THE OVERTHROW OF A RELIGION: The Bounce Back story of IBM

Reprinted from our new book, ProphetAbility: The Revealing Story of Why Companies Succeed, Fail, or Bounce Back.

“You are either green and growing or ripe and rotting.” 

~Ray Kroc, American businessman, McDonalds Global Franchise

At the ripe old age of 107 years, IBM is often seen as the poster child for the ups and downs of a big brand. Sometimes they are ripe and rotting, while at others, they are as green and growing as a Silicon Valley startup. This is the story of how, roughly a quarter of a century ago, IBM bounced back from apparent doom to resurrect into a company that put the customer at the core of everything it did.

A New King Arrives

In 1993, a time when IBM was hemorrhaging cash, a man by the name of Louis Gerstner, Jr. was brought in to right the ship. What’s interesting is that Gerstner was not an IBMer rising through the ranks but rather a customer who had some big issues with the computer company.

PICTURE SOURCE: https://www.cnbc.com/video/2017/07/27/this-day-in-history-july-27-2017.html

With a long history of corporate leadership success, including an 11-year stint at American Express where he increased membership from 8.6 million to 30.7 million, Gerstner was selected after other high-profile computer industry leaders indicated no interest in the role. Upon his arrival, he replaced the CFO, the HR chief and three key line executives, stating, “Reorganization to me is shuffling boxes, moving boxes around. Transformation means that you’re really fundamentally changing the way the organization thinks, the way it responds, the way it leads. It’s a lot more than just playing with boxes.”

Unlike many CEOs in similar roles, Gerstner preferred to focus instead on execution, decisiveness, simplifying the organization for speed and breaking the gridlock. This was seen as an overthrow of the old guard and the existing culture.

Overthrowing The Old "Religion"

In his memoir, Who Says Elephants Can’t Dance?, Gerstner described the pain of changing a culture that had historically been very inwardly focused. Known as a company with a lifetime employment practice since its very inception, over 100,000 employees were laid off after Gerstner’s arrival which reversed the belief that employment security had very little to do with performance.

PICTURE SOURCE: Amazon.com

He chose to overturn these things with an undeniable commitment to the customer after his rocky experience as an IBM customer himself.

Back when Gerstner was at American Express, he experienced a problem that needed the attention of IBM, the provider of the company’s mainframes. After getting the runaround, he was informed that IBM would not provide service for the entire data center since they had replaced one mainframe with a competitor’s product. It was clear to Gerstner that the company had completely lost touch with the needs and desires of their customers.

Unfiltered Listening

Shortly after he took the reigns at IBM, with his customer experiences still fresh in mind, he hosted a two-day internal meeting, which ultimately led to a Customer Forum. At the forum were 175 CIOs from some the largest companies in the US.

What he heard at this forum was astounding. He didn’t hear problems with products, nor did they focus on pricing. Rather, what surfaced was a collective anger from the CIOs that IBM had allowed the myth that the mainframe was dead to grow and infiltrate the customer organizations, causing the CIOs to lose credibility while the emergence of the PC was gaining some serious momentum. The customers wanted IBM to have their backs, and they felt betrayed.

Gerstner had a prepared speech to deliver to the CIOs, but chose instead to speak extemporaneously. He told them that he was not a technology guy, but rather a former customer who had a deep understanding and strategic view of information technology and that he would bring that to IBM and its customers.

PICTURE SOURCE: https://www.marketplace.org/2016/06/08/world/profit-ibm

He then laid out four basic expectations to the CIOs. He said:

1. “We will redefine IBM and its priorities starting with the customer.
2. We will give our laboratories free reign and deliver open, distributed, user-based solutions.
3. We will recommit to quality, be easier to work with and reestablish a leadership position in the industry.
4. Everything at IBM will begin with listening to the customer and delivering what they expect.”

Prior to this Customer Forum, Gerstner held a meeting with the Corporate Management Board, a group of 50 top executives from IBM. When he met with them, he discussed the good things that IBM had working in its favor, but also hit on the challenges they were facing, most notably “a loss of customer trust supported by some disturbing ratings on quality.”

Operation: Bear Hug

With that foundation, Gerstner announced OPERATION: Bear Hug. This initiative required that each of the 50 senior managers visit a minimum of five of their biggest customers during the next 3 months, with the goal of listening to the customers, showing them that IBM cared and that they would implement actions as appropriate. The next phase was that each of their collective 200 direct reports would also execute this same exercise.

So there were 250 senior leaders out in the field talking to a minimum of five customers each; a total of at least 1,250 customers being personally visited by an IBM executive through OPERATION: Bear Hug. Taking this a step further, Gerstner required each executive to send him a 1-2 page written report along with copies to anyone else within the organization who could solve the customer’s problem.

“I wanted these meetings to be a major step in reducing the customer perception that dealing with us was difficult. I also made clear that there was no reason to stop at five customers and that extra credit would be rewarded.”

This was a huge change in the culture of IBM, building everything from the outside in and having the customer drive everything they did in the company. “It caused quite a stir when people realized that I really did read every report.”

What Went Right

1. Gerstner realized that they had to intricately link everything they did back to the customer. Without that, there would be no hope of growing the company.
2. He utilized his senior leaders to be his prophets, bringing back the message of the people, and then spent time to truly understand what they were saying and not saying.
3. He talked directly with the CIOs and got unfiltered information to which he could align his strategy.
4. He understood the human experience of business, stating, “Computers are magnificent tools for the realization of our dreams, but no machine can replace the human spark of spirit, compassion, love, and understanding.”

While this is a solid example of a B2B bounce back, it does not mean that IBM continued to thrive upon Gerstner’s exit as CEO. In fact, since Gerstner’s tenure, things have continued to be a roller coaster ride for the company, with news in March 2018 that IBM would be laying off potentially thousands of employees. With that, however, is the realization that without Gerstner’s focus on the customer some 25 years ago, IBM may not have survived.

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