WHO SAYS ELEPHANT CAN'T DANCE – LOUIS V. GERSTNER JNR

 

Who Says Elephant can’t dance – Louis V. Gerstner Jnr

The book “who says Elephant can’t dance narrated the story of IBM  - the foremost and leading American computer company that became the shadow of its old self and how it was resuscitated by the able Louis V. Gerstner at a time when competition was very hard.

For a better understanding of the impact Mr. Louis brought to bear on IBM  survival and revival, it’s very important we understand where IBM was before  Mr. Louis took over.

Brief History

IBM is a great organization with head office in the US and operating in more than 50 countries of the world and once controlled 90% of the computer mainframe market share in the 70s and 80s. The company was an albatross and symbols of American business. The company origin dated back to the early 20^th century when Thomas J. Watson (Snr) combined several small companies to form the International Business Machine incorporated.

For the first half of the century IBM’s business machine embraced a broad and largely unrelated lineup of commercial products; everything from scales and cheese slicers to clock and typewriters. IBM introduced computation to business, academia and government. For example IBM was selected by the US federal government to help start up and automate the social security system in the 1930s.

IBM led the era in the 1930s – 1970s; of note is the fact that IBM machines and computers didn’t work with any other computers, even from the same company. Each computer had its own peripheral devices and was based on proprietary technology. Once a company buys an IBM machine, he is lock on forever; such was IBM business strategy at the time.

Despite the fact that IBM, then and now was regarded as a complex company with thousands of product, until the mid 1980s, IBM was a one product company – a mainframe company, with an array of multibillion dollar businesses attached to that single franchise

The bleeding IBM

The entrant of stiffer competitors from Intel, Hitachi, Microsoft, Lotus, TCI and NCR and the resistant to change culture at IBM led to hemorrhaging  IBM and with over 500,000 workforces of talented people, IBM recorded losses successively. A company posing loss before tax of $800million, while prior to this time had close to $1billion in pretax profit. To worsen the matter by early 1990’s there were tens of thousands of company in the computer industry. The impact was however low prices and more choices. Expenses at IBM sky rocked to about $7billion and with a diminishing assets year on year. IBM stock dropped from a high of $43 a share in 1987 to $12 a share in early 90s, share holders were impatience, as a lot retirees own IBM shares.  Employee head count declined significantly in the period to about 298,000 and several business units were struggling and the management opted to divide IBM along its different unit to form an independent organization in order to compete more favorably. IBM was slow, very slow in delivering distributed computing, and many small companies moved in to fill the gap.

The fortunes of the competitors, in one way or another were all related to the PC. Of course, that included the PC makers like Dell and Compaq. But without question the dominant leaders were Microsoft, which controlled the desktop operating system, windows, and Intel, which made the microprocessors. To illustrate the influence these companies wielded, the tandem of Microsoft windows and Intel’s chips became known as the “Wintel duopoly”.

So there was IBM, the company that had led the prior phase of computing and had invented many of the industry’s most important technologies, crawling out of bed every morning to find its relevance marginalized by the darlings of desktop computing. That would have also meant the final death of IBM.

What the media & Experts said

The Economist: can a company of IBM’s size however organized, react quickly enough to compete.

The Wall Street Journal: the world will look very different by the time IBM pulls itself together, assuming it can – IBM will never again hold sway over the computer industry.

Bill Gates: in his unguarded moment said IBM will fold in 7years

Morris & Charles Ferguson in the book computer war even took a grimmer view of IBM saying there is serious possibility that IBM is finished as a force in the industry.

Stop the Bleeding

By 1993, the pressure to act – and to act in a comprehensive manner – was acute. The financials were ominous. Employee wanted their leader to do something and give the company a sense of direction. It was in this milieu that Louis Gerstner took over.

Who is Louis Gerstner?

Worked with Mckinsey & company in New York City, and in nine years he had advanced to the level of senior partner at Mckinsey. He started work at the age of twenty three. He was responsible for its finance practice and was a member of its senior leadership committee.

