Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (16 page)

In the early 1990s the fortunes of the lead horses, in one way or another, were all related to the PC. Of course, that included the PC

makers like Dell and Compaq. But without question the dominant leaders were Microsoft, which controlled the desktop operating system, Windows; and Intel, which made the microprocessors. To illustrate the influence these companies wielded, the tandem of Microsoft’s Windows and Intel’s chips became known as the “Wintel duopoly.”

122 / LOUIS V. GERSTNER, JR.

So there was IBM, the company that had led the prior phase of computing and had invented many of the industry’s most important technologies, crawling out of bed every morning to find its relevance marginalized by the darlings of desktop computing. The people who had built the systems used by multinational corporations, universities, and world governments were now following the lead of purvey-ors of word processors and computer games. The situation was embarrassing and frustrating. However, no matter how miserable the present seemed, the future looked even worse.

Their Real Motive

No one believed the PC companies would be content to be king-pins of the desktop. Their aspirations reached right to the heart of IBM’s franchise—the large servers, enterprise software and storage systems that anchored the business computing infrastructure. The very name of the new computing model they envisioned—“client/server” computing—revealed their worldview and bias. The

“client” referred not to a person, but to the PC. The “server” described mainframes and other business systems that would be in service of the client—providing applications, processing, and storage support for hundreds of millions of PCs each day.

The PC leaders’ pitch to business customers was simple and compelling: “You want your employees to make productive use of your business data, applications, and knowledge, which are tied up on old back-office systems. Right now those systems and your PCs don’t work together. Since all of your PCs are already Microsoft and Intel machines, you should put in back-office systems that use the same technology.”

It was easy to play out the scenario. The PC leaders would march relentlessly up from the PC into business computing and displace IBM

WHO SAYS ELEPHANTS CAN’T DANCE? / 123

products, along with those of vendors like Sun, HP, Digital Equipment, and Oracle. Many of IBM’s traditional competitors threw in the towel and joined the duopoly team. It would have been easy to follow HP and UNISYS and all the rest down this path. All of the pundits who followed the industry saw the dominance of this model as inevitable.

It would also have been easy simply to be stubborn and say that the changeover wasn’t going to happen, then fight a rear-guard action based on our historical view of a centralized computing model.

What happened, however, is that we did neither. We saw two forces emerging in the industry that allowed us to chart a very different course. At the time, it was fraught with risk. But perhaps because the other alternatives were so unpalatable, we decided to stake the company’s future on a totally different view of the industry.

The first force emanated from the customers. I believed very strongly that customers would grow increasingly impatient with an industry structure that required them to integrate piece parts from many different suppliers. This was an integral part of the client/server model as it emerged in the 1980s. So we made a bet—one that, had we articulated it loudly at the time, would have left our colleagues in the industry rolling in the aisles.

Our bet was this: Over the next decade, customers would increasingly value companies that could provide solutions—solutions that integrated technology from various suppliers and, more important, integrated technology into the processes of an enterprise. We bet that the historical preoccupations with chip speeds, software ver-sions, proprietary systems, and the like would wane, and that over time the information technology industry would be services-led, not technology-led.

The second force we bet on was the emergence of a networked model of computing that would replace the PC-dominated world of 1994.

Let me briefly describe our thinking at the time.

124 / LOUIS V. GERSTNER, JR.

A Services-Led Model

As I stated earlier, I believed that the industry’s disaggregation into thousands of niche players would make IT services a huge growth segment of the industry overall. All of the industry growth analyses and projections, from our own staffs and from third-party firms, supported this. For IBM, this clearly suggested that we should grow our services business, which was a promising part of our portfolio, but which was still seen as a second-class citizen next to IBM’s hardware business. Services, it was pretty clear, could be a huge revenue growth engine for IBM.

However, the more we thought about the long-term implications of this trend, an even more compelling motivation came into view.

If customers were going to look to an integrator to help them envision, design, and build end-to-end solutions, then the companies playing that role would exert tremendous influence over the full range of technology decisions—from architecture and applications to hardware and software choices.

This would be a historic shift in customer buying behavior. For the first time, services companies, not technology firms, would be the tail wagging the dog. Suddenly, a decision that seemed rational and straightforward—pursue a growth opportunity—became a strategic imperative for the entire company. That was our first big bet—to build not just the largest but the most influential services business in the industry.

A Networked Model

The second big bet we placed was that stand-alone computing would give way to networks.

That may not sound like a very big or risky bet today. But, again, WHO SAYS ELEPHANTS CAN’T DANCE? / 125

this was in the context of the 1994 time frame, well before the Internet became mainstream. The first rumblings of change were there. You could find certain industries, particularly telecommunications, that were buzzing about the “information superhighway,” a dazzling future of high-speed broadband connections to the workplace, home, and school. If this kind of “wired world” came about, it would change the way business and society functioned.

It would also change the course of computing in profound ways.

For one thing, it was virtually certain that world would be built on open industry standards. There would be no other way to fulfill the promise of ubiquitous connections among all the businesses, users, devices, and systems that would participate in a truly networked world. If that standards-based world came to pass, it would represent a major shift in the prevailing competitive landscape.

In any other industry, we
assume
the existence of common standards. We take it for granted that unleaded gas will work in all gasol-ine-powered cars. We don’t think about plugging in appliances or screwing in lightbulbs or turning on faucets. Everything of this nature works because the various manufacturers and service providers in those industries agreed to common standards long ago.

