jcpc - ibmstrategicchangemgmtanaysis

A Strategic Change & Implamentation Analysis

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Based on the biography written by the Ex-CEO of IBM, Lou Gerstner Jr.

J enna Chou , Copyr ight 2011©

Who Says Elephant Can’t Dance?

JC Professional Consulting®, Copyright 2011

IBM Strategic Change Management AnalysisBased on the Biography: “Who Says Elephant Can’t Dance?” by Lou Gerstner

TABLE OF CONTENTS

1. Strategy (Direction) & Vision..................................................................................................................................3

2. Structure (Locus of Decisions)...............................................................................................................................8

3. Processes (Flow of Information)...........................................................................................................................11

4. People & Human Resource Management (Skills)................................................................................................14

5. Rewards (Motivation)...........................................................................................................................................18

6. Alignment of Strategy Implementation (culture)...................................................................................................20

7. APPENDICES......................................................................................................................................................24

Appendix 1 - IBM Lingos...................................................................................................................................24

Appendix 2 – IBM Leadership Competencies.................................................................................................25

Appendix 3 – Win, Execute, and Team............................................................................................................26

Appendix 4 – 8 Principles.................................................................................................................................27

Appendix 5 – Instrumental Leadership Model................................................................................................28

Appendix 6 – Pay for Performance Before & After.........................................................................................29

Appendix 7 – Alignment Model of Strategy Implementation.........................................................................30

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1.STRATEGY (DIRECTION) & VISION

The most important component of the Alignment Model of Strategy Implementation framework i is

Strategy, which includes the visions and directions that the strategic leader sets for the company.

Gerstner’s main goal and task was to bring the drowning IBM out of the great deep blue sea, train the

then-vicious shark the concept of “survival to the fittest” and throw it back in the ocean after making it

once again the greatest survivor in the ocean.

The strategic visions that Gerstner set for IBM when he joined on April 1, 1993 was to make IBM

a “One Global Firm” and make “E-Business” IBM’s heart and soul. Gerstner was determined to make

the necessary changes so that IBM can reinstate the Emperor’s crown in the technology industry. A

good design of the strategic component of this framework for any corporation that will be going through

drastic strategic changes should address the highest level questions such as the markets and business

to retain or enter into, how it can further create values for its existing and prospective customers, as well

as how it can compete in the current industry with its current competitive position while still sustaining

the competitive advantages it currently possesses.

For IBM, the three biggest challenges that Gerstner found were (1) IBM did not have a software

mentality since it has always treated the software as part of its hardware-based offering, (2) the current

customer base desires smaller distributive systems, and (3) the troubled child named OS/2 (pg. 138).

After detailed analysis, Gerstner made 4 critical decisions: (1) Keep the company together, (2) Change

IBM’s fundamental economic model, (3) Reengineer how IBM did business, and (4) Sell

underproductive assets in order to raise cash (pg. 57). Since the mid-1980s, a new model in the

computing industry surfaced, which argued that vertical integration was no longer the way to go, and

that the successful companies would provide narrow, horizontal slice of the total package (pg. 58). This

new model essentially created copious amount of competitors for IBM since each competitor only needs

to focus on producing and delivering a part of the entire computing system (e.g. databases, OS, of 31

hardware, etc.). IBM, with its perfected “centralized computing” model and products, had been too slow

at adapting to this new “distributed computing” model, and was unable to compete in this new and

fragmented supplier environment.

Knowing that the infamous core product that made IBM the technology industry leader – the

mainframe – was a fast-dying market, combined with the new distributed computing model that now

puts the burden of technology integration in the hands of the customers themselves, Gerstner saw new

opportunities in the distributed computing market that would enable IBM to utilize its existing

professional expert resources and to reaffirm its position as the “Integrated Leader”, but entering a

completely brand new Blue Ocean market – Integrated Computing Consulting Services! This new

services strategy allowed IBM to leverage its strength in mobile computing (pg. 161) and to sustain its

competitive advantage (its world’s-best professional technical resources) while at the same time

creating a new market that “IBM could serve as the foremost integrator of technologies and delivering

extraordinary value to [its clients]” (pg. 61). Gerstner himself had explicitly stated in his book that “given

IBM’s scale and broad-based capabilities, and the trajectories of the information technology industry, it

would have been insane to destroy its unique competitive advantage [of being an integrated-solutions

company] and turn IBM into a group of individual component suppliers.” (pg. 61)

Tightly connected to its integrated computing services direction is IBM’s acquisition strategy. With

the help of John Thompson, the then-leader of the Server Group – Gerstner made the decision of

acquiring Lotus Development Corporation (pg. 142), effectively adopted John’s suggestion of

collaborative computing (as opposed to stand-alone computing) and seamlessly incorporated it as part

of IBM’s integrated computing model. The Lotus acquisition became the new standard for IBM’s future

acquisition strategy as this strategic move allowed IBM to easily gain its customer base from 2 million

Lotus Notes users in 1994 to 90 million by the end of 2001 (pg. 142). Thereafter, IBM acquired Trivoli

Systems and leapfrogged into the market for distributed system management products (pg. 144). In

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addition, IBM also made 180 partnerships in two years starting with Siebel Systems in 1999 (pg. 157).

