Louis V. Gerstner, Jr.

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Louis V. Gerstner Jr.
Lou Gerstner IBM CEO 1995.jpg
Lou Gerstner ca. 1995
Born (1942-03-01) March 1, 1942 (age 72)
Mineola, New York, U.S.
Alma mater Dartmouth College (B.E.)
Harvard Business School (MBA)
Occupation Former Chairman and CEO, RJR Nabisco (1989-1993)
Former Chairman and CEO, IBM (1993-2002)
Former Chairman, The Carlyle Group (2003-2008)
Known for Leading IBM's historic corporate turnaround in the 1990s[1][2]
Net worth $630 million (2002 estimate) [3]

Louis Vincent Gerstner, Jr. (born March 1, 1942 in Mineola, New York) is an American businessman, best known for his tenure as chairman of the board and chief executive officer of IBM from April 1993 until 2002 when he retired as CEO in March and chairman in December. He is largely credited with turning around IBM's fortunes.[1][2]

He was formerly CEO of RJR Nabisco, and also held senior positions at American Express and McKinsey & Company. He is a graduate of Chaminade High School (1959), Dartmouth College (1963) and holds an MBA from the Harvard Business School. He is a former member of the Steering Committee of the Bilderberg Group.[4]

American Express[edit]

Gerstner joined American Express in 1978 as the executive vice president of its charge card division. A year later he was named president of the Travel Related Services group, which was responsible for American Express cards, traveler's cheques, and travel-service offices. At this time, MasterCard and Visa had begun to compete for the company's market share. However, Gerstner found new uses for the card and found new users. In 1980 most department stores did not accept American Express cards — Gerstner acted on this and by 1985 retail sales were the second most common use of the card, following airline tickets.[citation needed] College students, physicians, and women were singled out in various marketing pushes. Furthermore, corporations were persuaded to issue cards as a more effective way of tracking business expenses. Gerstner also created cards that appealed to higher end clients, such as the gold card, which carried an annual fee of $65 and offered a $2,000 line of credit, and the platinum card, which had a $250 annual fee, a $10,000 check-cashing benefit, and private club memberships for traveling executives.

As sales and profits rebounded, Gerstner was promoted to chairman and chief executive officer of Travel Related Services in 1982 and president of the parent company in 1985. Although he claimed the position at the age of 43, Gerstner dismissed the speculation that his success was the product of being a workaholic. Gerstner told Wayne, "I hear that and I can't accept that. A workaholic can't take vacations and I take four weeks a year" (June 30, 1985).[citation needed]

As chairman and chief executive officer of the Travel Related Services division, Gerstner spearheaded the successful "membership has its privileges" promotion. Gerstner's division was continually the most profitable in the company and in the entire financial services industry.[citation needed] Despite these successes, Gerstner hit a ceiling at American Express. The chief executive, James D. Robinson III, was not expected to retire for another 12 years. The analyst Perrin Long at Lipper Analytical told Jesus Sanchez of the Los Angeles Times: "Lou is a very personable guy. But more than anything else, he is a leader more than a follower" (March 14, 1989).[citation needed] After 11 years at American Express, Gerstner left to become chairman and chief executive officer of RJR Nabisco. During Gerstner's tenure at American Express membership had increased from 8.6 million to 30.7 million.

IBM[edit]

When IBM's board forced chairman and CEO John Akers to resign, though he would remain in a caretaker role for three months, the directors first looked within the computer industry for his successor. However Apple's John Sculley, Motorola chairman George Fisher, and Bill Gates of Microsoft were not interested (other rumored candidates included Eckhard Pfeiffer of Compaq and Scott McNealy of Sun Microsystems), so IBM turned to Gerstner who was an outsider to the field.[5][6] Gerstner's older brother Richard had run IBM's PC division until retiring four years previously due to health issues.[7] Upon becoming chief executive of IBM, Lou Gerstner declared that "the last thing IBM needs right now is a vision" as he instead focused on execution, decisiveness, simplifying the organization for speed, and breaking the gridlock. Many expected heads to roll, yet initially Gerstner changed only the CFO, the HR chief, and three key line executives.[8]

