About the book

“This is not my autobiography. I can’t think of anyone other than my children who might want to read that book (and I’m not 100 percent sure they would, either).” I love this guy. He is such a character. From the first pages he shows true character and sense of humour.

Louis Gerstner held top positions in American Express and was CEO of IBM during the turbulent times. I was expecting a lot from the book and he delivers. Especially the second half of the book is better than great.

Compared to Alfred P. Sloans and Jack Welch’s memoirs Gerstner’s book has mainly two things to give to the reader – a low-key and well argumented leadership style.

“I’ve never been certain that I can abstract from my experiences a handful of lessons that others can apply to their own situations.”

What are the key learnings?

Key learnings of the book are

–      Corporate culture is the game.

–      People respect what you inspect.

–      Free cash flow is the True north of every business.

–      Execution is really the critical part of a successful strategy.

–      Lack of focus is the most common cause of corporate mediocrity.

–      What do you really want people to do? Win, execute, and team.

Corporate Culture

“I came to see, in my time 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. Vision, strategy, marketing, financial management—any management system, in fact—can set you on the right path and can carry you for a while. But no enterprise—whether in business, government, education, health care, or any area of human endeavor—will succeed over the long haul if those elements aren’t part of its DNA.”

Inspect

“Greatest mistake is to confuse expectations with inspection. Too often the executive does not understand that people do what you inspect, not what you expect.”

Execution

“Execution is really the critical part of a successful strategy. Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.”

Free cash flow

“It is the three most important words for Louis Gerstner. It’s the True north of every business. For him it is “the single most important measure of corporate soundness and performance.”

Focus

“Focus is a critical element of institutional success. If a management team doesn’t believe that it has identified and is seriously funding new growth opportunities, then it is likely to wander off and drink the heady brew of acquisitions and diversification—and ultimately fail.”

Gerstner’s management philosophy and practice

Management philosophy and practice of Lou Gerstner:

–      “I manage by principle, not procedure. 

–      The marketplace dictates everything we should do.

–      I’m a big believer in quality, strong competitive strategies and plans, teamwork, payoff for performance, and ethical responsibility.

–      I look for people who work to solve problems and help colleagues. I sack politicians. I am heavily involved in strategy; the rest is yours to implement.

–      Just keep me informed in an informal way. Don’t hide bad information—I hate surprises. Don’t try to blow things by me. Solve problems laterally.

–      I am heavily involved in strategy; the rest is yours to implement. Just keep me informed in an informal way. Don’t hide bad information—I hate surprises. Don’t try to blow things by me. Solve problems laterally; don’t keep bringing them up the line.

–      Move fast. If we make mistakes, let them be because we are too fast rather than too slow.

–      Hierarchy means very little to me. Let’s put together in meetings the people who can help solve a problem, regardless of position. Reduce committees and meetings to a minimum. No committee decision making. Let’s have lots of candid, straightforward communications.”

How to use power?

I turned to the flight attendant and said, “This has been a really tough day. I think I’d like to have a drink.” She said, “You don’t mean an alcoholic drink, do you?” “I certainly do!” I replied. “What kind of vodka do you have?” “We have no alcohol on IBM airplanes. It is prohibited to serve alcohol.” I said, “Can you think of anyone who could change that rule?” “Well, perhaps you could, sir.” “It’s changed, effective immediately.”

“A customer was now running IBM”

The Strategy Session Features:

–      Questions about customers to be raised raised.

–      Compare our offerings to those of our competitors.

–      Integration across the various topics that allowed the group to pull together a total company view.

Gerstner’s way to salvage IBM

With four critical decisions Gerstner saved IBM:

1.   “Keep the company together.

2.   Change our fundamental economic model.

3.   Reengineer how we did business.

4.   Sell underproductive assets in order to raise cash.”

“So keeping IBM together was the first strategic decision, and, I believe, the most important decision I ever made—not just at IBM, but in my entire business career. I didn’t know then exactly how we were going to deliver on the potential of that unified enterprise, but I knew that if IBM could serve as the foremost integrator of technologies, we’d be delivering extraordinary value.”

Pain comes first

“I’ve had a lot of experience turning around troubled companies, and one of the first things I learned was that whatever hard or painful things you have to do, do them quickly and make sure everyone knows what you are doing and why.”

An enormous sense of urgency

“To focus on day-to-day execution, stabilizing the company while we sought growth strategies that would build on our unique position in the industry. Those were not to come until a year later.”

Creating the leadership team

“I think it would have been absolutely naïve—as well as dangerous—if I had come into a company as complex as IBM with a plan to import a band of outsiders somehow magically to run the place better than the people who were there in the first place.”

Fallacies and Myths and Lessons

“With os/ 2-the fallacy that the best technology always wins.”

