Without Gerstner, This Story Goes Untold


Lou Gerstner & the Business Turnaround of the Decade

By Doug Garr

HarperBusiness 375pp $27.50


Leadership Lessons and Turnaround Tactics of IBM's Lou Gerstner

By Robert Slater

McGraw-Hill 309pp $24.95

You have to feel just a little sorry for Doug Garr and Robert Slater. Both have written accounts of one of the most closely watched business stories of this decade: the selection of Louis V. Gerstner Jr. to lead the turnaround of computer giant IBM and his progress thereafter. But both authors lacked the cooperation of the star of this story--Gerstner--and partly as a result, both IBM Redux and Saving Big Blue fall back on guesswork, analysis by anecdote, and tiresome parades of old press clips. Even more telling, both authors have missed the essence of Gerstner's work: the transformation of IBM from a computer company to a technology and services company in which the Internet plays a key role.

In IBM Redux, Garr attempts to tell the story of how Big Blue fought its way out of the "death spiral" that it was in before Gerstner took the helm in April, 1993. The IBM of today stands in stark contrast to the company that Gerstner, as he likes to say, "parachuted" into--an IBM that had racked up some $16 billion in losses over three years. IBM's stock, which sunk to the low 40s in 1993, has split twice and is now trading around 123. Profits are back, and after years of sluggish growth, revenue for the first half of 1999 is growing at double-digit rates. Along the way, Gerstner made the tough calls, including massive layoffs (he has since hired more than he cut), the sale of a few operations, and the shuttering of several manufacturing plants, projects, and offices.

Garr's book had the potential to be a wonderful insider's account, since Garr worked as a speechwriter for IBM from March, 1996, until the end of 1997. But he wasn't able to get the cooperation of Gerstner or that of any other senior IBM executive. (According to Garr, Gerstner told colleagues that they could decide for themselves whether or not to cooperate. No one did.) The author did spend lots of time interviewing former Chief Financial Officer Jerome B. York and correctly gives him a lot of credit for the company's financial turnaround. But ultimately, York gets so many kudos that readers may wonder why the board didn't kick Gerstner out and just make York chairman. York, says the author, slaved to save IBM's PC business, even sacrificing weekends. G. RicHard Thoman, the close Gerstner confidant who was running the business at the time (and who is now CEO of Xerox Corp.), is unfairly portrayed as inept. Nor does Garr dwell on the ex-CFO's shortcomings, perhaps because York was such an important source. York, for example, didn't believe IBM should invest in the low-margin disk-drive business. Today, it's one of the company's hottest money makers.

Moreover, IBM Redux spends far too much time on much-discussed IBM endeavors and well-reported events. For example, Garr devotes many pages to recounting the hostile acquisition of Lotus Development Corp. in 1995 and IBM's fumbling of its PC business--both stories that have received tons of ink.

There are some redeeming qualities. Garr does a competent job recounting the Gerstner years, adding a few fresh details. There is a nice account of the creation of IBM's ad campaign and how Gerstner, with the help of Abby Kohnstamm, IBM's top marketing executive and longtime Gerstner compatriot, crafted a hiP new image for IBM linked to the Internet. Garr also has a delicious anecdote dating from Gerstner's years at American Express Co.: From that company's headquarters in New York, he often gave his former McKinsey & Co. mentor, J. McLain "Mac" Stewart, who worked at McKinsey offices nearby, rides home. During these, they would discuss work the consulting firm was doing for the financial-services giant. But Gerstner, who lives in Connecticut, never drove Stewart directly to his Manhattan apartment building. Instead, Gerstner's driver dropped Stewart just off the highway exit, nine blocks away, so as not to waste Gerstner's time.

But Garr skims over some important moves by Gerstner--most noticeably, those involving the Internet. In the opening chapter, IBM Redux recounts a key speech that Gerstner delivered at the 1995 Comdex computer show. This is the industry's largest gathering of techies, and it was Gerstner's first speech before his new peers. Gerstner used the occasion to insist that the Internet was a business opportunity--much more than a place for consumers to browse for content. But the author doesn't follow through later in the book, where he should have noted how Gerstner made the Internet key to IBM's turnaround and its future success.

Is Gerstner "one of America's most creative business leaders or just an extremely good manager?" This question, raised toward the end of IBM Redux, is a good one. Unfortunately, we're still waiting for the answers.

In Saving Big Blue, author Robert Slater tries to distill the essence of Gerstner's skills into a management book. It's a formula that Slater has applied before, to General Electric Co.'s Jack Welch. Unfortunately, it is the reader who needs to be saved. Slater's request for an interview with Gerstner was also denied, and his 300-page book is no more than a thinly veiled clip job. He leans heavily on accounts drawn from many business publications, including business week (and many by this writer). Slater credits his sources, but it's disconcerting to read reconstructions of one's old stories with every anecdote in place. At the least, Slater could have freshened up some of the material. He repeats a tale about Gerstner helping form a consortium of banks to take advantage of the Internet. The company formed out of that effort, Integrion Financial Network, has had a rocky start and hasn't lived up to its promise. But the reader won't learn that, because Slater didn't include any updates.

The book is also padded and repetitive. The same material appears in several places: On page 67 and again on page 113, we're given the much-cited Gerstner quote on how the last thing IBM needs is a vision. Several chapters examine IBM's culture, using similar material or discussing the same events from slightly different points of view.

Alas, Slater doesn't come close to providing lessons from Gerstner's turnaround. Many chapters simply sum up an old event--using press clips from the time--and then provide a final paragraph elucidating what has just been described. This is in-depth analysis? Elsewhere, Slater attempts to get inside Gerstner's mind by quoting lengthy sections of the CEO's speeches. Readers would be best advised to skip Slater's book and head straight to IBM's Web site, where the entire text of several lectureS is available.

Unfortunately both Garr and Slater have Missed the essence of IBM's turnaround. Yes, Gerstner stopped the financial bleeding and re-energized the corporation's culture. But the authors haven't given the reader a solid view of IBM today. Gerstner's IBM is no longer a computer company--it's a technology and services company. Sure, IBM is selling plenty of computers. But the company's real growth is coming from two other businesses: selling such technology as microchips and disk drives to other high-tech companies and providing services to large corporations that do not want to set up or run their own computer operations. Gerstner saw the potential of these businesses and began pushing a sluggish IBM to take advantage of them.

More important still has been Gerstner's ability to recognize the Internet's strategic importance to IBM. In fact, the story of Gerstner's turnaround could aptly be entitled How the Internet Saved IBM. As the leading provider of general high-tech services, Gerstner is posItioning IBM to be the first company that major corporations come to for the knowhow to put their businesses on the Web. So far, it's working. IBM's Internet services unit is a $3 billion operation, growing at 40% a year.

Sadly, Garr and Slater are stuck writing about the old IBM. And when the authors do discuss the Internet, they mostly talk about IBM's efforts to market a network computer, a stripped-down desktop machine that was over-hyped by the computer industry as a PC-killer. That product is a minor footnote in IBM's Internet strategy.

In short, these books leave much to be desired. But both faced serious obstacles from the start: IBM's Turnaround isn't completed, and its story won't be revealed until Gerstner decides to tell it--or write his own account.

Before it's here, it's on the Bloomberg Terminal.