I said we didn’t need a vision right now because I had discovered in my first ninety days on the job that IBM had file drawers full of vision statements. We had never missed predicting correctly a major technological trend in the industry. In fact, we were still inventing most of the technology that created those changes.
However, what was also clear was that IBM was paralyzed, unable to act on any predictions, and there were no easy solutions to its problems. The IBM organization, so full of brilliant, insightful people, would have loved to receive a bold recipe for success—the more sophisticated, the more complicated the recipe, the better everyone would have liked it.
It wasn’t going to work that way. The real issue was going out and making things happen every day in the marketplace. Our products weren’t bad; our people were good people; our customers had long, successful relationships with us. We just weren’t getting the job done. As I said frequently to IBMers those days, “If you don’t like the pain, the only answer is to move the pain onto the backs of your competitors. They’re the ones who have taken your market share. They’re the ones who have taken away your net worth. They’re the ones who made it more difficult to send your children and grandchildren to college. The answer is to shift the pain to them and return IBM to a world of success.”
Fixing IBM was all about execution. We had to stop looking for people to blame, stop tweaking the internal structure and systems.
I wanted no excuses. I wanted no long-term projects that people could wait for that would somehow produce a magic turnaround.
I wanted—IBM needed—an enormous sense of urgency.
What the pundits also missed was that we had already made some very fundamental strategic decisions that were the early elements of a vision. I did not talk about them in that July meeting—at least, I didn’t talk about them as forthrightly as I might have—be
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cause I did not want our competitors to see where we were going.
The key strategic decisions that were already made before that eventful day were extraordinarily significant in the turnaround of IBM. They were:
• Keep the company together and not spin off the pieces.
• Reinvest in the mainframe.
• Remain in the core semiconductor technology business.
• Protect the fundamental R&D budget.
• Drive all we did from the customer back and turn IBM into a market-driven rather than an internally focused, process-driven enterprise.
You could argue that a lot of these decisions represented a return to IBM’s Watson roots. However, to have announced in July 1993 a strategy built around past experience would have subjected us to gales of laughter that would have blown around the world. If the last thing IBM needed in July 1993 was a vision, the second last thing it needed was for me to stand up and say that IBM had basically everything right and we would stand pat but work harder. That would have had a devastating effect on all our constituents—customers, employees, and shareholders.
So the truly unique challenge of my first few months at IBM was to reject the knee-jerk responses that would have destroyed the company, and to focus on day-to-day execution, stabilizing the company while we sought growth strategies that would build on our unique position in the industry. Those were not to come until a year later.
7
Creating the
Leadership Team
A s 1993 drew to a close, I turned my attention increasingly to the overall IBM team, my top management team, and our Board of Directors.
If you ask me today what single accomplishment I am most proud of in all my years at IBM, I would tell you it is this—that as I retire, my successor is a longtime IBMer, and so are the heads of all our major business units.
I think it would have been absolutely naïve—as well as dangerous—if I had come into a company as complex as IBM with a plan to import a band of outsiders somehow magically to run the place better than the people who were there in the first place. I’ve entered other companies from the outside, and based on my experience, you might be able to pull that off at a small company in a relatively simple industry and under optimal conditions. It certainly wasn’t going to work at IBM. It was too big and too complex a structure.
More important, the company was brimming with talented people who had unique expertise. If I didn’t give the players on the home team a
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chance, they’d simply take their talent and knowledge and go somewhere else. I just had to find the teammates who were ready to try to do things a different way.
We had many big-stakes business decisions to make, so deciding whom I was going to trust was critically important. There is no easy way to do this. Building a management team is something you have to do business by business, person by person, day by day. I read their reports. I watched them interact with customers. I sat with them in meetings and evaluated the clarity of their thinking and whether they had the courage of their convictions or were weather-vanes ready to shift direction if I scowled or raised an eyebrow. I needed to know they were comfortable discussing their business problems candidly with me.
When I disbanded the Management Committee during my first month, it was a loud statement that there were going to be major changes in the managerial culture of IBM. However, I still needed a top-level executive committee to work with me to run the company, so in September I created the Corporate Executive Committee, which overnight was widely renamed “the CEC.” It had eleven members, including myself.
With an eye to the old Management Committee, I also announced what the CEC would not do: It would not accept delegation of problem solving. It would not sit through presentations or make decisions for the business units. Its focus would be solely on policy issues that cut across multiple units.
It wasn’t long before the company’s culture decided that the CEC
had fully replaced the MC as the ultimate honorific the company could bestow. I have never viewed getting a seat on a committee as something a successful person should truly value. However, sometimes you have to work within the existing system. If all the talented IBMers wanted to work harder in order to get a seat on the CEC, under the circumstances that was okay with me.
