{"id":758,"date":"2015-04-28T00:23:37","date_gmt":"2015-04-27T22:23:37","guid":{"rendered":"https:\/\/accesocp.com\/a-review-of-ibms-restructuring-under-louis-gerstner\/"},"modified":"2022-01-10T17:37:10","modified_gmt":"2022-01-10T16:37:10","slug":"a-review-of-ibms-restructuring-under-louis-gerstner","status":"publish","type":"post","link":"https:\/\/accesocp.com\/en\/a-review-of-ibms-restructuring-under-louis-gerstner\/","title":{"rendered":"A review of IBM\u2019s restructuring under Louis Gerstner"},"content":{"rendered":"

\"\"I recently read a book that proved to be a valuable business restructuring case: IBM under Louis Gerstner\u2019s tenure<\/strong>. I believe it might be of interest to briefly outline of his achievements so as to draw some conclusions about sound management practices.<\/p>\n

First of all, let me briefly introduce Louis Gerstner, for those who do not know him yet. He is an American citizen, who started his career in the strategic consulting company McKinsey, after he got his Master in Business Administration (MBA) from Harvard. He then became CEO of the card division of American Express and later, CEO of RJR Nabisco, the American conglomerate producing cookies and cigarettes, before being appointed CEO of IBM on the 1st of April 1993.<\/p>\n

At that time, IBM was enjoying the success of its System\/360 mainframe and had transformed into a bureaucratic monster, making an impressive 8-billion dollars loss. This gigantic company was actually not far from being short of cash. His restructuring plan, which took several years to implement, basically had 3 phases: improve the financial position, refocus the company\u2019s strategy and change the corporate culture.<\/p>\n

Simply observing that competitors had a lighter cost structure than IBM, he deduced that it could potentially leave them leeway to reduce their selling price, gain market share, while still being profitable. To tackle this threat, he first engaged a program of cost reduction, including personnel layoffs and jet fleet reduction, and non-core asset divestment among which IBM\u2019s art collection. Doing so, he generated extra cash and restored financial health to the company within a 2-year period, as IBM reached a 4.2 billion net profit at the end of 1995.<\/p>\n

Once the company\u2019s finances were back afloat, Lou Gerstner started the second phase of his turnaround of \u201cBig Blue\u201d. He took the bold decision to refocus the company\u2019s strategy on the services side of the business as well as on networks of computers and the emergence of the e-business.
\nThe external environment was shifting and tested the company\u2019s ability to adapt. IBM was working in silos, with departments working against each other, with geographical fiefdoms that some managers were jealously defending. The third phase of the restructuring plan was dedicated to a cultural revamping of the company and the structure to foster it. IBM needed interdepartmental collaboration instead of internal competition, and focus on bringing value to the company instead of solely to the business unit level. Several key measures were taken, among which the following:<\/p>\n