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1-Page Summary of Who Says Elephants Can’t Dance
The Blues for Big Blue
IBM is a massive blue chip company with enormous sales revenues, hundreds of thousands of employees and operations all over the world. It was founded by Thomas J. Watson Sr., who made it into a giant in computing before computers were even invented. In the 1930s, IBM was chosen to automate Social Security, which illustrates how wide-reaching its scope and breadth are.
Tom Watson Jr. became IBM’s CEO in 1956 and made the company a global leader with its System/360 mainframe computer, which was built upon integrated circuit technology. The project cost $5 billion (more than the Manhattan Project) and led to an annual revenue increase of 14% for 20 years as well as gross profit margins averaging 60%. No other computer company could compete against it.
In the beginning, IBM was a dominant force in computing. It had “architectural control” of computers and could charge high prices for its products. However, as PCs became popular and UNIX appeared on the scene, IBM lost its dominance because it didn’t have any presence in that market. Eventually analysts saw IBM as an irrelevant also-ran company with no future prospects; Microsoft and Intel took over as the dominant players by the 1990s. Soon after that, Big Blue looked like a dinosaur compared to these new companies which were more innovative than they were. The company started losing money every year and laid off thousands of workers until it almost went bankrupt—it had very little cash left at this point.
Gerstner to the Rescue
In 1992, IBM board member Jim Burke asked Louis V. Gerstner Jr., who was then CEO of RJR Nabisco, to become the new head of IBM. At first, because he didn’t know much about technology and had a bad impression of IBM after looking at its financials (he thought that it would probably go out of business), Gerstner refused the offer. But Burke insisted that someone needed to be a change agent for IBM and told him that Bill Clinton would call him if he took the job.
Finally, Gerstner took over IBM in 1993. He had a few immediate goals: preserve cash, stabilize the company, turn a profit in 1994 and convince customers that IBM wanted to serve them and not just sell them more costly mainframes. To do this he met with senior US and global executives as well as top researchers and scientists. His message was straightforward: Things had to change.
Potential “Baby Blues”
IBM’s previous management broke it into smaller companies, each of which would be more nimble and able to adapt to the constantly changing computer industry. The company had a horde of investment bankers working on IPOs for all its new segments, including printers and storage devices. Accountants prepared financial statements for these ambitious IPOs, while consultants came up with names for the new divisions.
Gerstner understood the strategy, but he did not agree with it. He believed that IBM’s remarkable diversity and technological capabilities made it uniquely suited to integrate all types of technologies for its customers.
Becoming a Single Source for Integrated Computer Services
In many meetings, Gerstner learned that IBM customers did not want more automated options. Instead of having to deal with another warring computer enterprise, they wanted to be able to use a universal problem solver.
As a former IBM executive, Gerstner felt that the company needed to be customer-oriented. He saw a tremendous opportunity for IBM to evolve from selling mainframes to providing computer and digital services. To achieve this vision, he decided not to split up the company into smaller pieces.