At the same time, I created a Worldwide Management Council
WHO SAYS ELEPHANTS CAN’T DANCE? / 75
(WMC) to encourage communication among our businesses. The WMC had thirty-five members and was to meet four or five times a year in two-day sessions to discuss operating unit results and company-wide initiatives. In my mind, however, its primary purpose was to get the executive team working together as a group with common goals—and not to act as some United Nations of sovereign countries. These meetings represented a chance for our top executives to grab one another and say “I’ve got a great idea, but I need your help.”
Building a New Board
One of the most revolutionary, but least noticed, changes in the early days involved the Board of Directors. When I arrived there were eighteen directors, including four insiders: John Akers, Jack Kuehler, John Opel (IBM’s CEO before Akers), and Paul Rizzo. I thought this was an unwieldy size with too many insiders, particularly given the dominance of current and former employees on the powerful Executive Committee.
Clearly the CEO search, the media’s public flogging of the company, and the sharp, extended criticism at the annual meeting had traumatized many members of the board. I quietly approached a few of them, especially Jim Burke and Tom Murphy, for a series of discussions on corporate governance.
With my encouragement, the Directors’ Committee decided it would announce that the board should be reduced in size to make it more manageable. At the same time, we would add new people to bring in some different perspectives. After the announcement, it didn’t take anyone more than a minute to realize that meant a significant amount of retirements would be in order.
I think most of the directors had mixed feelings about stic
king around at that point, and some welcomed the opportunity for a graceful exit. Burke and Murphy masterfully orchestrated a proposal that
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every director offer his or her resignation and that the Directors’
Committee would sort out the right structure for the ongoing board.
As a result, five directors left in 1993, then four more in 1994.
Murphy and Burke themselves retired, one year earlier than required by IBM’s retirement rules. Their move was a sign to the others that it was time to make room for the newcomers. A few were willing to go, but others found the process distasteful and personally difficult.
Nevertheless, we got it all done. To the amazement of everyone, there was never so much as a peep in the media.
By the end of 1994 we had a twelve-member board. I was the only insider. Only eight remained from the eighteen who had made up the board just a year before.
Starting in 1993 we began introducing newcomers, beginning with Chuck Knight, the chairman and CEO of Emerson Electric Co. I had known Chuck as a fellow board member at Caterpillar. He was tough and demanding of himself, the CEO, and his fellow board members, and I admired that. He was highly respected as one of the premier CEOs in America, and his selection was the important first step in the rebuilding of the board.
In 1994 we added Chuck Vest, president of MIT and Alex Trotman, chairman and CEO of Ford Motor Company. Cathie Black, president and CEO of the Newspaper Association of America, and Lou Noto, chairman and CEO of Mobil Corporation, joined in 1995. They were followed by Juergen Dormann, chairman of Hoechst AG, in 1996.
Minoru Makihara, president of Mitsubishi Corporation and one of the most senior business executives in Japan, joined us in 1997; Ken Chenault, president and chief operating officer (and later chairman and CEO) of American Express in 1998; and Sidney Taurel, chairman and CEO of Eli Lilly and Company in 2001.
This board has been an important contributor to our success.
Strong, involved, effective, it has consistently practiced corporate governance in a manner that meets the most rigorous standards. In fact, in 1994 the California Public Employees’ Retirement System
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(CalPERS), whose board manages one of the world’s largest public pension funds, rated the IBM board’s governance practices among the very best. Since then there has been noteworthy recognition from other organizations.
Employee Communications
At the same time we were remaking our board and senior management system, it was essential to open up a clear and continuous line of communications with IBM employees. The sine qua non of any successful corporate transformation is public acknowledgment of the existence of a crisis. If employees do not believe a crisis exists, they will not make the sacrifices that are necessary to change.
Nobody likes change. Whether you are a senior executive or an entry-level employee, change represents uncertainty and, potentially, pain.
So there must be a crisis, and it is the job of the CEO to define and communicate that crisis, its magnitude, its severity, and its impact.
Just as important, the CEO must also be able to communicate how to end the crisis—the new strategy, the new company model, the new culture.
All of this takes enormous commitment from the CEO to communicate, communicate, and communicate some more. No institutional transformation takes place, I believe, without a multi-year commitment by the CEO to put himself or herself constantly in front of employees and speak in plain, simple, compelling language that drives conviction and action throughout the organization.
For me at IBM this meant, in some respects, seizing the microphone from the business unit heads, who often felt strongly about controlling communications with “their people”—to establish their priorities, their voice, their personal brand. In some companies, at some times, such action may be appropriate—but not at the Balkanized IBM of the early 1990s. This was a crisis we all faced. We needed
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to start understanding ourselves as one enterprise, driven by one coherent idea. The only person who could communicate that was the CEO—me.
These communications were absolutely critical to me in the early days. My message was quite simple. I stood before IBM employees all over the world, looked into their faces and said, “Clearly, what we have been doing isn’t working. We lost $16 billion in three years.
