Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (11 page)

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

78 / LOUIS V. GERSTNER, JR.

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.

I had sent you an audiotape on this topic (“Cultural Heresy: The Case Against Competition”) and a short description of the tape. Apparently the tape and letter were intercepted by an administrative assistant and never reached you. If you are interested in exploring this topic further, I can resend you the tape.

You claimed that the most important measurement of our 82 / LOUIS V. GERSTNER, JR.

success was the percentage of the information technology budget we had for each Customer. This seems to me to be a case of limited thinking. A percentage is finite and can never get larger than 100. Using this metric, any gains one company makes has to be at the expense of one or more other companies.

If we think expansively, if we think about how we can make the pie bigger, then everyone could experience a win. For instance, if there is more money spent on information technology because of its increasing value, we could be losing percentage points while growing and making more money. (I suspect we were losing percentage points in the early ’80s when we were expanding and making $1 billion a quarter.) Conversely, how interested are we in achieving 100% of the market for card readers?

Though I’ve focused on the “areas of improvement” in this note, I want to re-emphasize that I admire and respect you for the job you’ve already done and are doing. I’m looking forward to working with you.

[Name deleted]

P.S.—I don’t know if it’s true, but I heard that in preparation for your visit to the (Raleigh, North Carolina) site, the route you would take was planned and the halls you would walk down or see had their walls painted and new carpeting laid. I was wondering if you knew whether or not this was true and if it was true, what you thought about it.

Sometimes I had to bite my tongue—almost in half. All I can say is, it was a good thing for some people that I was too busy to reply to all my e-mail!

8

Creating a Global

Enterprise

W
hat we had done thus far was to put out the fire. Now we needed to rebuild the fundamental strategy of the company. That strategy, as I had been saying for six months, was going to revolve around my belief that the unique opportunity for IBM—our distinctive competence—was an ability to integrate all the parts for our customers.

However, before I could integrate for our customers, I first had to integrate IBM! So, as our strategy people worked on fleshing out short- and long-term plans, I turned my attention to three areas that, if not fundamentally changed, would disable any hope of a strategy built around integration: organization, brand image, and compensation.

Remaking the Organization

IBM is arguably the most complex organization anywhere in the world outside government. It is not just its sheer size ($86 billion in 84 / LOUIS V. GERSTNER, JR.

2001 sales), nor its far-flung reach (operating in 160-plus countries).

What drives IBM’s unique complexity is twofold. First, every institution and almost every individual is an actual or potential customer of IBM. In my previous occupations, we could always identify a dozen or so key customers in one or two industries that really defined the marketplace. Not so at IBM. We had to be prepared to serve every institution, every industry, every type of government, large and small, around the globe.

The second complexity factor is the rate and pace of the underlying technology. Again, in prior incarnations, my management team and I could identify four or five companies or organizations that had been our competitors for the past twenty years and would probably continue to be our competitors for the next twenty. In the information technology industry, literally thousands of new competitors sprang up every year—some in garages, some in universities, some in the hearts and minds of brilliant entrepreneurs. Product cycles that used to run for ten years dwindled to nine or ten months. New scientific discoveries overwhelmed planning and economic assumptions on a regular basis.

It is not surprising, therefore, that in the face of this large global span and uniquely diverse set of customers and an ever-changing technological base, organizing IBM was a constant challenge.

One other factor made it particularly interesting—the nature of the IBM employee base. We are not a company of management and workers. We are a company of 300,000-plus professionals, all of whom are bright, inquisitive, and (alas) opinionated. Everybody had his or her view of what the first priority should be and who should manage it.

As IBM grappled with this recipe for cacophony, the company evolved over the years in two directions: powerful geographic units that dealt with IBM’s global reach, and powerful product divisions that dealt with the underlying technological forces. Missing from this structure was a customer view. The geographic regions, for the most

WHO SAYS ELEPHANTS CAN’T DANCE? / 85

part, protected their turf and attempted to own everything that went on in their region. The technological divisions dealt with what they thought could be built, or what they wanted to build, with little concern about customer needs or priorities.

I had experienced this firsthand at American Express and was determined to see it changed soon. There had been eleven different currencies in which the American Express Card was issued when I arrived; there were more than twenty-nine when I left. As we moved the Card around the world, we needed common systems from IBM, our primary information technology vendor, and we needed support in every major country in the world.

I was always flabbergasted to find that when we arrived in a new country (Malaysia or Singapore or Spain), we had to reestablish our credentials with the local IBM management. The fact that American Express was one of IBM’s largest customers in the United States bore no value to IBM management in other countries. We had to start over each time, and their focus was on their own country profit and loss, not on any sense of IBM’s global relationship with American Express.

The same was true of products. Products used in the United States were not necessarily available in other parts of the world. It was enormously frustrating, but IBM seemed to be incapable of taking a global customer view or a technology view driven by customer requirements.

One of my first priorities was to shift the fundamental power bases inside IBM. In the United States alone, there was a national headquarters, eight regional headquarters, multiple area headquarters under the regions, and, finally, local units called “trading areas.”

Each was run by a profit center boss who sought aggressively to increase his or her own resources and profits. Say a banking client in Atlanta wanted a solution involving retail banking. Never mind that the best banking experts were in New York City or Chicago.