Wednesday, October 22, 2014

Lou Gerstner on corporate reinvention and values

The former IBM CEO offers his thoughts on the principles and strategies that sustain a company in the long run.

This is an excerpt from a long interview with Lou Gerstner who steered the reinvention of IBM during the industry change from mainframes to PC’s. With what is going on now at IBM—the transition to cloud computing— many of the lessons he learned and we discussed in our Driving Org Growth class at Kellogg are again more than pertinent.

The Quarterly: Is there something in the DNA of those firms that have endured—perhaps a willingness to respond to a change of direction—that enables them to survive? 
Lou Gerstner: In anything other than a protected industry, longevity is the capacity to change, not to stay with what you've got. Too many companies build up an internal commitment to their existing businesses, and there’s the problem: it’s very, very difficult to “eat your seed corn,” go into other activities, or radically change something fundamental about what you've been doing, like the pricing structure or distribution system. Rather than changing, they find it easier to just keep doing the same things that brought them success. They codify why they’re successful. They write guidebooks. They create teaching manuals. They create whole cultures around sustaining the model. That’s great until the model gets threatened by external change; then, all too often, the adjustment is discontinuous. It requires a wrench, often from an outside force. Andy Grove put it well when he said “only the paranoid survive.” 
Remember that the enduring companies we see are not really companies that have lasted for 100 years. They've changed 25 times or 5 times or 4 times over that 100 years, and they aren't the same companies as they were. If they hadn't changed, they wouldn't have survived. If you could take a snapshot of the values and processes of most companies 50 years ago—and did the same with a surviving company in 2014—you would say it’s a different company other than, perhaps, its name and maybe its purpose and maybe its industry. The leadership that really counts is the leadership that keeps a company changing in an incremental, continuous fashion. It’s constantly focusing on the outside, on what’s going on in the marketplace, what’s changing there, noticing what competitors are doing.

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