Not the same old waltz

Citation

Davidson, A. (2003), "Not the same old waltz", Strategy & Leadership, Vol. 31 No. 3. https://doi.org/10.1108/sl.2003.26131cae.001

Not the same old waltz

Alistair Davidsonis Managing Partner of Eclicktick Corporation, Palo Alto, California and the author of two recent books, Turn Around! (a free e-book available at www.eclicktick.com) and Riding the Tiger, on best practices in information management. He has helped startups, turnarounds, business incubators and large high tech firms improve their strategy, marketing, and sales performance (Alistair@eclicktick.com).

Who Says Elephants Can't Dance? Inside IBM's Historic Turnaround

Louis V. Gerstner, Jr.Published by HarperBusiness, New York, 2002

Some companies and the impresarios who run them fascinate many journalists. Everything they do is the subject of cover articles. IBM is one of those companies, and Louis Gerstner – former McKinsey partner, former head of Travel Services for Amex, former CEO of the LBO buy-out RJR Nabisco – has been front-page copy at every stage of his career. Now, to wide acclaim, he has published his story of turning around IBM.

Gerstner comes across as a down-to-earth practical leader with a keen sense of the importance of business basics and business strategy. There are no dramatic new theories of management in this book, no major bolstering of theories of excellence or a promotion of the McKinsey 7-S model. There is, in contrast, a refreshingly simple emphasis upon the basics of business strategy, management practices, and execution.

Gerstner brought three important experiences to his turnaround of IBM. From McKinsey, he brought the understanding that companies can't successfully compete in all businesses and markets. At American Express, he experienced IBM's lack of customer focus first hand after being threatened by IBM for buying a competitor's mainframe computer product. From RJR Nabisco, he brought an appreciation of the importance of solid processes and management controls for controlling performance and cash flow.

Fortunately, these three pieces of background turned out to be exactly what IBM needed. IBM was a troubled but arrogant company when Gerstner took over. Its employees were more concerned about internal politics than customers and market share. IBM was struggling in practically every business it was competing in and losing market share to more nimble competitors. And, IBM's financial position had deteriorated badly as a result of rapid loss of market share to lower priced mainframe vendors, which was the market responsible for the vast majority of IBM's profits.

The litany of IBM's problems that Gerstner had to quickly address is hard to imagine in today's more competitive world, but they included:

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  A reluctance to tackle difficult pricing problems and take a longer view of the business.

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  An entitlement culture rather than a culture oriented to performance.

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  A political culture with little emphasis upon actual execution (A memo included in the book on the management of "non-concurrence" by IBM decision makers is a wonderful piece of evidence. As the new IBM CEO, Gerstner was startled to find out that often when he issued a direct order his subordinates would choose not to implement it because they disagreed. This culture of "non-concurrence" made IBM the slowpoke of the industry until Gerstner was able to change it).

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  A lack of passion in the leaders of the company, especially when compared with their smaller competitors.

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  A lack of coordination within the baronies of the geographically organized IBM.

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  Massive duplication of administrative staff and processes.

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  A lack of focus on serving and listening to customers.

Although not directly stated in the book as criticism of the previous CEO, IBM was also headed down the wrong road strategically. John Akers, Gerstner's predecessor, whose background was in sales, had drawn the wrong conclusions about how to fix IBM. Akers had decided to maintain IBM's pricing umbrella over its competitors in the core mainframe space and to divide IBM up into a group of over a dozen companies that could be more entrepreneurial. As with many large organizations, the proposed reorganization was a substitute for actual strategy change.

In contrast to Akers, a highly personable leader who proved incapable of making the hard decisions that IBM needed, Gerstner was a brusque performance oriented manager. Not a high tech insider, Gerstner's most important insights were learned from being a customer. (This suggests that companies and venture capitalists should consider broadening their criteria for the selection of leaders). As an outsider, he had not been socialized by IBM's peculiar culture of foils, ''non-concurrence'' and internal rivalries.

Gerstner's key insight, one that was eventually recognized by other hardware vendors, was that IBM's overall ability to create, deliver and support solutions for customers was far more important than the individual components of its offering. As a strategist, he clearly understood that a "core competence'" – the ability to bring together key capabilities and manage across them – has genuine value. He realized that the notion of solution and services selling could be supported by IBM's large size, global geographic presence, economies of scale in components and superb R&D – provided that it's the firm's culture, processes and focus could be changed.

IBM's success today is clearly based upon this insight. Gerstner's successor, Sam Palmisano, understands the increased importance of using high tech to solve problems for customers. The acquisition of the respected consulting firm of PriceWaterhouseCoopers moves the new IBM even more in the direction of offering customer-specific solutions.

What can we learn from this book? Perhaps we should accept it as evidence that understanding strategy, understanding the customer, focusing upon activities and processes that solve customer problems and create value for customers represents the new frontier in high technology. This is a lesson that IBM's competitors often fail to grasp. As practical demonstration of the value of astute strategic management, Gerstner's book will give satisfaction to practitioners who believe that the crucial role of strategy making has been unfairly trivialized in recent years.

For those in Silicon Valley and elsewhere whose emphasis is upon selling cutting edge technology, instead of offering solutions that are needed and valued by customers, the book should be a wake-up call.