Who Says Elephants Can't Dance?: Inside IBM's Historic Turnaround by Louis V. Gerstner

From the Publisher

In 1990, IBM had its most profitable year ever. By 1993, the computer industry had changed so rapidly the company was on its way to losing $16 billion and IBM was on a watch list for extinction -- victimized by its own lumbering size, an insular corporate culture, and the PC era IBM had itself helped invent.

Then Lou Gerstner was brought in to run IBM. Almost everyone watching the rapid demise of this American icon presumed Gerstner had joined IBM to preside over its continued dissolution into a confederation of autonomous business units. This strategy, well underway when he arrived, would have effectively eliminated the corporation that had invented many of the industry's most important technologies.

Instead, Gerstner took hold of the company and demanded the managers work together to re-establish IBM's mission as a customer-focused provider of computing solutions. Moving ahead of his critics, Gerstner made the hold decision to keep the company together, slash prices on his core product to keep the company competitive, and almost defiantly announced, "The last thing IBM needs right now is a vision."

Who Says Elephants Can't Dance? tells the story of IBM's competitive and cultural transformation. In his own words, Gerstner offers a blow-by-blow account of his arrival at the company and his campaign to rebuild the leadership team and give the workforce a renewed sense of purpose. In the process, Gerstner defined a strategy for the computing giant and remade the ossified culture bred by the company's own success.

The first-hand story of an extraordinary turnaround, a unique case study in managing a crisis, and a thoughtful reflection on the computer industry and the principles of leadership, Who Says Elephants Can't Dance? sums up Lou Gerstner's historic business achievement. Taking readers deep into the world of IBM's CEO, Gerstner recounts the high-level meetings and explains the pressure-filled, no-turning-back decisions that had to be made. He also offers his hard-won conclusions about the essence of what makes a great company run.

In the history of modern business, many companies have gone from being industry leaders to the verge of extinction. Through the heroic efforts of a new management team, some of those companies have even succeeded in resuscitating themselves and living on in the shadow of their former stature. But only one company has been at the pinnacle of an industry, fallen to near collapse, and then, beyond anyone's expectations, returned to set the agenda. That company is IBM.

Lou Gerstener, Jr., served as chairman and chief executive officer of IBM from April 1993 to March 2002, when he retired as CEO. He remained chairman of the board through the end of 2002. Before joining IBM, Mr. Gerstner served for four years as chairman and CEO of RJR Nabisco, Inc. This was preceded by an eleven-year career at the American Express Company, where he was president of the parent company and chairman and CEO of its largest subsidiary. Prior to that, Mr. Gerstner was a director of the management consulting firm of McKinsey & Co., Inc. He received a bachelor's degree in engineering from Dartmouth College and an MBA from Harvard Business School.

The New York Times Book Review

The book leaves the reader thinking that a few more Gerstners around in the '90s might have prevented the bubble from swelling so large -- and popping with such a bang.

Publishers Weekly

Gerstner quarterbacked one of history's most dramatic corporate turnarounds. For those who follow business stories like football games, his tale of the rise, fall and rise of IBM might be the ultimate slow-motion replay. He became IBM's CEO in 1993, when the gargantuan company was near collapse. The book's opening section snappily reports Gerstner's decisions in his first 18 months on the job-the critical "sprint" that moved IBM away from the brink of destruction. The following sections describe the marathon fight to make IBM once again "a company that mattered." Gerstner writes most vividly about the company's culture. On his arrival, "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." One of Gerstner's first tasks was to redirect the company's attention to the outside world, where a marketplace was quickly changing and customers felt largely ignored. He succeeded mightily. Upon his retirement this year, IBM was undeniably "a company that mattered." Gerstner's writing occasionally is myopic. For example, he makes much of his own openness to input from all levels of the company, only to mock an earnest (and overlong) employee e-mail (reprinted in its entirety) that was critical of his performance. Also, he includes a bafflingly long and dull appendix of his collected communications to IBM employees. Still, the book is a well-rendered self-portrait of a CEO who made spectacular change on the strength of personal leadership.

