Gaining the Solutions Edge

Early in his tenure, the new IBM chief set his sights on expenses. Desperate to get costs under control, Gerstner eliminated 60,000 jobs in his first year as CEO, using the blunt instruments of layoffs and early retirements to transform IBM's unyielding white-shirt culture. Jumping to the punch line, the effort (and related efforts) was a spectacular success: Within 5 years (that is, by 1998), Gerstner had turned $16 billion of losses into a $5 billion gain. This was the most sweeping corporate turnaround of all time.

Gerstner did not achieve this spectacular success simply by selling more computers. He did it by transforming an old-economy hardware company into a reinvigorated organization—one that stressed solutions over hardware:

We've helped thousands of customers develop a network strategy that's right for them. This is what we mean when we say IBM is a solutions company. We start with a customer's business problem, and work back to the right combination of technologies and expertise.

One of the keys to the entire effort, said Gerstner, was what he called "technical integration"—that is, an "integration of hardware and software, integration of services and products, integration of client and server."

That's the big-picture view of Gerstner's successful effort to change the company to its core. But we need to look more closely at how he achieved this success. We need to dissect the specifics of the turnaround in order to see CEO Gerstner at work—his thinking processes, his tactics, and his strategies.