Since 1985, more than 175,000 employees have lost their jobs. The media and our competitors are calling us a dinosaur. Our customers are unhappy and angry. We are not growing like our competitors.
Don’t you agree that something is wrong and that we should try something else?”
I also discovered the power of IBM’s internal messaging system, and so I began to send employees “Dear Colleague” letters. They were a very important part of my management system at IBM. I sent the first one six days after I’d arrived:
April 6, 1993
Office of the Chairman
MEMORANDUM TO: All IBM Colleagues
SUBJECT: Our Company
It wasn’t long after I arrived that I discovered on my office PC that PROFS mail is an important vehicle of communication within IBM. Thanks to all who sent greetings, best wishes, suggestions, and advice.
I’m sure you understand that I cannot reply to every message. But I did want to take this early opportunity to acknowledge some frequent, serious themes in your correspondence.
I was moved by your intense loyalty to IBM and your very clear desire to restore IBM—as quickly as possible—to market
WHO SAYS ELEPHANTS CAN’T DANCE? / 79
leadership. This has been as true of those leaving the company as of those staying here. It all underscores that our strength is indeed our people and their commitment to success.
Some of you were hurt and angered by being declared
“surplus” after years of loyalty, and by some reports in the press about performance ratings.
I am acutely aware that I arrived at a painful time when there is a lot of downsizing. I know it is painful for everyone, but we all know, too, that it is necessary. I can only assure you that I will do everything I can to get this painful period behind us as quickly as possible, so that we can begin looking to our future and to building our business.
I want you to know that I do not believe that those who are leaving IBM are in any way less important, less qualified, or that they made fewer contributions than others.
Rather, we ALL owe those who are leaving an enormous debt of gratitude and appreciation for their contributions to IBM.
Finally, you’ve told me that restoring morale is important to any business plans we develop. I couldn’t agree more. Over the next few months, I plan to visit as many of our operations and offices as I can. And whenever possible, I plan to meet with many of you to talk about how together we can strengthen the company.
Lou Gerstner
The reaction from IBM employees was overwhelmingly positive and, for me during the dark, early days, a source of comfort, support, and energy. Said one:
Tears of joy came to my eyes.
Another wrote to me, simply:
80 / LOUIS V. GERSTNER, JR.
Thank you, thank you, thank you. Sanity is returning to IBM.
At the same time, IBM employees were never afraid to speak their minds when it came to expressing feelings of opposition. I got e-mail messages so frank, so candid, so blunt—well, I’ll just say that when I was younger, I would never have sent such messages to my boss, much less the CEO. One employee wrote to me: GIMME A BREAK. Do some real work. Cut the order cycle time. Get the new products on the market. Find new markets.
Listen to the folks that are not our current customers but would be if we had products for them.
Stop this bleeding heart stuff. Do things that will keep you from having to trash more and more people every 6 months.
Another greeted my arrival this way:
Welcome and don’t worry about not knowing very much about microchips, just as long as you don’t get them mixed up with chocolate chips.
One employee, even as his employer was burning and sinking to the delight of our competitors, had the time and inclination to cri-tique my entire visit to an IBM facility:
There were three areas in which I thought your attitudes and perspectives could be healthier. You come across as so accessible and willing to accept feedback that I feel comfortable sharing them with you in a note.
1—You gave a pecking order of importance for IBMers; first, the Customer, second IBM, third one’s own unit. This sounds like a McKinsey hierarchy. I submit a more appropriate number one on the list, and an IBM tradition, is one’s self—the rest of the list
WHO SAYS ELEPHANTS CAN’T DANCE? / 81
could stay the same. Respect for the individual is fundamental to health, whether it be the health of an individual, of an organization, or of a society. (The McKinsey hierarchy, in which the individual is somewhere after Customer and company, burns out employees and their families.)
You described the need for us to examine ourselves and the way we’ve been doing business. I also value self-reflection and suggest the following as areas in which you may benefit from introspection. (These are opportunities for you to lead by example.)
2—You seemed to want to compete and placed a great deal of importance on beating the competition. I recognize this attitude is culturally endorsed, but I also believe it is unnecessary, unhealthy, and less productive than other forms of social interactions. For example, the competitive mindset within IBM
(IBMers beating IBMers) is something you railed against. You also emphasized the need to delight Customers. I agree with that as a goal and submit that it is a different goal from “beating the competition.” Processes we craft to reach these goals would be different. If we aren’t clear about our goal, we will most likely fail to develop sound processes to achieve it.
A couple of particulars in this area. You mentioned “beating the stuffing” out of someone and “ripping off their face.” Don’t these sound like unhealthy attitudes? These “someone’s” are people with friends and families. They may even be your friends and relatives. Competition, a structure and attitude in which involved parties try to prevent each other from reaching their goal is, at its very core, disrespectful of the individual.
Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change Page 8