Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (23 page)

You’ve probably found, as I have, that most companies say their cultures are about the same things—outstanding customer service, excellence, teamwork, shareholder value, responsible corporate behavior, and integrity. But, of course, these kinds of values don’t necessarily translate into the same kind of behavior in all companies—how people actually go about their work, how they interact with one another, what motivates them. That’s because, as with national cultures, most of the really important rules aren’t written down anywhere.

Still, you can quickly figure out, sometimes within hours of being in a place, what the culture encourages and discourages, rewards and punishes. Is it a culture that rewards individual achievement or team play? Does it value risk taking or consensus building?

I have a theory about how culture emerges and evolves in large institutions: Successful institutions almost always develop strong cultures that reinforce those elements that make the institution great.

They reflect the environment from which they emerged. When that environment shifts, it is very hard for the culture to change. In fact, it becomes an enormous impediment to the institution’s ability to adapt.

This is doubly true when a company is the creation of a visionary leader. A company’s initial culture is usually determined by its WHO SAYS ELEPHANTS CAN’T DANCE? / 183

founder’s mindset—that person’s values, beliefs, preferences, and also idiosyncrasies. It’s been said that every institution is nothing but the extended shadow of one person. In IBM’s case, that was Thomas J. Watson, Sr.

The Basic Beliefs

The defining ethos of Watson, Sr., was palpable in every aspect of IBM. It became part of the company’s DNA—from the paternalism to the stingy stock-option program; from the no-drinking-at-corporate-gatherings policy to the preference that employees be married.

Watson’s experience as a self-made man engendered a culture of respect, hard work, and ethical behavior. IBM was the leader in diversity for decades, well before governments even spoke of the need to seek equality in employment, advancement, and compensation.

A sense of integrity, of responsibility, flows through the veins of IBM

in a way I’ve never seen in any other company. IBM people are committed—committed to their company, and committed to what their company does.

And then there were the more visible, well-known (and, to modern eyes, almost corny) symbols—from the public rituals that celebrated achievement, to the company songs, to the dress code. IBM virtually invented the notion of the company as an all-encompassing context for its employees’ lives. And it envisioned its customers in that en-veloping way, too.

Of course, enlightened companies and leaders know that an institution must outlive any one person or any one group of leaders.

Watson realized this and he deliberately and systematically institutionalized the values that had made IBM under his tenure a very successful company.

184 / LOUIS V. GERSTNER, JR.

He summarized them in what he termed the Basic Beliefs:

• Excellence in everything we do.

• Superior customer service.

• Respect for the individual.

Institutionalizing these beliefs wasn’t just a matter of displaying signs in every office (although they were everywhere). The Beliefs were reflected in the compensation and benefits systems, in the management schools, in employee educational and training programs, in marketing, and in customer support. It was the doctrine of the company—and very few companies have extended a doctrine so pervasively.

For a long time it worked. The more successful an enterprise becomes, the more it wants to codify what makes it great—and that can be a good thing. It creates institutional learning, effective transfer of knowledge, and a clear sense of “how we do things.” Inevitably, though, as the world changes, the rules, guidelines, and customs lose their connection to what the enterprise is all about.

A perfect example was the IBM dress code. It was well known throughout business circles that IBM salespeople—or, for that matter, any IBM employee—wore very formal business attire. Tom Watson established this rule when IBM was calling on corporate executives who—guess what—wore dark suits and white shirts! In other words, Watson’s eminently sensible direction was: Respect your customer, and dress accordingly.

However, as the years went by, customers changed how they dressed at work, and few of the technical buyers in corporations showed up in white and blue. However, Watson’s sensible connection to the customer was forgotten, and the dress code marched on.

When I abolished IBM’s dress code in 1995, it got an extraordinary amount of attention in the press. Some thought it was an action of great portent. In fact, it was one of the easiest decisions I made—or, rather, didn’t

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make; it wasn’t really a “decision.” We didn’t replace one dress code with another. I simply returned to the wisdom of Mr. Watson and decided: Dress according to the circumstances of your day and recognize who you will be with (customers, government leaders, or just your colleagues in the labs).

This codification, this rigor mortis that sets in around values and behaviors, is a problem unique to—and often devastating for—successful enterprises. I suspect that many successful companies that have fallen on hard times in the past—including IBM, Sears, General Motors, Kodak, Xerox, and many others—saw perhaps quite clearly the changes in their environment. They were probably able to con-ceptualize and articulate the need for change and perhaps even develop strategies for it. What I think hurt the most was their inability to change highly structured, sophisticated cultures that had been born in a different world.

Take the Basic Beliefs. There is no arguing with these. They should be the standard tenets of any company in any industry, in any country, at any period in history. But what the Beliefs had come to mean—or, at least, the way they were being used—was very different in 1993 than in 1962, when Tom Watson had introduced them.

Consider “superior customer service.” The supplier-customer power relationship had become so one-sided during IBM’s hegemony that “customer service” came to mean, essentially, “servicing our machines on the customers’ premises,” instead of paying real attention to their changing businesses—and, where appropriate, challenging customers to expand their thinking (as IBM had famously done during the launch of the System/360). We basically acted as if what customers needed had been settled long ago, and our job was to ship them our next system, whenever it came out. Customer service became largely administrative—like going through the motions in a marriage that has long since lost its passion.

The same thing happened to “excellence in everything we do.”

The pursuit of excellence over time became an obsession with perfec 186 / LOUIS V. GERSTNER, JR.

tion. It resulted in a stultifying culture and a spider’s web of checks, approvals, and validation that slowed decision making to a crawl.