Gerstner is credited with saving IBM from going bankrupt in the early 1990s. The subsequent refocusing on the IT services business (which grew to nearly 50% of the IBM's revenues), the embrace of the Internet as a business phenomenon, and a broad effort to revive the company's culture are widely seen as having resulted in one of the most remarkable turnarounds in business history.[9]

In his memoir, Who Says Elephants Can't Dance?, he describes his arrival at the company in April 1993, when an active plan was in place to dis-aggregate the company. The prevailing wisdom of the time held that IBM's core mainframe business was headed for obsolescence. The company's own management was in the process of allowing its various divisions to rebrand and manage themselves — the so-called "Baby Blues." Then-CEO John Akers decided that the logical and rational solution was to split IBM into autonomous business units (such as processors, storage, software, services, printers,) that could compete more effectively with competitors that were more focused and agile and had lower cost structures.[10] Gerstner reversed this plan, realizing from his previous experiences at RJR and American Express that there remained a vital need for a broad-based information technology integrator. He discovered that the biggest problem that all major companies faced in 1993 was integrating all the separate computing technologies that were emerging at the time, and saw that IBM’s unique competitive advantage was its ability to provide integrated solutions for customers – a company that could represent more than piece parts or components—something he only learned by going beyond just listening to the proponents of different technologies within IBM.[11] His decision to keep the company together was the defining decision of his tenure, as these gave IBM the capabilities to deliver complete IT solutions to customers. Services could be sold as an add-on to companies that had already bought IBM computers, while barely profitable pieces of hardware were used to open the door to more profitable deals.[9]

While IBM had been credited with inventing the personal computer (PC) and making it a mainstream product, IBM could no longer monopolize this market, due to the proliferation of cheaper IBM-compatible PC clones that used the same Intel chips and Microsoft operating system software. Outgoing IBM chairman and CEO John Fellows Akers, as an IBM lifer, was excessively immersed in its corporate culture and loyalty to traditional ways which masked the threats to the company.[5][12] However as an outsider, Gerstner had no emotional attachment to long-suffering products that IBM developed in order to try to regain control of the PC market. Gerstner wrote that his colleagues were "unwilling or unable to accept" that OS/2 was a "resounding defeat" as it "was draining tens of millions of dollars, absorbing huge chunks of senior management's time, and making a mockery of our image", despite its technical superiority to the dominant Microsoft Windows 3.0. By the end of 1994, IBM ceased new development of OS/2 software. IBM withdrew from the retail desktop PC market entirely, which had become unprofitable due to price pressures in the early 2000s, and sold the PC division to Lenovo in 2005, just a few years after Gerstner stepped down as CEO.[13] To Gerstner, focusing on the desktop PC ran counter to IBM's view of where the tech world was headed.[14]

In his memoir, Gerstner described the turnaround as difficult and often wrenching for an IBM culture that had become insular and balkanized. After he arrived, over 100,000 employees were laid off from a company that had maintained a lifetime employment practice from its inception.[15] Long allowed by their managers to believe that employment security had little reference to performance, thousands of IBM employees had grown lax, while the top-performing employees complained bitterly in attitude surveys.[16] In the goal to create one common brand message for all IBM products and services around the world,[1] IBM under his leadership consolidated its many advertising agencies down to one - Ogilvy & Mather. Layoffs and other tough management measures continued in the first two years of Gerstner's tenure, but the company was saved, and business success has continued to grow steadily since then.

