Out of the Blue and Into the Black

Lou Gerstner’s Who Says Elephants Can’t Dance? tells the story of how the guy who ran American Express and RJR Nabisco went on to lead the biggest corporate turnaround ever. When Gerstner became CEO in 1993, IBM had lost more than $16 billion over the past four years. When he left eight years later Big Blue had regained much of its leadership in the economy.

Why mention this book here? Because Gerstner’s powerful and instructive tale offers a wealth of lessons for entrepreneurs. I’d say, in fact, that his biggest impact came through an application of basic entrepreneurial common sense to an ossified dinosaur.

In his first year at IBM, Gerstner stanched the bleeding by cutting headcount, cutting costs, selling assets, and dropping prices to regain market share. Over the next eight years he "made the company matter again" by migrating to sources of higher value, and attacking the culture that had kept it from executing on simple priorities. He did so by sticking to a few basic practices. The company became relentlessly market-driven, and brutal about executing. He turned managers into leaders who took accountability for doing what had to be done.

On a broad scale, Gerstner’s story recapitulates many of the past decade’s most important business stories: the profound impact of the Internet, and the need for all companies to radically boost their productivity (unfortunately for some, through massive reengineering programs.) And his book shows why all businesses must ruthlessly change everything except they do except their core principles.

For IBM, such principles were technological excellence, customer intimacy, and a progressive HR culture that trained supremely competent businesspeople. Such values were borne out of founder Tom Watson’s deepest beliefs. And as books such as Jim Collins’ Built to Last and Good to Great demonstrate, one must build guiding values early on. Building them into a large company is possible yet problematic. One of my favorite business books of all time is Father, Son, and Co. Written by Tom Watson, Jr. who took his father’s company and continued its dominance in the global economy, his intensely personal narrative captures the human concerns that go into building the most impersonal of creatures: a global corporation.

One final thought: I agree with those who argue that the best training for starting a company often takes place within large, well-run concerns. For a look at how IBM prepared thousands of folks to strike out successfully on their own, check out an article I wrote several years back for Inc.magazine.