Strategic Management


As Google gets bigger, it is going to be difficult to manage and keep up the innovation culture as it keeps marching on its path to success. Schmidt once described “small innovative technical teams” as the source of virtually all Google’s strategic initiatives. Google tries to maintain an entrepreneurial culture by forming small teams that act like individual startups. The founders believed that the groups tend to become more traditional as they grow larger. Google has 17,000 employees with about 40% based outside the US. The workforce is multicultural, diverse and spread across the globe. “Continuous Innovation” has been the motto of Google and that has permeated across all divisions at Google. Google has a flat management structure but structured processes, managed bottom-up for innovation, culture of consensus, tolerance for chaos, and committees to approve projects, free food and best perks in the industry. Google has been successful in attracting great talent with “Googley” qualities – self-managed, self-motivated, risk-taking, highly passionate and creative minds with a tenacity to adapt to failures.

 

I believe that this culture can be sustained but may suffer if the management becomes rigid and prioritizes profits over innovation for the long-term. As evident from the case, Google is able to maintain coordination and teamwork across multiple functional groups – online sales and operations, product management, marketing and engineering divisions. There is no hierarchy, but as the headcount increased Google started hiring managers at middle level and there was growing fear of more bureaucracy, slow decision making, lack of visibility and loss of international consistency.

Bureaucracy

With the enormous growth happening, Google may impose new policies and guidelines to actively manage the workforce and this may curtail the pace of innovation. Increased bureaucracy may be mandated since the diverse workforce may not be compliant with the Google vision and mission. It may need to reign in some of such elements through new procedures and policies thereby affecting the agility of majority of the other groups.  Internal tools and the so called “Dilbertville” meeting may be impossible to do in geographically diverse locations and in some ways be not feasible.

Slow Decision making

The culture of open discussion, consensus based decision making may not be feasible with large numbers of employees. The ability to critique, take risks and openly oppose decision making may not be entertained. Cross-functional decisions will be difficult to achieve and the innovative mechanisms may be stalled.

Ensuring Visibility

With employees spending 20% of their time on idea projects may lead to duplication. Since visibility is difficult to main across a multi-cultural workforce, there may be replication of effort, loss of productive time and the risk of reinventing the wheel. Establishing visibility may be difficult with an expanding workforce.

Guaranteeing International Consistency

Google may find it hard to attract the same “Googley” talent at global locations and inculcate the “Google culture” in the new recruits.  Implanting or exporting the true Google culture may cause conflict with local cultures, tastes and perceptions. Finding a balance between cultural diversity and cultural homogeneity is difficult in an international context.

Apart from these there are other challenges such as censorship, trade restrictions and country policies which may dampen the entrepreneurial culture for offshore employees. Inability to hire and retain key people, and scale operational processes are some additional concerns worth noting.

Strategic Diversification – Driver for future growth

As Google branches out into new arenas, there is possibility of getting in conflict with the company’s founding mission, “to organize the world’s information and make it universally accessible and useful”.

I think the current culture is well suited for innovation – to generate one idea after another. The founders have a commitment to ensure the innovation culture is fostered and promoted within the organization. The creative corporate culture is excellent for attracting bright minds but will be difficult to pursue subject to market dynamics of supply and demand.

“Googley” culture has been attributed to risk taking/experimentation, design for the world, engage beginners and attract experts, focus on human touch, flexibility and pragmatism. As long as Google can maintain control, competence, collaboration and cultivation of customer enrichment values, the diversification of businesses may not affect the reputation and the innovation culture as it exists now. Retaining rigor and discipline, leading from top and embracing the spirit of venture capitalist are very critical to Google. As long as Google has enough revenue streams flowing through Ad sales and other profitable business units,  it can take risks and diversify into areas of advanced technology such as renewable energy, mobile computing, cloud computing,  internet security and virtualization. But the approach is not void of risks and Google could face major challenges in years ahead –Antitrust suits against Google, copyright infringement, acquisition difficulties, disruptive innovations, privacy concerns etc.

The current governance structure, leadership, innovation culture and organizational processes will need to be diffused into new acquisition areas which will be challenging. The business model needs to adapt to the changing dimensions of the markets and consumer behavior. There has to be synergies and congruence of similar cultures to achieve profitability.

