Prof.B.Dutta GuptaIIPM.Kolkata

Case Study : IBMWhy was IBM in trouble?Which behaviors Louis Gerstner found

unacceptable at IBM?What did Louis Gerstner do to turn around IBM?

Class discussionsWhy are organizationsLike beehives where the queen bee maintains

significant control and like mothers who provide support?

Like lions who are predators and kill in order to preserve their family?

Like dogs that bite you?

The elements of management process Leadership is one of the four functions of management

Selecting a Management ApproachBureaucratic approach: Bureaucracy is

the combined organizational structure, procedures, protocols, and set of regulations in place to manage activity, usually in large organizations.

Systems Approach to Management :The systems approach to management is based on general system theory – the theory that says that to understand fully the operation of an entity, the entity must be viewed as a system.

Characteristics:A well-defined hierarchy of authority with clear lines of authority and control and responsibility concentrated at the top of the hierarchy.

The theory of bureaucracy is based upon hierarchy of authority and web of rules and relations.

Systems Approach to ManagementAn organisation as

a system has five basic parts:

Input,Process,Output,Feedback andEnvironment.

Basic Systems Model Input Process⇒ ⇑ ⇓ Feedback Output⇐

Leadership—What We’ll DiscussDefinition of Leadership3 Styles of LeadershipManagers versus LeadersLeadership GoalsSummary

What is a Leader?A Leader is someone in authority to lead

others to accomplish a goal(s). A leader needs to be able to motivate others

to accomplish a goal(s) while at the same time encourage others to work toward their own professional goals.

3 Styles of LeadershipAutocratic

Authoritarian This management style is used when managers in an

organization want to have full power in decision making.

Tells employees what they want done and how to do it (without getting the advice from others).

Works well if you don’t have much time to accomplish goals or if employees are well motivated.

Generally, this style is not a good way to get the best performance from a team.

The management of India which is in most cases autocratic.

Example: a) Works well in crisis management b) Works well for new recruits

Leadership Styles Con’t. Democratic

Participative styleThe leader involves one or more employees in the

decision making process (to determine what to do and how to do it).

This does not mean that the employees make the final decision.

It means that the manager considers the contributions of the employees but comes up with a final decision.

Allows everyone to be part of a team—everyone feels that they have participated and contributed.

Encourages participation, delegates wisely, values group discussion.

Motivates by empowering members to direct themselves and guides w/a loose reign.

Negative—everything is a matter of group discussion and decision—doesn’t really lead.

Leadership Styles Con’t Delegative

Free ReignLeader allows employees to make the

decisions. Leader is still responsible for the decisions.Employees analyze the situation and

determine what needs to be done and how to do it. Leader sets priorities and delegates.

Leader has little control. Team has little direction or motivation.

Example: High tech companies.

Situational LeadershipSituational Leadership Theory is there is no single

“best” style of leadership. Effective leadership is task-relevant and that the

most successful leaders are those that adapt their leadership style to the Maturity (“the capacity to set high but attainable goals, willingness and ability to take responsibility for the task, and relevant education and/or experience of an individual or a group for the task) of the individual or group they are attempting to lead/influence.

That effective leadership varies, not only with the person or group that is being influenced, but it will also depend on the task, job or function that needs to be accomplished[

Leadership GoalsLeadership style is the manner and approach of providing

direction, implementing plans, and motivating people.Leaders vary their styles. A leader is not strictly one or

another style. Most leaders use all three styles; one style, however, becomes the dominate one.

Positive Leaders use rewards (independence, education) to motivate employees.

Negative Leaders use penalties with employees. These leaders act domineering and superior w/people. Negative penalties include: days off without pay, reprimanding in front of others, assigning unpleasant job tasks.

Entrepreneurship vs ManagementManager EntrepreneurWhat resources do I

control?What are the market

advantages our company has?

Where are the new opportunities?

How can they be capitalized?

What resources do I need? How do I capture them?

What market advantages should we have?

Entrepreneurship and LeadershipEntrepreneurial Leadership:- Company founder- CEO of the new business- Innovative business leaderKey features- Independent- Prepared to risk- Charismatic( prepared to lead)

Model EntrepreneurEntrepreneurial

Leadership:- Company founder- CEO of the new

business- Innovative business

leaderKey features- Independent- Prepared to risk- Charismatic( prepared to

lead)

What is Strategic Leadership?Strategic Leadership: The ability to

anticipate trends, maintain flexibility and empower others to create strategic changes

Managing human capital, knowledge and innovation in the company

Coping with uncertainty, global complexity and organizational inertia

Formulating and implementing strategies to achieve above average returns

Carlos GhosnHe is the current

CEO and President of Renault of France and Nissan of Japan

In June 1999, when he joined the company, it had debt of $20 billion and only three of its 48 models were generating a profit.

