Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (22 page)

In October 1995,
Business Week
published a cover story headlined

“Gerstner’s Growth Plan: Yes, the CEO does have a vision. It’s called network-centric computing.” Two weeks later, on November 13, 1995, I gave my first major, inside-the-industry keynote speech at the huge Comdex trade show in Las Vegas. At the time Comdex was the world’s largest PC love fest, and a big part of my message was that something called network-centric computing was about to end the PC’s reign at the center of the computing universe.

“I assume that all of you have at least one PC,” I said. “Most of you probably have several. Unless you’re quietly tapping on your notebook while I’m over here talking, all of those PCs are sitting idle—in your briefcase, back in your hotel room, office, in your car, or your home. Think about all that latent computing power that’s wasted, totally unused. But in a truly networked world we can share computational power, combine it, and leverage it. So this world will reshape our notions of computing and, in particular, our notions of the personal computer. For fifteen years, the PC has been a wonderful device for individuals. But, ironically, the personal computer has not been well suited for that most personal aspect of what people do: We communicate. We work together. We interact.”

Things started happening fast. Netscape had made its headline-172 / LOUIS V. GERSTNER, JR.

grabbing IPO. Microsoft had its epiphany and announced it was committing itself to the Net. There was a buzz building. On the one hand, this was good for IBM, because more voices were now extolling the virtues of a networked world. On the other hand, as more voices joined the conversation and more of our competitors jumped on the networked world bandwagon, the debates and arguments quickly overshadowed the real import and promise of the Net. Microsoft and Netscape waged a titanic battle over browsers. The telcos and new kinds of service providers were racing to connect people and businesses to the Net. Many companies, both inside and outside the IT industry, scrambled to own, leverage, and acquire “content”—news, entertainment, weather, music—thinking that the connected millions would pay to access all of this online digital information.

None of this was good for IBM. Although we wanted to be seen as a leader of this new era, we didn’t have a browser. We were already planning to sell the Global Network and exit the business of providing Internet connectivity. We said vocally and proudly that, unlike some of our competitors who were rushing headlong to launch their own online magazines and commerce sites, we were not going to compete with our customers. We weren’t going to become a digital entertainment or media company, and we weren’t going to get into online banking or stock trading.

Simply put, we had a very different view of what was really happening—about what the Net would mean for business and societal relationships. Terms like “information superhighway” and “e-commerce” were insufficient to describe what we were talking about.

We needed a vocabulary to help the industry, our customers, and even IBM employees understand that what we saw transcended access to digital information and online commerce. It would reshape every important kind of relationship and interaction among businesses and people. Eventually our marketing and Internet teams came forward with the term “e-business.”

Frankly, the first time I heard it, it didn’t do much for me. It WHO SAYS ELEPHANTS CAN’T DANCE? / 173

didn’t mean anything. I didn’t think it was particularly memorable.

Still, it had potential, and at least it had business, not technology, as its core idea. But we couldn’t just plop it into our ads, speeches, and sales calls. We had to infuse the term with meaning and get others in the industry to use it. And we had to strike a balance. We wanted to be seen as the architects of e-business—the agenda setter for this new era, but we decided not to trademark the term “e-business.”

We wouldn’t make it an exclusive IBM term or idea. It was more important to build an awareness and an understanding around our point of view. Creating that environment would require massive investments, both financial and intellectual.

Our executives first unveiled “e-business” during a Wall Street briefing in November 1996. It didn’t get a particularly enthusiastic reception. Many months later our advertising agency, Ogilvy & Mather, developed a memorable TV advertising campaign featuring black-and-white office dramas. They worked because they portrayed the confusion most customers felt about the Internet, and they also explained the Net’s real value. The commercials were an immediate hit. This was encouraging.

From there we revamped all of our marketing communications—from our trade-show presence to direct-mail campaigns.

Every senior executive made e-business a part of his or her presentations and speeches. We communicated frequently on the subject to our people so that they could understand and then evangelize.

To date IBM has invested more than $5 billion in e-business marketing and communications. That’s a lot of money, but the returns paid to our brand and our market positioning are incalculable. I consider the e-business campaign to be one of the finest jobs of brand positioning I’ve seen in my entire career.

In some ways it might have been just a little too successful. In the process of waking up the world to the idea that the Net was about business, we might have inadvertently contributed to the spectacular rise and fall of the dot-coms.

174 / LOUIS V. GERSTNER, JR.

The Emperor’s New Economy

In a way that I found astonishing (though by this time I should have known better), almost as soon as the marketplace accepted the idea that the Net was a place where real work would get done, that straightforward idea morphed into the dot-com mania of the late 1990s.

Somehow the Internet came to be seen as some kind of magic wand. In the right hands it could overturn everything from basic economics to customer behavior. It spawned a new class of born-on-the-Net competitors who were going to destroy existing brands and entire industries overnight. Remember the New Economy? It would replace old-fashioned business metrics like profit and free cash flow with “page views,” “eyeballs,” and “stickiness.”

Based on nothing more than a Web site, companies with no earnings and no prospects of ever operating in the black were awarded market valuations that exceeded many of the world’s most respected companies. If you weren’t a dot-com, prevailing wisdom said you would be dot-toast.

And so here we were, having first advanced the idea that the Net was a medium for real business, watching this wild but totally un-sustainable wave of dot-com hysteria crest, then ultimately collapse during 2000. I’d like to say something appropriately high-minded, like: “The courage of our convictions prevented us from joining this fool’s-gold rush.” In hindsight, the truth is that I’m still a little puzzled by just how easy it was for us to detach ourselves from the dot-com frenzy.

In a speech to Wall Street analysts in the spring of 1999, I had a little tongue-in-cheek fun with the very serious subject of what was real and what was simply unreal.

