MANAGEMENT OF CHANGE

Book Review
Submitted to: Professor Vidyanand Jha
By: Pawan Kumar Makadia (0260/51)
Book Title: Who Says Elephant cant dance?: Inside IBMs Historic Turnaround
Time Period: 1993-2002
Author: Louis V Gerstener Jr.
About Louis V. Gerstener Jr.: Prior to becoming CEO & Chairman of IBM, Mr. Louis V
Gerstener Jr. had worked for RJR Nabisco (Tobacco & Food Conglomerate), American Express
(Financial Sector), McKinsey (Global Consulting Firm). He received a bachelor's degree in
engineering from Dartmouth College and an MBA from Harvard Business School.
Introduction: Who Says Elephant cant dance? is a memoir and reflection of a leader in his
own words, the journey of what is unarguably called The revival of IBM. When Louis V.
Gerstner Jr. landed up as the CEO of IBM, he had very little in common with the company. He
had come from a completely different background than that of his predecessors and was
appointed to transform the company which at that time was believed to be A National
Treasure. The company had become a brobdingnagian, adding nearly 25,000 people per
annum. Effectively, a new company within IBM was created every year. In his early years, he
was crippled with the challenge of the existing work-force which had developed a strong
reluctance to change. He was equally confronted with a daunting task of creating a purpose
and a sustainable work environment for the new recruits. Over the years, the constraints for
Louis became multi-pronged as he discovered that the external forces were equally dominant.
Particularly, the emergence of overly-hungry entrepreneurs. They were increasingly changing
the needs of the consumer with their emphatic zeal to revolutionize the world. The company
had to recover from sustained financial losses, had to re-energize the workforce of more than
0.3 million people, and had to reposition their products to attract new customers, before IBM
can regain its lost glory and market leadership.
In the Paper Cracking the Code of Change, Michael Beer and Nitin Nohria, argue that to
bring change both Theory E and Theory O are important, but how they are implemented or
executed are even more important. Louis approached the transformation of IBM with a classic
approach of sequencing, starting with the Theory E and then prioritizing it with the Theory O.
His strategy was to first gain the confidence of the shareholders, and then that of the
customers. In the process he made sure a cultural change is institutionalized so as to enhance
competitiveness and ensure long-term sustainability.
His initial actions as CEO were to save the company from making losses. In order to increase
profitability, his approach was to cut down the costs through reductions. By abating the costs
on non-core and peripheral activities he was able to bring focus on to IBM's existing product

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line. He never reduced the budget and expenses on R&D. He believed that R&D is the key
driver for a company like IBM in an industry where Obsolescence is as common as
Change. Once finances had been stabilized, he took measures to catapult IBM into new
horizons by adding value on to their products through services. He also expanded the softwares
and solutions business in a way that wouldn't dilute the focus of IBM from its core hardware
business.
Going against conventional wisdom: At the time when the industry was characterized by
fragmentation and horizontal integration, such as Microsoft dominating the operating system
business, Intel dominating the Microprocessors, and SAP dominating the applications, Louis
took a bold step. He kept all these businesses of the company united by re-strategizing them as
an integrated business. This was like riding against the wave of conventional business wisdom
at that time. Louis was quick to realize that companys vision was rightly aligned, but needed
rejig in execution and implementation. In addition, he didn't bring in a new management team
as he knew the company had the right people. All that was required was a strategic direction
and a leadership.
Strategy Change: The major strategic shift which Louis brought in was paradigm shift from
product/technology-centric approach to customer/industry-centric approach. He could vision the
need for shift in consumer preference towards services and solutions as compared to products.
This lead to emphasizing towards softwares and services.

The strategic change included

integration and united marketing and advertising campaign to increase consistency and
effectiveness. The change in corporate/business strategy trickled down to reengineering and
restructuring to functional/operational strategy
Organizational Change: Louis Gerstener, never changed the management or key executives
managing the companys line of business (LOB). Instead he changed the structure and
composition of Board, primarily with an objective to improve the oversight of managerial
actions. Also with presence of large no. of outside directors, the company was also able to bring
in international best practises and standards for the IBM. The major organization change he
brought was aligning the organization around services/products/clients rather than around
geography. This has resulted in the creation of 4-way Matrix Structure. The organizational
change resulted in seamless services/product delivery to their clients, some of which were
global; sharing and collaboration across geography and enthusing strategic focus to business
segments.
Cultural Change: The major change which Louis enforced was from rule-driven organization to
principle driven organization, primarily because it exhausting, especially economically, to
manage people with carrot and stick mechanism. Because of rule-driven system, inefficiency
has creeped, especially in decision-making process, which ultimately was affecting the
companys competitive position in the industry. The other important change, Louis had brought
about was with regard to functioning of leadership and the measure of their effectiveness. The
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age old value system which over time had become rigid and non-progressive were replace with
eight key principles. The system of No was abandoned as it was creating hindrance to the
pace of growth and development within the organization
Outsider Perspective: What has worked in case of Louis Gersteners effort is an InsiderOutsider perspective. Being an Outsider, he was able to bring fresh perspective by critically
analysing IBM's work ethics. This gave him an advantage to develop new foresight for strategic
planning. His earlier experience in dealing with IBM from the other side of the table as a
customer, when he was at American Express, provided him with valuable insight into the
shortcomings of IBM's current operations. He challenged and curbed the cognitive inertia of
senior management who were running the Lines of Business (LOBS). He facilitated promotion of
new ideas which ultimately resulted in creating a long-term sustainable revenue stream for the
organization. Moreover, his outsider perspective was not clouded by emotional attachment,
thus, at times it was easier for him to take strong rational decisions. One such bold decision
was to stop OS/2 product line against the strong wish and will of the employees.
Classical Text-Book style CEO Approach: His work and managerial approach suggests that
his primary interest and involvement was in making policy-level decisions. His approach was to
make decisions that were backed with strong principles. He also made sure that every policy
decisions he made have the necessary processes to monitor them. One of his key attributes
was he never involved himself in micro-management. His focus was more on corporate and
business strategy as opposed to functional or operational strategy. This shows that, he gave
space and freedom to his senior executives and functional heads to accomplish tasks in their
own way. The only time he felt he had to intervene in the functional or operational strategy was
when he saw there were conflicts among the different divisions.
Internal Conflicts: The book also highlights upon internal conflicts of a CEO with his own self.
The process of self-reflection at every step sheds light on the dilemma which a CEO undergoes
when confronted in taking tough decisions. The process of self-questioning shows the
vulnerability of a CEO and the effort he takes to ensure every decision he makes is in the best
interest of the organization, but at the same time is holistic in nature.
Establishing Credibility: One of the important revelations in the book is that the people at
IBM have little respect for outsiders. With such strong preconception, the acceptance of Louis
as an agent of change was something very difficult to digest even after his tenure. Although,
Louis had a proven track record of transforming companies, but they were not even remotely
related to IBM or the industry in which IBM operated. However, the book remains silent on how
Louis Gerstener's established credibility within the organization.
Top-Down Approach of Cultural Change: The book touches upon all the major spheres of
the change process: strategy, organization, culture and people. But somehow, focus is more
skewed towards strategy and organization as compared to culture and the people. His

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transformation of culture, stills remains an enigma (considering the facts available in book) as
how would a top-down approach of cultural change succeed in an organization that has total
work-force equivalent to that of the total work force of a Scandinavian/Nordic country,
especially when the culture is inbred and ingrown and has transcended many era of
successful organizational leaderships.
The book overall is a reflection on a sustainable change of one of the worlds oldest, largest and
respectable company through a top-down approach.

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