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INNOVATION / MICHAEL SCHRAGE

Gerstner Must Prove Change Starts at Top

April 01, 1993|MICHAEL SCHRAGE | Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times

Enough already.

This idea that IBM's anointing of Louis V. Gerstner as its new chairman and CEO somehow represents a "bold," "unconventional" and "risk-taking" choice is nonsense. On the contrary, Gerstner is precisely the sort of safe, predictable choice that thoroughly conventional boards of directors make. His selection better symbolizes the risk-averse nature of IBM's blue chip board than any innovative vision of the company's future.

What's particularly disgraceful, however, was the way IBM's board communicated--or rather, didn't communicate--the goals of its CEO hunt to its employees and key customers. Did the company want a financial engineer primarily to "right-size" the corporation and streamline operations, or a leader who could design and articulate a new strategy for the company's technologies?

Should a new leader repudiate IBM's core values in an effort to transform its culture? Or should he keep those values and reorganize the company around them? These were questions the board never discussed with IBM's employees or its customers.

Sure, IBM and its headhunters talked to a lot of smart people--but, other than setting out to hire a great CEO, no one articulated what kind of executive IBM needed at this time. What we got instead was a media circus of CEOs withdrawing their names from consideration. The result has been organizational paralysis, low morale and a customer base that's still wondering what the heck is going on.

With Gerstner, IBM now has an excellent operational executive with more of a reputation as a financial engineer than an innovator. He's the sort of hire who will help reshape IBM rather than redefine the industry. Dismiss the criticism that Gerstner doesn't understand computer technology--IBM has never had a technologist as chief executive, and IBM has more technologies than it knows what to do with. History reveals that IBM's problems managing its technology portfolio stem more from miscalculated financial trade-offs than any technological stupidity.

To be sure, Gerstner now enters a labyrinth of silicon and software that will surely lead to more managerial bloodletting and red ink. But his biggest problem now is unambiguously signaling to IBM's people, its customers and the world that he has the courage to be credible. In this instance, credibility doesn't simply mean being open and honest about IBM's difficulties. It means taking actions that show he understands that meaningful change begins at the very top.

Before asking a single IBM employee to leave, Gerstner should publicly ask IBM's board of directors to resign. IBM's missed opportunities, mismanagement and rapid decline happened under this board, and it bears just as much responsibility as IBM's former top management.

By sacking the board before sacking another layer of middle management, Gerstner would make ruthlessly clear that IBM's pain should be shared by all those responsible. The new broom should sweep the very top just as clean as any other part of the company.

This would instantly and dramatically boost IBM's sagging employee morale. The inevitable layoffs would become more palatable. But this must not be a mere power play. Opening up the board opens up an opportunity for IBM to radically redefine corporate governance in the computer industry for its own benefit.

If Gerstner is truly sincere about "listening and learning," he should help create a new board made up of IBM customers, suppliers, partners, employees and key outsiders. He should encourage IBM corporate user groups in Asia, Europe and North America to nominate candidates--the chief information officers of Aetna and Ford should be on IBM's board.

He should personally ask key partners--Intel? Lotus Development?--to help redefine IBM by serving on the board. If Chrysler could have employee representation on its board during its turnaround, why not IBM?

The purpose is to use traditional institutional mechanisms to help create a new kind of IBM--an IBM that couldn't help but be more flexible and responsive because at the very top of the organization are individuals who truly represent IBM's future. A well-crafted board would command industry attention, respect and clearly signal that "business as usual" is dead at IBM.

Of course, it's always easier to hire McKinsey & Co. and treat IBM as a problem to be solved rather than as a medium to redefine customer-supplier relationships throughout the computer industry. It's also difficult to bite the hand that fed you a multimillion-dollar contract. But if Gerstner isn't prepared to do what's difficult, why did he take the job?

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