Who Says Elephants Can’t Dance? (Louis Gerstner, 2002)

You cannot find a better business book on turnarounds. Bringing back IBM from the verge of oblivion and taking it back to its previous glory makes Louis Gerstner a legendary leader. He led IBM from 1993 till 2002.

In his memoir, “Who Says Elephants Can’t Dance?”, Gerstner touches upon strategy and culture, and narrates the turnaround story. Here, I share some of the most insightful passages from the book (Harper Collins).

Leadership

The importance of managers being aligned with shareholders — not through risk-free instruments like stock options, but through the process of putting their own money on the line through direct ownership of the company — became a critical part of the management philosophy I brought to IBM. (pp.5)

Building a management team is something you have to do business by business, person by person, day by day. (pp.74)

Granting stock options to thousands of them would help focus attention on a common goal, a common scorecard of performance. (pp.98)

We made stock-based compensation the largest element of executives’ pay, downplaying annual cash compensation relative to stock appreciation potential. Executives at IBM were not going to be granted stock options unless they concurrently put their own money into direct ownership of the company stocks. (pp.98)

You can’t transform institutions if the incentive programs are not aligned with your new strategy. (pp.100)

Execution — getting the task done, making it happen — is the most unappreciated skill of an effective business leader. (pp.229)

Customer focus

It was crucial that I get out into the field. I didn’t want my understanding of the company to be based on impressions of the headquarter employees. (pp.41)

We are going to build a company from the outside in and that the customer was going to drive everything we did in the company. (pp.50)

At the end of the day a successful, focused enterprise is one that has developed a deep understanding of its customers’ needs, its competitive environment, and economic realities. (pp.222)

Strategy

The most important thing I learnt at McKinsey was the detailed process of understanding the underpinnings of a company. (pp.2)

“Free cash flow” is the single most important measure of corporate soundness and performance. (pp.5)

We must balance decentralized decision making with central strategy and common customer focus. (pp.22)

So keeping IBM together was the first strategic decision, and, I believe, the most important decision I ever made. (pp.61)

The last thing IBM needs right now is a vision. (pp.68)

Fixing IBM was all about execution. (pp.71)

Key strategic decisions: 1) keep the company together and not spin off the pieces, 2) reinvest in the mainframe, 3) remain in the core semiconductor technology business, 4) protect the fundamental R&D budget, and 5) drive all we did from the customer back and turn IBM into a market-driven rather than an internally focused, process-driven enterprise.

Our distinctive competence was an ability to integrate all the parts for our customers. (pp.83)

The process of selecting markets and competing on the basis of a distinctive, sustainable competency is essential to the new IBM, and I know it will be an ongoing challenge. (pp.161)

The competitive focus has to be visceral, not cerebral. (pp.204)

The lack of focus is the most common cause of corporate mediocrity. (pp.219)

Stick to your knitting; dance with the partner who brought you. (pp.220)

I was always amazed at how many executives thought that “vision” was same as “strategy”. (pp.222-223)

Perhaps the most difficult part of a good strategy is hard-nosed competitive analysis. (pp.224)

The most important value-added function of a corporate management team is to ensure that the strategies developed by the operating units are steeped in tough-minded analysis, and that they are insightful and actionable. (pp.225)

Good strategies are long on detail and short on vision. (pp.225)

Proper execution involves building measurable targets and holding people accountable for them. (pp.231)

The best companies grow profits faster than revenue. (pp.270)

Innovation

One of the obvious but puzzling causes of IBM’s decline was an inability to bring its scientific discoveries into the marketplace effectively. The relational database, network hardware, network software, UNIX processors, and more — all were invented in IBM’s laboratories, but they were exploited far more successfully by companies like Oracle, Sun, Seagate, EMC, and Cisco. (pp.148)

The risk takers needed both a symbol and a structure to validate their behavior. (pp.207)

Culture

Thus began a lifelong process of trying to build organizations that allow for hierarchy but at the same time bring people together for problem solving, regardless of where they are positioned within the organization. (pp.3)

The sine qua non of any successful corporate transformation is the public acknowledgement of existence of crisis. If employees do not believe a crisis exists, they will not make the sacrifices that are necessary to change. Nobody likes to change. (pp.77)

I came to see, in my years at IBM, that culture isn’t just one aspect of the game — it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value. (pp.182)

As with national cultures, most of the really important rules aren’t written down anywhere. (pp.182)

What you can do is create the conditions of transformation. You can provide incentives. You can define the marketplace realities and goals. But then you have to trust. In fact, in the end, management doesn’t change culture. Management invites the workforce itself to change the culture. (pp.187)

This hermetically sealed quality — an institutional viewpoint that anything important started inside the company — was, I believe, the root cause of many of our problems. (pp.189)

Nothing can stop a cultural transformation quicker than a CEO who permits a high-level executive — even a very successful one — to disregard the new behavior model. (pp.208)

People don’t do what you expect but what you inspect. (pp.210–211)

Our greatest ally is in shaking lose the past, as it turned out, was IBM’s own precipitous collapse. However, I knew the memory of that wouldn’t last forever. Therefore, rather than go with the usual corporate impulse to put on a happy face, spin things optimistically, and declare the turnaround over as soon as possible, I decided to keep the crisis front and center — not irresponsibly; I didn’t shout fire in a crowded company. But I didn’t want to lose a sense of urgency prematurely. (pp.213)