These acquisition and partnership moves that IBM has made not only effortlessly increased its customer

base, but also allowed it to grow its talent pool drastically in various specialties to broaden the

integrated services it offered, and regain its industry leader position at lightning speed.

To support the fast-changing computing industry and the customers’ desire to have seamless

integration among products from various suppliers, Gerstner made the wise decision to migrate IBM

from its proprietary-based product mentality to the more competitive open-standard products. As the

new distributed computing trend allowed customers to choose their most-desired products from various

vendors, the old IBM’s proprietary solution was deemed inflexible and uncompetitive for it to offer any

integrated solution consulting advice. By launching a massive, multi-year effort to rewrite all of IBM’s

critical software to make them all network-enabled and to run on Sun, HP, Microsoft, and other

platforms, IBM was able to leverage its core competencies and skills of its existing knowledge-based

resources and enter into brand new markets (pg. 151), which allowed it to further solidify its competitive

position as well as to increase the added-value for its customers, since IBM can now offer consulting to

any customer who owns products from any vendor. Lastly, the move also allowed IBM’s Technology

Group to build custom-designed microelectronics which led IBM into yet another new market by closing

the contracts with Sony and Nitendo to produce more intelligent devices than the entire PC industry

produced in 2000 (pg. 151).

Gerstner also invested heavily in changing and unifying the IBM brand. While IBM has won

awards in 1980s for its ingenious Charlie Chaplin commercials, which introduced the IBM personal

computers, starting early 1990s, IBM’s brand had been torn apart, with each part of the company hiring

its own advertising agencies and creating its own marketing strategies (pg.88). The IBM brand had

gotten so diverse that by 1993 there were more than 70 advertising agencies around the world that

individual IBM businesses were using. For example, 18 different IBM designs, messages, and even

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logos was in a single trade magazine issue, potentially gave customers around the world different

messages that could cause confusion rather than the feeling that IBM was a truly global corporation with

numerous businesses and clients all around the world. To unify the IBM brand name once again,

Gerstner hired Abby Kohnstamm as the head of Corporate Marketing for IBM in 1993. Due to the lack of

consolidated marketing strategy and the lack of communication among different geographic units in

deciding on the messages that should be conveyed to the customers, it took Abby 60 days to do

situational analysis. The result of the analysis showed that the IBM brand was still strong, and the

biggest strength was for IBM to create a unified brand and not as each of the parts (pg.89). Thereafter,

the marketing mission was created, addressing only one question: Why customers would want to do

business with an integrated IBM? Before going ahead with the centralized marketing strategy, Gerstner

knew that he had to make sure to bring all IBMers on board, as this unification of the IBM brand could

essentially cause drastic changes not only for individual region and/or country’s marketing strategy, but

could also affect other operational strategies regionally as well. To make sure that the unified IBM brand

name is smoothly implemented, Gerstner’s Stage 1 plan was to let the IBM executives know and wean

them off the luxury of having their own advertising budgets, their personal agencies, and discretion to

order up and an anytime they wanted to do so. Stage 2 was to take one month completely off

advertisement in any industry magazine (to do it well and with all the changes all at once, so no mixed

signals to customers). Stage 3 is show time! IBM would showcase as many new marketing ads as

possible to strengthen the message that IBM is indeed a unified brand, even if it is operating businesses

around the world. The marketing agency IBM hired was Ogilvy & Mather, which has its reputation as the

worldwide expertise, to manage all products and services, and overall brand around the world. As

technology has almost no geographic boundaries, a unified brand with a world approach makes sense

as IBM’s marketing strategy, which in turn strengthens its message to the customers that IBM is truly

global!

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The above strategies that Gerstner has implemented all contributed towards his E-Business

vision. Determined to making e-business as “moon shot” (pg. 213), the “New Blue” under Gerstner’s

strategic leadership was successfully tied to the e-biz strategy and focused on the market’s most

promising growth opportunities – “Network-Centric Distributed E-Computing Consulting Service”.

