Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (31 page)

250 / LOUIS V. GERSTNER, JR.

The media companies are a good example. If a CEO wants to build a truly integrated platform for digital services in the home, he or she cannot let the music division or movie division cling to its existing technology or industry structure—despite the fact that these traditional approaches maximize short-term profits.

Measure (and Reward) the Future-Not the Past
I have already pointed out that people do what you
inspect
, not what you
expect
. Leaders who are thinking about creating true integration in their institutions must change the measurement and reward systems to reinforce this new direction.

I recall one of the senior executives at American Express who was big on synergy. He spoke about it constantly. Yet, in all the financial reports the total focus was on the traditional, independent profit centers. I remember the poor souls who were assigned the task of creating synergies among the card, Traveler’s Cheque, and travel divisions. At best they were tolerated; more often they were simply ignored. The compensation system at American Express did not help—98-plus percent of a manager’s annual compensation came from the results of his or her specific unit. “Synergy points” (which became an exercise in creative writing around bonus time) might add a minuscule amount to your pay.

I knew we could not get the integration we needed at IBM without introducing massive changes to the measurement and compensation system. I’ve already explained that the group executives who ran IBM’s operating businesses were not paid bonuses based on their unit’s performance. All their pay was derived from IBM’s total results.

When a CEO tells me that he or she is considering a major reintegration of his or her company, I try to say, politely, “If you are not pre

WHO SAYS ELEPHANTS CAN’T DANCE? / 251

pared to manage your compensation this way, you probably should not proceed.”

Measuring financial results is the same issue. We were never able to move to an integrated customer view, rather than a geographic view, until we stopped creating P&L statements for the geographic units. Of course, many of the geographic leaders went ballistic! “We can’t manage our business without P&L oversight.” “Sorry,” I said,

“you no longer manage a business. You now serve as a critical support function to our integrated worldwide customer organization.”

Walk the Talk

As with much that I have discussed in this book, CEO leadership is mandatory before substantial changes become systemic and sustainable: They require real involvement and not exhortation, delegation, and then surprise when change doesn’t happen.

It took me more than five years of daily attention to get IBM to accept a new go-to-market model. It was a tremendous battle. If you choose to follow a similar path, you must be prepared to make it happen personally! The assignment cannot be delegated. Who would you delegate it to? The operating team that hates the loss of autonomy? Staff executives who will be ambushed and disem-boweled by those fated to lose power? No. It’s a lonely battle, and it explains why, after twenty years of talking:

• There are
no
true financial supermarkets.

• There are
no
integrated, multi-service telecommunications companies.

• There are
no
fully integrated entertainment companies.

• There are
plenty
of financial services companies spinning off their insurance and/or money management businesses.

252 / LOUIS V. GERSTNER, JR.

• There are
plenty
of divestitures of cable systems and wireless assets by telephone companies.

• There is
plenty
of skepticism about “convergence” in the entertainment industry.

Much of the press coverage of IBM over the past decades was focused on our strategic restructuring—as well it should have been, since without that restructuring there would be no IBM today.

However, as I pointed out earlier, our current strategies will—and should—change as the industry continues to evolve very rapidly.

History determines legacies, but if I had a vote, the most significant legacy of my tenure at IBM would be the truly integrated entity that has been created. It certainly was the most difficult and risky change I made.

27

IBM-a Farewell

A
s I take my leave of IBM, I am experiencing a flood of unexpected feelings.

I left McKinsey at the age of 35, happy with what I’d learned and raring to go to a new life as an operating executive. Partners frequently depart McKinsey to join their clients; I was simply following a path created by others.

I left American Express after eleven years primarily because I disagreed with the overall corporate strategy being pursued at the time. Had events been different at American Express, I might have remained there to this day.

As I have already said, the leveraged buyout of RJR Nabisco was doomed from the start, so my leaving there was a well-timed exit, but it was also a response to the enormously exciting challenge of trying to lead the turnaround of IBM.

My feelings as I leave IBM are quite different from those earlier transitions. With all my other moves, I was always looking forward to the future, to new challenges. While I am excited about the new life I am constructing for my post-IBM years, I find myself in the final months of my IBM career looking back—more than I have ever done before.

254 / LOUIS V. GERSTNER, JR.

I came to IBM as an outsider, a force for change. I had to make a lot of difficult decisions, wrench the company in ways it did not want to go. Along the way, in my heart I became a “true Blue” IBMer.

Interestingly, this outsider occupied the CEO’s office longer than any IBM Chief Executive Officer other than the Watsons. Here is the letter I wrote to my colleagues to announce my retirement: January 29, 2002

L. V. Gerstner, Jr.

Office of the Chairman and Chief Executive Officer Subject: CEO Transition

Dear Colleague:

When I joined IBM on April 1, 1993, there was no thought about my retirement date. The Board of Directors asked me to focus on one short-term objective: save the company. Given my very limited knowledge of IBM at the time, I quite honestly did not know if that could be done. I certainly didn’t know how long it might take.

Well, with the support and leadership of thousands of IBMers, we did turn the company around. That work, and my original mandate, was largely completed by the mid-nineties. But along the way, something

happened—something that, quite frankly, surprised me.