Google will have to think further about how to both maximize ad revenue and provide useful experiences that change the way people use computers and mobiles

Google was founded on very non-corporate principles such as democracy on the web and “making money without doing evil”.  As long as Google stays this path, it can sustain its innovation culture and emerge successful in any strategic business diversification.

Kodak & the Digital Revolution

Kodak was founded by an energetic and visionary entrepreneur, and created joy and memories for millions of people. Kodak’s guiding principles were, “mass production at low cost, international distribution, extensive advertising, and customer focus, and growth through continuous research.” Photography was made available, usable and affordable to everyone.

Kodak’s response to Sony’s introduction of the Mavica in 1981

Kodak’s business model was to sell cameras at low prices and profit from consumable products such as film. When Sony launched Mavica, a camera that used floppy discs instead of film, it signaled the imminent death of analog photography. Kodak refused to acknowledge that print photography was a dying business largely because margins for print (film, chemicals, and processing) were high as 60% versus 15% for digital products. Kodak recognized the threat and invested in digital imaging in the 1980s and 1990s but the move wasn’t fast enough. The Management launched some research into digital photography, but at that time believed the technology was not feasible and will not be affordable. They did not make a big move into the space until early 2000s

Kodak responded to competition threats (from Fuji and Polaroid) by diversifying throughout the 1980s. It got into medical imaging, mass memory, bioscience and lab research firms, pharmaceuticals, batteries and even digital imaging. Chandler abandoned the policy of vertical integration, funded extensive research and established centers to develop image acquisition, storage systems, software and printer products. Film-based digital imaging also took hold.

Kodak executives blatantly stayed the course (sticking to current film strategy) in spite of detailed analysis of threats posed by digital photography. They found it hard to ignore the fact that film and traditional processing provided for majority of the revenue stream. They underestimated the significance of market changes and the disruption that was coming. Digital technology also eliminated the huge recurring revenue stream that came from film and reprints. The economics of the new model don’t measure up to the economics of the old. It was hard for Kodak executives to believe the end of print technology.

The digital transition had huge implications for Kodak since all its revenues were derived from film technology. The value of vertical integration would be lost and the competence base will be rendered obsolete.

The response of the management to the looming threat of digital photography was not appropriate. Kodak was so deep rooted in the old film technology that they never saw any imminent threat from digital imaging. Kodak’s competencies were in precise mechanics, chemistry, manufacturing, and consumer marketing. There was fear that Kodak’s existing competencies in the areas of traditional film photography would be rendered insignificant in light of the new technology. But eventually Kodak lost the race in the digital supremacy and cost it dearly in terms of stock value and workforce reductions.

Fisher’s attempt to transform Kodak

In 1990s the company focused on core business and divested many business units. Fisher formulated and implemented a digital strategy. He tried to brand Kodak as an imaging company and few ideas that emerged included a) greater coherence – focus the digital efforts and coordinate them in a better way. b) incrementality – shift will be the consequence of many small efforts. Kodak did everything possible to enter digital imaging – consumer cameras, storage, software, printing paper etc. He separated the digital business from film and consolidated efforts to build capabilities in imaging technology. He was instrumental in introducing digital print stations, new models of digital cameras and focused on operational effectiveness

Kodak was integrated vertically owning the entire value chain from basic research to photo finishing. The digital value chain was different, different vendors had different niches for which they developed products. So under Fisher, Kodak launched joint ventures and released cameras by teaming with Microsoft, HP and IBM. They developed the business both in-house and through collaborations and partnerships. Manufacturing was outsourced to china to fight off Fuji competition and introduced the network and consumables” based business model.

Fisher’s efforts to capture digital market share faced many challenges. Fisher was able to bring organizational change only at high level, but the mid level management never understood the push towards “digital” imaging. They still perceived Kodak’s future in film, just followed the higher management initiatives. The culture of consensus and open discussions was not there.

Kodak still believed in film based digital imaging and was too late to actively compete with new emerging competition from other new players. While managers were reluctant to invest in products that would have lower profit margins than traditional film, they lost sight of the fact that the competitive landscape was changing rapidly. Fisher had segmented his product development and sales over many divisions. There was poor communication and sharing of information. By late 1997, 60% of Kodak’s losses were due to costs of digital cameras, writeable CDs and other product developments. Fisher tried to transform the company too fast and that created resistance to his initiatives. Eventually Kodak ended up running losses due to failure of such late strategies.