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2.STRUCTURE (LOCUS OF DECISIONS)

Next on the Strategic Implementation alignment list is the Organizational Structure, in which the

corporate structure should be designed based on the change strategies and directly support the change

implementation proposals as well. The co-dependent nature of the elements in the alignment model

ensures the consistencies and cohesiveness between the elements are at their optimal levels.

With 300,000+ professionals all under one gigantic blue roof, the corporate structure of IBM pre-

Gerstner was rigid and completely inflexible to the point that the word “outdated” could be used to

describe its inability to compete in any market today, let along trying to be the leader again in the fast-

paced technology industry. Over the decades, IBM had evolved in two directions: (1) Geographic

Business Units (GBU) – powerful geographic units that dealt with IBM’s global reach (pg.84/85). These

GBUs protected their turf and attempted to own everything that went on in their region, to the point that

when any overseas IBMer (in this case, Gerstner himself) arrived in a new country (Malaysia or

Singapore or Spain), he or she had to re-establish the credentials with the local IBM management. (2)

Product Business Units (PBU) – powerful product divisions that dealt with underlying technological

forces. These Technological divisions dealt with what they thought could be built, or what they wanted

to build, with little concern about customer needs or priorities (pg.84/85). Gerstner, during the early days

in IBM, had easily discovered that the above-mentioned business unit conflicts were due to the

exclusion of the most important component in any corporate structure – the Customers! As soon as

Gerstner started leading IBM towards the competitive future, he had emphasized the importance of

IBM’s customers, and the need to make the customers IBM’s number one priority. Referencing an email

Lou received from an IBMer, “You gave a pecking order of importance for IBMers; first, the Customer,

second IBM, third one’s own unit...” (pg.80). Further emphasis on the customers came from the lessons

learned, and Gerstner had stated that “At IBM we now focus on a different stack: the customer’s

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business processes and how we can bring world-class technology... to improve [our customers’]

processes” (pg.163).

One of Gerstner’s first priorities was to shift the fundamental power bases inside IBM. In the US

alone, there was a national headquarters, 8 regional headquarters, multiple area headquarters under

the regions, and local units called “trading areas”. Each was run by a profit center boss aggressively

increasing his or her own resources and profits (pg.85). As well, staff-units abounded at every level.

Outside the US, the structure was even more rigid, like in Europe, with 23,000 support people. Other

IBMers had to ask permission to enter the territory of a country manager. Each country has its own

independent system. For example, in Europe alone there were 142 different financial systems.

Customer data could not be tracked across the company. Employees belong to their geography first,

while IBM took a distant second place (pg.86). To change these geographically-obsessed and power-

hungry regional executives’ mentalities, Gerstner declared war on the geographic fiefdmos, and

organize the company around Global Industry Teams (pg.86). Led by Ned Lautenbach, a customer-

oriented organization began to thrive. As difficult as it was for the entire organization to embrace this

new structural direction, Gerstner and Ned broke IBM’s customer base into 12 groups: 11 industries

(e.g. banking, government, insurance, distribution, and manufacturing), and a final category covering

small and medium-sized businesses. They further assigned all of the accounts to these industry groups

and announced that the groups would be in charge of all budgets and personnel (pg.86). These drastic

changes brought about nothing but resistance from most of the regional/country managers. In the then-

country managers’ views, this new Global Industry Teams structure only caused negative

consequences on their own positions and powers, in which were all stolen from them by Gerstner in a

split of a second. Due to the heavy resistance, many regional/country managers ended up leaving IBM,

along with the possibilities of high turnover rates among the regional/country personnel. Even though

Gerstner implemented the new industry structure in mid-1995, it was never fully accepted until at least 3

years later (pg.87). of 31

Gerstner’s future prediction in how the computing industry is heading resulted in the

implementation of two new models for IBM: (1) A Service-Led Model, and (2) A Networked Model. Both

of these models were mentioned previously in the Strategy section of the alignment model, with both of

them supporting Gerstner’s vision of making E-Business the heart and soul of IBM.

