• Michael Huskey

Summary - Who Say's Elephants Can't Dance

How Louis Gerstner taught an elephant how to dance



Who Says Elephants Can’t Dance a book about how Louis Gerstner came into IBM in the early 90s (an elephant) and helped teach it how to dance. The lessons in this book can help you turn around an existing business or department or serve as a warning for those in the early stages of starting a company.


This summary will give you a little background about Gerstner to provide you with a better sense of the lens he views the world through. The rest of the summary will show you the levers that he pulled to make the Elephant, which was IBM, Dance.


Background on Gerstner


Gerstner, before arriving at IBM he had served as the CEO of RJR Nabisco and had been executive positions at American Express and McKinsey & Company before joining IBM. After leaving IBM, he became the Chairman of Carlyle Group and also helped mentor Howard Stringer (CEO of Sony) with turning around that company.


Pretty accomplished individual.


Competitive Mindset


If I had to describe Gerstner in one word, it would be competitive.


He had a firmly held opinion that business at its core is a competitive endeavor. There were winners and losers in business. Gerstner had a winner take all mindset.


“It was vital that all IBMers understand that business is a competitive activity. There are winners and losers.”


Awakening the sense of competition was one of the first levers he pulled when he came to IBM. He said many employees had lost their competitive mindset. A lot of them enjoyed a period where IBM did not have much competition.


Not all employees were happy at Gerstner’s competitive mindset. An employee wrote him an e-mail about how he/she thought his competitive mindset was unhealthy, and this was preventing him from seeing expansive growth potential.


“Sometimes I had to bite my tongue—almost in half. All I can say is, it was a good thing for some people that I was too busy to reply to all my e-mail!”


It is essential to understand Gerstner’s inclination toward competition and winning. This mindset frames how he went about changing the entire enterprise.


Foundation of a Successful Enterprise


It is quite simple for Gerstner. Making a successful enterprise It is about making money and having satisfied customers.


“If you’re going to have a vision for a company, the first frame of that vision better be that you’re making money.”


Making money as a business might seem obvious, but when he arrived at IBM, he said this was something that had been forgotten. This lead IBM to make products because they could not because a customer wanted them.


Business, at its core, in a free market economy, is about creating products that customers are willing to buy even though comparable products exist, potentially at lower prices.


Some people think that making money and satisfying the customer are mutually exclusive. Gerstner flips this notion on its head. The customer was always at the front of his mind because he understood that satisfied customers lead to increased profits.


“Success in a company comes foremost from success with the customer, nothing else.”


There was a common belief at IBM when he arrived that the company was making a superior product to its biggest competitor at the time, Microsoft. However, as Gerstner explained, it didn’t matter if the product was technically better if it wasn’t delivering what the customer wanted at a price they could afford, it didn’t matter.


This customer obsession would be his guide in making decisions about what products IBM would offer going forward.


Measuring Success


Having goals and ambitions are great, but without a clear way to measure it is a futile endeavor.


“Our primary measures of success are customer satisfaction and shareholder value.”


Notice how he listed customer success first. In the book, he mentions I have not seen many businesses be successful without satisfied customers. Gerstner also emphasized the importance of the health of IBM’s stock in his turnaround efforts.


For people who think catering to Wall Street makes a company too short-term focused, the opposite is true. A company with a rising stock price allows the company to be in a better position to finance the future. The reason being when a stock performs well, the company has more leverage to finance future expenditures and growth opportunities.


Gerstner didn’t get caught up in short-term gyrations in IBM’s share price. He was more focused on the long-term trend and its relative performance to its competitors. He mentioned many times that managers at IBM would be more worried about what other managers were doing than IBM’s competitors. By emphasizing the importance of the company’s stock, it took the focus off internal politics and put the focus on the real competition.


How to Get There


So by this point, we know how Gerstner thinks, his idea of a successful company, and how he measures the success of his endeavor. This last section outlines how he gets it done. My favorite quote from this entire book sums up this next section well.


“ no credit can be given for predicting rain—only for building arks.”


Role of Leadership


When Gerstner came into IBM, he very quickly saw a disconnect between the rules IBM had and the times. Meaning they had outdated rules that when they were made were useful, but as time moved on, became irrelevant and frankly damaging. People were more loyal to rules and traditions than they were to outcomes.


Internal company rules was another area where he used his position to institute change. He did not force everyone to change the way they did business. Instead, he used his leverage in leadership to invite change to the organization. Gerstner knew well that forced change wouldn’t last long, but he did understand the responsibility of upper management to encourage this change to the rest of the enterprise.


He also believed moving forward that principles, not processes should lead IBM.


