Wednesday, 21 December 2011

Louis Gerstner

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Louis V. Gerstner, Jr.

CEO, IBM Corporation 1-001

Predictions of IBM’s future success in the early 10’s were so dense that it was almost unthinkable to even believe the company would be a figure in the market in the late 0th and early 1st century. More importantly, it was unfathomable to think that IBM would prevail in the industry. Through the economic downturn of the early 10’s combined with IBM’s static position with mainframe computers of the past couple of decades, IBM was doomed for failure in the technology age (Lohr 1). With the newly launched technology phase of the late 0th century, a new face to the technology industry entered the scene who truly changed IBM through his leadership strategy for the business on the rebound of a depression. Louis V. Gerstner, Jr. changed more than just getting IBM back on its feet, he changed the computer industry itself by putting IBM back in as a strong force in the market and a competitor willing to do what was necessary to win market share.

Gerstner made several strategic decisions in his career with IBM that had a positive impact on the company. Rumors of the company breaking up had circulated its way through the employees before and even during Gerstner’s first few months as CEO. Gerstner made the decision to reverse the plan to break up the company (Lohr ). He chose to cut payroll costs, reduce IBM’s dependence upon hardware, and he built up the services business. Gerstner writes in his book that the choice to keep the company together was “the most important decisions I ever made � not just at IBM, but in my entire career” (Gerstner 61).

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This decision, even though the toughest, was the decision that ultimately got IBM to the top in the industry. Had he broken up the company, IBM might not still be around today.

Gerstner’s second strategic decision was to restructure IBM’s fundamental economics. On average, IBM was spending a lot more than competitors to generate $1 of revenue. Mainframe sales were down, and part of this economic model strategy included reducing the workforce by 5,000, in addition to the 45,000 people John Akers laid off the year before Gerstner became CEO. As Gerstner says most appropriately “That meant additional pain for everyone, but this was a matter of survival, not choice” (Gerstner 6). In the end, he left the company with 65,000 more employees than he had when he came.

The third strategic decision Gerstner made was the decision to restructure how IBM carried out each process they had. With inefficient processes, independent business units that could be much more cost effective by merging into one unit, and unworkable accounting and finance practices, reengineering was a must for IBM. The strategy was centered on 11 areas with six “core initiatives” (Gerstner 65). By restructuring both external and internal processes, IBM saved billion of dollars and could more adequately compete in the market.

There were many other strategic choices that Gerstner undertook as CEO of IBM. Of those, Gerstner transformed the company. Some of those strategic decisions were

o Sell unproductive assets to raise cash

o Keep the company together and not spin off the pieces

o Reinvest in the mainframe

o Remain the core semiconductor technology business

o Protect the fundamental R&D budget

o Drive all we did from the customer back and turn IBM into a market-driven rather than internally focused, process-driven enterprise

(Gerstner 7). After these decisions were made, it was Gerstner who decided to make IBM focus on services and internet technology. He shifted the company from designing computers to focusing on the service industry. IBM is now operating in a global economy, using multi-divisional structure. There are different strategic business unites (SBU) that make up the multi-divisional structure. In 001, IBM Global Services (a SBU) was the largest and fastest growing division of the company (BusinessWeek Online). With the service industry as a prime focus in Gerstner’s eyes, he made changes to help the business community run a more efficient environment with the use of online tools and software (BusinessWeek Online). This service-heavy business practice is now the envy of the computer industry.

Gerstner believed that IBM’s competitive advantage was their ability to bring global resources to bear on customers’ opportunities (CIO Magazine). In additional a competitive advantage IBM has over other companies is the “applications connectivity enables” (CIO Magazine) and the company serves as “the foremost integrator of technologies” (Gerstner 6) to solve business problems. IBM sets themselves apart from other competitors through their competitive advantage and the differentiated strategy they have based on the types of services, software, and products they provide for corporate and home users. As the global economy continues to grow, so will IBM’s part in the global economy.

Louis Gerstner had a tremendous task ahead of him as he entered the company in 1. His initial task was simply to keep the company afloat in the mass of competitors out-producing and out-selling them. Eventually, he lead the company to tremendous growth and profitability and became a leader in the industry. He successfully implemented a differentiated strategy with services and products that IBM prides itself on. He has shown through his sets of decisions that he is a person well-liked by others and who has a strong work ethic. Gerstner transformed the company to make it the company it is today-- a powerful, independent, respected leader in the industry.

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