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3.PROCESSES (FLOW OF INFORMATION)

Out of the 4 previously-mentioned critical decisions that Gerstner had made, reengineer IBM’s

business and selling unproductive assets were process-related strategies. IBM needed fundamental

change in the way they carried out almost every process, since all of their business processes were

cumbersome and highly expensive (pg.63). With Jerry York leading the reengineering effort, instead of

approaching the reengineering sequentially, IBM attacked the entire organization all at once, with more

than 60 major projects at any point in time and hundreds more among smaller divisions and individuals

(pg.64). The reengineering work centered around 11 areas, with 6 Core Initiatives, which are the

businesses that dealt with the outside world (hardware and software development, fulfillment, integrated

supply chain, CRM, and services), and 5 Enabling Initiatives, which are the internal processes (HR,

procurement, finance, real estate, and information technology). In addition, the 155 data centers were

reduced to 16, and the 31 internal communication centers were consolidated into one single center,

reducing the overall IT expenses by $2 billion per year (pg.63). IBM also sold off more than 8000 acres

of undeveloped land, rented out numerous of its underused buildings, and cut the real estate workforce

from 240 to 42. The above reengineering alone already saved IBM more than $14 billion. Additional

cost-saving initiatives were ongoing, among those were the reduction in hardware development from 4

years to 16 months, reduction of inventory carrying costs by $80 million, and avoidance of $15 billion in

material costs (pg.66). Gerstner’s decision to sell off unproductive assets included the sale of the

corporate headquarters in NYC, its massive and important but strategically-useless fine-arts collection

worth $31 million, and its Federal Systems Company which was sold for $1.5 billion in 1994 (pg.67).

IBM’s 4-Way-Matrix – Geography, Product, Customer, and Solutions – deemed organizational

coordination a critical and an absolute process necessity. As IBM desperately needed corporate-wide

standards for many aspects of the company, new processes such as establishing commonality of

products around the world for customers who operate globally, creating common HR processes so IBM

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can move talents quickly and effectively whenever it was needed, as well as securing specialized

resources that served the entire company, such as branding specialists and Intellectual Property

lawyers (pg.195). In addition, IBM’s “no” culture in which units competed with one another and

controlled access to their own territories from other IBMer instead of facilitating coordination. Some of

the suboptimal incidents included huge staffs spending countless hours debating and managing transfer

pricing terms between IBM units instead of facilitating a seamless transfer of products to customers,

staff units duplicated at every level of the organization because no managers trusted any cross-unit

colleagues to carry out the work, and meetings to decide issues that cut across units were attended by

throngs of people, because everyone needed to be present to protect his/her turf (pg.196). All of the

above examples were in total opposition to the “One Global Firm” mentality that Gerstner worked so

hard at creating and fostering; as the net result was the very powerful bureaucracy working at all levels

of IBM. The creation and organization of IBM into “Global Industry Teams” (mentioned in the Structure

section) was able to effectively solve some of these territorial problems IBM was facing.

The IBM Lingo (Appendix #1) was another process-related issue that Gerstner encountered.

IBM, like any other Blue Chip company that has existed over the past numerous decades, had its

internal communication means, which in a way positively fosters the corporate culture but also

negatively created a mentality of “safe haven” blanket that employees could hide under and oppose to

any strategic changes that are crucial for IBM’s survival, which creates implementation difficulties for the

management, but receives no consequences for their inability to adapt and do what is necessary for

their own company’s sake. As an advocate for plain language, Gerstner wrote in an internal memo in

1993, “We are also going to take this opportunity to rename some of our organization units to make the

nomenclature more understandable, or more transparent, to our customers (call it customer-friendly).

Also, we will no longer use the term ‘LOB.’ Our product units will now be called ‘divisions.’” (pg.196) The

most detrimental effect that the IBM Lingo had created was allowing its employees to freely “Pushback”

for any corporate ideas they oppose and fight changes if the proposals are not in their [best] personal of 31

interests. The most notorious example that Gerstner witnessed was that this pushback concept has

allowed employees to continue fighting for what they do not agree personally even years after the

management decisions have been made (in the employees’ eyes these decisions are considered as

suggestions), while watching IBM’s market share declining continuously. To solve this dilemma,

Gerstner implemented the performance-based system (refer to the Rewards section) in addition to the

“One Global Firm” concept in which employees should do what is the best for IBM as a unified

company. Although this has caused some heartaches in terms of letting go some IBMers, the result as a

stronger and more globally-cohesive IBM team.

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4.PEOPLE & HUMAN RESOURCE MANAGEMENT (SKILLS)

People make up the very basic building blocks of any organization. Making changes to the

selection methods of a corporation’s employee base, deciding on the training programs its employees

need in order to improve their skill sets to better match the competitive requirements of new strategies,

as well as measuring the benefits the development programs have on the overall performance and

profitability of the company. A fun analogy that comes to mind is that the development of employees’

skills and capabilities is like encouraging and energizing the KOed (at times, TKOed) corporation,

teaching it new moves to fight the opponent more strategically and at the same time defend itself better

against stronger opponents so it can have a higher chance of showing off the gold belt in the UTC

(Ultimate Technology Championship) ring.