Gerstner's efforts saw IBM's market capitalization rise form $29 billion to $168 billion in 2002 when he retired.[17] Despite his success at saving IBM from going bankrupt and making it profitable again, however, Gertner also presided over the company's decline, relative to newer rivals, as it lost its once dominant position in the IT industry. For instance Microsoft wrested control of the PC market from IBM in the 1990s, and there has also been the emergence of others, such as Apple Inc. and Dell Inc. in the hardware industry, and Google in web search engines.[18]

Post-IBM[edit]

In January 2003, he assumed the position of chairman of The Carlyle Group, a global private equity firm located in Washington, DC. He retired from that position in October 2008 and remains a senior advisor to The Carlyle Group.

Following his success in IBM, Gerstner has also become a mentor to Howard Stringer, CEO of Sony Corporation to turn around the Japanese corporation.[19]

In January 2013, Broad Institute announced that Gerstner will serve as Chairman of Broad Institute Board of Directors.[20]

Accolades[edit]

Gerstner was named a Knight Commander of the British Empire and given a KBE on the recommendation of former United Kingdom Prime Minister, Tony Blair. The award was for his services to UK education and his contribution to the Internet. In 2008, Gerstner received the Legend in Leadership Award from the Yale School of Management.

References[edit]

  1. ^ a b c DiCarlo, Lisa (November 11, 2002). "How Lou Gerstner Got IBM To Dance". Forbes. Retrieved April 26, 2012. 
  2. ^ a b "IBM Corp. Turnaround". HBR.org. Retrieved April 26, 2012. 
  3. ^ "Forbes.com: Forbes 400 Richest in America 2002". Forbes. Archived from the original on 2012-07-30. [dead link]
  4. ^ "Former Steering Committee Members". bilderbergmeetings.org. Bilderberg Group. Retrieved 2014-02-08. 
  5. ^ a b Cornwell, Rupert (August 1, 1993). "Profile: The iconoclast at IBM: Lou Gerstner enacted unprecedented cuts at the giant computer firm last week, but he will need to do more than wield the axe to revive it.". The Independent (London). 
  6. ^ Black, Larry (January 27, 1993). "IBM fires Akers and slashes dividend". The Independent (London). 
  7. ^ Cornwell, Rupert (August 1, 1993). "Profile: The iconoclast at IBM: Lou Gerstner enacted unprecedented cuts at the giant computer firm last week, but he will need to do more than wield the axe to revive it. Rupert Cornwell reports". The Independent (London). 
  8. ^ Charan, Ram; Colvin, Geoffrey (June 21, 1999). "Why CEOs Fail It's rarely for lack of smarts or vision. Most unsuccessful CEOs stumble because of one simple, fatal shortcoming". CNN. 
  9. ^ a b [1]
  10. ^ Denning, Steve. Forbes http://www.forbes.com/sites/stevedenning/2011/07/10/why-did-ibm-survive/ |url= missing title (help). 
  11. ^ Denning, Steve. Forbes http://www.forbes.com/sites/stevedenning/2011/07/10/why-did-ibm-survive/ |url= missing title (help). 
  12. ^ [2]
  13. ^ [3]
  14. ^ [4]
  15. ^ Berger, Joseph (December 22, 1993). "The Pain of Layoffs for Ex-Senior I.B.M. Workers; In Dutchess County, a Disorienting Time for Employees Less Hardened to Job Loss". The New York Times. 
  16. ^ [5]
  17. ^ "Louis Gerstner III, Son of Celebrated IBM Chairman, Dies at 41". Bloomberg. 
  18. ^ [6]
  19. ^ Gunther, Marc (May 26, 2006). "The Welshman, the Walkman, and the salarymen". CNN. 
  20. ^ [7]
  • Doug Garr (1999). IBM Redux: Lou Gerstner & The Business Turnaround of the Decade. Harper Business. 
  • Gerstner, Jr., Louis V. (2002). Who Says Elephants Can't Dance? HarperCollins. ISBN 0-00-715448-8.
  • Robert Slater (1999). Saving Big Blue: IBM's Lou Gerstner. McGraw Hill. 

External links[edit]

Business positions
Preceded by
John F. Akers
CEO of IBM
1993-2002
Succeeded by
Samuel J. Palmisano