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Taking one last curtain call as his tenure comes to an end, outgoing IBM boss Louis Gerstner is going public with many recollections, observations and judgments as he promotes the memoir of his IBM years, “Who Says Elephants Cant Dance?”
His single most important decision: whether to break up the company, a choice he was faced with 60 days after he took the CEOs reins. At that time, a breakup would have been the easiest and most logical thing to do, he said. The way had been paved by his predecessor, John Akers, who had created a bevy of corporate fiefdoms that were led by executives eager to run their own firms. But as a former customer, his instincts told him that a spinout strategy would be a mistake.
“It was very counter-intuitive at the time. But as a customer, it was an easy decision. As a customer, I wanted someone to put it all [information technology] together.”
Gersters remarks came Wednesday evening at the Arco Forum on Leadership in Corporate America, a public gathering at Harvard Universitys John F. Kennedy School of Government, where he fielded questions from presidential advisor and political commentator David Gergen, who is teaching at the school, as well as from the audience.
Gerstners efforts in welding the different pieces of IBM back into a coherent whole brought him face to face with a corporate culture that, once the envy of businesses everywhere, had become ossified and in imminent danger of extinction.
“I had to grab hold of IBM and shake it. It was a deer in the headlights.”
Looking at things from a customers point of view was his tool for prodding the lethargic leviathan into action. “IBM had plenty of customer support. They were desperate for IBM to succeed,” but the company had priced its flagship mainframe computers out of the market. “Customers said they wanted to buy more mainframes, but they were too expensive. So we cut the price of the mainframe. You dont gouge customers.” Describing a mainframe power unit, he said, “Its now one one-hundredth of the cost it was” when he came to IBM.
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: Having Gotten the Elephants Attention”>
Having gotten the elephants attention, he needed a grand cause to create a sense of mission. As Gerstner put it, “I got lucky. I needed a moonshot, and along came the Internet. It just saved me.” The Internet, unlike the PC revolution, which IBM had just lost to Microsoft and a host of clonemakers, played to IBMs strengths of servers, software and integration. “It became a galvanizing force,” even though the world at large was unconvinced. “Nobody believed us because we were still viewed as a recovering alcoholic,” he told Gergen.
Keeping the company united and refocusing it around the Internet meant further transformation. “Restoring the company as a leader meant changing it from a manufacturer to an integrator,” Gerstner said. That change is still being worked out, as witnessed by the companys acquisition this year of PriceWaterhouseCoopers Consulting.
And even though employees of IBM Global Services, with the addition of PWCC workers, are now more than 50 percent of the corporate population, he said, “I dont think that IBM will ever be a services company. We will continue to invest in hardware and software.”
While piloting the company back from the brink, Gerstner took part in a five-year effort to find his successor. He compiled a list of what was needed to run IBM and fed it to the companys succession committee, which measured three or four candidates against the criteria. “We analyzed each of them against different metrics, including passion,” before settling on Samuel Palmisano, who was recently named Chairman.
Gerstner, a graduate of the Harvard Business School and a former McKinsey & Co. consultant, offered up some nuggets of management wisdom for the crowd.
On leadership, he said, “The critical task of a leader is to create a sense of crisis. No organization will change unless people believe there is real pain staying the way we are.” And people, even then, cannot be trusted to follow through. “People dont do what you expect. They do what you inspect.”
Personal commitment is critical. “Leaders must have passion; they must take risks; they must take part in what theyre leading. Who wants to work for a Wizard of Oz that hides behind a curtain?”
Corporate culture is indispensable. “Culture is everything. If it isnt right, nothing goes on.” And while corporate cultures can be beneficial in times of stability, they can be a liability when market conditions change. “The hardest organizations to change are the ones that are the most successful because they have the strongest culture.”
Although he deplored the transgressions of certain executives in recent corporate bankruptcy scandals, he warned of regulatory overreaction. “We need to make sure we dont injure the system because of a breakdown in personal ethics.”
Some in the audience raised questions about disproportionate executive compensation. Gerstner insisted that executives not be rewarded in cases of corporate failure, but asserted that successful execs, including himself, can be justly paid handsome sums because of the beneficial effects of their actions on others. “At the end of the day, 130,000 more people got jobs because of the changes we made,” he said.
Now that hes leaving, Gerstner can be candid about his encounters with the “old” IBM. The vaunted IBM dress code was an early casualty of the Gerstner era. “The IBM dress code was eminently sensible 60 years ago. You dressed like your customer, and your customer was a banker who wore a blue suit.” IBMers still need to dress like their customers, but today IBM customers might wear blue jeans and white socks, he said.
Gerstner also confessed to an acute sense of doubt when he started the job. Having turned the job down three times, he finally accepted but could not explain why. “I was scared. Im not really sure why I took the job. An $80 billion company that was hemorrhaging cash was daunting to say the least.”
When Gerstner reported to work his first day, the door was locked. He had no badge to gain entry, so he began pounding on the door. A cleaning lady let him in, not knowing who he was.