I fell in love with IBM. I decided, like many of you, that this was the best company in the world at which to spend my career. IBM is a fascinating, important, frustrating, exhausting, and fulfilling experience—and I’ve enjoyed every minute (well, maybe not
every
minute)!

But here we are nearly nine years later, and now it
is
time to address retirement. I have always used these e-mails to speak

WHO SAYS ELEPHANTS CAN’T DANCE? / 255

with you about the most important developments and our strategic direction. I want to do that again now. Moments ago, the Board of Directors elected Sam Palmisano to be Chief Executive Officer of our company, effective March 1, 2002. Also, John Thompson, Vice Chairman, announced his intention to retire from the company and the board on September 1, 2002. I know the entire IBM team joins me in thanking John for thirty-six stellar years of IBM service—a wonderful career that included building our software business, and that culminated with focusing the way we identify and pursue new market opportunities.

At the board’s request, as well as Sam’s, I will remain as chairman until the end of this year. From March 1 on, Sam is our new leader. My job will be to help him in whatever ways he seeks my time and counsel.

Let me say something about the timing of this transition, because some people believe IBM CEOS are required to step aside at age sixty. That’s not so. There is no rule or age limit that requires me to do this now. I am doing it because I am convinced that the time is right. The company is ready, and so is the new leader. I have never felt more optimistic and confident about our future. And those are the best circumstances under which to make this sort of change.

Over the past two years, Sam and I have forged a strong partnership to prepare the company for a transition in leadership. Supported by a fine Board of Directors, we have undertaken a process that has been disciplined, transparent, and thorough.

Many of you know Sam. Thousands of you have worked for him. He’s an exceptional leader, passionate about our business, committed to our principles and values, and steeped in the disciplines that are critical to our success. Beyond those critical qualities, Sam bleeds Blue.

And because he does, he understands the character of our company at its soul, the incredible world-changing things it alone can accomplish—and how it must con

256 / LOUIS V. GERSTNER, JR.

tinue to change in the years ahead. I know you will give Sam all the support you so generously provided me over many years.

It has been the privilege of a lifetime working with you these past nine years. I am so proud of so many things that we have accomplished, far too many to list in this e-mail.

All our hard work has brought IBM back. Today, our strategies are correct. Our capacity to innovate is un-matched. Our culture is moving in the right direction. And we have restored the pride all of us feel in this company.

Those were pretty remote targets back in 1993, when so many had written us off and so few believed we had the will to survive. But in your gritty, classy, determined way, you never gave up. Thank you for restoring IBM’s leadership.

As I said, after March 1, I’ll be available to help Sam and the entire leadership team in any way I can. And long after I step aside as chairman, I want you to know that I will be cheering and rooting for this magnificent company and its extraordinary people. I am an IBMer for life.

As much as I meant those words, and as much as I treasure the thousands of wonderful expressions of appreciation I received from IBM employees, I now realize that I was always—even to the end—an outsider.

My most senior colleagues—Sam Palmisano, John Thompson, Nick Donofrio, and others—who worked side by side with me and deserve as much credit as I do for IBM’s renaissance, share a perspective I will never have. They have lived their business careers at IBM.

They have seen it all: the glory days, the agony days, the turnaround days. Their roots are deeper than mine, their experience richer.

For me, IBM pre-April 1, 1993, is a mansion full of many rooms but without doors. I never entered it. I dreaded going into that house.

WHO SAYS ELEPHANTS CAN’T DANCE? / 257

I had to drive change, and I knew that all the reasons not to change were in those rooms. I can recall numerous occasions in the early days when I would outline a change I thought was necessary, and my team would say: “Oh, we tried that before and it didn’t work.”

I couldn’t explore the “befores” or I’d learn all the reasons not to change.

Yet on occasion I would hear my colleagues reminisce about special experiences, both joyous and painful, that shaped their lives or shaped the company. I recently asked one of my colleagues to tell me about the CEOs who preceded me—the men who took over from Tom Watson. It was a fascinating hour for me, and I wish my time at IBM would have allowed me to make the connections from the old to the new; not the strategic or the cultural connections, because in a sense we did a lot of that. Our strategic moves had much to do with returning IBM to its roots as a research-driven builder of large systems and infrastructure. Our cultural transformation sought the high-performance culture that animated IBM under both Watsons.

The connections I could never make were the personal linkages—the laughs and the tears of joining a great company together, training and growing together, winning and losing together.

Yes, I was always an outsider. But that was my job. I know Sam Palmisano has an opportunity to make the connections to the past as I could never do. His challenge will be to make them without going backward; to know that the centrifugal forces that drove IBM

to be inward-looking and self-absorbed still lie powerful in the company. Continuing to drive change while building on the best (and
only
the best) of the past is the ultimate description of the job of Chief Executive Officer, International Business Machines Corporation.

APPENDICES

The following material provides amplification of points made in the text of the book.

Appendix A: The future of e-business

Appendix B: Financial overview of the IBM transformation

Appendix A

The Future of e-business

My original idea for this addendum was that it would be sufficient to collect a few of the industry keynote speeches I delivered during my time at IBM, reprint them as a chronology of how our e-business message evolved, and leave it at that.