“First, the buyers were individual consumers, not senior technology officers. Consumers didn’t care much about advanced, but arcane, technical capability. They wanted a PC that was easy to use, with a lot of handy applications. And, as with any consumer product—from automobiles to bubble gum to credit cards or cookies—marketing and merchandising mattered.

Second, Microsoft had all the software developers locked up, so all the best applications ran on Windows. Microsoft’s terms and conditions with the PC manufacturers made it impossible for them to do anything but deliver Windows—ready to go, preloaded on every PC they sold.”

“In the case of application software-the myth of “account control.”

“This was a term used by IBM and others to talk about how a company maintained its hold on customers and their wallets. I had this quaint view that it was the job of a supplier to serve customers, not control them!

Beware of totally proprietary vendors who fight new developments like Linux. These vendors still view the world through the window of their proprietary stack.”

“In the case of PCS, there are still unanswered questions.”

“Why did we make the decision to exit the application software, network hardware, DRAMs, or the data transmission businesses, but not PCs? Why did we decide to stay in the hardware end of this business, even as we folded our hand on OS/ 2? In hindsight, was this the right decision? I think it was at the time, but the decision has been painful and costly for IBM.

But when it came to the PC business, we weren’t paying attention to either our customers or our competitors. One competitor in the PC industry was proving that customers were perfectly willing to buy direct—over the phone, or later via a Web site. But we were painfully slow to move away from our existing distribution channels. Why? The incomplete and unsatisfying answer at the time was that we’d always done it that way.”

On corporate culture

“I have a theory about how culture emerges and evolves in large institutions: Successful institutions almost always develop strong cultures that reinforce those elements that make the institution great. They reflect the environment from which they emerged. When that environment shifts, it is very hard for the culture to change. In fact, it becomes an enormous impediment to the institution’s ability to adapt.”

“You can’t simply give a couple of speeches or write a new credo for the company and declare that the new culture has taken hold. You can’t mandate it, can’t engineer it.”

“What you can do is create the conditions for 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.”

Leading by Principles

1. The marketplace is the driving force behind everything we do.

2. At our core, we are a technology company with an overriding commitment to quality.

3. Our primary measures of success are customer satisfaction and shareholder value.

4. We operate as an entrepreneurial organization with a minimum of bureaucracy and a never-ending focus on productivity.

5. We never lose sight of our strategic vision.

6. We think and act with a sense of urgency.

7. Outstanding, dedicated people make it all happen, particularly when they work together as a team.

8. We are sensitive to the needs of all employees and to the communities in which we operate.

“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.”

IBM LEADERSHIP COMPETENCIES

Focus to Win

–      Customer Insight

–      Breakthrough Thinking

–      Drive to Achieve

Mobilize to Execute

–      Team Leadership

–      Straight Talk

–      Teamwork Decisiveness

Sustain Momentum

–      Building Organizational Capability

–      Coaching

–      Personal Dedication

The Core

–      Passion for the Business

“Win, execute, and team.”

Win

It was vital that all IBMers understand that business is a competitive activity. There are winners and losers. In the new IBM, there would be no place for anyone who lacked zeal for the contest. Most crucially, the opponent is out there, not across the Armonk campus. We needed to make the marketplace the driving criterion for all of our actions and all of our behavior.

Execute

This was all about speed and discipline. There would be no more of the obsessive perfectionism that had caused us to miss market opportunities and let others capitalize on our discoveries. No more studying things to death. In the new IBM, successful people would commit to getting things done—fast and effectively.

Team

This was a commitment to acting as one IBM, plain and simple.

Fundamentals

There are fundamentals that characterize successful enterprises and successful executives.

–      They are focused.

–      They are superb at execution.

–      They abound with personal leadership.

“Final issue that is unique to the largest and most complex institutions: how to strike the appropriate balance between integration and decentralization.

Focus—You Have to Know (and Love) Your Business

I have learned that lack of focus is the most common cause of corporate mediocrity.

“The grass is greener.”

“This is the most pernicious example. In my thirty-five-year business career I have seen many companies, when the going gets tough in their base business, decide to try their luck in new industries. It’s a long list:

–      Xerox going into financial services;

–      Coca-Cola into movies;

–      Kodak into pharmaceuticals.

History shows that truly great and successful companies go through constant and sometimes difficult self-renewal of the base business. They don’t jump into new pools where they have no sense of the depth or temperature of the water. “We need to grow, so let’s go acquire somebody.”

Steely-Eyed Strategies

Again, good strategies start with massive amounts of quantitative analysis—hard, difficult analysis that is blended with wisdom, insight, and risk taking.

Intelligence Wins Wars

Perhaps the most difficult part of good strategy is hard-nosed competitive analysis. Almost every institution develops a pride in itself.

Good Strategy: Long on Detail

Have a clear understanding of the five or six critical things they need to do in their base business to be successful.

Good strategies are long on detail and short on vision. They lay out multi-year plans in great quantitative detail.

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.

