Gerstner's legacy and why it matters

Gerstner's legacy and why it matters

Summary: Some CEOs may have their hands full these days, but their challenges pale in comparison to what awaited IBM's CEO Gerstner when he took the helm in 1993.

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TOPICS: IBM
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Some CEOs may have their hands full these days, but their challenges pale in comparison to what awaited IBM's CEO when he took the helm in 1993.

George Shaheen, formerly of Anderson Consulting and Webvan, Eckhard Pfeiffer of Compaq, George Bell of Excite@Home, Ellen Hancock of Exodus Communications, and Candace Carpenter of iVillage are among the many tech moguls who paraded across the big screen in the past few years.

They're all history now, packed off to early retirements. Some were puffed-up blowhards, while others were just victims of unlucky circumstance. The common bond was they just couldn't get the job done when it mattered most.

Fast forward to next spring: When Lou Gerstner turns in his corporate golf cart and heads off to get measured for a wax bust at Madame Tussaud's, he'll leave a legacy as one of the more successful CEOs of the past decade. Reading Gerstner is always an iffy proposition. He doesn't like to gab with the press, and it's conceivable he might hang around for a curtain call if he thinks there's still unfinished work. But when his designated heir-apparent finally does take over, Sam Palmisano will inherit a resurrected company that bears little resemblance to the IBM Gerstner was charged with saving when he arrived eight years ago.

If you think I'm guilty of hyperbole, try to recall just how bollixed up things had become before Gerstner arrived. How bad? Think about a cross between the 1962 New York Mets and the Gang that Couldn't Shoot Straight--and believe me, I'm being charitable.

The Augean Stables await Let's take a short detour down memory lane and survey some of the low points during the pre-Gerstner regime:

 The PC boondoggle After legitimizing the PC market, IBM proceeded to blow a leadpipe-cinch opportunity to own the personal computer industry. Slow execution and bad design, like the "Clamshell" and the PC Jr., left the door wide open for more nimble, less-costly "clone makers" such as Compaq and Gateway that delivered computer products that people actually wanted.

 Micro Channel IBM's counter-attack was the 1987 introduction of a line of computers based on a 32-bit bus architecture called Micro Channel. It met with an underwhelming reception because rank-and-file consumers were hip to the hype that there was something intrinsically "wow" about MCA. As it turned out, third-party manufacturers weren't breaking down doors to sign up anyway. By the time IBM (mercifully) buried Micro Channel in the mid-1990s, the PC market belonged to the competition.

 Flip-a-coin strategy IBM was so inept at the PC game that it seriously considered buying Northgate, which for a time, was a high-flying direct PC maker. That idea eventually got nixed and IBM decided to open a direct PC operation under the brand name Ambra. The only problem was that IBM had also set up a direct PC operation--conveniently located across town in Research Triangle, N.C. Instead of concentrating on beating the clones, IBM management was thus forced to waste time refereeing a splendid civil war.

 OS/2The company's software strategy was even more feckless. Along with PS/2, IBM announced OS/2, a graphical, multithreaded, multitasking operating system that in its day was head and shoulders above Windows. Considering OS/2's technical advantages as well as IBM's sales oomph and technological know-how, there's no way Microsoft should have won the battle for the desktop. To be sure, Big Blue was double-crossed by Bill Gates, but the indelible fact is that IBM simply got out-marketed, hustled and out-FUDed by Microsoft in the great PC operating system wars of the late 1980s and early 1990s.

IBM management was so flummoxed that then-CEO John Akers even put together a plan to break up the company and sell the pieces. In retrospect, that would have been an incredibly dumb thing to do. But such was the poverty of imagination that passed for strategic thought before Gerstner arrived on the scene.

Not a tech guy Gerstner, whose resume included pit stops at Nabisco and American Express, wasn't a "tech guy" and Wall Street was all over him to spell out his strategy. He refused to comply with a big picture outlook, which made IBM-watchers antsy. But considering other big picture initiatives (remember SAA and SNA?) that turned out to be the right move.

Instead, he dealt with the grunt work of listening to customers, ridding the company of organizational dead wood, and getting things pointed in the right direction. That was Year One. Year Two was all about breaking even. By the time Year Three rolled around, IBM was ready to do the vision thing and introduce its e-business strategy. The company hasn't looked back since.

Gerstner didn't always push the right buttons. You could argue that IBM's 1995 Lotus acquisition worked to the company's advantage, but for the wrong reasons. When Gerstner and his software advisor, John Thompson, made the June 1995 hostile offer to buy Lotus, they had groupware on their minds, not the Internet.

And the man hardly qualifies a saint. Gerstner went absolutely ballistic after a cover profile in Fortune and ordered his minions to cut off all communications with the magazine. Former insiders say he can be imperial, greedy and ruthless. But that's not going to harm his legacy. IBM didn't need Mother Teresa; it needed a Hun, something General Electric's Jack Welch, a fellow-CEO who Gerstner highly admires, would have told him if asked for an opinion.

Anyway, Gerstner's more of a salesman than a marketing or technology whiz. He's been bright enough to surround himself with smart people like Abby Komstam, who came up with the idea for e-business, or Irving Wladawsky-Berger, who helped mold Gerstner's thinking about the Internet and then moving to Open Source and Linux.

He brought in McKinsey 101 tactics and created the conditions so that IBM could help itself. He came down hard on petty bickering. He ended the after-the-fact, organizational pushback culture that would invariably dilute decision-making and lead to paralysis. Most remarkably, he executed his plan in a culture that was given too much to infighting and corporate politics.

And the big picture stuff--even for a non-technology CEO--did finally materialize. Earlier than most, he talked up a broad, sophisticated vision of Web-based commerce, engineering the company's transformation around electronic commerce and high-margin global support services.

And earlier than most, he warned about the coming flameout of profit-less dot-coms. (Remember "dot.toast" and "fireflies before the storm.")

Watching Gerstner slowly sail off into the sunset, some of his CEO contemporaries could borrow a page or two from his playbook. They also face tough challenges, the effects of Sept. 11 being the least of them. Ted Waitt needs to convince customers that Gateway represents more than just another me-too computer company. Carly Fiorina needs to convince Wall Street that Hewlett-Packard's proposed combination with Compaq isn't about PCs; rather, that it's more about buying Digital Equipment (but let's leave that for another column.)

They can at least take heart about one thing: Hard as all this might be, it's nothing compared to what Gerstner faced way back when.

Topic: IBM

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