In Who Says Elephants Can’t Dance? – Leading a Great Enterprise Through Dramatic Change, former IBM CEO, Lou Gerstner, gives a first-hand account of how he led the turnaround of IBM in the 1990’s. I recommend the book  for businesspeople (in any industry) to see a case study in turning a company around and significantly changing a business culture.

IBM in Crisis

• Original IBM values
  
  • Excellence in everything we do
    
  • Superior customer service
    
  • Respect for the individual
    
• These had morphed over time creating a feel good, bloated, unaccountable company.
  
• At the same time, IBM was in denial about their problems
  

Beginning a Turnaround – Work on the Culture

• The sine qua non of any successful corporate transformation is public acknowledgment of the existence of a crisis.
  
• Then, get to work on improving the business and re-igniting the culture.
  
• For Gerstner, the hardest part of a business transformation is changing the culture – the mindset and instincts of the people in the company.
  
• Further he felt that “culture is not just one aspect of the game – it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.”
  
• To change a culture, you need to motivate the leadership and the people to change by using the levers of motivation
  
• The levers of motivation
  
  • Money
    
  • Power
    
  • Advancement
    
  • Recognition
    
  • Fear
    
  • Anger
    
  • Learning
    
  • Meaning – the opportunity to make an impact and see their efforts produce concrete results
    
  • Threat of extinction
    
  • Inspiration by a compelling vision of the future
    
• Define clearly the aspects of the desired culture and the appropriate leadership capabilities. Then reward and promote people according to their adherence to and mastery of these capabilities.
  
  • For IBM, their key leadership competencies were:
    
    • Focus to Win
      
      • Customer insight
        
      • Breakthrough Thinking
        
      • Drive to achieve
        
    • Mobilize to Execute
      
      • Team leadership
        
      • Straight talk
        
      • Teamwork
        
      • Decisiveness
        
    • Sustain momentum
      
      • Building organizational capacity
        
      • Coaching
        
      • Personal dedication
        
    • The Core
      
      • Passion for the business
        
• The cultural change needs to be consistent throughout the organization:
  
  • Nothing can stop a cultural transformation quicker than a CEO who permits a high level executive – even a very successful one – to disregard the new behavior model
    
• Change with both thoughts and actions:
  
  • In “Operation Bear Hug,” each of the 50 members of the senior management team was to visit a minimum of 5 of the biggest customers. The executives were to listen, to show the customer that they cared, and to implement holding action as appropriate.
    

Lay Out a Clear, Compelling Strategy

• Famously, Gerstner did not outline a strategy upon joining IBM. He worked on the cultural change and tried to ensure that the company was accountable and could execute before laying out a strategy.
  
• Great companies lay out strategies that are believable and executable. These strategies are long on detail and short on vision
  
• Strategic clarity
  
  • This is our mission
    
  • This is our strategy
    
  • This is how you carry out your job
    
  • No mixed messages
    

Superb Execution

• Fundamentals of successful businesses and executives
  
  • They are focused
    
  • They are superb at execution
    
  • They abound with personal leadership
    
• People respect what you inspect not what you expect. Do not confuse expectations with inspections
  
• Execution is all about translating strategies into action programs and measuring their results.
  
• Effective execution is built on world class processes, strategic clarity, and a high performance culture.
  
• If you want to out-execute your competitors, you must communicate clear strategies and values, reinforce those values in everything the company does, and allow people the freedom to act, trusting and verifying that they will execute consistent with the values.
  

Running a Large Organization

• Leadership is about passion
  
• What it takes to run IBM
  
  • Energy (enormous personal energy, stamina, strong bias for action)
    
  • Organizational leadership (strategic sense, ability to motivate and energize others, infectious enthusiasm to maximize the organization’s potential, ability to build a strong team and get the best from others)
    
  • Marketplace leadership (outstanding oral communications, CEO level presence and participation in the industry and with customers)
    
  • Personal qualities (smart, self-confident, but knows when he doesn’t know, listens, makes hard decisions – in business and with people, has a passion that is visible, maniacal customer focus, instinctive drive for speed / impact)
    
• Every CEO needs to decide what is going to be uniquely local (decentralized) and what is going to be common (centralized)
  
  • Shared activities
    
    • Leverage size of the company
      
      • Back office functions such as IT, Purchasing, some HR
        
    • Business processes that are more closely linked to the marketplace and the customer
      
      • Common customer databases
        
      • Common fulfillment systems
        
      • Common parts numbering systems
        
      • Common CRM systems
        
  • Activities that are usually better to be decentralized
    
    • Winning in the marketplace
      
      • In a utopian world, this level of integration would work.
        
      • However, the problem is that it too often demands that profit center managers subjugate their own objectives for the greater good of the company.
        
      • The challenge for the profit center manager then becomes to fulfill their current decentralized mission and be asked to fill a shared role in creating value in a new mission. The conflicts will be overwhelming – resource allocation, pricing, branding, distribution. Thus, this usually leads to confusion, bureaucracy, lack of accountability, and failure.
        
    • Gerstner warns that CEO’s should not go to this level of integration unless it is absolutely necessary as this is a ‘bet the company’ proposition.