Great companies lay out strategies that are

–      Believable and

–      Executable.

The Hard Part: Allocating Resources

“Finally, making sure that resources are applied to the most important elements of the strategy is perhaps the hardest thing for companies to do. Too many companies view strategy and operations as two separate activities.”

Survival of the Fattest

“Here’s my last observation on focus: The Darwinian concept of survival of the fittest unfortunately doesn’t work in a lot of companies. Instead, too often the rule is “survival of the fattest.” Divisions or product lines that are successful today always want to redeploy their cash and other resources into existing products and existing markets. Finding ample resources to fund new growth and new businesses is one of the hardest tasks of a corporate leader.”

Execution-Strategy Goes Only So Far

“Execution—getting the task done, making it happen—is the most unappreciated skill of an effective business leader. In my years as a consultant, I participated in the development of many strategies for many companies. I will let you in on a dirty little secret of consulting: It is extremely difficult to develop a unique strategy for a company; and if the strategy is truly different from what others in the industry are doing, it is probably highly risky. The reason for this is that industries are defined and bounded by economic models, explicit customer expectations, and competitive structures that are known to all and impossible to change in a short period of time.”

“At the end of the day, more often than not, every competitor basically fights with the same weapons. In most industries five or six success factors that drive performance can be identified. For example, everyone knows that product selection, brand image, and real estate costs are critical in the retailing industry. It is difficult, if not impossible, to redefine what it takes to be successful in that industry. Dot-com retailers were a good example of a spectacular failure to understand that you cannot suspend the fundamentals of an industry.”

“Execution is really the critical part of a successful strategy. Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.”

Daily grind of execution is mannaryyni-strategia

“Execution is the tough, difficult, daily grind of making sure the machine moves forward meter by meter, kilometer by kilometer, milestone by milestone. Accountability must be demanded, and when it is not met, changes must be made quickly. Managers must be asked to report on their performance and explain their successes and failures. Most important, no credit can be given for predicting rain—only for building arks.”

“I believe effective execution is built on three attributes of an institution:

–      World-class processes,

–      strategic clarity, and

–      a high-performance culture.”

World-Class Processes

Earlier in this section I mentioned that in every industry it is possible to identify the five or six key success factors that drive leadership performance. The best companies in an industry build processes that allow them to outperform their competitors vis-à-vis these success factors.

Think about great companies

–      Wal-Mart has superb processes in store management, inventory, selection, and pricing.

–      GE is world-class in cost management and quality.

–      Toyota is best-in-class in product lifecycle management.

Strategic Clarity

”Companies that out-execute their competitors have communicated crystal-clear messages to all their employees: “This is our mission.” “This is our strategy.” “This is how you carry out your job.” But high-caliber execution cannot simply be a matter of exhortation and message.”

“Execution flows naturally and instinctively at great companies, not from procedures and rule books. Manuals may play a role in early training activities, but they have limited value in the heat of battle.”

Superb execution is more about values and commitments.

“At American Express we knew we provided the best customer service in the industry—not because our training manuals said it was important but because our people on the firing line, those who talked to customers all day, believed it. They knew it was a critical component of our success.”

High-Performance Culture

“Superb execution is not just about doing the right things. It is about doing the right things faster, better, more often, and more productively than your competitors do.”

WHAT IT TAKES TO RUN IBM

Energy

–      Enormous personal energy

–      Stamina Strong bias for action

Organizational Leadership

–      Strategic sense

–      Ability to motivate and energize others

–      Infectious enthusiasm to maximize the organization’s potential

–      Builds strong team

–      Gets the best from others

Marketplace Leadership

–      Outstanding oral communications

–      CEO-level presence and participation in the industry and with customers

Personal Qualities

–      Smart Self-confident, but knows what he/ she doesn’t know

–      Listens

–      Makes hard decisions—in business and with people

–      Passion that is visible

–      Maniacal customer focus

–      Instinctive drive for speed/ impact

How should we change according to the book?

Leadership Is Personal

“Great institutions are not managed; they are led. They are not administered; they are driven to ever-increasing levels of accomplishment by individuals who are passionate about winning.”

–      Personal leadership is about visibility.

–      Personal leadership is about being both strategic and operational.

–      Personal leadership is about communication, openness, and a willingness to speak often and honestly, and with respect for the intelligence of the reader or listener.

–      Most of all, personal leadership is about passion.

Remember my description of personal leadership. It starts with the hard work of strategy, culture, and communications.

What should I personally do?

Great leaders according to Gerstner are Sam Walton of Wal-Mart, Jack Welch of General Electric, Juergen Schrempp of DaimlerChrysler, and Andy Grove of Intel.

“Have you ever noticed how the past keeps getting better the further into the future you go? Someone once said that the only paradises we have are those that are lost.”

Read their books.

Summary

–      The book in six words – ” Stick to your knitting; dance with the partner who brought you.” (Old-age saying)