Library Journal

Gerstner (Reinventing Education) tells the inside story of his nine-year reign as CEO of IBM during the company's unprecedented time of crisis and his successful effort to turn around the pending demise. From his four-year stint as CEO of an equally intriguing corporation, RJR Nabisco, the author moved into the hot seat at IBM in April 1993, the most troublesome time in the company's history. Gerstner finds a pondering, insular culture, mostly unchanged since its beginning, and he briskly reviews his initial major decision to halt the breakup of IBM, refocuses energies on its historic mainframe business, streamlines repetitive processes, focuses employee attention on the needs of its customers and the quickly changing market, and significantly reduces the work force throughout IBM's worldwide locations. This is an important contribution to the business genre, and Edward Herrmann's basso, richly told tale maintains listener interest. An insider's take on IBM that provides a nice update to the solid historical analysis of the downfall and near death of the company revealed in Paul Carroll and Jim Wade's super business history, Big Blues. Highly recommended for all public libraries and university libraries supporting a business curriculum.-Dale Farris, Groves, TX Copyright 2003 Reed Business Information.

Soundview Executive Book Summaries

When Lou Gerstner took the helm of IBM as its CEO in 1993, the company was a shambles — hemorrhaging money, drained by an insular corporate culture, and rapidly falling prey to smaller companies that could make the same products better, faster and for less money. Wall Street was calling for its breakup into small, independent business units, but Gerstner had other things in mind — to keep the company together, change the way it (and, eventually, its entire industry) did business, and show it could keep up with and even surpass the startups and small businesses presenting its biggest challenges. Lou Gerstner thought the enormous corporate elephant could dance as gracefully as its much smaller competition. He was right.

Shortly after Lou Gerstner was introduced as IBM's CEO in the Spring of 1993, he met with the company's Corporate Management Board — roughly the top 50 people in the company. He laid out for them a number of troublesome areas in the company:

• Loss of customer trust, supported by low customer ratings on quality.
• The mindless rush for decentralization.
• Slow response to cross-unit issue.
• Tension over control of the marketing and sales processes.
• A confusing and contentious performance measurement system, resulting in serious problems when closing sales with customers.
• A bewildering array of questionable, even senseless, alliances.

Gerstner announced a program called "Operation Bear Hug." Each of the 50 members of senior management would, within three months, pay a personal visit to a minimum of five of IBM's biggest customers, find out first-hand what their needs and concerns were, and report back to Gerstner. The Bear Hug meetings became the first step in reducing the customer perception that dealing with IBM was difficult.

After only 100 days on the job, and with major news outlets and analysts alike calling for some visible, tangible proof of a turnaround at IBM, Gerstner went public with four key strategic initiatives:

1. Keep the Company Together. Gerstner decided very early on to keep IBM one unified enterprise, in the face of an increasingly diversified computer market. While IBM was slow to deliver distributed computing (delivering increased computing power to individual users), other companies moved in, supplementing IBM's basic systems with add-on applications and hardware that provided the powerful systems both business and home computer customers wanted and needed.
2. Change the Company's Fundamental Economic Model. In simplest terms, if a company's revenue, gross profit, and expenses are all moving in the right relationship, the net effect is growing profits and positive cash flow — the makings of a successful business. In 1993, those relationships at IBM were all wrong — revenue was slowing (due to the company's reliance on declining mainframe sales); gross profit margin was sinking (due to the discounted prices it had resorted to in order to sell mainframes); the company's expenses were out of control.Expenses were, however, the first issue tackled — $8.9 billion was slashed out of the budget. This required employment reduction of 35,000 people (in addition to the 45,000 jobs cut in 1992 — the first such layoff in the company's history).
3. Reengineer How the Company Did Business. Gerstner saw IBM's business processes as cumbersome and highly expensive, requiring a reengineering program of gargantuan proportions, a top-to-bottom overhaul of its basic operations. Gerstner focused on six core initiatives: hardware development, software development, fulfillment, integrated supply chain, customer relationship management, and services. These were the processes most visible to external customers, and they were soon joined in reengineering efforts by several internal processes, including human resources, procurement, real estate, and, oddly enough, information technology. From 1994 to 1998, the total savings from these reengineering projects was $9.5 billion.
4. Sell Unproductive Assets to Raise Cash. Only a handful of people understand how close IBM came to bankruptcy in 1993. Gerstner noted then that there were a number of assets that could be sold to make the company solvent again, and, thus began a wholesale jettisoning of nonessential, unproductive assets:
   A. The corporate airplane fleet was sold.
   B. The corporate headquarters in New York City was put on the block.
   C. The bulk of the company's fine art collection was auctioned off.
   D. IBM's Federal Systems Company (which primarily handled government contracts) was sold to the Loral Corporation.

As the years went by, Gerstner continued streamlining the company, in an effort to achieve and maintain focus in essential operations.

Before Gerstner, IBM seemed to exist in the shadow of its founder, Thomas J. Watson, Sr., a self-made man who engendered a culture of respect, hard work, and ethical behavior at his company. Watson deliberately and systematically institutionalized three Basic Beliefs that had made IBM successful under his stewardship:

• Excellence in everything we do.
• Superior customer service.
• Respect for the individual.