Evaluation of Kodak’s strategy and  current position in digital imaging

Kodak could have sold itself in the 1980s or 1990s at a higher valuation that what it now has or it could have moved faster into the digital technology, capturing a greater share of market and, perhaps, the revenue from cell phone cameras. During 1980s and 1990s, Kodak believed that:

  • the digital revolution was not going to happen (genuine uncertainty)
  • any strategy shift will allow cannibalization of their current film offerings
  • current customers don’t demand it (shifts in customer base) and
  • there will be margin erosion

In 1993 Kodak was struggling for survival owing to lethargic matrix management, huge debt, few new products, shaky morale and cut-throat competition. Efforts were in progress from Fisher to eliminate debt, fast track products, reinvent corporate culture, increase profitability and introduce organizational changes.

Kodak was late to the game in their shift to digital and has been playing catch-up. Even though they embraced digital imaging from early 1980s and stopped marketing film cameras in 2004, the company could not compete and retain the market share they dominated for such a long time. After consumers stopped buying the film most of the Kodak’s key resources and capabilities became useless, the global distribution lost its value and people started using PCs instead of photo finishing labs. Kodak’s competitiveness as a vertically integrated company diminished and the business model of making money on film did not fit with digital photography. The supplier network was rendered obsolete, knowledge assets in chemistry and manufacturing became obsolete. No management strategy would have changed that. The digital revenues could not compensate for the loss in film revenue; instead digital camera prices declined rapidly reducing marginal profits. Consumer electronics giants such as Sony, Nikon, and HP developed resource bases that were much better than that of Kodak.

The company has strong brand and global presence, was technologically superior with engineers and scientists, invested millions in research, but the threat from Fuji led to downsizing. Kodak entered emerging markets such as china and kept delivering new digital cameras, digital consumer products and services. It recognized the threat and pioneered digital imaging and pushed it even though it rendered film obsolete. Kodak tried to embrace, develop and commercialize digital imaging.

The advent of mobile cameras further crippled the recovery for Kodak. Dynamics of competition has changed in the digital world. It is no longer precision mechanics but electronics which is in demand now. Digital printing business had moderate success, but more and more people are printing at home and this success may not last long. Online picture sharing services is facing stiff completion from Google, Flickr and others. Disruptive innovation has destroyed the value of Kodak’s resources, its global position and its capabilities.

The very fact that Kodak is still doing business shows that Kodak is a success story. Its competitors during the film era – Agfa, Konica, Polaroid have all disappeared. I believe that Kodak had a success story since it survived the significant innovative disruption that happened in film photography.

What made Kodak survive?

  • Recognized the threat early on and developed in-house knowledge and competencies
  • Showed willingness to cannibalize its own film business

Jim Hagedorn

Chairman and CEO
The Scotts Miracle-Gro Company

Jim Hagedorn, CEO of Scotts Miracle-Gro Co served as president from May 2001 to December 2005 and from November 2006 to October 2008. At Miracle-Gro, Jim had served as executive vice president and was a major architect of Miracle-Gro’s success both in the U.S. and in the UK. Following the merger, he was instrumental in the effective integration of the two businesses and served as head of the Company’s North America business. Additionally, he served in the United States Air Force for seven years, where he was a captain and an accomplished F-16 fighter pilot.

The Scotts Miracle-Gro Company has a long history dating back to 1868 when it first got started as a grass seed company. Now it is the world’s largest marketer of branded consumer lawn and garden products and has a culture that values honesty, integrity and transparency. The company cares deeply about the health and well-being of its 8000 strong associates and their families, and ensures that they lead long, healthy and happy lives. The corporate culture highly values innovation, entrepreneurial spirit, flexibility, collaboration, accountability and moral conduct.

Jim Hagedorn has shown remarkable leadership and passion in his attack on health-care costs.

After seeing health insurance costs continually rising – seemingly out-of-control and realizing the lack of efforts from the government and health-care industry to fix the current system, Jim decided to act. He felt it’s up to employers — who foot the bill — to make changes. He made valiant efforts to not only get its employees to eat and live well but also makes them accountable for their actions. The primary motivation for doing was to control escalating health care costs while improving the long-term quality of life of employees.

Jim Hagedorn is known for his determination and commonsense policies incentivizing his employees. Jim’s decisions are based on the harsh reality that our workforce apparently lacks the basic self-discipline to control its caloric intake and exercise every week.