When I arrived at IBM, new mainframes were announced every four to five years. Today they are launched, on average, every eighteen months (with excellent quality, I might add). I can understand the joke that was going around IBM in the early 1990s: “Products aren’t launched at IBM. They escape.”

Perhaps most powerful of all the Beliefs—and most corrup-ted—was “respect for the individual.” I am treading on the most sacred ground here, and I do so gingerly. To this day, “respect for the individual” is the rallying cry for the hardcore faithful—for the True Blue, as they call themselves.

But I have to say that, to an outsider, “respect for the individual”

had devolved to mean a couple of things Watson certainly did not have in mind. For one, it helped spawn a culture of entitlement, where “the individual” didn’t have to do anything to
earn
respect—he or she expected rich benefits and lifetime employment simply by virtue of having been hired.

Or that’s the way it appeared to me at first. Later I came to feel that the real problem was not that employees felt they were entitled.

They had just become accustomed to immunity from things like re-cessions, price wars, and technology changes. And for the most part, they didn’t even realize that this self-contained, insulated system also worked
against
them. I was shocked, for instance, to discover the pay disparities—particularly in very important technical and sales professions—of IBM employees when compared to the competition and the industry in general. Our best people weren’t getting what they deserved.

“Respect for the individual” also came to mean that an IBMer could do pretty much anything he or she wanted to do, within the broad HR and legal rulebooks, with little or no accountability. If you were a poor performer and we terminated you, we weren’t respecting your individuality because we hadn’t trained you for whatever it was

WHO SAYS ELEPHANTS CAN’T DANCE? / 187

you were expected to do. If your boss told you to do something and you didn’t agree, you could ignore the order.

These were very serious problems. They had become deeply en-grained through years of self-reinforcing experience. And, most challenging of all, they were almost inextricably interwoven with all that was good, smart, and creative about the company and its people—all the things it would have been madness to destroy, or even to tamper with. We couldn’t throw the baby out with the bathwater.

Stepping Up to the Challenge

Frankly, if I could have chosen not to tackle the IBM culture head-on, I probably wouldn’t have. For one thing, my bias coming in was toward strategy, analysis, and measurement. I’d already been successful with those, and like anyone, I was inclined to stick with what had worked for me earlier in my career. Once I found a handful of smart people, I knew we could take a fresh look at the business and make good strategic calls or invest in new businesses or get the cost structure in shape.

In comparison, changing the attitude and behavior of hundreds of thousands of people is very, very hard to accomplish. Business schools don’t teach you how to do it. You can’t lead the revolution from the splendid isolation of corporate headquarters. You can’t simply give a couple of speeches or write a new credo for the company and declare that the new culture has taken hold. You can’t mandate it, can’t engineer it.

What you
can
do is create the conditions for transformation. You can provide incentives. You can define the marketplace realities and goals. But then you have to trust. In fact, in the end, management doesn’t change culture. Management invites the workforce itself to change the culture.

Perhaps the toughest nut of all to crack was getting IBM employ 188 / LOUIS V. GERSTNER, JR.

ees to accept that invitation. Many used hierarchy as a crutch and were reluctant to take personal responsibility for outcomes. Instead of grabbing available resources and authority, they waited for the boss to tell them what to do; they delegated up. In the end, my deepest culture-change goal was to induce IBMers to believe in themselves again—to believe that they had the ability to determine their own fate, and that they
already
knew what they needed to know.

It was to shake them out of their depressed stupor, remind them of who they were—you’re
IBM
, damn it!—and get them to think and act collaboratively, as hungry, curious self-starters.

In other words, at the same time I was working to get employees to listen to me, to understand where we needed to go, to follow me there, I needed to get them to stop being followers. This wasn’t a logical, linear challenge. It was counterintuitive, centered around social cues and emotion rather than reason.

Tough as that was, we had to suck it up and take on the task of changing the culture, given what was at stake. I knew it would take at least five years. (In that I underestimated.) And I knew the leader of the revolution had to be
me
—I had to commit to thousands of hours of personal activity to pull off the change. I would have to be up-front and outspoken about what I was doing. I needed to get my leadership team to join me. We all had to talk openly and directly about culture, behavior, and beliefs—we could not be subtle.

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An Inside-Out World

T
o someone arriving at IBM from the outside, there was a kind of hothouse quality to the place. It was like an isolated tropical ecosystem that had been cut off from the world for too long. As a result, it had spawned some fairly exotic life-forms that were to be found nowhere else. And because IBM was so deeply in-bred and ingrown, so preoccupied with its own rules and conflicts, it had lost its robustness. It had become extremely vulnerable to attack from the outside.

This hermetically sealed quality—an institutional viewpoint that anything important started inside the company—was, I believe, the root cause of many of our problems. To appreciate how widespread the dysfunction was, I need to describe briefly some of its manifestations.

They included a general disinterest in customer needs, accompan-ied by a preoccupation with internal politics. There was general permission to stop projects dead in their tracks, a bureaucratic infrastructure that defended turf instead of promoting collaboration, and a management class that presided rather than acted. IBM even had a language all its own.

This isn’t to ridicule IBM culture. Quite the contrary, as I’ve indi 190 / LOUIS V. GERSTNER, JR.

cated, it remains one of the company’s unique strengths. But like any living thing, it was susceptible to disease—and the first step to a cure was to identify the symptoms.

The Customer Comes Second

I could make the case that during the 1960s and 1970s IBM’s self-absorption was actually productive. In those years customers didn’t have a lot of insight into what data processing could do for them.

So IBM invented these powerful and mysterious machines, and customers looked to us to explain how the technology could be applied to make their companies more efficient. This worldview was, and still is, common throughout the information technology industry.