IBM is a pioneer in the technology industry, unique in its own way in which “it is not a company of

management and workers... but is a company of 300,000 plus professionals, all of whom are bright,

inquisitive, and opinionated” (pg.84). Everybody has his or her own view of priorities and who should

manage it. This type of knowledge-based resource pool creates the danger of fostering a “resistant to

change” corporate culture, as most of the employees possess specialized knowledge and know that the

company needs their expertise in order to compete and survive. This mentality is the root cause of

IBM’s “no” culture. Gerstner “believes all high-performance companies are led and managed by

principles, not by process... decisions need to be made by leaders who understand the key drivers of

success in the enterprise and then apply those principles to a given situation with practical wisdom, skill,

and a sense of relevancy to the current environment” (pg.200). Hence, the birth of Gerstner’s “8

Principles” in 1993 (Appendix 4) in which are to be the basis of IBM’s new culture, but applied

differently according to the situations given (pg.201).

The Senior Leadership Group (SLG) was created also to follow the 8 Principles, with the goals

centered on Customer Satisfaction and Market Share (pg.203). Through passion, commitment and of 31

directness, Gerstner was able to get the workforce feeling more hopeful and excited during the down

times, and some executives were beginning to exhibit the sort of personal leadership and commitment

to change. According to Gerstner, the goals of the SLGs are to focus on the topics of leadership and

change, and to gain a seat on the SLG is not based on automatic membership according to rank or title,

but need to be “living, breathing role models – regardless of their place on the organizational chart or

the number of people underneath them” (pg.208). Top executive team would meet and reconstitute the

group, and individuals would be proposed for membership and would have to garner the support of the

entire executive team. Members who have left was told they no longer performing in a manner

commensurate with expectations for SLG members, while rewards and promotions are given out

personally by Gerstner for the leaders who embrace the new culture. This rewards system sends a

message to future managers that the path to success is now different. It is now about performance and

supporting each other to reach common goals, and not just about the number of years you have worked

for the company.

To take it one step further, Gerstner created the IBM Leadership Competence (Appendix 2),

which is a list of formalized common attributes all IBM leaders should have. This is Gerstner’s effort to

switch from process-centric management to an approach based on general principles – permitting

individuals to apply those principles in their own ways, as circumstances dictated. The Leadership

competencies described some essential qualities but allowed for a rich, diverse leadership cadre of

styles, personalities and approaches, and became the basis for evaluating every executive in the

company. In addition, all the executives, including the ones reporting directly to Gerstner, had to “go to

school” for 3 days to work with trained counsellors to understand how they were viewed by their

colleagues regarding the competencies and to develop personalized programs to improve their skills

(pg.209). Gerstner made sure that the training programs for IBMers are in-line with the 8 Principles and

at the same time develop their leadership competencies.

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The technologically-outgrown traditional mentality of “Presiders Over Process” (pg.198) that

resided in IBM’s senior executives was the next big item on Gerstner’s to-do list. The Senior Executives

only “supervise”, organize work, then wait to review it when it’s all complete. The new model that

Gerstner implemented was for the executives to lead by example, not title! The executives should be

able to dig into the details and work the problems day to day, take personal responsibility for the end

result, and see themselves as drivers as opposed to just a box high in the organizational chart. Even

though this way of hands-on problem solving was not how the executives were trained or even expected

from the traditional IBM culture, Gerstner’s experience told him that the SEs were simply acting the

roles that the long-established interior culture asked them to perform. This same situation also extended

to the ever-present and powerful administrative assistants, the nonconcur system, and the role of the

“corporate officer.” (IBM had a practice of electing senior people to the title of “corporate officers.”')

Once recognized, the performance post-election was not a factor in the elected employees’

continuation, which implicitly and explicitly supported the inflexible “no” culture and drag IBM in the

opposite direction of its direct competitors in the fast-changing technology industry. Gerstner’s new

selection method of executives in which requires them to lead by example and be hands-on for the

responsibilities they have being given to, creates the culture in which IBMers support each other to

complete the tasks that ultimately contribute to the overall organizational goals, as well as a more open

and bi-directional feedback system (since the executives would also be hands-on with the tasks that

have been given to his/her team). Further defining IBM’s new culture, Gerstner’s 3 words – Win,

Execute, and Team (Appendix 3) – summed up the commitments that all IBMers should have to lead

IBM to its new direction (pg.211).