Scott made significant investment in improving employee health. These include free doctor care, access to a low cost fitness facility, access to dieticians, free generic prescription drugs, and of course, free smoking cessation programs. Scotts Miracle-Gro is a great example of a company that has gotten workplace-wellness programs right. Jim is also credited with some controversial initiatives, like asking for detailed medical histories of employees, and potentially firing an employee who failed to stop smoking.

Scotts is in the vanguard of companies seeking to monitor and change employee behavior. Jim was able to motivate and influence employee behaviors at Scotts and demonstrated true emotional intelligence – He had the right mix of all the EI components – self-awareness, self-regulation, motivation, empathy, social awareness and managing relationships. He was self-aware of the potential health dangers from obesity, smoking and diabetes. He lost his mother to lung cancer and instantly gave up smoking after realizing the grave consequences of smoking. He was able to cut medical costs, persuade employees to take better care of themselves without killing morale and spawning lawsuits.

Jim employed various EI styles as he tried to change employee behaviors. He understood the reasons behind rising health care costs and took the bold step of dictating the personal habits of those lesser than himself. Jim knew the complexity of the issue and he was always probing, sensing and responding to build the dynamic capabilities amongst employees. In relation complexity leadership theory, I see adaptive, administrative and enabling functions on the part of Jim to introduce this disruptive innovation of employee wellness program, a business model innovation to lower healthcare costs.

When Scotts doubled what workers paid for health insurance. Morale plummeted, and Hagedorn knew he had to do a better job selling the hike. He applied affiliative style and held straight talk sessions with employees to heal the rift and explain them what he was up against – the rising health costs climbing at a double-digit rate. He laces his sermons with salty language and unvarnished commentary.

Jim sought legal and HR expertise when he wanted to ban smoking and go after obesity. To achieve these aims, he proposed launching the kind of companywide intervention that families use to help an addicted relative. His wellness programs had Big Brother overtones. But he was adamant about bringing down health costs—even if it means being authoritarian. “If people understand the facts and still choose to smoke, it’s suicidal,” he says. “And we can’t encourage suicidal behavior.” He acted as a commanding leader to enforce new policies and fire people who did not give up smoking.

His instructed key executives to sell his initiatives and ready the employees for desired outcome. His visionary style coupled with coaching restored integrity, confidence and trust with employees. To motivate people, he incentivized employees for healthy outcomes and emerged as a pace-setting leader.  As a democratic leader, Jim valued inputs and commitment through employee participation at quarterly meetings.

Jim has been highly successful in –

Getting employees involved

Scotts’ wellness program began with CEO Jim Hagedorn’s honest and straight-forward approach with his employees.

Hagedorn wanted employees to know what he was up against. Using a PowerPoint presentation, he showed that his annual health-care bill had soared 42% since 1999, to $20 million, which amounted to 20% of the company’s net profits in 2003.

Getting employees policed

Enforcing workplace programs especially related to such personal matters as smoking and eating is always a tricky issue, but Hagedorn, a former F-16 pilot was not one to be discouraged. Hiring a third-party firm to prevent managers from discriminating against subordinates, he managed to institute a smoking ban with the understanding that “If people understand the facts and still choose to smoke, it’s suicidal,” he says. “And we can’t encourage suicidal behavior.” choose to smoke, it’s suicidal,” he says. “And we can’t encourage suicidal behavior.”

Getting employees the resources

Well, talk about fitness is cheap, but Hagedorn puts his money where his health is:

During one of Hagedorn’s straight-talk sessions, workers told him a company gym would make wellness easier to swallow. “Done,” Hagedorn said. But his vision went far beyond installing some StairMasters and throwing up health pointers on the Scotts intranet. Hagedorn built a soup-to-nuts medical and fitness center across the street from headquarters. Operated by Whole Health, the 24,000-square-foot facility cost $5 million and can meet pretty much any health-related need an employee might have, including a drive-thru for free prescription drugs.

When employers don’t stop at just making recommendations, but go that extra step to actually provide a convenient, usable service, everyone benefits.

Get employees accountable

Of course, you can provide the world of benefits to employees, but that benefit is only going to be as good as its usage. This is why:

Scotts’ employees are now urged to take exhaustive health-risk assessments. Those who balk pay $40 a month more in premiums. Using data-mining software, Whole Health analysts scour the physical, mental, and family health histories of nearly every employee and cross-reference that information with insurance-claims data. Health coaches identify which employees are at moderate to high risk. All of them are assigned a health coach who draws up an action plan. Those who don’t comply pay $67 a month on top of the $40. “We tried carrots,” says Benefits Chief Pam Kuryla. “Carrots didn’t work.”