In order to breath some fresh air into the organization, Gerstner did away with the Basic Beliefs, pointing instead to eight principles:

• The marketplace is the driving force behind everything we do. Gerstner recognized that IBM was guilty of producing confusing technology, then making it instantly obsolete. Under the first of Gerstner's principles, the company vowed to focus on serving customers and, in the process, beating the competition.
• At our core, we are a technology company with an overriding commitment to quality. Technology was always IBM's greatest strength. Under Gerstner, the company needed to funnel that knowledge into developing products that served customer needs above all else.
• Our primary measures of success are customer satisfaction and shareholder value. No company is a success, financially or otherwise, without satisfied customers.
• We operate as an entrepreneurial organization with a minimum of bureaucracy and a never-ending focus on productivity. The warp-speed marketplace demands that the company accept innovation, take risks, and pursue growth, both by expanding existing businesses and finding new ones.
• We never lose site of our strategic vision. Every business, if it is to succeed, must have a sense of direction and mission.
• We think and act with a sense of urgency. Planning and analysis should never be carried out to the extent that the job that needs to be done now does not get done.
• Outstanding, dedicated people make it all happen, particularly when they work together as a team. The best way to end turf wars is to cherish and reward teamwork, particularly teamwork that delivers customer value.
• We are sensitive to the needs of all employees and to the communities in which we operate. People must have the room and resources to grow, and the communities in which we do business must become greater because of our presence.

Copyright © 2003 Soundview Executive Book Summaries

Product Details

• Table of Contents
• Interviews & Essays
• Read a Sample Chapter

Table of Contents

Interviews & Essays

Now that I’ve got just a little distance from it, I have to say that the entire publishing process has been a tremendous learning experience. I’ve seen the inside of many industries over the course of my career in business, but this full-body immersion in the publishing business has been an experience without parallel. And once the book became available for pre-orders and people started talking about it, I got one more surprise: I found myself spending a lot of time explaining what the book isn’t.

First, it isn’t a memoir. It’s not a book about my life or even a portion of my life. I do try to extract some lessons from 35 years in business. But when all is said and done, this is a book about a company -- a great, revered institution that lost its way and came precariously close to disappearing. But it caught itself and in a remarkably brief period of time made the long climb back to industry leadership. I’ve been very pleased that a lot of the early commentary correctly pointed out that this is basically a story about a team of people who never lost faith in their company. When they were given the chance, they used it to do more than save or stabilize IBM. They shot right past what any reasonable observer might have considered IBM’s ultimate potential and put the company back in position to set the industry agenda around e-business, integrated computing, and enterprise transformation.

The second thing I’m explaining to a lot of people is that although the book is about the largest information technology company in the world, this is not a technical book. It’s not about the inner workings of the information technology industry, and it not written for the technical wizards who dominate so much of what comes out of this industry. I couldn’t write that book, because that’s not who I am. I wasn’t a technical executive when I got to IBM, and I’m not one now that I’m stepping away from IBM.

That said, I’m fairly sure that the Silicon Valley crowd will be interested in the book. The decline and return of IBM has been the fascination of a lot of the people and the companies who once wrote us off as a dinosaur or an also-ran. But at the end of the day, this is a book about business, not technology. It’s written for people who hold leadership positions in any enterprise, or who aspire to -- people who need to understand issues of cultural change, of enterprise transformation, of how you grab hold of something and move it in a very different direction without having it break in your hands. In fact, I hope that people will find something they can learn from and apply in what the book says about the intricacies of what it takes to change corporate culture. I know this was the single greatest learning I’m taking away from my IBM experience.

In all of my business career, I would have always said that culture is one of the five or six things you worry about if you're a leader. You worry about markets, and competitors, and financial assets and strategy. And somewhere on the list is culture. What I learned at IBM is that culture isn’t part of the game. It is the game. When you strip it right down to bare metal, a corporation is nothing more than the collective ability of its people to do two things: create value and execute the strategies of the company.

What I came to understand is that any enterprise can operate, and operate successfully, in the short term on the basis of its vision, strategy, marketing, financial model and management system. But no enterprise will succeed over the long haul if the DNA of the organism doesn’t allow people to respond to situations without being told what to do. Louis V. Gerstner, Jr.

