Profile: The iconoclast at IBM: Lou Gerstner enacted unprecedented cuts at the giant computer firm last week, but he will need to do more than wield the axe to revive it. Rupert Cornwell reports
Known for his commentary on international relations and US politics, Rupert Cornwell also contributes obituaries and occasionally even a column for the sports pages. With The Independent since its launch in 1986, he was the paper's first Moscow correspondent - covering the collapse of the Soviet Union – during which time he won two British Press Awards. Previously a foreign correspondent for the Financial Times and Reuters, he has also been a diplomatic correspondent, leader writer and columnist, and has served as Washington bureau editor. In 1983 he published God's Banker, about Roberto Calvi, the Italian banker found hanging from Blackfriars Bridge.
Sunday 01 August 1993
Possibly, however, one will be enough. It is just 16 weeks since he took on the herculean task of turning around Big Blue - a mite longer than the 100 days customarily granted US presidents to make their mark on history. No-one knows what will happen next. But Louis Vincent Gerstner Jr, the devout Catholic son of a humble truck dispatcher from Long Island, has already left his imprint on IBM.
'There will be no pussyfooting, no more salami-slicing,' he promised shareholders at a fraught annual meeting only a month into the job. He has kept his word. His first symbolic step was to suspend the venerated five-man management committee, hitherto responsible for every important corporate decision. But that blow at IBM's legendary bureaucracy paled beside last week's butchery.
The first chief executive in the company's history recruited from outside its own ranks announced plans that stunned even Wall Street's hardened analysts. Over the next 18 months, 60,000 jobs - a fifth of IBM's worldwide workforce - and an unspecified number of plants, will disappear, at a charge of dollars 8.9bn ( pounds 6bn). The regular quarterly dividend was halved.
In fact, industry specialists had long insisted nothing less was necessary, given a 1992 loss of over dollars 4bn and a payroll still patently bloated, despite six years of cost-cutting. But few expected the axe to fall quite so quickly. Which only suggests they had not done their homework on Lou Gerstner.
Gerstner may be a tyro in the computer industry, but for a decade he has been one of the most formidable figures in corporate America. The signs were there from the very start. When he was only 13, he was chosen to be president of his year at his Catholic high school. The leadership talents were even more obvious when his business career began in earnest at McKinsey, the management consultants. He joined from Harvard Law School, at the age of 23. Within five years, he was a partner. 'I've never met anyone who had such a strong internal sense of what he could accomplish,' a colleague from those days remembers.
Then it was American Express, whose core charge card business he was largely responsible for tripling, during a decade in which he climbed to be the indispensable number two to Jim Robinson, Amex's flamboyant former chairman. But in March 1989, Gerstner left. His talents had not escaped Henry Kravis, who picked him to run the RJR Nabisco foods-to-tobacco conglomerate, after Kravis's KKR had won the bloodiest and most expensive management-buyout battle in history.
His record at RJR was mixed, but the style was as always - driven, impatient, and exuding self-belief from every pore. 'Once I have a feeling for the choices, I have no problems with the decisions,' Gerstner told a recent interviewer. He is a ferociously hard worker, as demanding of others as of himself, and a firm believer that problems are best understood first-hand.
'A desk is a dangerous place from which to view the world,' was the sign in the window of his old office in Amex's Manhattan headquarters, antidote to the heady vistas of the city skyline and the Hudson River and New Jersey beyond. Gerstner likes to spend half his time on the road. Just as he did at RJR, he will summon IBM middle managers for impromptu meals and unnerving questions: 'If you had my job what would you do better?'
Nor is he a man content with second best. 'No-one has ever met my expectations with the exception of my wife,' Gerstner famously told a cigarette salesman at RJR. And even that lady is on occasion reminded of her place in life. 'One Sunday afternoon,' he confessed to Business Week, 'I turned to Elizabeth and said, 'I really can't wait to get to the office tomorrow.' '
The only other serious competitor for his time is the businessman's familiar balm of golf. Uncharacteristically, however, Gerstner's game is erratic and undisciplined, with a handicap in the mid-20s.