ANALYSIS of SLG (Appendix 5)

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- ENVISIONING SLGs are rewarded for embrace the new culture, which signals that they need to

envision the future and able to communicate the vision with credibility to the subordinates even

though it might be challenging

- ENERGIZING Believe in the vision, communicate with passion, and get the rest of the team

excited

- ENABLING By setting the competencies based on general principles, but allow individuals to

apply those principles in their own ways depending on circumstances, it’s enabling SLG members to

support each other in defining how to apply these principles that are best suited for their leadership

styles but still compliments and work with other SLG members to achieve the overall organizational

goals and visions

- STRUCTURING had 300 SLG members out of 420 in Feb 1995, based on leadership skills and

able to be role models no matter what the ranks and titles are. 70 left in the end of March 2002

o Message to future leaders that it is their abilities and skills that matters, and not only about

how many years you have worked for the company.... PERFORMANCE-BASED strategy

(which is part of Gerstner’s strategy since the very beginning)

- REWARDING rewarded for embracing the new cultures and developing the IBM competencies

- CONTROLLING Performance evaluations based on the competencies. The SLG members who

do not live up to the expectations are told so. Individuals are proposed to be part of the SLG are

expected to support the whole SLG group

- Leveraging the senior team (300 members based on skills)210 -

- Developing Leadership in the Organization (go to school, develop core competencies)

- Broadening senior management (the ones who don’t live up to expectations are gone, new ones

brought on)

5.REWARDS (MOTIVATION)

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Evidence-based management (EBMgt) is an emerging movement to explicitly use the current, best

evidence in management decision-making. Its roots are in evidence-based medicine, a quality

movement to apply the scientific method to medical practice ii. The judgments EBMgt entails also

consider the circumstances and ethical concerns managerial decisions involve. As the field of

management differs from medicine and science, there are no strict laws or policies on how managers

should lead its subordinates, or that the strategies employed by one company will always turn out to be

a success for any other company that uses the same strategy. Hence, even with evidence-based

management, management is still an art. Evidence-based organizational culture employs include

systematic accumulation and analysis of data gathered on the organization and its functioning, problem-

based reading and discussion of research summaries by managers and staff, and the making of

organizational decisions informed by both best available research and organizational information.

Organizations successfully pursuing evidence-based management typically go through cycles of

qentation and redesign of their practices to create an evidence-based culture consistent with their

values and missioniii.

Using EBM allows us to more accurately address questions surrounding the best motivational and

rewards systems that will yield to the optimal outputs for the organization while at the same time making

sure all members of the organization understand the performance and rewards systems and are

motivated by such system that they will perform the best of their abilities and work towards the same

overall corporate goals. Clear communication about the organization’s performance and rewards

systems is undoubtedly one of the most crucial success factors, which in turn, will ensure that the

performance and rewards systems are tightly integrated with the rest of the strategic implementation

alignment model elements and together help shape the overall internal corporate culture and morale.

Gerstner changed the entire IBM’s prorate compensation philosophy in order to compete more

aggressively in the fierce technology industry. The new compensation system included Pay for

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Performance (Appendix 6) , stock ownership for all IBMers, annual bonus for executives determined

by IBM’s overall performance instead of just his/her own individual unit (pg.100), paring back the

paternalistic benefits structure, as well as cutting back on the no-cost medical plans which took up a

significant portion of IBM’s expenses. For some IBMers, these new compensation and benefits policies

were hard to swallow, but most of them understood that these are absolutely the necessary changes to

make in order for IBM to survive and grow (pg.102).

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6.ALIGNMENT OF STRATEGY IMPLEMENTATION (CULTURE)

When Louis Gerstner designed the IBM Leadership Competencies (Appendix 2), his goal was

to shift from the process-centric management to principle-based leadership model, effectively setting an

overall outline of the principles that all IBMers should have and believe in, while at the same time

allowing the members of the SLG cater those broader principles to their own leadership styles which

would influence their subordinates and achieve IBM’s overall strategies optimally. From this course’s

alignment framework, we can utilize the concept of “Principles vs. Practicesiv”, in which the first part of

the theory is for the strategic leader to ”organize the generalizable principles based on the logic by

which activities are coordinated and knowledge is processedv”. The strategy Gerstner adopted was to

switch to a general-principle-based approach – permitting individual IBMers to apply those principles in

their own ways depending on the circumstances given. The IBM Leadership Competencies was

designed to provide the essential qualities but allowed for a rich, diverse leadership styles, personalities

and approaches. This type of leadership mentality fulfills the second part of the “Principles vs,

Practices” theory, which is to define and formulate substantive arrangements for accomplishing

activities which are context specific in nature.

