Leadership, Corporate Culture Change And Putting The Customer At The Centre Of The Business

In 1993, IBM reported a net loss of $8.1 billion and was on the brink of running out of cash. Would they ever be able to recover? Media coverage at the time said it was impossible, yet in 2001, IBM reported net profits of $7.7 billion. And the man who turned IBM’s fortunes was Lou Gerstner. As firstly Chief Executive and then as Chairman. What he did will probably to studied for generations in business schools.

He spent thousands of hours with the “troops”, traveled incessantly, listened to customers, and sold his story. He cut out the fat by downsizing quickly. He brought in new people. He sold off the non-fit pieces and bought some new bright companies. He dumped some outmoded old things, such as the dress code and ad infinitum meetings, and initiated new and different business approaches. He turned losses into profits. He rejuvenated businesses.

Putting The Focus On The Customer At The Centre

One of Gerstner’s first tasks was to redirect the company’s attention to the outside world, where a marketplace was quickly changing and customers felt largely ignored. This needed to change and right from the top. So Lou Gerstner started to meet as many of IBM’s customers as possible. He tried to spend at least one hour each day on the phone with a customer.

No company is a success, financially or otherwise, WITHOUT SATISFIED CUSTOMERS.

Then he announced a program called “Operation Bear Hug.” Each of the 50 members of senior management would, within three months, pay a personal visit

to a minimum of five of IBM’s biggest customers, find out first-hand what their needs and concerns were, and report back to Gerstner. So the Bear Hug meetings became the first step in reducing the customer perception that dealing with IBM was difficult and it also became a first step in IBM’s cultural change. Then he took hold of the company and demanded the managers work together to reestablish IBM’s mission as a customer-focused provider of computing solutions.

Listen to Customers —They Know Best WHAT THEY NEED Transforming Corporate Culture – Overcoming The Obstacles.

For Gerstner, the most difficult part of IBM’s transformation was changing of the culture. By 1990, IBMs very strong culture was outdated. According to Gerstner,

IBM had become a closed ecosystem and was isolated from the rest of the world.

There was insufficient understanding of customer needs, preoccupation with internal politics, a bureaucratic infrastructure that delayed or sometimes completely stalled progress of projects and a management class that presided rather than acted.

The hardest part was… changing the culture

The daunting task of changing attitudes and behaviors of hundreds and thousands of people was not something that could be mandated or written down in a new credo. Instead, IBM had to work hard at creating the right conditions for transformation. In the end, management did not change culture – management invited the workforce itself to change culture by providing the right conditions.

Making It Happen – Accountability & Reward

There are so many companies that have brilliant strategy documents full of exciting changes to make, but find difficulty in making it actually happen. Lou Gerstner says that you must understand that people do what you inspect, not what you expect.

So accountability must be demanded, when execution objectives are not met, changes must be made quickly.

Making it all happens requires people to work together as a team and the best way to end the many turf wars within the old IBM was to cherish and reward teamwork, particularly teamwork that delivers customer value.

Another big step towards greater commitment was a fundamental change in the compensation philosophy. A new compensation system that emphasized performance based rewards, external benchmarks and differentiation was brought into place. Stock options program was completely overhauled. While in 1992, only 1300 IBM employees received stock options, by 2001, 72,500 IBM employees were given stock options. Top executives in the company were required to hold a IBM stock equivalent to a multiple of their total yearly compensation.

Lou Gerstner says, about personal leadership,’ it starts with the hard work of strategy, culture and communications. It includes measurement, accountability, visibility and active participation in all aspects of the enterprise’

As a starting point, he had to free people up to lead, not follow procedures. In an organization in which procedures had become untethered from their origins and intent and where codification had been replaced personal responsibility, this core process had to be eradicated. So they threw out many of the rules and books of procedures and changed to focusing on principles.