Tom's Tech Toys: Lou Gerstner

May 11, 2004

Lou Gerstner

Lou read a prepared speech, so it wasn't as dynamic as some of the others to begin with, but he was great at handling questions posed by the idiots they had "moderating". A true level 5 leader, he constantly discounted his own contributions and praised his team. And his focus on the nuts and bolts of execution, and willingness to change long-established practices, really made an impact. Notes:

From the intro:
10 yrs at ibm starting 93, stock went up 8x in that time

Ability to drive change is key
Timeframes radically and permanently compressed
Main criteria for compet success is responsiveness

1993: 8.1b loss, largest ever to date
150k jobs lost since 86
Still great tech
Fundamental prob: success syndrome
Insular, inward looking, rigid behavior
Case study of decentralization run amok - 256 GL systems, 70 ad agencies, etc

Ibm couldn't change while the world changes
Elephant wouldn't dance
Prev mgt had decided to break up ibm

What to do:
Stop bleeding
Find growth engines
Decided to keep company together
Only way was to deliver on complete solutions, use advantage of size

Had to systematically change every process - about as fun as setting your hair on fire and putting it out with a hammer

Classic level 5 deprecation - he didn't do anything that great.

3 fundamentals: focus, execution, and leadership

Focus means selective and committed - lack is one of the most common causes of mediocrity
Belief grass is greener somewhere else - kodak going into pharma
Execs don't want to fight tough battle to win at base biz - but a lot easier than winning at new biz
Ability to say no to acquisition fever
A good portion of ibm success is due to all the deals they didn't do

In finance, survival of the fattest divisions, not enough resources for new growth initiatives, process to fund them is painful
Must protect future initiatives, esp when budgets are tight, even if it means starving cash cow a little

Execution:
Basics are well known, don't change much
So, no company is insulated from hand to hand combat in the trenches
Execution underrated
Great cos do great day in and day out execution to grind compets down
People do what you inspect, not what you expect
Must measure progress against targets and hold people acvcountable
Org must do something diff to improve, but cos don't like to chg

Vision statements are easy, strategy harder, but execution seps leaders from pretenders

Personal leadership:
Undervalued element of institutional transformation
Enterprises not managed, they are led, and driven, by indivs with passion
Execs must have visibility at all levels of inst
Communication and openness, respect
About passion, personal commitment
Not charisma, or substitute for good team
If you don't absolutely hate losing, you will rationalize every bad thing - always an excuse

Company had lost connection betw winning and the other things they wanted - benefits, etc. You can't have the other stuff unless you are winning.

Culture is not part of the game, it is the game.
Nobody is original when it comes to cultural statements, but behavior is diff
Culture is what people do wo being told
Changing dna doesn't happen by mandate
Can only chg conditions, explain requirements, chg comp programs - then invite workforce to change

He really feels IBM is an institution, contribs to society, would be a tragedy to break up.

What would he have done differently? Make a tech decision wrong early on and ceded networking mkt to Cisco. A few other examples, but record pretty good.

If you aren't making mistakes, you aren't taking enough risk, and risk is important to stay competitive.

Real problem is that leaders don't do what they say. Ceo touts investing for the future, then cfo cuts budgets. People figure this out pretty fast.
Must have systems and execs to supprt statements, show commitment
Then check conditions, comp plans, culture, to see how it is aligned

Odds of someone coming from outside to take over a large co in distress are long. Boards need to be much more focused on succession planning from inside.

Strong believer in empowering emps to manage on principles, not rulebooks. Had a huge book on how to work across biz units - go burn it. Use principle: if a customer wants something, do it for them. Figure out cost allocation later.

Legislation doesn't make dishonest people honest. And, it can impose a very heavy burden, esp on sm and med cos. Need to be careful to preserve our competitiveness.

First 90 days: try to build relationships, enlist help of existing team. Have to make decisions, but try to avoid bet the company decisions.

Passionate about public education: 1983 report "a nation at risk" - if a foreign power imposed our education system on us, it would be an act of war. And it's not getting better. There are no more unskilled jobs - have a crisis here. We have to fix this.

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