Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (14 page)

Also, we changed benefits because the old system was geared to the company’s prior commitment to lifelong employment—for example, the bulk of pension benefits accrued after thirty years of service.

102 / LOUIS V. GERSTNER, JR.

The new IBM was not a place where jobs could be guaranteed for life (nor was the old IBM after it got in trouble). So we had to create benefits programs that were more appropriate to a modern workforce.

Some of these benefits changes created a great furor among a small group of IBM employees, but the vast majority of IBMers unselfishly understood that the changes were absolutely necessary for the company to survive and grow. More important, IBMers at all levels embraced the overall shift in compensation philosophy—fewer paternal benefits, but a far larger opportunity for everyone to participate in the rewards of our success through variable pay programs, stock-purchase and -option plans, and performance-based salary increases.

Postscript: The First Year Ends

The first year ended on a very sad note: the death of Tom Watson, Jr., in December 1993. I had seen Tom only one more time after he had ridden to work with me that morning in April. He expressed his delight that I had decided to keep the company (he again called it “my company”) together.

As I sat in my pew at his memorial service, I couldn’t help but wonder what he might have thought about the massive changes we had made in only nine months, and the reactions—both positive and negative—to these changes expressed by employees and outsiders.

I found myself wishing that Tom and I had had a chance to have lunch or dinner to talk about the “new Blue” that was beginning to emerge but still had so very far to go. I felt strongly that like most other great people who built great things, Tom Watson was at heart an agent of change.

Exhausted but encouraged, I flew to Florida for my annual Christmas vacation on the beach. I had a lot to think about.

11

Back on the Beach

O
n a gray morning ten months after I had taken that walk on the beach in Florida, thinking about my conversations with Jim Burke and deciding whether or not to parachute into IBM, I found myself back on the same beach, mulling over the extraordinary events that had transpired since that time.

I had to admit, I felt pretty good. Few had given us any chance of saving IBM, but I knew now that the company was going to make it. We’d stopped the bleeding, reversed the breakup plan, and clari-fied IBM’s basic mission. The holes in the hull had been patched. This ship was not going to sink.

My thoughts turned to what lay ahead. What would Act II look like? Logic and my own experience dictated a straightforward set of priorities: Invest in new sources of growth, build a strong cash position, and do a more rigorous assessment of our competitive position.

However, doing all of that wasn’t enough. Even if we restored growth, even if we built up some momentum with customers, and even if we made the company more efficient and less bureaucratic—that wouldn’t truly bring IBM back. For IBM’s turnaround to be successful, this company would have to regain its former position of

104 / LOUIS V. GERSTNER, JR.

leadership in the computer industry and in the broader world of business.

I can’t remember whether I smiled, laughed, or shook my head.

But that question—Could IBM lead again?—gave me pause. Certainly it would be easy, and expected, for the CEO to declare that the company would lead again. But as I thought about what it would actually take for that to happen, all of my original doubts about accepting this job came flooding back.

First of all, the track record of IT companies that had been pulled back from the brink was dismal. I thought of Wang, Data General, Sperry-Burroughs (today’s Unisys), DEC. Even when companies were rescued, they usually survived as also-rans or found another partner to merge with or put themselves up for sale.

Most troubling was the computer industry’s trajectory. Basically, it was moving away from IBM’s traditional strengths. The PC wasn’t an endgame, and the mainframe wasn’t dead. But it was obvious that in the emerging computing model—of which the PC had been a harbinger—power was migrating rapidly away from centralized computing systems and traditional IT. And this was, in turn, changing the mix of IT customers. IBM sold to large businesses, governments, and other institutions. But more and more, IT was being bought by consumers, small businesses, and department heads inside big companies.

The emerging computer model was also changing what those customers were buying. We built industrial-strength, behind-the-scenes computers and software while the world, it seemed, was moving to desktop, laptop, and palmtop. All of our research and development, engineering, and rigorous testing ensured that our product never went down. Reliability, dependability, and security—these were the bedrock of IBM’s brand. But people didn’t seem to mind rebooting their PCs three times a day.

We sold through a direct sales force—the vaunted, blue-suited IBM customer representative; part salesperson, part business and tech

WHO SAYS ELEPHANTS CAN’T DANCE? / 105

nology consultant. A tremendous asset, but also the most expensive way to sell any product or service. The market was abandoning that model and going to retailers and toll-free numbers.

Overall, the tasks we were being asked to take on were spreading beyond the domain of the CIO and into every corner of business operations—places where IBM had not, in general, ventured and where we lacked strong customer relationships. And, most omin-ously, value and profit margins were shifting away from hardware, which was becoming more commoditized, and toward software (and, it was beginning to appear, toward services).

Then, look at who we were up against! The people running our competition were, without doubt, the next generation of hyper-capitalists: Bill Gates, Steve Jobs, Larry Ellison, and Scott McNealy.

These guys were hungry, and they stayed hungry no matter how much wealth they accumulated. And it was awe-inspiring the way they ran their companies, the people they attracted, how they paid them, their work ethic—young, aggressive, flexible, willing to work around the clock. The whole Silicon Valley ethos—lightning speed to market with just-good-enough products—wasn’t simply foreign to IBM, it was an entirely new game.

Even without considering this formidable competition, our own strategy raised some daunting implications. What we had done so far to unify IBM—reorganizing around industries rather than countries, consolidating our marketing, and changing our compensation plans—had been relatively easy to accomplish. What lay ahead—devising a strategy for a fundamentally new world and reinventing an encrusted culture from the DNA out—that was a challenge of a vastly different order.

I asked myself: “How did I get into this? Is it an impossible task?”