Believe it or not, that’s not how things have worked in the IT industry. Based on my experience, it was the only industry on earth where suppliers built products to be compatible with their own gear but not with anyone else’s. Once you bought one part of a manufacturer’s product line, you were locked in to everything else they made.

Imagine, for example, buying a car and discovering you could purchase new tires, spark plugs, filters, accessories, and even the gasol-ine only from that car’s manufacturer.

Of course, I learned that this proprietary model was rooted in IBM’s runaway success of the 1960s and 1970s. Other companies—most notably Microsoft—later emulated and perfected this approach and then doggedly refused to abandon it, for precisely the same reason that IBM initially resisted the tug of the UNIX marketplace. Open com

126 / LOUIS V. GERSTNER, JR.

puting represented a gigantic competitive threat to any company whose business model depended on its ability to control customers based on “choke points” in the architecture.

Fortunately, by the 1980s there were pockets of radical thought inside IBM that were already agitating for the company to join the open movement. And by the mid-1990s, we’d mounted the massive technical and cultural effort required to repudiate closed computing at IBM and open up our products to interoperate with other industry-leading platforms.

Then along came the networked world. If that interconnected, standards-based world took hold, Microsoft would be the most vulnerable. Its insatiable ambitions notwithstanding, not every piece of digital equipment in the world could be part of one architecture, controlled by one company.

Implications of a Post-PC World

There were further implications of a networked world. The PC

would be pushed off center stage. Very fast, high-bandwidth networks would allow many of the PC’s functions to be performed by larger systems inside companies and the network itself. This system would allow an untold number of new kinds of devices to attach to networks—intelligent TVs, game consoles, handheld devices, cell phones, even household appliances and cars. The PC would be one—but only one—of many network access devices. And if the world was going to be populated by billions of different kinds of computing devices, there would be huge demand for customized chips to power each of these unique devices.

More important for IBM, increasing numbers of people and enterprises conducting business over networks would drive a correspond-ing increase in computing workloads. The difficult task of managing all of that free-flowing digital information certainly was WHO SAYS ELEPHANTS CAN’T DANCE? / 127

not going to be done on desktop computers. Those workloads would have to be handled by large-scale systems—meaning huge demand for computing infrastructure products, in addition to networking gear.

Finally, this new landscape would change who made technology buying decisions. In a PC and client/server world, consumers, end-users, and small-department heads were in the driver’s seat. But with the action shifting back to enterprise systems and mainstream business strategies, the decision makers would once again be chief technology officers and senior business leaders—people IBM knew and understood.

All of this wasn’t so neat, tidy, and clear to us at the time. But there were indications that the world of computing was indeed shifting in ways that, at least in theory, played to IBM’s traditional strengths and assets.

We would have to do an enormous amount of work and take significant risks—from continuing to open up all our products, to building the services business. But even the chance that the game might be thrown open to a new set of leaders was powerfully motivating. We were going to take our fate into our own hands. We were going to play offense.

14

Services-the Key

to Integration

S
ome people might have been surprised to read in the previous chapter that IBM placed a big bet on services. I mean, hasn’t IBM always been known for its doting customer support? Wasn’t superior customer service one of IBM’s cornerstone beliefs? Wasn’t IBM revered for standing by its customers no matter what happened, at any hour of the day or night?

As a customer, I always valued IBM’s attentive service. It made up for certain IBM products that weren’t quite as powerful or cost-effective as others on the market, and it (almost) justified IBM’s very high prices.

But that is not the kind of services I’m talking about here. The big bet we made was on another kind of services—services that would address customer needs that frankly didn’t exist during the 1960s, 1970s, and 1980s, prior to the Big Bang of rampant industry disaggregation. Traditionally, IBM’s services were completely tied to products—more specifically, products bearing IBM logos. If an IBM

system went down, IBM fixed it. However, if customers had a problem with a product from Digital, Compaq, or Amdahl, or if they wanted

WHO SAYS ELEPHANTS CAN’T DANCE? / 129

help installing some other company’s equipment, they had to fend for themselves. Services was an adjunct to the main product business.

Enter Dennie Welsh. As with all things in life, luck plays a big part. I got lucky twice at IBM. The first time was at a meeting in 1993

with Dennie, a long-term IBMer, who was running the services organization. The second time was the arrival of the Internet and the big bet we made on the networked world. Coincidentally, Dennie had a strong hand in that, too (more on that later).

When I arrived at IBM, Dennie was running a wholly owned IBM

subsidiary named the Integrated Systems Services Corporation. ISSC

was our services and network operations unit in the United States—a promising but minor part of IBM’s portfolio. In fact, it wasn’t even a stand-alone business in IBM. It was a sub-unit of the sales force.

No one forgets a meeting with Dennie. He’s a big man, friendly, quick to laugh, but intense. He was a former army pilot and air defense officer who’d made his IBM career in the unit that built highly technical systems for United States government projects, including the Apollo moon program. He was in the control room at Cape Kennedy for Neil Armstrong’s historic
Apollo XI
launch to the moon.

It was our first private meeting, but he didn’t waste much time on small talk. 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. Not only was he describing something I’d wanted when I was a customer (for example, I had tried unsuccessfully to outsource the running of RJR Nabisco’s data centers), but this idea meshed exactly with our strategy of integration. Here was a man who understood what customers were willing to spend money on, and he knew what that meant—not just the business potential for