Louis V Gerstner (CEO IBM 1993-2002) management style and CIOs
April 19, 2011 3 Comments
“Watch the turtle. He only moves forward by sticking his neck out.”
Sign in Louis Gerstner’s office:
THERE ARE FOUR KINDS OF PEOPLE:
THOSE WHO MAKE THINGS HAPPEN
THOSE TO WHOM THINGS HAPPEN
THOSE WHO WATCH THINGS HAPPEN
THOSE WHO DON’T EVEN KNOW THINGS ARE HAPPENING
Today’s article is the eighth in a series of articles (1st Steve Jobs, 2nd Michael Dell, 3rd Warren Buffet, 4th Bill Gates, 5th Larry Ellison, 6th Eric Schmidt, 7th CIOs and the ideal management style), analysing current and past leaders to ascertain how Chief Information Officer’s (CIOs) can learn better management by applying the management practices of leadership, practiced by these leaders.
I don’t usually read a book and write about it but I really liked Louis Gerstner’s (LG) very own style of writing and the way that he turned around IBM. In 1993, IBM was losing market share and perhaps on the verge of bankruptcy. Louis Gerstner accepted the job and walked into this situation without really knowing whether he could revive IBM to its glory days.
This series is about leadership and this is the first time I am moving away from offering my thoughts on how CIOs (and others) can apply these leadership practices within their own businesses. The main reasoning is that, I will from now on leave it to my readers to apply what they have learnt from my blog posts. I am increasingly conscious that my readership now envelops many disparate disciplines and I am grateful for that. It has always been my intention that I disseminate my knowledge to others who may benefit as well. After all, knowledge taken to the grave is knowledge lost!
For the full version, please read the book, Who says Elephants can’t dance – Inside IBM’s historic turnaround by Louis V Gerstner. I am also grateful to Harper Collins as I have used excerpts from the book itself.
PS: CIO is a generic term and other analogous titles are Head of IT, IT Director, Director of IT etc.
The Management Style
Louis Gerstner started his working in life with McKinsey & Company in 1965, joined American Express as their Head of Travel related Services Group in 1977 and accepted the CEO’s position of RJR Nabisco in 1989. Let’s see what CIOs and general management can learn from this icon of modern business and technology. (In no particular order):
1. Success in general may be built on failure:
As LG started his new job at IBM, he met with the Corporate Management Board (Top 50 executives of IBM) and told them that he had not looked for the job and took it reluctantly as he thought that the responsibility was important to the country’s competitiveness and health. He then went on to outline his expectations:
i. Eliminate bureaucracy by decentralising wherever possible while ensuring the right balance with central strategy and common customer focus.
ii. Benchmarking costs against those of competitors and then achieving best in class status.
iii. Layoffs maybe necessary (Let’s not kid ourselves)
iv. IBM management wanted to breakup IBM into smaller autonomous businesses. LG said, “Maybe that is the right thing to do, but maybe not. We certainly want decentralised, market-driven decision making. But is there not so offer comprehensive solutions, a continuum of support? Can’t we do that and also sell individual products?”
v. About morale, he said, “I want can-do people looking for short term victories and long term excitement.” He also told the audience that it would be his priority to utilise internal talent rather than bringing in outsiders.
2. How did he want to run IBM? LG -.
- “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 look 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 the 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 would say a few things. First, don’t be afraid to make mistakes. That’s how you learn, so I believe a lot in trio al and error and course corrections. Often companies are unwilling to admit when they’ve made a mistake. We tend to question things more in our business.”
3. SWOT analysis: LG pointed out five ninety day priorities on joining IBM and they were:
I. Stop the bleeding of cash as IBM is running out of money.
II. Ensure that IBM is profitable by 1994 (LG joined IBM in April 1993).
III. Develop and implement a customer strategy for the next two years (93,94) that indicated to the customers that IBM had returned and was there to serve them.
IV. Complete the ‘right sizing’ of IBM.
V. Create ‘an intermediate-term business strategy.
4. Constant analysis: With regards to mainframe pricing, LG was convinced that the reason IBM was losing out to competitors was that IBM had the pricing strategy all wrong, so he reversed it with ‘an aggressive price reduction. In addition at a conference attended by approx 175 CIOs and after listening to them during the conference, LG laid out his expectations:
I. IBM priorities would be redefined, starting with the customer.
II. IBM laboratories would be allowed to do what they wanted to do and would deliver open, distributed, user based solutions.
III. IBM would be easier to work with, would recommit to quality and re-establish its leadership position.
IV. IBM would work for the customer and deliver the performance the customer wanted.
5. Improve productivity: - As LG moved forward with re-inventing IBM, he took the following measures to improve productivity:
- All of IBM would stay together as one company and not converted into autonomous units.
- IBM economic model would be altered, such as expenses as IBM were spending 42 cents to produce $1 of revenue while its competitors were spending only 32 cents..
- Business re-engineering would be undertaken. For example processes and systems would be reviewed as internally IBM had 128 CIOs!
- Underproductive assets would be sold to generate much needed cash.
6. Business reputation and brand: IBM had never had a true Head of marketing and just like the processes and the 128 CIO scenario, marketing was controlled by countries and business units etc. That resulted in a totally disjointed marketing campaign. The new Head of marketing decided to consolidate all of IBM’s advertising relationships into a single ad agency. This spawned the “Solutions for a Small planet” and was followed by the coining of the term, “e-business.”
