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Gerstner Describes Bringing IBM Back to Health

November 19, 2002

STANFORD GRADUATE SCHOOL OF BUSINESS—It took an outsider to point to IBM Corp.'s problems and a crisis to solve them. So says Louis Gerstner, the architect of the Big Blue comeback, who retired earlier this year as CEO. Gerstner, author of a new book, Who Says Elephants Can't Dance?, spoke to a Stanford Business School audience Nov. 18 at an event co-sponsored with CNET.

The elephant of the book is IBM, the firm Gerstner joined in a high-profile debut April 1, 1993. The former CEO of RJR Nabisco had been asked three times to assume the leadership of the world's largest technology company and turned it down saying he didn't have the technical background. The fourth time: "They ran out of candidates and they convinced me it was a leadership-not a technology-problem. I saw it as a challenge."

Greeted with hoopla that didn't subside much during his nine years at IBM's top, Gerstner was prodded from day one to articulate the company's vision . Memorably, he was quoted as saying, "The last thing IBM needs (right now) is a vision"—except the press generally dropped the words right now. The plainspoken Gerstner told the packed Bishop Auditorium audience at the time he thought IBM needed much more than a vision. "Visions are easy. The hard work is to change to succeed."

When he took the helm, IBM was in dire straits. Although full of brainiacs who could build super-computers, it was hemorrhaging money, losing more than $13 billion in two years. Its share of the mainframe market had plummeted by 50 percent and thousands of employees had left. There was truly a crisis at IBM, with the overhanging threat that investors would force a breakup of the venerable company that invented computing. But crisis was what helped Gerstner turn the behemoth around, he said.

"If you are going to change an institution and change the culture, you've got to have crisis," he said.

Gerstner, one of the country's top change-artists, spent considerable time describing how culture—not the product nor the manufacturing process—is the most important element in an enterprise. He said it is impossible to change an institution—be it private or nonprofit—without changing the culture. "The levers you have to pull are cultural, not directional. It's how people think, what they value, what they do."

Business School Dean Robert Joss, who with CNET reporter Dan Farber interviewed Gerstner, pointed out that management can't unilaterally change a business-culture. Gerstner agreed, but said you can tell employees that if they don't support change, the company they work for won't exist. IBM was "stuck in neutral—numb," he said. "We needed to convince people to keep it together to fight for leadership and bring IBM back."

To make IBM a profitable company again, Gerstner shed assets, canceled products, cut prices, and fired staff. One of the notable changes was abandoning the OS computer operating system, and ceding market share to competitor Microsoft Corp. Cutting the price of mainframes, which accounted for most of the profits, was another risky move, but "we had to do it to hang onto our customers. If we had failed, the company wouldn't have made it."

When he left, IBM was once again in the black (the nearly $8 billion profit in 2001 marked the eighth straight year in the plus column) and back in the ring as the heavyweight to beat. Gerstner had convinced the highly intellectual, individualistic, $80 billion working culture at IBM to work as a team.

"We understood what made us successful was our size," he said. "When the elephant dances, all the rest on the dance floor leave."

—by Joyce Routson