Manage Decisions

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.