Carlos GhosnGhosn promised to resign if the company did

not reach profitability by the end of the year.His radical moves have made him Public

Enemy No. 1 to Japanese traditionalists. However, in one year, Nissan's net profit

climbed to $2.7 billion from a loss of $6.1 billion in the previous year.

Bringing company back to the Growth pathGhosn’s strategyClosed five plants in Japan and eliminated

21,000 jobsCut out half the vendors, standardized and

gave more volume to the remainingDeveloped new models that would be

demanded by the market and would drive growth /profit.

IBM case study: Why was IBM in trouble?IBM in Trouble- Rigid organizational culture; priority for

engineers in their organizations over clients- Attached to old products ( mainframes)

and lost market to PC producers- Low profitability

IBM’s problems

IBM had a host of revenue-draining assets, and even problems with its own internal information technology tools.

Revenue was slowing (slowing mainframe sales), gross profits were shrinking (discounting prices, to try to sell) and expenses were way out of control.

In simplest terms, if a company’s revenue, gross profit and expenses are all moving in the right relationship, the net effect is growing profits and positive cash flow. In ’93 they were all wrong at IBM.

Which behaviors Gerstner found unacceptable at IBM?Large dysfunctional bureaucracy, committee

decisions, tacit compromise and actions committed to serve group interests.

IBM had a dress code that again had outlived its times.

Management presided rather than acted. Meaningless meetings, far-flung business units

operating independently, with little accountability, divisions competing  against each other both internally and in the field and the entire company was dangerously preoccupied with itself rather than customers.

IBM behaviors which Gerstner found unacceptableObsession with perfection, system of several layers of

checks and approvals, slowed down decision making and delayed product launches and response times.

Employees served themselves better than their customers.

The company and its people had lost touch with external realities.

It was widely believed that what was happening in the marketplace was essentially irrelevant to the success of the company.

“IBM’s dominant position had created a self-contained, self-sustaining world for the company.

Vision

Resource mobilization

Implementation

Target settingIncentive structure

Control and administration

TeamPartners

Capitals/Resources

Rational analysisInstitution of the

leader/team

Role

s of

the l

ead

er

Why do we need good leaders for an organization?Leaders can be a source of competitive

advantage when their work is valuable, rare, costly to imitate and non substitutable

Leaders determine new strategic initiatives, develop the organizational structures, device reward systems and shape a firms’ culture

Use their discretion when making strategic decisions

What did Louis Gerstner do to turn around IBM?The first order of business was how to

make IBM solvent?How ?Expenses were the first issue tacked. $8.9 Billion was slashed out of the budget. 45K jobs cut in ’92 (first layoff in company’s

history) and 35K job cut in ’93.raised cash by selling assets.

Growth Strategies by Louis GerstnerThe second order of business was not to

break up the company into several operating units.

Why?To leverage all of the pieces of IBM--

hardware, services and software--to deliver top-to-bottom technology solutions.

Growth Strategies by Louis GerstnerThe third order of the business was to change the

company culture : entire IBM was dangerously preoccupied with itself rather than customers.

How?Gerstner and his advisers decided to tie employee

compensation to the performance of the whole company rather than to the employee's particular division.

This, forced them to cooperate and venture outside of the fiefdoms in which they operated.

Growth Strategies by Louis GerstnerThe fourth order of the business was to

unify advertisements and promotion.How?IBM consolidated its many advertising

agencies down to one, Ogilvy & Mather. The goal was to create one common brand message for all IBM products and services around the world.

Growth Strategies by Louis GerstnerThe fifth order of the business was to

discontinue OS/2Why?When Microsoft launched its attempt to be a

dominant force in the PC Operating System market with MS-DOS and subsequently Windows, IBM responded with OS/2 and OS/2 Warp, which while lauded by programmers, failed due to limited utilization of vast promotional resources under an avalanche of marketing efforts by Microsoft.

Growth Strategies by Louis GerstnerTo this day, it is still unknown exactly how a

small company powered by a young William Gates first won the order to provide the operating system for the IBM PC family and a few years later was successful in toppling the industry giant in its own arena.

IBM was eventually forced to discontinue work on OS/2, after billions of dollars were spent in its development…

Growth Strategies by Louis GerstnerThe sixth order of the business was e –

commerce as growth driver for IBMHow?IBM will be the facilitator of electronic

business. IBM will help customers adapt to the

strategic, organizational, and cultural changes mandated by the rise of electronic business.

Growth Strategies by Louis GerstnerIBM will offer powerful new servers and storage

for back-end processes, Java applications, full-motion video on the Internet, and more knowledge-management features for Lotus Notes.

IBM's goal: Reorient almost everything it does toward helping customers do network-centric business

Thank You