“Because I believe all high-performance companies are led and managed by principles, not by process. Decisions need to be made by leaders who understand the key drivers of success in the enterprise and then apply those principles to a given situation.”


A significant roadblock to the execution of this was leadership. Gerstner noticed that leaders and executives at IBM were mainly presiders, not active members.


There is a story where Gerstner asked an executive about a specific problem, and the executive replied and said I would get a team on that. Gerstner would continue to ask this executive what his findings were, and the executive said I would check back in with the team. After this happened three times, Gerstner said, just give me the name of the person doing the work so I can talk to him/her directly.


After this situation, Gerstner made it clear to all his executives he expected them to be people driving the ship, not just giving orders and waiting for results to come back. There was a long-established culture of what being a leader looked like, and Gerstner’s vision was quite the opposite.


He noted that it did not mean the individuals were unintelligent or not motivated; instead, they were just acting in a way that the culture had asked them to perform.


Execution


Now that Gerstner got his leadership team in order and got them using principles instead of processes, it was now time to execute.


“Move fast. If we make mistakes, let them be because we are too fast rather than too slow.”


Gerstner saw that IBM’s biggest problem was not coming up with ideas or being wrong about what the future holds. It had more to do with their inability to execute on those ideas.


Some of the ideas could potentially cannibalize the current product line. For others, there was as he called it an “obsessive perfectionism” that prevented them from bringing products to market. Short-term driven decision making was not going to happen at his IBM.


“No more studying things to death.”


Instead of trying to be perfect, IBM was going to be quick to react to the market. IBM could not continue to operate with business as usual if they wanted to stick around in this fast-changing market.


Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.


Compensation


The last part of the puzzle was compensation. Gerstner understood that at the end of the day, compensation and job security drive a lot of decision making. What will protect their job, and what will allow them to continue to make more money in the future?


The first part of the compensation web that Gerstner tackled was that of Senior Leadership. I described earlier that one of the significant metrics of success for Gerstner was tied to the performance of IBM’s stock price. So, he included that in his Leadership compensation. However, he did it in a different way than most other companies.


Many companies will give senior leadership stock options. Meaning executives get the opportunity to buy a stock at a price, potentially lower than the market value (price for regular investors). Then many executives will exercise these options (buy the stock) and then hold onto the stock for a year and then sell them to avoid paying higher income taxes, essentially deferred salary.


Gerstner did not like this practice. So he made it a condition that executives buy shares with their own money if they wanted to get the ability to receive stock options. Buying stock with their own money now meant that executives’ interests were directly aligned with those of their shareholders.


This would prevent leaders from making decisions that would, in the short-term, benefit them, but in the long-term, hurt the company and the shareholder as well.


Executives should know they don’t accumulate wealth unless the long-term shareholders do the same.


*Shareholders are the people financing the company’s future projects through stock ownership. If shareholders are unwilling to own a company’s stock, it dramatically increases the cost of financing future projects for that company.


Next came general employee compensation. A common practice that Gerstner uncovered at IBM was that your pay had more to do with your time at IBM, not necessarily your performance or your skill-set. He noticed that all employees at a specific level would get the same pay. It did not matter if they were in HR or they were a Software Engineer. He changed that. The salary was dependent on your role and what the market deemed your skill-sets value.


He also went out to change the benchmarks that would trigger bonuses. In the past, IBM would give out bonuses based on internal benchmarks, under Gerstner, bonuses would be based on external benchmarks. He noticed that because metrics before his arrival were all internally based, this led to a competitive culture, not against competing businesses but your coworkers.


Gerstner had a lot about compensation throughout the book, more than I could capture in this summary. He does make it very clear that you cannot execute a successful turnaround without changing the way you incentivize your employees. If there is an attitude or way of working you want to promote, make sure people doing it get promoted... financially.


“And since people don’t do what you expect but what you inspect.”


Conclusion


If you have made it this far, thank you so much for reading, and I hope this summary brought you a lot of value and insight into how Louis Gerstner was able to show an Elephant How to Dance.


I am going to very quickly summarize all the main points that I covered in this article so you can tell all your coworkers about what you just learned.


  • Background on Gerstner

  • Competitive - In business there are winners and losers

  • Business Foundation - Making Money and Satisfying the Customer is directly related

  • Measuring Success - Long-term growth in the stock price

  • How to Get an Elephant to Dance

  • Role of Leadership - Leaders are drivers, not reporters

  • Execution - Get it done right and before your competition

  • Compensation - Based on success relative to the competition


If you liked this summary and want to learn more, I included an affiliate link at the bottom of this article for the book!





Works Cited


Gerstner, Louis V. Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change. HarperBusiness, 2004.


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