Lessons from IBM’s near-implosion in the mid-1990s

When IBM hired Lou Gerstner as CEO in 1993, he stopped the board from breaking the company up into a number of smaller autonomous entities.
When IBM hired Lou Gerstner as CEO in 1993, he stopped the board from breaking the company up into a number of smaller autonomous entities.
Image: Getty Images / Sean Gallup
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Apropos the current state of once high flyers such as Intel, Facebook, Groupon, Zynga et al., it’s instructive to consider the fate of a company that bucked the trend and refused to hire the usual suspects.

Anyone out there remember when IBM was destined for the scrapheap of history? That would be in the early 1990s when the company was floundering under the less than inspired leadership of IBM “lifer,” CEO, John Akers and dividends were being slashed, a heretofore  unheard of occurrence in the history of the world’s largest IT company. Apart from losing big chunks of the PC market, which they had singlehandedly made respectable from a business point of view, there was even talk that they should get out of the mainframe market. (Interestingly enough, IBM is currently making more mainframes than ever.) So, Akers left to “pursue other interests,” and the search for his replacement began with John Sculley of Apple, Eckhard Pfeiffer of Compaq, Scott McNealy of Sun, and even Bill Gates, being touted as possible contenders.

Then the board of IBM did an incredibly smart thing. They hired Lou Gerstner.

Gerstner had never run a technology company. But in his previous experiences as part of senior management at RJR Nabisco and American Express, he had come to realize the value of totally integrated IT services. This is why the first thing he did upon taking over at IBM was to stop the move the board had already begun to break up “Big Blue” into a series of autonomous and separately managed “Baby Blues.” Gerstner understood that the long term potential for IBM would be in its ability to deliver complete IT solutions that bundled hardware, software (IBM is still one of the largest software companies in the world) and services, as customized, and ultimately very profitable, packages to corporate customers.

Within the first few weeks he did a number of very un-IBM things. He laid-off nearly 100,000 employees, this from a company that had previously enjoyed an “employed-for-life” reputation. He introduced a casual dress code, which resulted in the formally conservatively-dressed executives, uncomfortably wandering around IBM’s offices in their weekend golfing outfits. He also cancelled the no-alcohol on the premises policy. And, very significantly for the time, he consolidated all the company’s advertising, which was being handled by more than 80 agencies around the world, into a single one, Ogilvy & Mather, New York, who he had worked with during his time at American Express. This is yet another demonstration of Gerstner’s intuitive, yet logical approach to business, which is particularly impressive when you consider he had taken over responsibility for a company teetering on the edge of an abyss.

The first thing Gerstner signed off on was the inestimable “Solutions for a Small Planet” campaign, which completely flipped the uncaring “Big Blue” perception of the company on its head by demonstrating how IBM was helping solve the day-to-day problems of its customers, large and small, around the world. Gerstner was also one of the very first CEOs to realize the power of the internet as a communications vehicle in his efforts to change the internal culture and the external perceptions of the company. To this day, IBM has one of the most informative and intelligent presences in the digi-sphere. From its website, to its various interpretations of social media, it never fails to be informative and persuasive in the way it addresses its audience. Unlike far too many other IT companies, it avoids techno-babble and business clichés whilst providing concrete evidence through the use of case studies of the various ways it has helped its customers. And the beauty of the way IBM does it is that unlike other IT companies, it does not refer to “a major bank” or “a multinational energy company.” It actually names the banks and multinational energy companies, and then goes into the granular specifics of how their jointly engineered solutions work.  Perhaps, Gerstner was influenced by the classic David Ogilvy quote. “The consumer is not a moron, she’s your wife.” That is something far too many of those responsible for the management of many multinational corporations seem to ignore. Perhaps, instead of trolling for pearls of wisdom from the likes of “Neutron Jack,” or “The Donald,” these captains of industry should think of the often underappreciated ways Lou Gerstner steered the Exxon Valdez of IT companies away from the shoals of extinction.