But Gerstner knew he had to go far beyond simply keeping the company together. He knew that a dramatic shift in mind-set and culture would be a key prerequisite for any sustained turnaround. Through his personal observations, he had determined that the company's insularity and arrogance had helped to fuel its downfall—that the company's long run of success was part of the reason for its failings. Here's how he put it (in an interview with the author) in 2002:
IBM had enjoyed such a long run... that people began to look around for their next real challenge, and started finding it inside the company, rather than in the marketplace. The entire focus shifted from customers to a series of intramural competitions.
In other words, IBM had turned inward. Arrogantly, it assumed that it needed no help in figuring out what to do next. It didn't need to study competitors, survey the marketplace, or respond to the massive changes that were transforming the industry. It could, and did, focus on internal squabbles and turf wars, assuming that the outside world would always turn to Big Blue for help.
It was a bad bet, and now the company was on the rocks. This in itself was a problem so severe that it threatened the company's future. Gerstner believes that every time a company gets into real trouble, "virtually all the management focus turns to 'the problem.' It freezes organizations." Big changes were needed, and fast.
Gerstner boldly decided that he would transform the culture "around three key attributes: marketplace obsession, speed, and teamwork." Gerstner knew that one of his top priorities was to get the company to shift its attention to the customer:
In the spring of 1993, a big part of what I had to do was get the company refocused on the marketplace as the only valid measure of success. I started telling virtually every audience... that there was a customer running IBM, and that we were going to rebuild the company from the customer back.
Gerstner felt that he could not emphasize this point often enough or loudly enough. Transforming the company from an "inwardly focused organization" to one that was focused on the marketplace and customer solutions was "absolutely critical to everything else we had to do to transform IBM." His key message throughout the first 6 months of his tenure was that IBM was going to make sure that it was the customers that drove the company, not the other way around.
One of the key measures that Gerstner took in helping to change the focus from "inside-out" to "outside-in" was to turn to an outsider for help. According to one former IBM senior executive, in 1993 Gerstner brought in Jack Welch on the night he launched his transformation/reengineering effort at IBM's education center in Palisades.
After Welch shared his GE experience with Big Blue's top-tier managers, Gerstner challenged his executives to meet some "heroic" objectives of their own, including taking $1.5 billion out of the company's run rate that same year (and this was a midyear meeting). One executive who attended that now-infamous meeting described Gerstner's gut-wrenching request as "shock treatment," and also said that it was Gerstner's way of encouraging "out-of-the-box thinking" and instilling a new sense of urgency. The IBM executives got the message, and later implemented other "Welch-like" measures, such as eliminating the bottom 10 percent of the workforce.
In retrospect, Gerstner says that the decision to keep IBM intact and the effort to reestablish the primacy of the customer were not separate initiatives. They were, as he sees it, two sides of the same coin, and together they set the stage for IBM's dramatic comeback.
Again in retrospect, Gerstner calls the task of bringing about cultural change "mind-bendingly hard" and "frustrating." Changing an entrenched large-company culture and transforming the prevailing mind-set from selling products to providing solutions was a process that took years, and its progress was often measured in inches. When asked what advice he would give other managers attempting to change the culture of an organization, he replied with the following:
Be patient. By that, I don't mean be complacent. . . . It takes time. And the progress, in my experience, is always going to come slower than you want. By the way, that assumes that you know what you want when you start, which I'd assert is one reason so few attempts at broad-based cultural change ever really pay off: lack of clarity about what success is going to look like.
Once again, Gerstner's words and actions provide a rough blueprint for other companies faced with the challenge of transforming their culture:
GET THE COMPANY TO LOOK OUTSIDE OF THE COMPANY FOR ANSWERS. Once the leaders of an organization realize that the ship is on the rocks, there is a real risk that they will freeze the learning process. Emphasize the importance of focusing on customers and the marketplace, and lead by example, spending time learning from competitors and meeting with key customers.
TO TRANSFORM THE COMPANY MIND-SET, CONSIDER GERSTNER'S THREE KEYS: MARKETPLACE OBSESSION, SPEED, AND TEAMWORK. These were the principles that Gerstner employed in creating a new IBM. These timeless ideas are as relevant in a small shop as they are in a large multinational.
UNDERSTAND THAT GENUINE CULTURAL CHANGE CAN TAKE YEARS. Remember that Gerstner felt the enormous challenge of changing the company's culture was one of its greatest hurdles. That's particularly true in a huge company like IBM, but it also applies to smaller firms. Exercise patience when attempting meaningful change. (This is a recurring theme with virtually every one of the companies featured in this resource.)