainframes and get out of the PC business. More memorable are the incidentals. We met at 8 A.M. on May 26 at the IBM building on Madison Avenue in New York City. Coincidentally, I was to meet later that same day with Jim Manzi, head of Lotus. The IBM security person in the lobby got confused and called Gates “Mr. Manzi” and gave him Manzi’s security pass. By the time Bill arrived on the 40th floor, he wasn’t happy. Nevertheless, we had a useful discussion. What followed the meeting was more noteworthy. He and I, as well as our staffs, had agreed there would be no publicity in advance of or after the meeting. However, the press had the story two hours after he left the IBM building, and by evening everyone knew about the confusion over his security badge. He apparently didn’t deduce WHO SAYS ELEPHANTS CAN’T DANCE? / 53 that I had a meeting with Manzi that same day. To some, the mixup seemed to be further evidence of IBM’s—and perhaps Lou Gerstner’s—ineptitude. The Financials: Sinking Fast We announced first-quarter operating results at the end of April, and they were dismal. Revenue had declined 7 percent. The gross profit margin had fallen more than 10 points—to 39.5 percent from 50 percent. The company’s loss before taxes was $400 million. In the first quarter of the previous year, IBM had had a pretax profit of close to $1 billion. At the end of May I saw April’s and they were sobering. Profit had declined another $400 million, for a total decline of $800 million for the first four months. Mainframe sales had dropped 43 percent during the same four months. Other large IBM businesses—software, maintenance, and financing—were all dependent, for the most part, on mainframe sales and, thus, were declining as well. The only part of the company that was growing was services, but it was a relatively small segment and not very profitable. Head count had declined slightly, from 302,000 at the beginning of the year to 298,000 at the end of April. Several business units, including application-specific software and our semiconductor businesses, were struggling. Almost as frustrating as the bad results was the fact that, while the corporation could add up its numbers quite well in total, the internal budgeting and financial management systems were full of holes. There was not one budget but two or three, because each element of the IBM organization matrix (e.g., the geographic units versus the product divisions) insisted on its own budget. As a result, there really wasn’t single, consolidated budget. Allocations were constantly debated and changed, and accountability was extremely difficult to determine. 54 / LOUIS V. GERSTNER, JR. Given the fact that the mainframe was still in free fall and so much of IBM’s business at that point depended on the mainframe, the outlook was extremely precarious. We were shoring up the balance sheet as best we could with financing, but something had to be done to stabilize the operations. The Media Early On There was a very short honeymoon with the media—understandably, given the nature of the story, but also because it’s impossible to transform a badly ailing company under the glare of daily press briefings and publicity. There’s too much work to do inside without having to contend with a daily progress report in the papers focusing everyone on results that take months and years, and not hours and days, to achieve. A reporter from the Associated Press wanted to follow me around all day my first day. USA Today said it was working on graphics for a daily progress chart. We said, “No, thank you. We’re going dark for a bit while we assess the task at hand.” That was not a popular way to answer reporters who were used to writing daily stories about the problems at IBM. I brought with me to IBM from the first day my communications executive, David Kalis. David had been with me for many years, going back to American Express in the 1980s. He was, in my opinion, the best public relations executive in America. He was also the first true PR professional in IBM’s history to hold the top communications job. For decades the position had been a rotation slot for sales executives being groomed for other top jobs. He inherited a shambles at IBM. There were some talented people, but the communications department was staffed for the most part with well-meaning but untrained employees. However, even if they had all been professionals, it would have been impossible for them to perform, given the foxhole mentality that permeated the company in WHO SAYS ELEPHANTS CAN’T DANCE? / 55 1993. Typically, IBM executives believed that the only real problem the company had was the daily beating in was getting in the press. They felt t...
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Find the answer attached.

Progress Report 2
March 14, 2018.
We are continuing to read and analyze the book by the title, Who said Elephants couldn`t Dance?
Our main focus has been a determination of the effective method of formulation and adoption of
effective strategies for business entities in the market. Louis V Gerstner Jr offers a wide source
of information that can be used by business managers to formulate strategic business plans which
would lead to them gaining some competitive edge over their rivals in the industry. Louis V
Gerstner Jr uses IBM organization as the perfect example of how firms can use effective
strategies to gain a competitive edge over their rivals a...


Anonymous
Just what I needed. Studypool is a lifesaver!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags