Solved by verified expert:It will be one part of a whole reportDo the strategic leadership analysis ONLY based on the BOOK I attached. I also attached relevant PPT to assist your work. you can reference the PPT.No other reference needed.
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who_says_elephants_can_t_dance_leading_a_great_enterprise_through_dramatic_change.pdf
4352_15_strategic_leadership.pdf
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Who Says Elephants
Can’t Dance?
Leading a Great
Enterprise Through
Dramatic Change
Louis V.
Gerstner, Jr.
This book is dedicated to the thousands of IBMers who never gave
up on their company, their colleagues, and themselves. They are the
real heroes of the reinvention of IBM.
Contents
Foreword
vii
Introduction
1
PART I-GRABBING HOLD
7
1 The Courtship
9
2 The Announcement
18
3 Drinking from a Fire Hose
29
4 Out to the Field
41
5 Operation Bear Hug
49
6 Stop the Bleeding (and Hold the Vision)
56
7 Creating the Leadership Team
73
8 Creating a Global Enterprise
83
9 Reviving the Brand
88
10 Resetting the Corporate Compensation Philosophy
11 Back on the Beach
93
103
PART II-STRATEGY
111
12 A Brief History of IBM
113
13 Making the Big Bets
121
14 Services—the Key to Integration
128
15 Building the World’s Already Biggest Software Business
136
16 Opening the Company Store
146
17 Unstacking the Stack and Focusing the Portfolio
153
18 The Emergence of e-business
165
19 Reflections on Strategy
176
PART III-CULTURE
179
20 On Corporate Culture
181
21 An Inside-Out World
189
22 Leading by Principles
200
PART IV-LESSONS LEARNED
217
23 Focus—You Have to Know (and Love) Your Business
219
24 Execution—Strategy Goes Only So Far
229
25 Leadership Is Personal
235
26 Elephants Can Dance
242
27 IBM—a Farewell
253
APPENDICES
259
Appendix A—The Future of e-business
261
Appendix B—Financial Overview
277
Index
287
ABOUT THE AUTHOR
CREDITS
COVER
COPYRIGHT
ABOUT THE PUBLISHER
Foreword
I
have never said to myself, “Gee, I think I want to write a
book.” I am not a book writer. Until now I haven’t had the
time or the inclination to lean back and reflect on my thirty-five
years in business. I haven’t had the patience it takes to sit down for
a long time and create a book. Throughout my business life I have
been wary of telling others how to manage their enterprises based
on my personal experiences.
And, frankly, I wasn’t sure if anyone would be interested in
reading my thoughts. I read a lot of books, but not many about
business. After a twelve-hour day at the office, who would want to
go home and read about someone else’s career at the office?
I have always believed you cannot run a successful enterprise
from behind a desk. That’s why, during my nine years as Chief Executive Officer of International Business Machines Corporation, I
have flown more than I million miles and met with untold thousands
of IBM customers, business partners, and employees. Over the past
two years, after people began speculating that my retirement might
be just around the corner, I thought I’d get a lot of big-picture
questions that outgoing CEOs get about the economy, the world, and
the future. Instead, I have been surprised by how many times—at
big meetings and small ones, and even at private sessions with CEOs
and heads of state—I was asked: “How did you save IBM?” “What
was it like when you got there?” “What were the problems?” “What
specific things did
viii / LOUIS V. GERSTNER, JR.
you do to bring the company back to life?” “What did you learn
from the experience?”
They wanted to know, many of them said, because their own
companies, organizations, or governments faced some of the same
issues IBM had encountered during its very, very public near collapse
in the early 1990s. Businesspeople outside the United States, confronted with the need to transform tradition-bound enterprises into
tough and nimble players in a world economy, seemed particularly
interested in the subject.
More recently, after I had announced my intention to retire, I was
amused to read an editorial in an American newspaper, USA Today,
that said, in effect, it hoped Gerstner was going to do something
more useful than write a book and play golf. Nice thought, but since
the announcement, I got thousands of letters and e-mails, and the
most frequent sentiment was, again, that I should tell what I had
learned from my tenure at IBM. (I was also invited to appear in a TV
commercial with golf pros Jack Nicklaus and Gary Player.) You
might say that I concluded, a little reluctantly, that the easiest way
for me to fulfill all this “popular demand” was to write a book and
to hold off on serious golf for the time being.
So, here I am, ready to tell you the story of the revival of IBM.
Of course, this book would never have appeared without the heroes among my IBM colleagues who helped me restore IBM to a position of leadership. In many respects this is their book as much as it
is mine. There were many such leaders, but clearly among the most
important were Dennie Welsh and Sam Palmisano, who built our
services company; John Thompson, who created our Software Group;
Abby Kohnstamm, who took a cacophony of confused messages
and melded them into one of the most powerful brand statements
in the world; Nick Donofrio, who was my translator from the world
of high tech to the world of management; Jerry York, Rick Thoman,
and John Joyce, three great financial executives who instilled a level
of productivity, discipline, and probing analysis into a company
that
WHO SAYS ELEPHANTS CAN’T DANCE? / ix
appeared to value these quite lightly when I arrived; Larry Ricciardi,
my colleague of many years, who brought his intellect and counsel
to many of our critical decisions; and, finally, Tom Bouchard, who
as head of Human Resources stood tall and took the heat as we
transformed the IBM culture.
There are many more. In fact, there are thousands of IBMers who
answered the call, put their shoulders to the wheel, and performed
magnificently as we undertook an exhausting—at times frightening,
but always exhilarating—journey to restore this extraordinary
company. To all of them, I dedicate this book.
I wrote this book without the aid of a coauthor or a ghostwriter
(which is why it’s a good bet this is going to be my last book; I had
no idea it would be so hard to do). I am responsible for any mistakes
or confusion the reader may endure. The views expressed are mine
and are not necessarily those of the IBM Corporation or any other
IBMer.
I did have a great deal of help from some longtime IBM colleagues.
They include Jon Iwata, Mark Harris, and Mike Wing, who made
substantial contributions. Michele Andrle managed production of
every draft and redraft deftly and patiently—an unbelievable amount
of stitching and restitching. I want to thank them and everyone else
who helped me.
Introduction
T
his is not my autobiography. I can’t think of anyone other
than my children who might want to read that book (and
I’m not 100 percent sure they would, either). However, in the spirit
of trying to provide some contextual background for my views, what
follows is a brief historical perspective.
I was born on March 1, 1942, in Mineola, New York—the county
seat of Nassau County, Long Island.
My father started work as a milk-truck driver and ultimately became a dispatcher at the F&M Schaeffer Brewing Company. My
mother was a secretary, sold real estate, and eventually became an
administrator at a community college. Along with three brothers—one older, two younger—I lived in the same house in Mineola
until I left for college, in 1959.
We were a warm, tightly knit, Catholic, middle-class family.
Whatever I have done well in life has been a result of my parents’
influence. My father was a very private man with a great love of
learning and inner strength that needed no approbation or reinforcement from broader audiences. My mother was enormously disciplined, hard-working, and ambitious for all her children. She drove
us toward excellence, accomplishment, and success.
Education was a high priority in the Gerstner household. My
parents remortgaged their house every four years to pay for
schooling. I attended public grade school, then Chaminade, a Catholic high school in Mineola. I graduated in 1959 and was almost on
my way to
2 / LOUIS V. GERSTNER, JR.
Notre Dame when Dartmouth College offered me a substantial
scholarship. It was a major benefit for our family finances, so I packed
off for Dartmouth in September 1959, without ever having set foot
on its campus.
Four years later I graduated with a degree in engineering science.
I immediately went to Harvard Business School for two years. (Back
then one could leave undergraduate school and go directly to business school, a practice that has since, for the most part, been abandoned by business schools.)
Then, at the tender age of 23, I emerged from Harvard and went
into business.
I joined the management consulting firm of McKinsey & Company
in New York City in June 1965. My first assignment was to conduct
an executive compensation study for the Socony Mobil Oil Co. I’ll
never forget my first day on that project. I knew nothing about executive compensation, and absolutely nothing about the oil industry.
Thank goodness I was the low man on the totem pole, but in the
McKinsey world one was expected to get up to speed in a hurry.
Within days I was out meeting with senior executives decades older
than I was.
Over the next nine years I advanced to the level of senior partner
at McKinsey. I was responsible for its finance practice and was a
member of its senior leadership committee. I was the partner in
charge of three major clients, two of which were financial services
companies.
The most important thing I learned at McKinsey was the detailed
process of understanding the underpinnings of a company. McKinsey
was obsessive about deep analysis of a company’s marketplace, its
competitive position, and its strategic direction.
When I reached my early thirties, it became clear to me that I
didn’t want to stay in consulting as a career. Although I enjoyed the
intellectual challenge, the fast pace, and the interaction with topranking senior people, I found myself increasingly frustrated playing
the role of an advisor to the decision makers. I remember saying to
WHO SAYS ELEPHANTS CAN’T DANCE? / 3
myself, “I no longer want to be the person who walks into the room
and presents a report to a person sitting at the other end of the table;
I want to be the person sitting in that chair—the one who makes the
decisions and carries out the actions.”
Like many other successful McKinsey partners, I had gotten a
number of offers to join my clients over the years, but none of the
proposals seemed attractive enough to make me want to leave. In
1977, however, I received and accepted an offer from American Express, which was my largest client at that time, to join it as the head
of its Travel Related Services Group (basically, the American Express
Card, Traveler’s Checks, and Travel Office businesses). I stayed at
American Express for eleven years, and it was a time of great fun
and personal satisfaction. Our team grew Travel Related Services
earnings at a compounded rate of 17 percent over a decade; expanded
the number of cards issued from 8 million to nearly 31 million, and
built whole new businesses around the Corporate Card, merchandise
sales, and credit card processing industries.
I also learned a great deal. Early on I discovered, to my dismay,
that the open exchange of ideas—in a sense, the free-for-all of
problem solving in the absence of hierarchy that I had learned at
McKinsey—doesn’t work so easily in a large, hierarchical-based organization. I well remember stumbling in my first months when I
reached out to people whom I considered knowledgeable on a subject
regardless of whether they were two or three levels down from me
in the organization. My team went into semi-revolt! Thus began a
lifelong process of trying to build organizations that allow for hierarchy but at the same time bring people together for problem solving,
regardless of where they are positioned within the organization.
It was also at American Express that I developed a sense of the
strategic value of information technology. Think about what the
American Express Card represents. It is a gigantic e-business, although we never thought about it in those terms in the 1970s. Millions of people travel the world with a sliver of plastic, charging
goods and
4 / LOUIS V. GERSTNER, JR.
services in many countries. Every month they receive a single bill
listing those transactions, all translated into a single currency. Concurrently merchants are paid around the globe for transactions
completed by hundreds, if not thousands, of people whom they do
not know and may never see again. All of this is done for the most
part electronically, with massive data processing centers worldwide.
The technology imperative of this business was something I wrestled
with for many years.
This was also when I first discovered the “old IBM.” I’ll never
forget the day one of my division managers called and said that he
had recently installed an Amdahl computer in a large data center
that had historically been 100-percent IBM equipped. He said that
his IBM representative had arrived that morning and told him that
IBM was withdrawing all support for his massive data processing
center as a result of the Amdahl decision. I was flabbergasted. Given
that American Express was at that time one of IBM’s largest customers, I could not believe that a vendor had reacted with this degree
of arrogance. I placed a call immediately to the office of the chief
executive of IBM to ask if he knew about and condoned this behavior.
I was unable to reach him and was shunted off to an AA (administrative assistant) who took my message and said he would pass it
on. Cooler (or, should I say, smarter) heads prevailed at IBM and the
incident passed. Nevertheless, it did not go out of my memory.
I left American Express on April 1, 1989, to accept what some in
the media called at the time the “beauty contest” of the decade. 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, was rated the ninth-most-admired company in
America when the headhunters called me. The organization had just
gone through one of the wildest adventures in modern American
business history: an extraordinary bidding contest among various
investment firms to take the company private through a leveraged
WHO SAYS ELEPHANTS CAN’T DANCE? / 5
buyout (LBO). The winning bid was made by the venture capital firm
of Kohlberg Kravis Roberts & Co. (KKR). Soon afterward, KKR sought
me out to become chief executive of the now private and heavily
indebted company.
For the next four years I became immersed in a whole new set of
challenges. While I understood well from my American Express
days the ongoing demands of a consumer products company, I really
spent most of my time at RJR Nabisco managing an extraordinarily
complex and overburdened balance sheet. The LBO bubble of the
1980s burst shortly after the RJR Nabisco transaction, sending a tidal
wave of trouble over this deal. In hindsight, KKR paid too much for
the company, and the next four years became a race to refinance the
balance sheet, while trying to keep some semblance of order in the
many individual businesses of the company. It was a wild scene.
We had to sell $11 billion worth of assets in the first twelve months.
We had debt that paid interest rates as high as 21 percent a year. We
had lender and creditor committees galore and, of course, the cleanup
from the profligate spending of the prior management. (For example,
when I arrived we had thirty-two professional athletes on our
payroll—all part of “Team Nabisco.”)
That was a difficult time for me. I love building businesses, not
disassembling them. However, we all have an opportunity to learn
in everything we do. I came away from this experience with a profound appreciation of the importance of cash in corporate performance—“free cash flow” as the single most important measure of
corporate soundness and performance.
I also came away with a greater sense of the relationship between
management and owners. I had experienced this at McKinsey, which
was a private company owned by its partners. The importance of
managers being aligned with shareholders—not through risk-free
instruments like stock options, but through the process of putting
their own money on the line through direct ownership of the company—became a critical part of the management philosophy I
brought to IBM.
6 / LOUIS V. GERSTNER, JR.
By 1992 it was clear to all that while RJR Nabisco itself was doing
quite well, the LBO was not going to produce the financial returns
the owners had expected. It was clear to me that KKR was headed
for the exit, so it made sense for me to do the same. This book, which
starts on the next page, picks up my story from there.
PART 1
Grabbing Hold
1
The Courtship
O
n 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
refer
10 / LOUIS V. GERSTNER, JR.
ence 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. BusinessWeek 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
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