And so to IBM. Gerstner may not be a computer specialist; but he is a lightning quick studier. Let it be remembered that few companies are as reliant on information technology as American Express. Gerstner was no Luddite. He had a personal computer on his desk in 1980, one of the first top Amex executives to do so. (Let it be noted, it was not an IBM: the first IBM PC did not appear until 1982.)
But there are several pointers to a more than passing interest in the world of Big Blue. Gerstner's home in Greenwich, Connecticut, is across the way from the son of Thomas Watson, IBM's founder. His own elder brother Richard used to run the company's personal systems division, with annual sales of dollars 11bn, until he retired four years ago because of ill health. Even so, it is no secret that IBM's board first looked within the computer industry for a saviour.
But once Apple's John Sculley, Motorola chairman George Fisher, Bill Gates of Microsoft and others had let it be known they were not interested, Gerstner was plainly the front runner. His outsider's status became a positive virtue. His predecessor, John Akers, was a lifelong IBM man, but excessive immersion in its corporate culture and loyalty to traditional ways blinded Akers to the threat from without.
Such inhibitions do not shackle Gerstner. As much a perfectionist as he is an iconoclast - in management jargon a 'china breaker'.
And that is what makes the combination of IBM and its new chairman so fascinating. Gerstner's arrival tests the theory that a good manager is a jack of all trades who can work his skills anywhere, regardless of his expertise in a particular industry. At bottom, argues this school, business is business - whether your trade is promulgating credit cards, making biscuits and cigarettes, or the arcanities of information technology. Gerstner is this sort of manager; the quintessential product of Harvard and McKinsey, the relentless searcher for efficiency and devotee of the bottom line.
He proved it again last week, along with the old adage that if the medicine is unpleasant, then better to administer it quickly and completely. Wall Street, that other devotee of the short-term and the bottom line, agreed, immediately marking up IBM shares by dollars 3.25 to dollars 45.625. But an accountant's swift surgery was the easy part. Fortunately, there is more to Gerstner.
He delights in new ideas and unconventional solutions - the very qualities of course that enabled competitors like Hewlett-Packard and Microsoft to ride the microchip revolution, while IBM remained becalmed in yesterday's world of the mainframe. Never has he needed them more. 'Gerstner can be fabulous at this cost-cutting stuff and still see IBM all but collapse over the next five years or so,' was the bleak assessment of Charles Ferguson, author of Computer Wars, a book charting the revolution with which an entire industry has yet fully to come to terms. Sooner or later, almost certainly sooner, IBM's new boss must show he has a strategy to nurture the company's huge assets - the technology and human resources that must be the foundation of its future.
Thus far there have been precious few clues, beyond Gerstner's core belief in decentralisation. Everyone insists IBM must somehow be broken up; even John Akers planned to convert Big Blue into a dozen 'Baby Blues.' But how precisely? By jettisoning outright whole product lines, or selling off portions of the group, or simply by encouraging direct competition between its various parts? But where would that leave the whole IBM ethos of teamwork and fellowship? What will be the impact on the company's vaunted sales and customer services units? All these questions must be settled by a man who has never lived the industry from the inside. 'The last thing IBM needs right now is a vision,' Gerstner told reporters at a frugal sandwich lunch after Tuesday's press conference, as they vainly pressed him on his future grand design. Without one, however, the baby may be thrown out with the bathwater.
If so, Gerstner, for the first time in his career, will have failed. His friends say he always believed he had one really big job left in him, after RJR Nabisco. At IBM, at an age when his powers are still at their height, he has it. The resurrection of a company once the bluest of Wall Street's blue chips - and which for three decades symbolized America's industrial might - is arguably the biggest corporate challenge on earth. That Gerstner relishes it is not in doubt: 'Watch the turtle,' was the parable he offered when he first answered the summons, 'he only moves forward by sticking his neck out.' But necks can be cut off. There are also gentler forms of failure.
As a proven practitioner of 'slash and burn', Gerstner may well succeed in restoring IBM's profitability - but at the price of it becoming just another computer company. That, one suspects, is not how he would wish to be remembered.
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