It’s time people realize that their habits don’t affect just themselves but others too.

Getting employees motivated (and rewarded!)

Often Hagedorn will walk around motivating people and making sure people are on the right track. He walks around campus joking, slapping guts, and exhorting people to work out. And with rewards aplenty for good behavior general wellness at Scotts is only going one way – up:

The nudging begets peer pressure. Gym rats earn special pins they display on ID badge lanyards; these have become a coveted status object. Competition for trips to Hawaii, free massages and facials, and other cash and prizes is fierce. One group of employees started having lunch together every day to keep each other from peeling out of the parking lot for a smoke. Doughnuts have disappeared. “The message is: If you’re not trying to do something to make yourself better, then you’re going to pay more,”

Getting employees results
The best part of any program is seeing the results right before your eyes and employees of Scotts are luck to be able to do so:

So far, the company says, more than 70% of headquarters staff belongs to the fitness center. The smoking-cessation program has already had a 30% success rate. The wellness program, which costs $4 million a year to run, is a financial drain. But the company expects it to pay for itself in three to four years.

The Challenges from Tough Decisions

The wellness initiatives raise some controversial questions – One is that people could start blaming unhealthy colleagues for helping push up premiums. Then there are the privacy and discrimination issues: How far should managers intrude into employees’ lives?  Scotts has so far been able to avoid getting entangled in any legal issues and employees have whole heartedly supported the medical assessments keeping in faith the privacy safeguards.

Some of the initiatives he introduced include:

  • Opening a $5 million fitness and medical center at company’s Marysville headquarters. The clinic employs two full-time doctors, five nurses, a dietician, counselor, and two physical therapists.
  • Mandatory health assessment, have it evaluated by medical professionals and then follow recommendations to improve their health.
  • Enforce higher premiums on employees who choose not to take the survey and those who don’t follow the recommendations
  • Force employees not to smoke — even off the clock.
  • Access to medical center for doctor consultation, personal and prescription drugs.
  • Offer discounts on health-care premiums, free weight-loss and smoking-cessation programs, gratis gym memberships, counseling for emotional problems, and prizes like vacations or points that can be redeemed for gift cards.
  • Use data-mining software, Whole Health analysts scour the physical, mental, and family health histories of nearly every employee and cross-reference that information with insurance-claims data.

The wellness efforts of Jim Hagedorn have paid off, employees fiercely compete for corporate rewards instituted for following healthy habits. So far, the company says, more than 70% of headquarters staff belongs to the fitness center. The smoking-cessation program has already had a 30% success rate. The wellness program, which costs $4 million a year to run, is a financial drain. But the company expects it to pay for itself in three to four years. Other large companies have seen a 3-to-1 return on investment in their wellness programs.

The workplace is an ideal place to have a great impact on healthcare costs. First, they become aware of their personal physical problems, learn how to improve those problems and have support during their personal program. Then, the fiscal health of the company is improved when the health of each employee is improved; thus, the company is enabled to continue providing jobs for its employees. Wellness programs are a win-win solution for employees, employers and our country’s economy.

Behaviors(dysfunctional) existent at IBM

Despite having talented workforce, great technology and a sound strategy, IBM was underperforming and was suffering from near collapse before Gerstner took over. Unfortunately, the culture that was prevalent at IBM was that of arrogance. It was not in tune with the times and with customers’ needs.

Gersner was able to quickly diagnose the problems at IBM and sought to find immediate remedies to fix the shortfall in revenues and stabilize the company, make good strategic choices and turnaround IBM.  But there were some behaviors which Gersner found unacceptable. These include:

  • Large dysfunctional bureaucracy, committee decisions, tacit compromise and actions committed to serve group interests. IBM had a dress code that again had outlived its times. Management presided rather than acted. Meaningless meetings, far-flung business units operating independently, with little accountability, divisions competing  against each other both internally and in the field and the entire company was dangerously preoccupied with itself rather than customers.
  • Obsession with perfection, system of several layers of checks and approvals, slowed down decision making and delayed product launches and response times. Employees served themselves better than their customers.
  • The company and its people had lost touch with external realities. It was widely believed that what was happening in the marketplace was essentially irrelevant to the success of the company. “IBM’s dominant position had created a self-contained, self-sustaining world for the company.