“These are interesting companies, and maybe one or two of them will be profitable someday. But I think of them as fireflies before WHO SAYS ELEPHANTS CAN’T DANCE? / 175

the storm—all stirred up, throwing off sparks. But the storm that’s arriving—the real disturbance in the force—is when the thousands and thousands of institutions that exist today seize the power of this global computing and communications infrastructure and use it to transform themselves. That’s the real revolution.”

What did we learn? What were the real lessons, after all the meteoric ascents and equally rapid flameouts?

For customers I think the overriding lesson was that those who didn’t get distracted and were willing to do the hard work had a once-in-a-lifetime opportunity—not just to do things better and faster, but to do things that, in fact, they’d never been able to do before. As I write this, customers continue to make major investments to drive transformation through e-business, and they will continue making those investments for the foreseeable future.

For investors as well as customers, the lesson was: no shortcuts.

I think for a lot of people, the “e” in e-business came to stand for

“easy.” Easy money. Easy success. Easy life. When you strip it down to bare metal, e-business is just business. And real business is serious work.

For IBM the lesson was about rediscovering something we’d lost.

We found our voice, our confidence, and our ability once again to drive the industry agenda. Our messaging allowed our customers to see benefits and value that were not being articulated by our competitors. The concept of e-business galvanized our workforce and created a coherent context for our hundreds of products and services. The vast new challenges of networked computing reenergized IBM research and triggered a new golden age of technical achievement for the company. Most important, the investment did what we wanted to do at the outset—reestablish IBM’s leadership in the industry.1

1For more on IBM’s view of e-business, see Appendix A.

19

Reflections on Strategy

A
s I look back on the strategic bets we made and how they’ve played out over the past nine years, I am struck by a conflicting impression. On one level so much about IBM has changed. On another level very little is different.

If you were to take a snapshot of IBM’s array of businesses in 1993

and another in 2002, you would at first see very few changes. Ten years ago we were in servers, software, services, PCs, storage, semiconductors, printers, and financing. We are still in those businesses today. Of course, some of those businesses have grown enormously.

Others have been refocused. But we have exited just a few segments of the industry. And we have not made gigantic acquisitions to launch us into entirely different industries.

My point is that all of the assets that the company needed to succeed were in place. But in every case—hardware, technology, software, even services—all of these capabilities were part of a business model that had fallen wildly out of step with marketplace realities.

There is no arguing that the System/360 mainframe business model was brilliant and correct when it was conceived some forty years ago. But by the late 1980s it had become fatally outmoded. It had failed to adapt as customers, technology, and competitors changed.

WHO SAYS ELEPHANTS CAN’T DANCE? / 177

What was needed was straightforward but devilishly difficult and risky to pull off. We had to take our businesses, products, and people out of a self-contained, self-sustaining world and make them thrive in the real world.

On a technical level, as I’ve described, this required the nontrivial task of moving our entire product line—all of our servers, operating systems, middleware, programming tools, and chip sets—from proprietary to open architectures. That alone could have killed us.

Many IT companies that have built their businesses on some proprietary product have tried to leap across that chasm. Few have made it across successfully.

This is more than a technical decision to adopt and support a bunch of industry-standard specifications. For IBM, breaking with our proprietary past meant walking away from all the historic architectural control points. It meant stepping onto a competitive playing field that was open to all comers.

The implications of this kind of leap to a company’s economic model can be devastating. In IBM’s case it meant the collapse of gross profit margins and the attendant changes we had to engineer to lower our cost structure without compromising our effectiveness.

Yet the hardest part of these decisions was neither the technological nor economic transformations required. It was changing the culture—the mindset and instincts of hundreds of thousands of people who had grown up in an undeniably successful company, but one that had for decades been immune to normal competitive and economic forces. The challenge was making that workforce live, compete, and win in the real world. It was like taking a lion raised for all of its life in captivity and suddenly teaching it to survive in the jungle.

This kind of wrenching cultural change doesn’t happen by executive fiat. As I found, I couldn’t flip a switch and alter behaviors. It was, by any measure, the hardest part of IBM’s transformation, and at times I thought it couldn’t be done.

PART III

Culture

20

On Corporate Culture

B
ack in the early 1990s, when a person saw or heard “IBM,”

what words and images came to mind? “Big computers,”

“PC,” and “ThinkPads,” maybe. But inevitably they would also think

“big company,” “conservative,” “regimented,” “reliable,” and “dark suits and white shirts.”

What’s interesting is that these latter descriptions refer not to products or services, but to people and a business culture. IBM may be unique in this regard; the company has been known as much for its culture as for what it made and sold. Even today if you pause and think “IBM,” chances are you’ll think of attributes (hopefully, very positive ones!) of a kind of enterprise and its people rather than of computers or software.

I have spent more than twenty-five years as a senior executive of three different corporations—and I peeked into many more as a consultant in the years before that. Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s makeup and success—along with vision, strategy, marketing, financials, and the like. I might have chronicled the positive and negative cultural attributes of my companies (“positive” and “negative” from the point of view of driving marketplace

182 / LOUIS V. GERSTNER, JR.

success). And I could have told you how I went about tapping in-to—or changing—those attributes.

The descriptions would have been accurate, but in one important respect I would have been wrong.

I came to see, in my time at IBM, that culture isn’t just one aspect of the game—it
is
the game. In the end, an organization is nothing more than the collective capacity of its people to create value. Vision, strategy, marketing, financial management—any management system, in fact—can set you on the right path and can carry you for a while. But no enterprise—whether in business, government, education, health care, or
any
area of human endeavor—will succeed over the long haul if those elements aren’t part of its DNA.