American Express: He worked with American Express for eleven years and heads the Card, Traveler’s Checks, and Travel Office businesses

He left American Express and joined RJR Nabisco, a huge packaged – Goods Company that had been formed a few years earlier through the merger of Nabisco and R.J Reynolds Tobacco Company. This company was rated the ninth-most admired company in America then. Infact his movement was called the beauty contest of the decade. He was the CEO. From here, he joined IBM as the helms man.

Louis have had a lot of experience in turning around troubled companies and one of his first principles was whatever hard or painful things you have to do, do them quickly and make sure everyone knows what you are doing and why.

The Strategies: What Louis did

Basically the following were the major strategies Louis adopted among others:

1.    Matching competition: He replaced the old models of hardware with new models that were more compatible and adaptable. The system/360 mainframe business model was brilliant though, but it was conceived some 40 years ago, by late 1980’s it had become totally outmoded. It had failed to adapt as customers, technology and competitors changed. What was needed was straight forward pull off. This was what Louis did and others never had the gut to do. Before he arrived at IBM, new mainframe was announced every four to five years, but when he came, mainframe is launched on every eighteen months (with excellent quality).

2.    IBM computers were based on proprietary technology. They didn’t work with any other computers; this meant that if a customer outgrew a computer or wanted the advantages of some new technology, they had to discard all of their hardware and software investment and start over. Louis changed this strategy. IBM systems could now accept other peripherals from other computer. This effort grew IBM income by approximately $500million in 1994(a year after he took over) and by 2001 the income has grown to $1.5billion!

3.    Improved customer services: prior to the big bang of the industry; traditionally IBM’s services were completely tied to products – more specifically, products bearing IBM logos. If an IBM system went down IBM fixed it. However, if customer had a problem with a product from competitors, or they wanted help installing some other company equipment, they had to fend for themselves. This was changed. IBM attends to their customers need irrespective of the marker and this brought about more customer loyalty. Customer think IBM first when it comes to total solution.

4.    Divestment of unyielding Assets: by the early 1990s the telecoms were shifting their focus dramatically. Driven in part by deregulation as well as revenue potentials of digital services. All of the world’s major telecoms were talking about moving up the value chain into data transmission; hitherto, telecoms render only voice services and had minimal know-how in data transmission. The industry was nationalistic, monopolistic and highly regulated. After the deregulation most company’s wants partnership because IBM had the infrastructures.   Louis saw little gain from partnership with telecoms in a regulated industry. IBM therefore seek to auction to the highest bidder and the bid was sold for $5billion to AT&T and that was extraordinary price for a business that produced relatively tiny percentage of IBMs profit.

5.    Cultural Change: IBM had a culture of “no” “non-concurrence” – a multiphase conflict in which units competed with one another, hid things from one another and wanted to control access to their territory from other IBMers – the foot soldiers were IBM staff people. Instead of facilitating coordination, they manned the barricades and protected the borders. The net result of all this, was a very powerful bureaucracy working at all levels of the company.  Another culture that Louis worked on was getting the executives dig into the details, work the problem day to day and lead by example not title. For instance he asked a highly rated executive to do a detail analysis of a major money losing business at IBM. Three days later he asked him how the work was progressing, the executive said “I will check with the team and get back to you” at the end of the week the same response, and when the scene played out a third time. Louis finally said “why don’t you give me the name of the person doing the work and from now on, I will speak directly with him or her. The executive was stunned because at IBM executives simply preside over a process. This was changed and a new culture emerged.  The culture that gets the executives involved. IBM shifted from process-centric management to an approach based management style.

6.    Focus – few people and few institutions would admit to a lack of focus, even in an exercise of honest self –evaluation. However lack of focus is the most common cause of corporate mediocrity.  Focus was a challenge at IBM yet not known. Louis changed this and gave them focus by developing a deep understanding of its customer needs, its competitive environment and its economic realities. This then form the basis for specific strategies that was translated into day to day execution.

In conclusion, An Army of sheep led by a lion will always do better than an army of lions led by a sheep.              

It is not a question of whether Elephants can prevail over ants. It’s a question of whether a particular Elephant can dance. If it can, the ants must leave the dance floor.