Since the first class of the Strategic Change and Implementation course when we discussed the

strategies Rick Thoman – Lou Gerstner’s protégé at IBM – designed for Xerox’s turnaround, and ended

up failing to implement for almost every single aspect of the Xerox organization, for the same strategies

that Gerstner designed for IBM and implemented with perfection, I have had a curiosity in understanding

where Thoman went wrong during the implementation, as it did not make sense to me how one of

Gerstner’s most trusted right-hand-man can leave behind a legend as one of the biggest failures as a

CEO in leading strategic change and implementation. With a few similar organizational characteristics

between Xerox and IBM, such as both of their commitments and heavy investments in research labs,

invented technologies that surpassed industry norm, but unable to take advantage of the innovations

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and also had no clue how to bring it to a new market; their blinded emphasis on geographical business

units instead of customer/industry business units that are more matched to current market demand; and

their lack of strategic focus by branching into numerous businesses that strays from or unrelated to their

core competencies. For example, Xerox got into the business of selling boxes while IBM took its

chances in numerous odd businesses selling products such as stamps and scales. Thoman designed

the strategies that Xerox badly needed, including a few closely imitating Gerstner’s for IBM. Strategic

items such as leveraging Xerox’s superior technological innovative abilities to enter into the

services/consulting industry with their specialized knowledge, moved away from system/process-based

focus into services-focus, reorganized the company structure along industries rather than geographical

units which fight over their own turfs and was deemed suboptimal for aligning with corporate goals, As

well, both Xerox and IBM made the commitment to create a performance-based corporate culture which

led to some tough times during the mass lay-off periods for employees who did not meet performance

expectations. By merely looking at the strategic changes the two CEOs designed, it makes sense to

predict that Xerox under Thoman’s leadership would have same prosperity effects as IBM.

Strategist Andrews (1980) once said “since faulty implementation can make a sound strategic

decision ineffective, and skilled implementation can make a debatable choice successful, it is as

important to examine the process of implementation as to weighing the advantages of available

strategic alternatives.” What this really means is that the level of success and integration of any

strategic implementation boils down to how well the company utilizes its resources and manages the

trade-offs that is the inevitable by-product of any strategic decision. “[The concept of trade-offs] is one of

the most important variables in the optimal utilization of a firm’s resourcesvi. One of the most successful

examples of the effective balance between strategic trade-offs is Southwest Airlines, which had to

forego the luxury end of the long-haul flier market (e.g. first class and business class) in order to

concentrate and win over the frequent traveler between short distances, whose best alternatives are the

readily accessible land transportations (e.g. train, bus or car). On the opposite end, Continental Airlines, of 31

having the same resources equally available to them as Southwest had, Continental’s lack of insight by

top management on the strategic fit of their activities and trade-offs resulted in a celebrated failure of

their entire strategic direction. It tried to operate equally in both the long-haul market with its travel

agents, high cost and high customer expectations end of the continuum, and also cater for the low end

of the market. This resulted in confusion and dissatisfaction among its staff, travel agents and its

customersvii. In IBM’s case, Gerstner was able to analyze their organizational resources and evaluate

the costs of continuing the failing old businesses against the benefits of entering into new markets by

leveraging the same expert resource-pool, even though extensive restructuring, training, and even the

entire IBM cultural change might end up being difficult and time-consuming, at the same time leave

behind employees who were resistant to changes with even the possibility of dissolving the entire IBM

corporation and legend.

The main reason that made IBM’s strategic changes successful is Gerstner’s vision of e-business

future for IBM. Gerstner described his vision as IBM’s “moon shot” and ensured the communication

methods of this new idea would be properly carried out to diffuse e-business throughout the entire

organization and be immerse and become part of the IBM culture. Under Gerstner’s leadership, e-

business was infused into everything – not just advertising, product planning, research agendas, and

customer meetings, but throughout IBM’s communications and operations (pg. 213). Gerstner did not

explicitly describe how all the implementation changes that he has made directly ties into this e-

business vision and helped IBM become the industry leader again. However, what he did mention was

that “for IBM the lesson [regarding e-business] was about rediscovering something that they had lost.

[IBM] found their voice, their confidence, and their ability to once again drive the industry agenda….

Allowed customers to see benefits and value that were not being articulated by their competitors… The

concept of e-business galvanized their workforce and created a coherent context for hundreds of their

products and service.” (pg. 175) The two strategic models that directly supported the e-business vision

are the Service-Led Model and Networked Model that Gerstner proposed (pg. 124). By building a new of 31

services business around Web Hosting, and investing in the training to build the capabilities of its

consultants, the networked world helped IBM’s customers transform their business (pg. 169). Along with

the Domino Web Server introduction and the creation of the IBM Global Network and IBM Global

Services divisions (pg. 167-170), Gerstner was able to successfully transform the entire corporation and

led it towards the new strategic e-business direction by cohesively integrating different strategic change

contexts of the organization and effectively melting them into the IBM culture.

