Title: Who Says Elephants Can't Dance?
Plot: Lou describes the blueprint he used to save IBM in the 90's
Note: Despite favorable market conditions Bill Gates predicted IBM would fold in ten years. Lou defied the odds and saved the company. More importantly, he explains what and how he did it.
Listen to "Who Says Elephants Can't Dance by Lou Gerstner [10 Mins]" on Spreaker.
Hey, welcome back!
Today I'll be reviewing Who Says Elephants Can't Dance by Lou Gerstner. For those of you who don't know him, he was created for saving IBM from bankruptcy in the 1990's. He was born in March of 1942 making him 77 years old now. He retired as CEO of IBM in 2002 after saving the company and he waited until it was obvious the coast was clear.
But he hasn't really slowed down. He runs Gerstner family foundation, which is also known as the Gerstner philanthropies. It promotes biomedical research education, and helping hands. I gave this book five stars despite the title. It's a page turner for those of you who work at companies like IBM. There's a nice mixture of funny stories and horror stories. But I primarily gave it this rating because it includes the formula that he used to turn IBM around. Almost anyone could follow the instructions outlined in it. And save a failing corporation and that's just outstanding. Since he outlines that formula in his book I won't rehash it here. It's big and long and worth the money. And since you could use it like a reference manual an audio book might not be the best choice. So I would go hardcopy. His book is a one hit wonder. It's the only one he ever published. And so it seems he onlys speaks when he has something useful to say. I'll be the first to confess that the economic environment was favorable, but when you read his approach and where he placed his emphasis, I'm convinced his method would work under any economic conditions for any kind of company.
For those of you of the denser variety, what this means is that you could become CEO of a flagging company and simply plagerize the hell out of Lou's work and be totally successful. Like any recipe it would work everytime as long as you properly implemented it.
Lou's background was business not computer infrastructure and so it won't be like reading COBOL code on big iron. And if you don't nkow what that means, don't worry, you won't need to! Lou opens giving background about himself, but he sticks with the high points so you won't get bored. He graduated Harvard, worked for Mckinsey, American Express and RJ Reynolds. Of course he goes into detail because he's establishing two crucial points:
- His background was to analyze companies and make recommendations for improvement.
- Being a customer he was on the receiving end of some IBM stupidity that simply had to be changed.
To his credit, Lou would never have stated it that way. He's a diplomat in the finest sense of the word. And so even when he mocked some employee e-mails he still found a way to do it humorously, but respectfully.
I found his story about how he was offered the job as CEO to be interesting and amusing and worth the price of admission. I mention this because I wasn't sure at first. You can sit back, relax and enjoy the book, he just does a great job with it. After all that he dives into the meat of the book. We discover he wisely kept the notes he made from the very beginning. He described his first few weeks on the job in mind blowing detail and was able to walk us through major decisions he made as early as two weeks into it. His first decision to lower prices cost IBM billions of dollars per year. In 1993 IBM corporation, their revenue tanked 15%, but revenue increased 41% the following year because lower prices attracted new customers. And so the first lesson we learned is not to cling to money so tightly that it kills you.
Though lowering prices immediately drops revenue across the board and can be scarey. It also attracts new customers and increased sales lead to increased revenue provided you're still making profit. IBM was suffering from the problem of fear. One that was so intense it paralyzed them into inaction and that was killing them.
Lou then described a business decision that changed the industries' landscape. Early in the computer industry there were five companies known as BUNCH. Each letter representing the name of one company. And those five companies with IBM made complete computer solutions. Meaning they created every component of hardware and software and sold the equipment together with everything on it. There was no more to buy. They were complete solutions. But then the landscape changed. Suddenly companies specialized. Some only made OS's or processors or databases. And so this spawned the creation of tens of thousands of new companies competing with each other on price. It effectively slaughtered the BUNCH's stranglehold on the market, but it led to an explosion of innovation and price wars that was unprecedented. It made full solutions and pricing far more complex. IBM thrived under the old model, but the new model sent prices and profits low and competition high. It was difficult to adapt. You probably recall this event. It was equal parts wonderful and horrible at the same time.
Therefore Lou's vision for IBM was to specialize on integration. Rather than compete by breaking IBM into separate entities that also specialized. He wanted it to remain whole and focus on getting all of those components and software packages working together. He believed companies would pay for solutions to their problems and so IBM should focus on snapping them into solutions. This of course transformed IBM into a world-wide services organization giving them a geographical advantage over their competition. One that they would not have had otherwise. Lou did us the favor of opening our eyes to the political backlash his decision had by pointing out that by keeping the company whole it destroyed the aspirations of business unit leaders who wanted to see CEO on their nameplates. As well as stock market pundits who chanted some variation of: Just leave the money on the night stand and get out. Those are my words not Lou's.
Change is difficult especially when your vision clashes with Wall Street who has already placed its bets and doubled down on the outcome that they like most. And so Lou wasn't just walking into a technology company filled with eager beavers who were ready to do as they were told, but into a war zone of profiteers inspired by the movie Pretty Woman. Again my interpretation. Lou was far too diplomatic to tell the truth. While the services organization was the long term fix to IBM's problems. The short term fix was to focus on IBM's mainframe, which was the bulk of their profit engine. I'll elaborate. In the 90's IBM's competition crafted a lie that the media perpetuated. And it nearly killed the mainframe. The lie was that the personal desktop in the hands of every employee would mimic the efficiency of the mainframe and surpass it in every way. However the problem is that this assumes that each employee is totally self sufficient and that the information could be aggregated together centrally to create a solution. But that's not the case in practice. Meaning you need a centralized solution that processes data about your employees that they could not and should not have on their own computers. Like payroll for example. Your employees aren't going to be adjusting W2's or their weekly paystubs because that creates all sorts of problems too obvious to list. And that's just one of many examples. So CIO's knew they had to keep their mainframes, but less technical business folk believed they were idiots because of what they were hearing on the news and reading in trade magazines. Lou realized that their customers needed IBM to defend their choices by explaining why the mainframe was crucial to business operations. And why the press was mistaken in their opinions. And so the second big lesson we learned is sometimes your customers need you to go to bat for them. They need you to defend your technology to the press and ensure everyone understands the role it plays in the business because if you let the press throw you a beating without responding, they can destroy your company.
In his book he detailed several plans:
- his morale plan
- his management philosophy
- his ninety day priorities
And he told his business unit leaders to give him a ten page report detailing customer profiles and needs. He laid out all those plans the first day on his job in the first forty-five minute introductory meeting that he had and then he told everyone to get to work because it would take a sense of urgency to save IBM. He confessed that even he at the time didn't realize the importance of that specific meeting.
He emphasized the importance of free cash flow to the survivability of the business and subsequently began selling off business assets that were gathering dust in crates. Like expensive artwork that was bought and never hung. When Lou started in 1993, IBM stock was at $13. And then nine years later it was at $104. It was one of the only techonology stocks that was almust immune to the bear market that Y2k produced, never closing below 60.
Lou emphasized the importance of the people at IBM. And he commented that those IBM laid off were every bit as good as the people IBM kept. He viewed people as his most valuable resource. But he also commented that their past victories and failures were irrelevant to him. They started with a clean slate under his leadership. Regardless of how you might feel about IBM's prospects right now. They were incredibly healthy when Lou retired. And I suspect that the solution to IBM's present day problems is that they strayed too far off the plan. One that he so masterfully setup. Lou's book is excellent and I highly recommend it.
And I thank you for listening.
The world of book readers seems to have shrunk and it seems that the only ones still reading are modern day geniuses. So have a brilliant week! And y'all come back now! Ya hear?