IBM was mired in the tradition and culture of its own success, it was unable to respond to the pace and behaviors of the new economy. Customer service absolved itself from paying attention to customers’ needs and business. Employees perceived employment at IBM as “life-long” with ensured benefits. Product portfolio still focused on products which were losing market share and had no bright future in a networked model of technology. New Kill initiatives which provide new direction were killed in works if did not receive consent from other units. Compensation system was focused on fixed rewards, commonality, internal benchmarks and entitlement. This culture insulated IBM and it employees from market realities and the emerging competition from “client-server” technology, emergence of PC’s and high pricing of  IBM products signaled the death spiral for IBM. IBM lost market share and was running into losses. The mainframe segment was falling apart and the company was struggling to survive.

Gerstner completely transformed the culture of the organization through, for example, modeling desired behavior and abolishing IBM’s notorious dress code to reflect better the attire of their customers. He took the bold step of listening to customers and cutting the price of their cash cow, the 360, to raise cash. Performance based pay and differentiation was introduced. Compensation was not tied to business unit performance, rather was based on company performance. He made strategic decisions towards service-oriented, network-led business transformation. Customer focus was given top priority followed by company interests. Most of the efforts paid off and IBM turned profitable after few quarters.

Behaviors(postitive) at IBM

IBM had a great culture of respect, hard work, and ethical behavior. It was known as a leader in diversity. Employees take pride in commitment – committed to their company and committed to what their company does. These values were engrained and institutionalized by the early founders at IBM.

  • Excellence in everything IBM does
  • Superior customer servicer
  • Respect for the individual

These beliefs were reflected in compensation and benefits systems, in training programs, in marketing and customer support. The three behaviors which Gersner found acceptable were:

  • Ability to provide integrated solutions for customers, handle internal complexity – a great talent pool, experience, knowledge, maturity, and character.
  • Employees who never give up on their company, their colleagues, and themselves – Are energized, motivated and stimulated, who demonstrate commitment towards company goals.
  • IBM’s existence as a whole was the only competitive advantage IBM had and Gersner believed that the breakup was not needed.

Vision and strategy

Mr. Gersner was a visionary who could see the future and predict opportunities. He exposing that “vision is not the same as “strategy. Fixing IBM was all about execution. As Mr. Gerstner stated, “We had to stop looking for people to blame, stop tweaking the internal structure and systems. I wanted no excuses. I wanted no long-term projects that people could wait for that would somehow produce a magic turnaround. I wanted – IBM needed – an enormous sense of urgency”. He did not form any long-term strategic plan, but took strategic initiatives and implemented them for the short-term. He believed that a long-term vision for the company will emerge from the essential restructuring work and needed to cope with the sheer stuff of the rescue plan before he can get to grips with my new vision. He understood the emerging technology trends and wanted to position IBM to take advantage of it. He emphasized the relevance of networked model, the retention of network storage and leverage “service” as the next big market segment to offer complete hardware and software solutions. As part of this effort, IBM global services was started in 1996, Lotus, Tivoli and Rational were acquired and technology was licensed to third parties.

After taking stock of the situation, consulting the customers, competitors and business divisions, Mr. Gerstner formulated strategy and pushed it gain employee readiness. IBM moved from a product based, rule based company with deep divisions into a nimble service company with competitive advantages where decisions are made quickly by empowered and capable employees acting with a customer centric bent of mind.

His transformation efforts included

  • Pushing a service oriented company that could provide a total solution to any customer’s problem
  • Look outside to measure success via customer satisfaction and increased shareholder value
  • Operate as an entrepreneurial organization with minimum of bureaucracy and never ending focus on productivity
  • Never lose sight of strategic vision, direction & mission, reward teamwork
  • removing power and status as key elements of the rewards system created a more market and profit focused company
  • right size – layoff 100k employees and shut down unprofitable departments
  • Customer segmentation and customer centric sales force
  • Service marketing – innovate software, segment service and provide integrated solutions

Culture-shaping strategy

The greatest barrier to change in any large corporation is the culture. Any major shift in strategy or structure requires culture shift to create alignment.  Mr. Gerstner’s strategy involved the following phases:

  1. Diagnose & define (define current and future state) – met customers, competitors, senior executives, financial analysts, and consultants to get a grip on outstanding issues. Accepted feedback, paid attention to divergent ideas and opinions
  2. Unfreeze & educate (shift behaviors)  – Influencing skills, was results oriented, interested in short-term results without considering long-term, overall results and outcomes, had limited perspective, in time and scope, encouraged ideas off the beaten track and embraced new ideas and innovation, accepted criticism of the organization,
  3. Reinforce (treasure long term change) – convinced people of the strategy and brought their buy-in for implementation
  4. Apply to Strategies (address business issue) – Mr. Gerstner regrouped IBM by providing one single leadership at the top. Reversed the core IBM mainframe business by cutting prices and becoming customer focused. Synergized the IBM messaging division by providing single message globally. Intelligently put his bet on Services, Software and e-Business. Realigned the employee incentive system to encourage the culture that promotes customer oriented actions.
  5. Measure progress (monitor progress) – Compensation system base on Differentiation, Variable rewards, External benchmarks and Performance. Tied employee compensation to the performance of the whole company rather than to the employee’s particular division

The cultural change required at IBM (and at just about every large organization that I can think of) – Product based to customer based, do it my way to do it the customer’s way, from ‘manage to morale’ to ‘manage to success’, from decisions based on anecdotes to decisions based on data, from relationship driven to performance driven (and measured), from conformity to diversity, from looking good to accountability, from US to global, from rule driven to principle driven, from silo to holistic, from analysis paralysis to make decisions and move forward with urgency (80%/20%), from not invented here to learning organization, from fund everything to prioritize. IBM was facing the PC dilemma, the emerging e-Business, shedding OS/2 due to stiff competition, new focus on middleware technology, new software acquisitions, networked model, and services as key to integration etc. These external factors played a huge role in shaping IBM strategy and it’s eventual transformation from a product-centric to service-centric organization.

Most of the changes introduced by Gerstner were successful.  With proper strategy and efficient leadership, he brought about significant changes in organization culture and business direction and was able to restore IBM to stability.

Personal Leadership

Mr. Gersner was an embodiment of most competencies characteristic of an effective leader – drive, motivation, integrity, self-confidence, intelligence, business knowledge and emotional intelligence. Other noticeable key competencies include tenacity, openness, assertiveness and trustworthiness.  He has an excellent past as a transformational leader at American Express and RJR Nabisco – one who can bring about significant change in organizations by inspiring, motivating and leading people in new direction. He is noted for his significant accomplishments as a change agent and when offered the job at IBM by Mr. Jim Burke, he was little hesitant to take the job.  His was in a dilemma whether to accept the offer or not.  He was emotionally strong and knew his capabilities of self-awareness, self-management, social-awareness and relationship management. The factors which led to his job acceptance offer were:

  1. KKR was planning on an exit strategy and Gersner knew that chances of RJR’s return to profitability were slim. So Gerstner was looking for an exit and the IBM job proved to be an attractive alternative.
  2. b. Being optimistic, achievement and initiative oriented, and adaptable, Gersner decided to take up the challenging offer.
  3. c. He had a feel for the problems at IBM after meeting Paul Rizzo, an executive at IBM.
  4. d. He had the backing of his family in this endeavor

Factors which worked against taking the job offer include:

  1. Apprehensive how a non-technocrat can turnaround a technology company. He had no prior knowledge of working in technology industry.
  2. His initial analysis showed the severity of problems at IBM and doubted the success of recovery efforts.
  3. Unlike a consumer products company, technology products can be extremely successful or disappear within a short period of time.

By reflecting back on his past achievements, Gersner decided to take the job. He looked at IBM not as an enterprise but as a “national treasure” that was well worth the colossal efforts needed to restore it. Gersner always saw his values in action in personal work behaviors, decision making, contribution, and interpersonal interaction.

After so many years at IBM, Gersner learned three fundamental aspects of leadership that define a successful enterprise and executive.

  • Focus – meet the challenges during tough times and undergo transformation
  • Execute – getting things done, not crafting strategy but implementing it.
  • Lead – create high performance culture, set goals, measure results and ensure accountability

Gersner was quite frank and open about issues and his opinions which helped revive IBM. Through a strategy of listening to customers’ needs, partnering with customers, competitors and other industry leaders, right sizing, eliminating compensation and recognition systems, Gersner was able to bring IBM back into profitability.

