Louis V. Gerstner Jr.

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Louis V. Gerstner Jr.
Lou Gerstner IBM CEO 1995.jpg
Lou Gerstner ca. 1995
Born Louis Vincent Gerstner Jr.
(1942-03-01) March 1, 1942 (age 73)
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. Gerstner found new uses and users for the card. In 1980 most department stores did not accept American Express cards — by 1985 retail sales were second only to airline tickets in card purchases. College students, physicians, and women were singled out in various marketing pushes. Corporations were persuaded to adopt the card as a more effective way of tracking business expenses. Gerstner also created exclusive versions appealing to higher-end clients, such as the Gold Card, which carried an annual fee of $65 and came with 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 AmEx's 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 Leslie Wayne,Template:Wayne, Leslie, "American Express's Ace in the Hole," New York Times , June 30, 1985 "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 its successful "membership has its privileges" promotion. Not only was the division continually the most profitable in the company, it led the entire financial services industry. Despite these successes, Gerstner hit a ceiling at American Express, as chief executive James D. Robinson III was not expected to retire for another 12 years. The analyst Perrin Long at Lipper Analytical told 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). During Gerstner's 11-year tenure at American Express, membership had increased from 8.6 million to 30.7 million. He left AmEx in 1989 to succeed Ross Johnson as chairman and chief executive officer of RJR Nabisco following its $25 billion leveraged buyout by Kohlberg Kravis Roberts & Co.

IBM[edit]

Gerstner was appointed chairman and CEO of IBM in April 1993. The company's board had forced precursor John Akers to resign, looking first 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). IBM then turned to an outsider with a record that suggested success[5][6] whose older brother Richard had run the company's PC division until retiring due to health issues four years earlier.[7]

Upon becoming chief executive of IBM, 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][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.[9] 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.[10] 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.[11]

While IBM had been credited with inventing the personal computer (PC) and making it a mainstream product, the company could no longer monopolize its market. A proliferation of cheaper IBM-compatible PC clones that used the same Intel chips and Microsoft operating system software simply undercut it and eroded market share. Outgoing IBM chairman and CEO Akers, a company lifer, was excessively immersed in its corporate culture, remaining loyal to traditional ways which masked the real threats.[5][12] As an outsider, Gerstner had no emotional attachment to long-suffering products IBM had developed to try to regain control of the PC market.[13] Gerstner wrote that in spite of OS/2's technical superiority to the dominant Microsoft Windows 3.0, his colleagues were "unwilling or unable to accept" that it 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". 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 three years after Gerstner's 2002 retirement sold the PC division entirely to Lenovo.[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.[9] In the goal to create one common brand message for all IBM products and services around the world,[1] Under Gerstner's leadership the company consolidated its many advertising agencies down to just Ogilvy & Mather. Layoffs and other tough management measures continued in the first two years of his tenure, but the company was saved, and business success has continued to grow steadily since then.[1][2]

From 1993 to Gerstner's retirement in 2002 IBM's market capitalization rose form $29 billion to $168 billion.[16] Despite his success[11] Gertner also presided over the company's decline, relative to newer rivals, as it lost its once dominant position in the IT industry. Microsoft grew beyond just PC software in the 1990s, hardware companies Apple and Dell expanded their market share, and entirely new entities such as the Google search engine emerged and created new computer-based business empires.[17] Gerstner was also the first highly-paid IBM CEO relative to his home-grown predecessors, earning a personal fortune of hundreds of millions in his role. His philosophy, quoted as "The importance of managers being aligned with shareholders—not through risk-free instruments like stock options, but through the process of putting their own money on the line through direct ownership of the company—became a critical part of the management philosophy I brought to IBM" has been criticized for IBM's management in the late 2000s becoming "fully isolated and immune from the long-term consequences of their decisions".[18][19]

Post-IBM[edit]

In January 2003, Gerstner assumed the position of chairman of The Carlyle Group, a Washington, DC global private equity firm. He retired from its board in October 2008 but remains a senior advisor.

Following his success in IBM, Gerstner become a mentor to Howard Stringer, CEO of Sony Corporation tasked with turning around the Japanese corporation.[20]

In January 2013, Broad Institute announced that Gerstner will serve as chairman of its board of directors.[21]

Honors[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 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 d DiCarlo, Lisa (November 11, 2002). "How Lou Gerstner Got IBM To Dance". Forbes. Retrieved April 26, 2012. 
  2. ^ a b c "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 c [1]
  10. ^ a b Denning, Steve. "Why Did IBM Survive?". Forbes. 
  11. ^ a b [2]
  12. ^ [3]
  13. ^ [4]
  14. ^ [5]
  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. ^ "Louis Gerstner III, Son of Celebrated IBM Chairman, Dies at 41". Bloomberg. 
  17. ^ [6]
  18. ^ [7]
  19. ^ [8]
  20. ^ Gunther, Marc (May 26, 2006). "The Welshman, the Walkman, and the salarymen". CNN. 
  21. ^ [9]
  • Peter E. Greulich (2014). A View from Beneath the Dancing Elephant: Rediscovering IBM's Corporate Constitution. MBI Concepts Corporation.  ISBN 0-9833734-6-9
  • Gerstner, Jr., Louis V. (2002). Who Says Elephants Can't Dance? HarperCollins. ISBN 0-00-715448-8.
  • Doug Garr (1999). IBM Redux: Lou Gerstner & The Business Turnaround of the Decade. Harper Business. 
  • 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