Read a Sample Chapter

Chapter One
The Courtship

On December 14, 1992, I had just returned from one of those always well-intentioned but rarely stimulating charity dinners that are part of a New York City CEO's life, including mine as CEO of RJR Nabisco. I had not been in my Fifth Avenue apartment more than five minutes when my phone rang with a call from the concierge desk downstairs. It was nearly 10 p.m. The concierge said, "Mr. Burke wants to see you as soon as possible this evening."

Startled at such a request so late at night in a building in which neighbors don't call neighbors, I asked which Mr. Burke, where is he now, and does he really want to see me face to face this evening?

The answers were: "Jim Burke. He lives upstairs in the building. And, yes, he wants very much to speak to you tonight."

I didn't know Jim Burke well, but I greatly admired his leadership at Johnson & Johnson, as well as at Partnership for a Drug-Free America. His handling of the Tylenol poisoning crisis years earlier had made him a business legend. I had no idea why he wanted to see me so urgently. When I called, he said he would come right down.

When he arrived he got straight to the point: "I've heard that you may go back to American Express as CEO, and I don't want you to do that because I may have a much bigger challenge for you." The reference to American Express was probably prompted by rumors that I was going to return to the company where I had worked for eleven years. In fact, in mid-November 1992, three members of the American Express board had met secretly with me at the Sky Club in New York City to ask that I come back. It's hard to say if I was surprised -- Wall Street and the media were humming with speculation that then CEO Jim Robinson was under board pressure to step down. However, I told the three directors politely that I had no interest in returning to American Express. I had loved my tenure there, but I was not going back to fix mistakes I had fought so hard to avoid. (Robinson left two months later.)

I told Burke I wasn't returning to American Express. He told me that the top position at ibm might soon be open and he wanted me to consider taking the job. Needless to say, I was very surprised. While it was widely known and reported in the media that ibm was having serious problems, there had been no public signs of an impending change in CEOs. I told Burke that, given my lack of technical background, I couldn't conceive of running ibm. He said, "I'm glad you're not going back to American Express. And please, keep an open mind on IBM." That was it. He went back upstairs, and I went to bed thinking about our conversation.

The media drumbeat intensified in the following weeks. Business Week ran a story titled "IBM's Board Should Clean Out the Corner Office." Fortune published a story, "King John [Akers, the chairman and ceo] Wears an Uneasy Crown." It seemed that everyone had advice about what to do at ibm, and reading it, I was glad I wasn't there. The media, at least, appeared convinced that ibm's time had long passed.

The Search
On January 26, 1993, ibm announced that John Akers had decided to retire and that a search committee had been formed to consider outside and internal candidates. The committee was headed by Jim Burke. It didn't take long for him to call.

I gave Jim the same answer in January as I had in December: I wasn't qualified and I wasn't interested. He urged me, again: "Keep an open mind."

He and his committee then embarked on a rather public sweep of the top CEOs in America. Names like Jack Welch of General Electric, Larry Bossidy of Allied Signal, George Fisher of Motorola, and even Bill Gates of Microsoft surfaced fairly quickly in the press. So did the names of several IBM executives. The search committee also conducted a series of meetings with the heads of many technology companies, presumably seeking advice on who should lead their number one competitor! (Scott McNealy, CEO of Sun Microsystems, candidly told one reporter that IBM should hire "someone lousy.") In what was believed to be a first-of-its-kind transaction, the search committee hired two recruiting firms in order to get the services of the two leading recruiters -- Tom Neff of Spencer Stuart Management Consultants N.V., and Gerry Roche of Heidrick & Struggles International, Inc.

In February I met with Burke and his fellow search committee member, Tom Murphy, then CEO of Cap Cities/abc. Jim made an emphatic, even passionate pitch that the board was not looking for a technologist, but rather a broad-based leader and change agent. In fact, Burke's message was consistent throughout the whole process. At the time the search committee was established, he said, "The committee members and I are totally open-minded about who the new person will be and where he or she will come from. What is critically important is the person must be a proven, effective leader -- one who is skilled at generating and managing change."

Once again, I told Burke and Murphy that I really did not feel qualified for the position and that I did not want to proceed any further with the process. The discussion ended amicably and they went off, I presumed, to continue the wide sweep they were carrying out, simultaneously, with multiple candidates.

What the Experts Had to Say
I read what the press, Wall Street, and the Silicon Valley computer visionaries and pundits were saying about ibm at that time. All of it certainly fueled my skepticism and, I believe, that of many of the other candidates.

The foregoing is excerpted from Who Says Elephants Can't Dance? by Louis V. Gerstner. All rights reserved. No part of this book may be used or reproduced without written permission from HarperCollins Publishers, 10 East 53rd Street, New York, NY 10022