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7.APPENDICES

APPENDIX 1 - IBM LINGOS

CRISP UP, TWEAK, AND SWIZZLE—Things one had to do to improve a foil presentation

BOIL THE OCEAN—To use all means and options available to get something done

DOWN-LEVEL—Describes a document that has since been improved (or tweaked and swizzled); used most

frequently with me when I complained about something: “Lou, you’re working from a down-level version.”

LEVEL-SET—What you do at the beginning of a meeting to get everyone working from the same facts

TAKE IT OFF-LINE—What two or more people do with an issue that bogs down a meeting—namely, discuss it

after the meeting

HARD STOP—A time at which a meeting must end no matter what (I grew to like this expression and use it to

this day.)

ONE-PERFORMER—An employee with the company’s highest performance rating

MANAGEMENT-INITIATED SEPARATION—Getting fired; commonly used in acronym form: “I’ve been MISed.”

LEFT THE BUSINESS—What an employee who was fired has done

MEASURED MILE—Where a manager puts an employee who, within a year, will most likely leave the business

PUSHBACK—What you run into when someone doesn’t agree with you

NONCONCUR—What people do just before pushback

LOBS—Lines of business, or business units (pronounced like what you might do with a tennis ball)

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APPENDIX 2 – IBM LEADERSHIP COMPETENCIES

Focus to WinCustomer Insight

Breakthrough Thinking

Drive to Achieve

Mobilize to ExecuteTeam Leadership

Straight Talk

Teamwork

Decisiveness

Sustain MomentumBuilding Organizational Capability

Coaching

Personal Dedication

The CorePassion for the Business

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APPENDIX 3 – WIN, EXECUTE, AND TEAM

o WIN – It is vital that all employees understand IBM’s business is a competitive activity and there is no

place for anyone who lacked zeal for the contest. The contest is out there in the marketplace not

within IBM

o EXECUTE – It’s about speed and discipline. No obsessive perfectionism to bring to market which

caused them to miss market opportunities and let others capitalize on their discoveries

o TEAM – This was a commitment to acting as one IBM

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APPENDIX 4 – 8 PRINCIPLES

September 1993 by Lou Gerstner

o 1) The marketplace is the driving force behind everything we do

o 2) At our core, we are a tech company with an overriding commitment to quality

o 3) Our primary measures of success are customer satisfaction and shareholder value

o 4) We operate as an entrepreneurial organization with a minimum bureaucracy and a never0ending

focus on productivity

o 5) we never lose sight of our strategic vision

o 6) We think and act with a sense of urgency

o 7) Outstanding, dedicated people make it all happen, particularly when they work together as a team

o 8) We are sensitive to the needs of all employees and to the communities in which we operate

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APPENDIX 5 – INSTRUMENTAL LEADERSHIP MODEL

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APPENDIX 6 – PAY FOR PERFORMANCE BEFORE & AFTER

Old NewCommonalityFixed RewardsInternal BenchmarksEntitlement

DifferentiationVariable RewardsExternal BenchmarksPerformance

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APPENDIX 7 – ALIGNMENT MODEL OF STRATEGY IMPLEMENTATION

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i

PLEASE NOTE THAT ALL OF THE PAGE REFERENCES ARE FROM THE BOOK “WHO SAYS ELEPHANTS CAN’T DANCE” BY LOUIS V. GERSTNER, JR.

Bill McEvily. Strategic Change and Implementation, Summer Intensive Class 1 Power Point Slides, May 19, 2010ii http://en.wikipedia.org/wiki/Evidence-based_managementiii http://en.wikipedia.org/wiki/Evidence-based_managementiv Bill McEvily. Strategic Change and Implementation, Summer Intensive Class 1 Power Point Slides, May 19, 2010v Bill McEvily. Strategic Change and Implementation, Summer Intensive Class 1 Power Point Slides, May 19, 2010vi Migel Jayasinghe, February 11, 2009. “Business Strategy Formulation and Implementation”. Retrieved on June 18, 2010 from http://ezinearticles.com/?Business-Strategy-Formulation-and-Implementation&id=1856938vii Migel Jayasinghe, February 11, 2009. “Business Strategy Formulation and Implementation”. Retrieved on June 18, 2010 from http://ezinearticles.com/?Business-Strategy-Formulation-and-Implementation&id=1856938

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