Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (4 page)

But those were exactly the questions I got in a lengthy Q&A following the formal remarks. Needless to say, I provided little nourishment for the reporters. I simply had no idea what I would find when I actually arrived at IBM.

Meeting the IBM Team

After the press conference came a series of internal IBM meetings.

As I look back at my schedule, I see that the first meeting the IBM

human resources people had set up was a telephone conference call with the general managers of all the country operations around the world, underscoring that the power base of the company was the country leaders.

We then raced from Manhattan by helicopter some thirty miles north to the company’s worldwide headquarters, in Armonk, New York. While I had been in some IBM facilities before as a customer, I had never been in the headquarters building. I will never forget my first impression. It reminded me of a government office—long, quiet corridor after long, quiet corridor of closed offices (quiet that was broken only by the presence of the almost blindingly bright or-ange carpeting). There was not a single indication in the artwork or other displays that this was a computer company. There was no computer in the CEO’s office.

I was ushered into a large conference room to meet with the Corporate Management Board—roughly the top fifty people in the company. I don’t remember what the women wore, but it was very obvious that all the men in the room were wearing white shirts, except me. Mine was blue, a major departure for an IBM executive!

(Weeks

22 / LOUIS V. GERSTNER, JR.

later at a meeting of the same group, I showed up in a white shirt and found everyone else wearing other colors.) When John Akers had suggested this meeting earlier in the week, he had assumed it was going to be simply an opportunity for me to meet the senior members assembled. However, I viewed it as a critical opportunity to introduce myself and, at least, set an initial agenda for my new colleagues. I worked hard in advance organizing what I wanted to say to the group. (In fact, in researching this book, I discovered detailed notes I had prepared—something I don’t do very often for informal meetings.)

After John introduced me, the group sat politely, expecting nothing more than a “welcome and I’m delighted to be part of the team”

salutation. Instead, I spoke for forty or forty-five minutes.

I started out explaining why I took the job—that I hadn’t been looking for it, but had been asked to take on a responsibility that was important to our country’s competitiveness and our economy’s health. I didn’t say it at the time, but it was my feeling that if IBM

failed, there would be repercussions beyond the demise of one company. I indicated that I had no preconceived notions of what needed to be done and, from what I could tell, neither did the board.

I said that for each of them (and for me!) there would be no special protection for past successes. But I clearly needed their help.

I then dealt with what I described as my early expectations: “If IBM is as bureaucratic as people say, let’s eliminate bureaucracy fast.

Let’s decentralize decision making wherever possible, but this is not always the right approach; we must balance decentralized decision making with central strategy and common customer focus. If we have too many people, let’s right-size fast; let’s get it done by the end of the third quarter.” I explained that what I meant by right-size is straightforward: “We have to benchmark our costs versus our competitors and then achieve best-in-class status.” I also remarked that we had to stop saying that IBM didn’t lay off people. “Our employees must find it duplicitous and out of touch with what has been going

WHO SAYS ELEPHANTS CAN’T DANCE? / 23

on for the last year.” (In fact, since 1990, nearly 120,000 IBM employees had left the company, some voluntarily and some involuntarily, but the company had continued to cling to the fiction of “no layoffs.”) Perhaps the most important comments I made at that meeting regarded structure and strategy. At the time, the pundits and IBM’s own leadership were saying that IBM should break itself up into smaller, independent units. I said, “Maybe that is the right thing to do, but maybe not. We certainly want decentralized, market-driven decision making. But is there not some unique strength in our ability to offer comprehensive solutions, a continuum of support? Can’t we do that and also sell individual products?” (In hindsight it was clear that, even before I started, I was skeptical about the strategy of atomizing the company.)

I then talked about morale. “It is not helpful to feel sorry for ourselves. I’m sure our employees don’t need any rah-rah speeches.

We need leadership and a sense of direction and momentum, not just from me but from all of us. I don’t want to see a lot of prophets of doom around here. I want can-do people looking for short-term victories and long-term excitement.” I told them there was no time to focus on who created our problems. I had no interest in that. “We have little time to spend on problem definition. We must focus our efforts on solutions and actions.”

Regarding their own career prospects, I noted that the press was saying that “the new CEO has to bring a lot of people in from the outside.” I pointed out that I hoped this would not be the case, that IBM had always had a rich talent pool—perhaps the best in the world.

I said, “If necessary, I will bring in outsiders, but you will each first get a chance to prove yourself, and I hope you will give me some time to prove myself to you. Everyone starts with a clean slate.

Neither your successes nor failures in the past count with me.”

I went on to summarize my management philosophy and practice: 24 / LOUIS V. GERSTNER, JR.

• I manage by principle, not procedure.

• The marketplace dictates everything we should do.

• I’m a big believer in quality, strong competitive strategies and plans, teamwork, payoff for performance, and ethical responsibility.

• I look for people who work to solve problems and help colleagues.

I sack politicians.

• I am heavily involved in strategy; the rest is yours to implement.

Just keep me informed in an informal way. Don’t hide bad information—I hate surprises. Don’t try to blow things by me. Solve problems laterally; don’t keep bringing them up the line.

• Move fast. If we make mistakes, let them be because we are too fast rather than too slow.

• Hierarchy means very little to me. Let’s put together in meetings the people who can help solve a problem, regardless of position.

Reduce committees and meetings to a minimum. No committee decision making. Let’s have lots of candid, straightforward communications.

• I don’t completely understand the technology. I’ll need to learn it, but don’t expect me to master it. The unit leaders must be the translators into business terms for me.

I then proposed that, based on my reading, we had five ninety-day priorities:

• Stop hemorrhaging cash. We were precariously close to running out of money.

