Louis V Gerstner - The Man Who Turned IBM Around

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Case Details:

Case Code : LDEN007
Case Length : 14 Pages
Period : 1992-2001
Pub Date : 2002
Teaching Note :Not Available
Organization : IBM
Industry : Information Technology Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

The Tenure at IBM

When Gerstner joined IBM, he was sarcastically referred to as 'the guy from a cookie company. During that time, IBM was passing through the worst phase ever in its nearly eight decade long history.

IBM recorded an operating loss of $325 mn in the first half of 1993, and the stock price dipped by about 15 percent within few months of Gerstner becoming CEO.

The financial situation of the company was deteriorating. The company posted a net loss of $2.86 billion in 1991, followed by a net loss of $4.97 billion in the financial year 1992...

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The Early Initiatives

After joining IBM, Gerstner's immediate task was to make the company profitable. He spent the initial period at the firm learning about the prevalent situation. Gerstner visited different IBM facilities all over the world and met customers, competitors, senior executives, financial analysts, and consultants to get a first hand account of the actual state of affairs. During these interactions, he learned that customers still appreciated IBM since it offered solutions for a host of their computer related needs under one roof...

The Turnaround Strategy

In 1994, Gerstner made efforts to improve the reporting procedures across different units of the firm. This helped him to closely monitor the production schedules, cost schedules and sale of different products.

He also started focusing on specific problems related to individual units. He realized that the personal computers division, which had good potential, was performing very poorly.

The division was facing tough competition from companies such as Dell, HP and Compaq...

Emphasis on e-Business

In 1997, Gerstner's network centered computing strategy evolved into a full-fledged 'e-business' strategy for IBM. This strategy sought to leverage on IBM's strengths in big servers, huge storage capability, bullet-proof databases, massive processing power and expert systems integration. IBM provided the complete package for e-business i.e. hardware, software, training, security, networking and services. Lotus Notes Groupware added another powerful feature to IBM's e-business solutions...

The Criticism

Though Gerstner has been credited for his remarkable efforts to turn around IBM, the manner in which he went about this task drew lot of criticism. His early moves to keep IBM intact and change the corporate culture of IBM were severely criticized by the employees...

Exhibits

Exhibit I: Financial Performance of IBM for the Period 1992-2002