What Lou Gerstner Could Teach Bill Clinton

Washington Monthly, Sept, 1999 by Robert Worth

The Bigger the Better

Perhaps the greatest challenge Gerstner faced in his first year was finding a way to make the company work as a single team again. Most people believed it was impossible. When Gerstner arrived, the industry was near-unanimous in its belief that IBM was too big to survive, and that its components would be leaner and more effective by themselves. In fact, John Akers had already begun to implement the plan, dividing IBM into 14 separate companies--the "Baby Blues," echoing the breakup of Ma Bell into Baby Bells in 1982. Again, the parallel with the federal government was clear. Faced with a stubborn bureaucracy, reformers tend to go for the obvious solution: chop it up, or create separate subagencies to reallocate responsibility.

Gerstner was not convinced, so he convened a conference of IBM's top 200 corporate customers in Chantilly, Virginia, and asked them point-blank: What kind of IBM do you want? The answer was clear. They wanted one-stop shopping, someone who could offer hardware, software, and services. No one else could do that. "Look at what many of our competitors are doing--buying each other, striking deals and alliance so they can offer more pieces of the solution," Gerstner told Software magazine in 1997. "In many ways, they're trying to cobble together a lot of what IBM already has."

Having made that decision, Gerstner was faced with the fearful task of making IBM's units work harmoniously. "One of the key things in the federal government is the ability to scale across heavily entrenched silos," says IBM's Ken Thornton, who manages IBM's business with the government. The challenges at IBM were very similar. Under the old system, there was no incentive for IBMers to think beyond their business unit. Naturally, this exacerbated the tendency of the divisions to wall themselves off and develop products without regard to the company's larger goals. Sometimes IBM units actually resisted directives from above, much as the Energy Department's bureaucrats do, in what was known in the company as "pushback." Often this led to an idea getting stalled in the bowels of the company for so long that it never saw daylight.

Exacerbating these failures were IBM's elaborate protocols for transactions between its units--so elaborate that the company required some employees to take a two-day training class in procurement (until recently, the federal government did the same thing). "Now wait a minute, we all work for the same fucking company," said Jerry York, Gerstner's aggressive new CFO, when he heard about the problem.

Gerstner started off by pegging 40 percent of every employee's bonus pay to the performance of the overall company, as opposed to the business unit. Individual bonuses were also tied to performance evaluation, which was determined in part by something called "team," meaning "how well you leveraged IBM's overall resources in your work," says IBM's Jana Weatherbee. "But it wasn't just the money," says one former IBMer. "He made heroes of people who did it right," with reward ceremonies and prizes. Gerstner introduced a new mantra at the company: the customer first, IBM second, your business unit third. And he reinforced it by dragging the scientists who dream up new products out of the lab and having them meet with customers.