Learning from IBM

I’ve spent a lot of time this week digging up the history of Lou Gerstner‘s turnaround at IBM.

The move from mainframe to PC is pretty much the definitive technical disruption – and the fact that IBM exists at all is pretty remarkable if you consier the state it was in back in 1993, when it declared the biggest loss in US corporate history ($8bn – which is admittedly rather tiddly by recent standards).

The shorthand version is, of course, that he found a mainframe business, and created a services business. Ta Da. Looking at the process in more detail, however

First of all, he invested in the mainframe

Everyone said the mainframe was dead and the PC was taking over. It was true, IBM had completely underestimated how important the PC was, but Gerstner saw there was life in the mainframe business yet. In his first couple of weeks, he agreed to invest $1bn to revamp the mainframe technically, which allowed them to sell them at a massively reduced price. ‘This decision saved IBM’ he later said.

The year of biggest loss, was a great year for patents

In 1993, as well as that $8bn loss, they also were awarded more patents than any other business in the US. The first time a US company had done that in ages. There was no shortage of smart people and innovation there; but it wasn’t enough.

Anything but a vision

Gerstner famously said of his turnaround “The last thing IBM needs right now is a vision”, pointing out that the business had draws full vision statements but needed decisions and execution.

The services business started inside the sales business – and they scrapped

The services business was teeny when he joined. You would normally set it up as its own business. Initially he put it inside the sales organisation, and as it was the role of the services business to recommend ‘competitors’ products, the sales team weren’t entirely happy (that is a euphemism, I suspect). It was only when the services business reached a certain scale that it became its own division.

He ‘did what he did best and linked to the rest’

They decided to get out of the business applications business (proprietary business software running on their machines) as all it was doing was making them enemies with often superior software providers. Instead they went into partnership with the likes of Siebel etc.

He invested in the brand

When he took over, IBM had 70 ad agencies in the US alone. He consolidated everything into Ogilvy, and started to celebrate the IBM brand.

There’s a whole host of good stuff in this story – and plenty of echoes with some of the other businesses I’ve looked at (especially HMV, rather strangely).

Then again – maybe I’ve got it all wrong. If so – please feel free to put me right.

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