• Make sure we would be profitable in 1994 to send a message to the world—and to the IBM workforce—that we had stabilized the company.

• Develop and implement a key customer strategy for 1993 and 1994—one that would convince customers that we were back WHO SAYS ELEPHANTS CAN’T DANCE? / 25

serving their interests, not just pushing “iron” (mainframes) down their throats to ease our short-term financial pressures.

• Finish right-sizing by the beginning of the third quarter.

• Develop an intermediate-term business strategy.

Finally, I laid out an assignment for the next thirty days. I asked for a ten-page report from each business unit leader covering customer needs, product line, competitive analysis, technical outlook, economics, both long- and short-term key issues, and the 1993-94

outlook.

I also asked all attendees to describe for me their view of IBM in total: What short-term steps could we take to get aggressive on customer relationships, sales, and competitive attacks? What should we be thinking about in our long-term and short-term business strategies?

In the meantime, I told everyone to go out and manage the company and not to talk to the press about our problems, and help me establish a travel schedule that would take me to customers and employees very early. “Let me know the meetings you are scheduled to hold over the next few weeks and recommend whether I should attend or not.”

I asked if there were any questions. There were none. I walked around and shook everyone’s hand and the meeting ended.

As I look back from the vantage point of nine years’ tenure at IBM, I’m surprised at how accurate my comments proved to be. Whether it was the thoroughness of the press coverage, my experience as a customer, or my own leadership principles, what needed to be done—and what we did—was nearly all there in that forty-five-minute meeting four days before I started my IBM career.

26 / LOUIS V. GERSTNER, JR.

The Official Election

On Tuesday of the following week, March 30, 1993, I attended the regularly scheduled IBM board meeting. It was at this gathering that I was elected Chairman of the Board and Chief Executive Officer, effective to begin two days later.

I walked into the meeting with a certain degree of trepidation.

Jim Burke had told me a week earlier that there were two board members who were not totally happy with my selection as the new CEO. As I walked around the room shaking hands and greeting each of the seventeen directors in attendance (one was missing), I couldn’t help but wonder who the two doubters were.

There are several things I remember well from that first meeting.

The first was that there was an executive committee. Three of the eight members were current or former employees. I was taken by the fact that this board-within-a-board discussed in more detail the financial outlook for the company than the subsequent discussion held with the full Board of Directors.

The full board meeting focused on a wide range of subjects. It seemed to me from the agenda that it was a business-as-usual board meeting. There was a presentation from the Storage Division, which was being renamed AdStar as part of the overall corporate strategy to spin off the operating units. There were reports on business from the heads of domestic and international sales, discussion of a regu-latory filing, and the approval of a proposed $440 million acquisition.

If the directors felt there was a crisis, they were politely hiding it from me.

The meeting got a bit more animated during a report on financial affairs. Among the items reported was that the March quarter’s gross margin on hardware had declined nineteen points from the prior year and that System/390 mainframe prices had declined 58 percent over the same period. The projection was for a loss of 50 cents a share for the quarter ending the next day. The cash situation was de WHO SAYS ELEPHANTS CAN’T DANCE? / 27

teriorating fast. A major item of business was to approve a new financing plan authorizing the company to increase committed lines of bank credit to $4.7 billion and to raise $3 billion through the issu-ance of preferred stock and/or debt and securitization of United States trade receivables (selling, at a discount, “IOUS” from customers in order to get cash sooner).

It was clear there was a high degree of uncertainty surrounding the financial projections. The meeting ended. There were polite statements of “good luck” and “glad you’re here,” and everyone left.

John Akers and I then met to talk about the company. John and I had served together on the New York Times Company Board of Directors for several years, saw each other frequently at CEO-level events, and had a solid personal relationship prior to his departure from IBM. We were as comfortable as two people could be under the circumstances. We talked mostly about people. He was surprisingly candid about and critical of many of his direct reports. In reviewing my notes from the meeting, I guess I subsequently agreed with 75

percent of his appraisals. What struck me was why he could be so critical but still keep some of these executives in place. He had two favorites. One turned out to be one of my own. The other I let go before a year had passed.

Regarding business issues, John was preoccupied that day with IBM’s microelectronics business. I learned that the company was deep into discussions with Motorola to form a joint venture and, in so doing, secure a partial exit from what John called the “technology business.” I asked how imminent the decision was, and he said

“very.” Somewhat related to the Motorola deal was a proposal to license manufacturing rights for Intel microprocessors.

He said the basic research unit was not affordable and needed to be downsized. He was quite concerned about IBM’s software business, mainframe business, and midrange products. As I look back at my notes, it is clear he understood most, if not all, of the business issues we tackled over the ensuing years. What’s striking from my notes is the

28 / LOUIS V. GERSTNER, JR.

absence of any mention of culture, teamwork, customers, or leadership—the elements that turned out to be the toughest challenges at IBM.

John moved that day to an office in Stamford, Connecticut, and as far as I know, to his credit, he never looked back.

I went home with a deepening sense of fear. Could I pull this off?

Who was going to help me?

3

Drinking from

a Fire Hose

O
n April 1, 1993, I began my IBM career (perhaps appropriately, April Fools’ Day). IBM’s stock stood at $13.1 An op-ed piece in
The New York Times
greeted me with yet more advice on how to fix the company: “IBM has plenty of brains and button-downs. What it needs is bravado.”

An IBM company car picked me up at my home in Connecticut at 6:45 A.M. and drove me not to the headquarters building, in Armonk, but to another of the many office complexes IBM owned at the time in Westchester County, New York. Consistent with my message to the senior management team the previous week, Ned Lautenbach, who then headed all of sales outside the United States (what IBM