Louis v. Gerstner Jr.

The
Man Who Turned IBM
Around

 IBM(International Business Machine

corporation)
is
an
American
multinational technology company.
The company established in 1911 as
the computing tabulating recording
company.
IBM company operation in over 170
countries.
IBM manufactures and markets
computer hardware, middleware and

 Louis Vincent Gerstner is an American

businessman, best known for his tenure
as chairman of the board and chief
executive officer of IBM from April 1993.
In 1993, IBM a global leader in the
information technology industry.
Company was deep financial trouble.
The company reported a record net loss
of $8.1 billion.
In 1993- 2001 time period the share
price of IBM shot up by 800 percent.

 In this period Louis headed IBM.

IBM made significant change under the
leadership of the Louis which impact on the
entire IT industry.
Company also change his emphasis from
being product-centric to being customercentric in order to provide complete solutions
to his clients
Louis generate the image of IBM was a
company that provide the complete solutions
in hardware, software and other
technologies.

 Louis believed in his deeds spoke for

himself.
Louis wanted results and expected
that employee give the results at any
cost.
Louis believed in short term plan. He
focused on immediate problems and
evolved strategies to solve them.

Background Note
Louis was born on march 1, 1942 in Minolta, new York.
Louis graduated in engineering in 1963.
After a college he joined the reputed management
consultancy firm McKinsey in 1965.
In 1975, Louis appointed as a director of the firm.
Louis learned at McKinsey was to focus on problem that
hand and create an environment that encourage people
to come with ideas in firm.

 In 1978, Louis joined American express as

an executive vice president in the credit
card division.
When Louis was vice president of the
Travel related services(TRS) division that
time firm grew up at a 18 percent
compounded annual rate.
In this time period company offered new
services and new products.
Louis believed in devising strategies
depending upon the situations.

 Louis left his job in 1989 at American express and

joined RJR Nabisco, which manufactured food and
tobacco products.
Gerstner helped transform the company from
being a loss-making one (net loss of $1.1billion)
in 1989 to a profitable one (earning a net income
of $299 million) in 1992.
From 1965 to 1992, Gerstner had changed three
jobs, and learned from all his experiences.
By 1992, Louis had become well known in
industry circles for his turnaround strategies. In
April 1993, Gerstner quit Nabisco to join IBM as
its CEO.

THE TENURE AT IBM

Louis joined IBM, he was sarcastically
referred to as the guy from a cookie
company.
During that time IBM recorded an
operating loss of $325 million in the first
half of 1993, and the stock price dipped
by about 15 percent within a few
months of Gerstner becoming CEO.
The company posted a net loss of $2.86
billion in 1991, and net loss of $4.97
billion in the financial year 1992

 During the period 19861992, IBMs overall

market share in the IT industry in the US
had declined 37 percent, while its global
market share had fallen by 30 percent.
The companys personal computers
division was not generating any profits. The
morale of the employees was also low as
105,000 employees had been asked to quit
in the previous six years.
Louis has lack of experience in the
computer industry but he was excited to
take challenges.

THE EARLY INITIATIVES

Louis joined IBM that time his first task
was to make the company profitable.
Louis spent the initial period at the firm
learning about the prevalent situation.
Louis visited different IBM facilities all
over the world and met customers,
competitors, senior executives, financial
analysts, and consultants to get a first
hand account of the actual state of affairs

 Louis felt that the different business

units of IBM needed to be integrated in
order to produce products of better
quality within a specified time period.
Louis tried to boost confidence in the
IBM ranks by insisting that the
companys strengths.
in July 1993, Louis reduced the
workforce by a further 35,000. Though
during the period 19861992, the
workforce at IBM had been reduced by
20 percent.

 Gerstners Objectives for 1993:

Paring IBM to a more efficient size
Taking more care of IBMs customers
Decentralizing decision making
Developing a strategy that would
make clear which business the
company would focus on

 Before Louis became the CEO, the employees of IBM

had to strictly adhere to a formal dress code
prescribed by the management.
Louis were expected to follow certain ethical
standards in their professional as well as personal
life. Smoking and consuming alcohol were
prohibited during office hours.
Louis tried to minimize these restrictions and create
an informal culture at IBM. Employees were no
longer required to adhere to a formal dress code.
Louis believed that employees should present
themselves in a simple manner before customers,
and try to solve their problems, instead of just
focusing on selling IBMs products.

