Who Says Elephants Can't Dance?: Inside IBM's Historic Turnaround

Who Says Elephants Can't Dance?: Inside IBM's Historic Turnaround

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by Louis V., Jr. Gerstner Jr.
     
 

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In 1990, IBM had its most profitable year ever. By 1993, the computer industry had changed so rapidly the company was on its way to losing $16 billion and IBM was on a watch list for extinction — victimized by its own lumbering size, an insular corporate culture, and the PC era IBM had itself helped invent.

Then Lou Gerstner was brought in to run IBM. Almost

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Overview

In 1990, IBM had its most profitable year ever. By 1993, the computer industry had changed so rapidly the company was on its way to losing $16 billion and IBM was on a watch list for extinction — victimized by its own lumbering size, an insular corporate culture, and the PC era IBM had itself helped invent.

Then Lou Gerstner was brought in to run IBM. Almost everyone watching the rapid demise of this American icon presumed Gerstner had joined IBM to preside over its continued dissolution into a confederation of autonomous business units. This strategy, well underway when he arrived, would have effectively eliminated the corporation that had invented many of the industry's most important technologies.

Instead, Gerstner took hold of the company and demanded the managers work together to re-establish IBM's mission as a customer-focused provider of computing solutions. Moving ahead of his critics, Gerstner made the hold decision to keep the company together, slash prices on his core product to keep the company competitive, and almost defiantly announced, "The last thing IBM needs right now is a vision."

Who Says Elephants Can't Dance? tells the story of IBM's competitive and cultural transformation. In his own words, Gerstner offers a blow-by-blow account of his arrival at the company and his campaign to rebuild the leadership team and give the workforce a renewed sense of purpose. In the process, Gerstner defined a strategy for the computing giant and remade the ossified culture bred by the company's own success.

The first-hand story of an extraordinary turnaround, a unique case study in managing a crisis, and a thoughtful reflection on the computer industry and the principles of leadership, Who Says Elephants Can't Dance? sums up Lou Gerstner's historic business achievement. Taking readers deep into the world of IBM's CEO, Gerstner recounts the high-level meetings and explains the pressure-filled, no-turning-back decisions that had to be made. He also offers his hard-won conclusions about the essence of what makes a great company run.

In the history of modern business, many companies have gone from being industry leaders to the verge of extinction. Through the heroic efforts of a new management team, some of those companies have even succeeded in resuscitating themselves and living on in the shadow of their former stature. But only one company has been at the pinnacle of an industry, fallen to near collapse, and then, beyond anyone's expectations, returned to set the agenda. That company is IBM.

Lou Gerstener, Jr., served as chairman and chief executive officer of IBM from April 1993 to March 2002, when he retired as CEO. He remained chairman of the board through the end of 2002. Before joining IBM, Mr. Gerstner served for four years as chairman and CEO of RJR Nabisco, Inc. This was preceded by an eleven-year career at the American Express Company, where he was president of the parent company and chairman and CEO of its largest subsidiary. Prior to that, Mr. Gerstner was a director of the management consulting firm of McKinsey & Co., Inc. He received a bachelor's degree in engineering from Dartmouth College and an MBA from Harvard Business School.