Execution of strategy must be built on three attributes – world class processes, strategic clarity and a high performance culture. Leadership is all about making things happen. Achieving success requires energy, organizational leadership, marketplace leadership and personal qualities. Organize resources around customers, not products, or geographies. Measure the future, not the past and walk the talk.

Organizational leadership

Mr. Gresner’s leadership style is marked by strong emotional intelligence and ability to lead people with passion and commitment.  We can see six different styles of leadership in Mr. Gersner- authoritative style, the affiliative, democratic, coaching, pacesetting and coercive styles, all demonstrated in varying strengths.

Mr. Grestner was able to resonate with employee emotions and have a shared desire to be a part of something effective and meaningful. This emotional resonance was established through leadership styles based on emotional intelligent acts. By establishing this connection and creating resonant teams and culture, Gersner was able to improvise and sustain it till his retirement. As an authentic leader he was able to influence work outcomes and organizational performance.

He was a man with convictions and followed his instincts. He was not carried away by what his critics said. He was more into fire fighting, a “fixit” personality who felt the urgent need to rescue IBM. His focus was on short-term strategies and did not set long-term strategic goals since he believed irreversible actions will bring radical shifts which may disrupt his turnaround efforts at IBM.

He was an avid observer and excellent problem solver. He could identify the emerging technological trends to shape new strategies. He understood the importance of customer and devised strategies to address their immediate needs and concerns.

Mr. Gersner followed a systematic approach to address business issues. In order to diagnose problems, he met customers, competitors, senior executives, financial analysts, and consultants to get a grip on outstanding issues. After learning about IBM’s strengths and weaknesses, he launched his turnaround plan.  Instead of focusing on grand vision, he motivated employees through business success which translated into job security and higher pay. He understood the immediate need to have open lines of communication with his employees and having candid feedback. As part of the grand vision, individuals executed tasks which made them an integral part of the transformation effort.

By being democratic, he sought alternatives and convinced others of the need to discontinue support for unattractive products. Gerstner gives credit to many people that were instrumental in the turnaround. He was coercive when he disbanded the management committee and relayed this news across the organization. His affiliative style of leadership resulted in building strong relationships amongst teams. This is reflected in his new set of management principles that reinforce teamwork and harmony.  He made employees equity holders of company to align them with company goals.

As a pace-setter, he showed strong faith and confidence in employee abilities and set high performance standards. An authoritative style emerged when Mr. Gersner resorted to right sizing which may have created some negative impact (emotional dissonance) from the affected employees who were laid off.

Mr. Gersner could spot emerging talent and personally mentored them to lead new divisions within IBM. This was reflective of his coaching style of leadership. He shunned conservative approach and instead took huge risk in transforming IBM from a product-focused organization to a service-oriented, networking-led model organization.  Mr. Gersner played his style by gauging the readiness of his employees to foster change. He leveraged employee abilities and willingness to accomplish specific tasks.

As an effective leader, Mr. Gersner seamlessly shifted from one style to the other to garner best results possible. His repertory of leadership styles is extensive and he used them as the situation warranted to deliver positive outcomes.

Since Mr. Gersner was in a fire fighting mode, he had to apply the right mix of various leadership styles according to the context. I would be acting in the same way that Gersner did to get IBM out of distress.

Though I agree with most of the actions taken to restore IBM back to profitability, I would like to wean away from some harsh decisions and mend my leadership style to some extent.  I would try not to be intensely competitive, blunt, focused and tough. I will try to be more personable, willing to learn and share business knowledge and have empathy towards others. I may introduce IBM as a way of life that is based on values rather than just on being first. Any cost cutting measure involving layoffs will need to be used as a last resort only after exhausting all alternatives. In conformity with Gersner, I would admit failures and try, fail, learn and move on, than never to try at all.

I had an exciting and extremely intriguing course on Strategic Management, part of my MBA curriculum. I was introduced to a critically important topic, Strategic Analysis which helped me understand how to evaluate a business in terms of its valuechain, it’s valuenet, conduct SWOT analysis, examine a firm through Michael Porter’s five forces model, perform strategic group mapping analysis, profit zone analysis, study technological, political and socio-cultural trends and finally formulate strategies to establish competitive advantages. I would like to share some these efforts which we put in as a group in this direction.

Wendy’s powerpoint

Wendy’s Analysis with Strategic Map

I came across this youtube video on effective decision making process from Dr. Paul Schoemaker, Founder, Decision Strategies International . This is my first video posting.