 When Louis was not a CEO of

company that time meeting time was
long and The meetings were more
like discussions and nothing concrete
emerged out of them.
When Louis was CEO of a company
then the meetings were made
shorter. He was focused on the
central issues, and wanted decisions
to evolve out of each meeting.

 Gerstner also changes in the compensation

structure of employees.
Employees were awarded bonuses depending
upon the performance of the unit to which
they belonged. They also received other
benefits such as membership in clubs,
medical benefits, and post-retirement
pension.
Louis believed that stock options must be an
inherent part of the compensation structure.
The number of employees who received stock
options increased from 1,300 in 1992 to
72,500 in 2001.

 Employees were also awarded bonuses,

which varied according to the overall
performance of IBM.
Louis give also importance to the
marketing and In 1993, he appointed
Abby Kohnstamm as the head of
corporate marketing.
Louis also take major decision in this
direction
was
to
centralize
the
advertising and media strategy.

 IBMs operations spread all across

the world, it was very difficult for
Louis to closely monitor their
functioning.
He decided to delegate the authority
to make decisions regarding the
regular operations of these units to
the heads of the respective units.

THE TURNAROUND
STRATEGY
In 1994, Gerstner made efforts to improve the
reporting procedures. He is closely monitor
the production schedule, cost schedule, sale
of different products.
Louis stared focusing on specific problems
related to individual units.
Louis realized personal computer division had
good potential and it was performing poorly.
The division was facing tough competition
from companies such as Dell, HewlettPackard, and Compaq.
Improving the situation he appointed Richard
Thomson who was colleague at American

 Gerstner take to improve

customer orientation

IBMs

When customers complained about

the high prices of mainframe
software, he quickly ordered price
cuts of up to 30 percent.
IBM started developing hardware and
software using Java in order to make
its products compatible with other
systems.

 Louis tried to solve a problems faced by

customers, but it difficult to gave personal
attention to customers.
For this, he split IBMs entire sales force into 14
vertical marketing groups, each catering to a
specific industry.
Gerstner divided his existing and potential
customers around the world on the basis of the
industry like banking, insurance and so on.
Each industry was allotted to a team of research
people, software engineers, and industry
consultants so that they could develop solutions
according to the industry specific needs of
customers.

 Louis strongly felt that IBM should

continues its core business rather
than deviate from it.
Louis instructed their executive to
replace the mainframe with smaller,
faster, cheaper and highly profitable
machine.
During the 1994-2001 they have
reduce the unit price of mainframe
by 96% from $63000 to $2500.
End of 1994 Louis had reduce IBMs
manpower strength by 80000.

 Louis argued that PC era would come

to an end. And PC would be replace by
network computing.
To
strengthen
its
technological
capabilities, IBM acquired the software
company Lotus in 1995.
Later, Louis introduced concept known
as network-centered computing.
Louis decided that 25% of the
expences incurred in R&D ,could be
shifted to network computing project.

 In 1996, Louis appointed Sam

Palmisino as a head of PC division.
Sam pushed his sales forced to
market products even before they
were launched.
In 1996-97 IBM acquire Tivoli
software development company and
it managed client server computer
network.

EMPHASIS ONE-BUSINESS
In 1997, Gerstners focus on networkcentered computing strategy evolved
into a full-fledged
e-business "strategy in IBM.
IBM provided the complete package for
e-business (e.g. hardware, software,
training, security, networking, and
services)
Lotus Notes Groupware added another
powerful feature to IBMs e-business
solutions.

 Notes ensured that various forms of

communication including e-mail were made
available to all persons in an organization
relevant Person and periodically checked
the status of other servers in the network
and copied the updated contents of its
database to others.
Gerstner launched a huge marketing
campaign in both the print and electronic
media across the world.

Existing and prospective customers were

directly contacted through mail. Senior
executives spoke of e-business in all their

 Gerstner also advised his executives to

concentrate on providing complete
solutions to their clients.
IBM developed the worlds largest
computer service business, IBM Global
Service (IBMGS), overtaking its nearest
competitor, Electronic Data Systems
(EDS). In 1997, IBM reported a net income
of $6.09 billion, while revenues amounted
to $78.5 billion.
IBM extended the benefits of e-business
to its customers. Rather than investing a

THE CRITICISM
IBM

intact

and

change

the

corporate

culture of IBM were severely criticized by

the employees.
There is no entrepreneurial spirit any
more. A lot of people are going through the
motions. This is no longer a lifestyle
company. Gerstner is running it as just
another financial institution.