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Editorial Reviews

New York Times Book Review
“[Gerstner] entertains as he educates.”
Wall Street Journal
“[Lou Gerstner] has the substance of a genuine and ... interesting story.”
Financial Times
“Effective, to the point...Louis V. Gerstner Jr deserves his place in the management hall of fame.”
Imus in the Morning
“The best business book I’ve ever read.”
The New York Times Book Review
The book leaves the reader thinking that a few more Gerstners around in the '90s might have prevented the bubble from swelling so large -- and popping with such a bang.
Publishers Weekly
Gerstner quarterbacked one of history's most dramatic corporate turnarounds. For those who follow business stories like football games, his tale of the rise, fall and rise of IBM might be the ultimate slow-motion replay. He became IBM's CEO in 1993, when the gargantuan company was near collapse. The book's opening section snappily reports Gerstner's decisions in his first 18 months on the job-the critical "sprint" that moved IBM away from the brink of destruction. The following sections describe the marathon fight to make IBM once again "a company that mattered." Gerstner writes most vividly about the company's culture. On his arrival, "there was a kind of hothouse quality to the place. It was like an isolated tropical ecosystem that had been cut off from the world for too long. As a result, it had spawned some fairly exotic life-forms that were to be found nowhere else." One of Gerstner's first tasks was to redirect the company's attention to the outside world, where a marketplace was quickly changing and customers felt largely ignored. He succeeded mightily. Upon his retirement this year, IBM was undeniably "a company that mattered." Gerstner's writing occasionally is myopic. For example, he makes much of his own openness to input from all levels of the company, only to mock an earnest (and overlong) employee e-mail (reprinted in its entirety) that was critical of his performance. Also, he includes a bafflingly long and dull appendix of his collected communications to IBM employees. Still, the book is a well-rendered self-portrait of a CEO who made spectacular change on the strength of personal leadership.
Library Journal
Gerstner (Reinventing Education) tells the inside story of his nine-year reign as CEO of IBM during the company's unprecedented time of crisis and his successful effort to turn around the pending demise. From his four-year stint as CEO of an equally intriguing corporation, RJR Nabisco, the author moved into the hot seat at IBM in April 1993, the most troublesome time in the company's history. Gerstner finds a pondering, insular culture, mostly unchanged since its beginning, and he briskly reviews his initial major decision to halt the breakup of IBM, refocuses energies on its historic mainframe business, streamlines repetitive processes, focuses employee attention on the needs of its customers and the quickly changing market, and significantly reduces the work force throughout IBM's worldwide locations. This is an important contribution to the business genre, and Edward Herrmann's basso, richly told tale maintains listener interest. An insider's take on IBM that provides a nice update to the solid historical analysis of the downfall and near death of the company revealed in Paul Carroll and Jim Wade's super business history, Big Blues. Highly recommended for all public libraries and university libraries supporting a business curriculum.-Dale Farris, Groves, TX Copyright 2003 Reed Business Information.
Soundview Executive Book Summaries
When Lou Gerstner took the helm of IBM as its CEO in 1993, the company was a shambles — hemorrhaging money, drained by an insular corporate culture, and rapidly falling prey to smaller companies that could make the same products better, faster and for less money. Wall Street was calling for its breakup into small, independent business units, but Gerstner had other things in mind — to keep the company together, change the way it (and, eventually, its entire industry) did business, and show it could keep up with and even surpass the startups and small businesses presenting its biggest challenges. Lou Gerstner thought the enormous corporate elephant could dance as gracefully as its much smaller competition. He was right.

Shortly after Lou Gerstner was introduced as IBM's CEO in the Spring of 1993, he met with the company's Corporate Management Board — roughly the top 50 people in the company. He laid out for them a number of troublesome areas in the company:

  • Loss of customer trust, supported by low customer ratings on quality.
  • The mindless rush for decentralization.
  • Slow response to cross-unit issue.
  • Tension over control of the marketing and sales processes.
  • A confusing and contentious performance measurement system, resulting in serious problems when closing sales with customers.
  • A bewildering array of questionable, even senseless, alliances.

Gerstner announced a program called "Operation Bear Hug." Each of the 50 members of senior management would, within three months, pay a personal visit to a minimum of five of IBM's biggest customers, find out first-hand what their needs and concerns were, and report back to Gerstner. The Bear Hug meetings became the first step in reducing the customer perception that dealing with IBM was difficult.