It would be hard to say no with a straight face, even to my closest colleagues. I could see clearly what the remaining four years of my contract would look like. We had a chance to grow. Maybe we could 106 / LOUIS V. GERSTNER, JR.

take on and displace a few competitors in some segments. But lead the industry? That mountain looked too high to climb. And if I set that task as the goal, I stood a very good chance of failing—very visibly.

I walked more, thought more, and the clouds began to clear. Yes, those were daunting obstacles, but wasn’t that why I’d come here?

Didn’t this make the challenge that much more intriguing?

And wasn’t it worth the risk? If we didn’t aspire to leadership, one thing was clear: The company would never really come together, never really achieve its potential. And that would be a shame.

I recalled the comment Jim Burke had made about IBM’s being a national treasure. In fact, Burke was just one of several people who had expressed that phrase to me. Shortly after the announcement of my appointment, I had run into Joshua Lederberg, a research ge-neticist and Nobel laureate on the street in Manhattan. I knew him from the board of Memorial Sloan-Kettering Cancer Center. “You’re going to IBM,” he’d said to me. I’d said I was. “It’s a national treasure,” he’d said. “Don’t screw it up.”

At the time, I thought this reverence was a bit over the top. Up to that point in my career, I had dealt mostly with businesspeople who were motivated by basically two things: money and power. And we were in the midst of one of the most swashbuckling eras in the history of commerce. In contrast, when I got to IBM, I felt as though I had entered a time warp and gone back to the 1950s.

The fact was, IBM had grown on me. I had come to understand what Jim Burke and Dr. Lederberg meant. The corporation
was
important—not only in what it did for customers and governments and universities, and not only for what it invented, impressive and meaningful as those accomplishments were. It was also important for the kind of corporate behavior to which it aspired. IBMers were battered, bruised, and confused. Many had retreated into a self-protective shell. But underneath that, they were still motivated by a genuine love of their company and of doing the right thing.

WHO SAYS ELEPHANTS CAN’T DANCE? / 107

You could make fun of IBM all you liked. (Our competitors certainly did.) But for issues that really mattered—when it was a question of national defense, or our children’s health, or serious scientific discovery—IBM was essential. Forgive my hyperbole, but in an industry increasingly run by mad scientists and pied pipers, we
needed
to succeed.

I hadn’t left consulting and gone into management just to be Mr.

Fix-It or simply for the pleasure of getting into the game. More than anything, I like to win. But the issue here went beyond winning. For the first time in my career, I was in a position to make a different kind of mark, to help something truly important live and thrive. I wasn’t going to walk away from that. As I headed back to our family’s beach house, I began to feel intense excitement. I told myself:

“You know, we could actually pull this off!”

So the die was cast. I’d concluded it was insufficient—for me personally and for the institution—to call it a day after battling back from IBM’s near-death experience. We were going to take our best shot at making the long climb back to industry leadership.

Heading into IBM, I would have bet large sums of money that these frenetic early months of decision making and action taking to stabilize the patient would be the hardest work of my professional career. I would have bet wrong. It had been difficult, even painful.

The issues, however, were reasonably obvious, the problems were easy to parse, and the remedial actions were straightforward.

Now, after nearly a decade of subsequent work—and with the benefit of a little distance from the day-to-day existence of the CEO—I can say without hesitation that what came next was far more difficult.

If nothing else, those first twelve to eighteen months at least had the benefit of adrenaline-stoked intensity—many highs, an equal number of lows, but never time to celebrate one or dwell on the other because we were literally in a situation in which every minute counted.

What I’d come to realize during this second walk on the beach 108 / LOUIS V. GERSTNER, JR.

was that after all that initial work had been completed, we’d gotten ourselves only to the starting line. The sprint was over. Our marathon was about to begin.

While the issue was no longer as stark as the demise or survival of IBM, the ultimate fate of this “national treasure” was far from settled. What would happen through the second half of the 1990s would determine whether IBM was merely going to be one more pleasant, safe, comfortable—but fairly innocuous—participant in the information technology industry, or whether we were once again going to be a company that mattered.

The outcome of that race has been abundantly documented. By 1997 we’d declared the IBM turnaround complete. Inside the company we were talking openly about getting back on top and once again setting the agenda for our industry—aspirations that, when we began, would have seemed excessively ambitious at best, delusional at worst.

Before I stepped away in March 2002, we were number one in the world in IT services, hardware, enterprise software (excluding PCs), and custom-designed, high-performance computer chips (see Chapter 16). The IBM team had staged comebacks in multiple markets where we’d previously been getting sand kicked in our faces. We’d revamped and reinvigorated traditional product lines, launched new growth businesses, and jettisoned several others that were vestiges of the earlier era.

At a higher level, we had articulated and then led the future direction of the industry—a future in which business and technology would not be separate tracks but intertwined; and a future in which the industry—in a remarkable about-face—would be driven by services, rather than hardware or software products. We’d coined the term “e-business” and played a leadership role in defining what was going to matter—and what wasn’t—in a networked world.

The IBM workforce increased in size by about 100,000 people. Our stock split twice and increased in value by 800 percent. Our tech WHO SAYS ELEPHANTS CAN’T DANCE? / 109

nical community ushered in a new golden age of IBM research and development and earned more United States patent awards than any company for nine years running. We even connected supercom-puting with pop culture when a machine named Deep Blue defeated chess grandmaster Garry Kasparov.

In short, once we got back on our feet, shook off the stigma of squandering a seemingly unassailable leadership position, and decided that just maybe our best days were yet to come, the IBM team responded magnificently—just as it had through even the darkest days early in the transformation.1

What follows in the next part of this book—the Strategy section—is a change of pace. I could not provide (nor would you want to read) an event-by-event or month-by-month recounting of all that was done to effect the strategic redirection of IBM. My intent is to provide a summary description of the most important strategic changes.

Some can be declared successes; others remain works in progress.