7. Rating of employees’ performance: – In the past, I have reviewed many CEO’s management style but Eric Schmidt’s and Louis Gerstner’s style is the closest fit to Deming’s ‘Annual rate of performance’ that I have yet come across.
“This was all about pay for performance, not loyalty or tenure. It was all about differentiation: Differentiate our overall pay based on the marketplace; differentiate our increases based on individual performance and pay in the marketplace; differentiate our bonuses based on business performance and individual contributions; and differentiate our stock-option awards based on the critical skills of the individual and our risk of loss to competition.”
8. Spotting opportunities: While looking for opportunities, LG met the Head of ISSC (IBM Subsidiary), Dennie Welsh. The opportunity that Dennie had spotted would change IBM forever. “He told me that his vision of a services company was not one that did just IBM product maintenance and strung together computer codes for customers, he envisioned a company that would literally take over and act on behalf of the customers in all aspects of information technology-from building systems to defining architectures to actually managing the computers and running them for the customers. My mind was afire. To be truly successful, we would have to do things that would shake the place to its roots. For example, the services unit would need to be able to recommend the products of Microsoft, HP, Sun and all other major IBM competitors if that, in fact, was the best solution for the customer. Of course, we would have to maintain and service these products as well.”
9. Create and nurture ‘the correct culture.’ – Watson, Sr had created the original culture of IBM but over the years, IBM personnel had moved away from the original ethos of that culture and had started to interpret it quite differently to how it was originally intended. LG made it an imperative to change the IBM culture that was a better reflection and fit for the changing times. The original culture hinged around:
- Excellence in everything we do. – This became an obsession with perfection. The culture that developed threatened to halt IBM due to checks, approvals and validation meant that decision making just ground to a halt.
- Superior customer service.- This translated into “servicing IBM machines on customers’ premises”, and as a result the customer’s real needs were usually not entertained.
- Respect for the individual. – This meant that employees expected their entitlements regardless of performance. This meant that in many instances the best people were not getting what they deserved.
10. Develop a Clear Vision–and Stick to It. – LG “I was always amazed at how many executives thought that “vision” was the same as “strategy.” Vision statements are for the most part aspirational, and they play a role in creating commitment and excitement among an institution’s employees. Good strategies start with massive amounts of quantitative analysis –hard, difficult analysis that is blended with wisdom, insight, and risk taking.”
11. Business/IT Strategy/principles: LG- “I am struck by how much of the culture change of the following ten years they describe”
LG outlined eight principles that were to envelop the business strategy and underpinned the new IBM culture.
1) The marketplace is the driving force behind everything that we do.
2) At our core, we are a technology company with an overriding commitment to quality.
3) Our primary measures of success are customer satisfaction and shareholder value.
4) We operate as an entrepreneurial organisation with a minimum of bureaucracy and a never-ending focus on productivity.
5) We never lose sight of our strategic vision.
6) We think and act with a sense of urgency.
7) Outstanding, dedicated people make it all happen, particularly when they work together as a team.
8) We are sensitive to the needs of all employees and to the communities in which we operate.
12. Be ‘shrewd’ and keep the team on its ‘toes.’ – LG – “We’re getting our butts kicked in the marketplace. People are taking our business away. So I want us to start kicking some butts-namely, of our competitors. This is not a game we’re playing. We have got to start getting out in the marketplace and hitting back hard. I can assure you, our competitors are focused maniacally on these charts, and they talk us down constantly. For example, this from Larry Ellison (CEO Oracle): “IBM? We don’t even think about those guys anymore. They’re not dead, but they’re irrelevant.”
13. Hire ‘Action’ oriented employees. – LG was once asked, “What do you really want people to do?” He answered, “Win, execute and team.”
- “WIN: It was vital that all the IBMers understand that business is a competitive activity. In the new IBM there would be no place for anyone who lacked zeal for the contest.”
- “EXECUTE: No more studying things to death. In the new IBM, successful people would commit to getting things done – fast and effectively.”
- “TEAM: This was a commitment to acting as one IBM, plain and simple.”
14. Focus: LG – “History shows that truly great and successful companies go through constant and sometimes difficult self-renewal of the base business. They don’t jump into new pools where they have no sense of the depth or temperature of the water.”
15. Quality management: LG ”But alas, too often the executive does not understand that people do what you inspect, not what you expect.”
16. Succession planning and his reputation: LG – “When IBM’s Board of Director’s considered who would succeed me, passion was high on their list of necessary attributes. Sam Palmisano (Current IBM CEO), my successor, is an extraordinary executive – a man of many talents. However, he would never have had my recommendation, despite these many talents, if he didn’t have a deep passion for IBM, for what it stands for, for what it can be, for what it can do.”
- 13 Wall Street Titans Who Are Members Of Augusta National Golf Club (businessinsider.com)
- CIOs and the ideal management style (mubbisherahmed.wordpress.com)
- Who Says Elephants Can’t Dance? (administration21.wordpress.com)
- IBM’s Sam Palmisano: A super second act (tech.fortune.cnn.com)
- Finding the Money – Be Smarter like IBM (blogs.forbes.com)
- IBM rides ‘third supercycle of growth’ (go.theregister.com)
- What’s So Hard About Being a Great Leader? (newcommbiz.com)
- Sizing Up IBM Race (online.wsj.com)
- IBM: Our appliance servers smoke Ellison’s ‘phony baloney’ (go.theregister.com)
- The Unintended Consequences of Reforming Government (ritholtz.com)