After only 100 days on the job, and with major news outlets and analysts alike calling for some visible, tangible proof of a turnaround at IBM, Gerstner went public with four key strategic initiatives:

  1. Keep the Company Together. Gerstner decided very early on to keep IBM one unified enterprise, in the face of an increasingly diversified computer market. While IBM was slow to deliver distributed computing (delivering increased computing power to individual users), other companies moved in, supplementing IBM's basic systems with add-on applications and hardware that provided the powerful systems both business and home computer customers wanted and needed.
  2. Change the Company's Fundamental Economic Model. In simplest terms, if a company's revenue, gross profit, and expenses are all moving in the right relationship, the net effect is growing profits and positive cash flow — the makings of a successful business. In 1993, those relationships at IBM were all wrong — revenue was slowing (due to the company's reliance on declining mainframe sales); gross profit margin was sinking (due to the discounted prices it had resorted to in order to sell mainframes); the company's expenses were out of control.Expenses were, however, the first issue tackled — $8.9 billion was slashed out of the budget. This required employment reduction of 35,000 people (in addition to the 45,000 jobs cut in 1992 — the first such layoff in the company's history).
  3. Reengineer How the Company Did Business. Gerstner saw IBM's business processes as cumbersome and highly expensive, requiring a reengineering program of gargantuan proportions, a top-to-bottom overhaul of its basic operations. Gerstner focused on six core initiatives: hardware development, software development, fulfillment, integrated supply chain, customer relationship management, and services. These were the processes most visible to external customers, and they were soon joined in reengineering efforts by several internal processes, including human resources, procurement, real estate, and, oddly enough, information technology. From 1994 to 1998, the total savings from these reengineering projects was $9.5 billion.
  4. Sell Unproductive Assets to Raise Cash. Only a handful of people understand how close IBM came to bankruptcy in 1993. Gerstner noted then that there were a number of assets that could be sold to make the company solvent again, and, thus began a wholesale jettisoning of nonessential, unproductive assets:
    A. The corporate airplane fleet was sold.
    B. The corporate headquarters in New York City was put on the block.
    C. The bulk of the company's fine art collection was auctioned off.
    D. IBM's Federal Systems Company (which primarily handled government contracts) was sold to the Loral Corporation.

As the years went by, Gerstner continued streamlining the company, in an effort to achieve and maintain focus in essential operations.

Before Gerstner, IBM seemed to exist in the shadow of its founder, Thomas J. Watson, Sr., a self-made man who engendered a culture of respect, hard work, and ethical behavior at his company. Watson deliberately and systematically institutionalized three Basic Beliefs that had made IBM successful under his stewardship:

  • Excellence in everything we do.
  • Superior customer service.
  • Respect for the individual.

In order to breath some fresh air into the organization, Gerstner did away with the Basic Beliefs, pointing instead to eight principles:

  • The marketplace is the driving force behind everything we do. Gerstner recognized that IBM was guilty of producing confusing technology, then making it instantly obsolete. Under the first of Gerstner's principles, the company vowed to focus on serving customers and, in the process, beating the competition.
  • At our core, we are a technology company with an overriding commitment to quality. Technology was always IBM's greatest strength. Under Gerstner, the company needed to funnel that knowledge into developing products that served customer needs above all else.
  • Our primary measures of success are customer satisfaction and shareholder value. No company is a success, financially or otherwise, without satisfied customers.
  • We operate as an entrepreneurial organization with a minimum of bureaucracy and a never-ending focus on productivity. The warp-speed marketplace demands that the company accept innovation, take risks, and pursue growth, both by expanding existing businesses and finding new ones.
  • We never lose site of our strategic vision. Every business, if it is to succeed, must have a sense of direction and mission.
  • We think and act with a sense of urgency. Planning and analysis should never be carried out to the extent that the job that needs to be done now does not get done.
  • Outstanding, dedicated people make it all happen, particularly when they work together as a team. The best way to end turf wars is to cherish and reward teamwork, particularly teamwork that delivers customer value.
  • We are sensitive to the needs of all employees and to the communities in which we operate. People must have the room and resources to grow, and the communities in which we do business must become greater because of our presence.

Copyright © 2003 Soundview Executive Book Summaries

Don Imus
"The best business book I’ve ever read."

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Product Details

ISBN-13:
9780060523794
Publisher:
HarperCollins Publishers
Publication date:
11/12/2002
Pages:
372
Sales rank:
431,603
Product dimensions:
9.24(w) x 6.32(h) x 1.26(d)

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Don Imus
“The best business book I’ve ever read.”

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