Remembering Lou Gerstner
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I had interned at IBM in the late 70's (as a high school kid of all things) and decided it was more of a real estate company than a computer company :-). Up until Gerstner, IBM had a policy of acquiring and holding real estate as a hedge. Often reported on the books under "cash equivalents" because real estate had the property that it could usually be liquidated when required into cash. When we were acquired in 2015 that had changed, nearly all of the places I had worked in the 70's were no longer owned (or operated) by IBM.
Our exec said that those property holdings were the only thing that kept IBM alive between 1990 and 2000. They had to ruthlessly re-tool the entire business and that required a lot of up front cash without a product revenue stream to fund it. That was Gerstner's legacy for him, he used that asset to re-invent the company around consulting services, business automation, enterprise data processing, and business insights driven by processing billions of metrics.
And it turned out that a lot of companies needed to understand their business better, and automate it, to adapt to this new fangled thing called the Internet.
We both agreed that they would be unlikely to do that again as they had used up their 'secret weapon' already.
Well, as the saying goes, they ain't making more of it.
On the other side of the coin commercial real estate is often treated as financial leverage and a store of value instead of a going concern. From what I understand commercial landlords very frequently use their existing properties to collateralize new loans in a daisy chain-type fashion. Recall all of the grumbling about the end of downtowns and what would happen to CRE paper if people didn't return to the office a few years back? We came pretty close to the precipice and avoided it by artificially propping up the utility of these buildings. What happens during COVID II: The Quickening?
Combine all of this with a broader economy that's been vigorously puffed down to the filter with two drags of AI smoke left in it and things don't look particularly rosy for RE as an appreciating asset class. Scarcity doesn't automatically imply value perceived or otherwise.
Not financial advice, not an economist, just my $.02.
Did this work at all? How did you feel throughout it? What about your colleagues?
Gerstner changed the culture, but there was perhaps no greater and more startling visible change than:
"IBM withdrew from the retail desktop PC market entirely, which had become unprofitable due to price pressures in the early 2000s. Three years after Gerstner's 2002 retirement, IBM sold the PC division to Lenovo." [1]
I think absorbing redhat was interesting.
I think IBM is possibly the only Dinosaur which could have swallowed Oracle for a better outcome for everyone but that might have meant sun died hard.
Winchester Disks and RISC architectures. Plasma displays.
I never had nuch interest in their mainframes but they scaled and many people depended on them for massive delivery. I had a lot of time for people from IBM research. They are very good. ETH Zurich and IBM go back a long way. IBM and the IETF go back a long way.
I still miss DEC.
He commented "That's a bit too right-brained for me."
I replied "Oh no, I should have used the other eyeball!"
There's still nothing heroic about that chapter of Gerstner's career. But if you're seeing public good in having tobacco companies fade from sight, there are bits of Gerstner's stewardship at RJR Nabisco that unwittingly worked out okay.
What I admire is that one man changed IBM from the 50s and 60s stoggy IBM to a more modern functional company that was able to move forward. I supect that without him IBM would have died long time ago.
It was just weird to people. Microsoft did a big consumer push for Windows 95 and there were lines to buy it and Bill Gates promoted it on the Jay Leno show.
Windows 95 almost killed Apple.
By plenty, I should be clear: it probably wasn't enough for OS/2 survive. IBM made some bad decisions early on. Microsoft was also a thorn in everyone's side and it looked like. While their product was good enough, their business practices were savage. Possibly something they learned from IBM's legacy.
I was in my late teens/early twenties at the time. What I learned about how major corporations at the time is likely what led to my llife long interest in open source.
Arguably OS/2 was "better" (depending on your definition) but MS were all-in on Windows, and for IBM OS/2 was a side-line. It never stood a chance.
I only came across it at one site, a big UK bank (Midland Bank). They were using a heavily modified version, it didn’t look anything like the original product.
While I don't remember every single speech word for word, I remember one of his earliest all-hands meetings. He said, "If I have one more exec come to me with a bunch of slides that can't simply describe what's happening in their business with the key strategic attributes, I'm going to start firing people." He continued, "If you're running a massive section of the business, I should be able to come to you and we should just be able to have a good, solid conversation about the levers. You need to demonstrate to me that you know exactly what's going on, and you can't have your staffer answer my questions."
He also stated that he was completely appalled because, at every other company he had been at, they woke up every day paranoid about the competition. He told everyone we had completely lost our way. if you weren't waking up every single day thinking about the scorecard, you probably weren't right for the new environment.
If you were internal and under any scrutiny at all during these years, you would understand that Lou, without Jerry York, was only half of the story. Jerry was an amazing financial mind who could sniff through spreadsheets and smell bullshit. People would come out of executive reviews hanging on for dear life. Some of these executives, after they had been exposed to York and actually performed well, would leave IBM and succeed elsewhere. However, to be clear, he was an A-hole.
They achieved an enormous amount of cultural change, which was excellent. The problem was that while they had a great cultural leader and a great financial leader, IBM which was built to the brim with some of the most incredibly technical people you had ever seen, was completely lacking a clear technical lead. Inasmuch as these two guys created an amazing turnaround story, they never stopped for a moment to ask how to find the technical leadership to truly transform the place. While they did a great job, you cannot support a stool with only two legs. If IBM had found that third leg, we would still be counting it among the Mag 8 of today.
Jim Clark is the best I can come up with.
Gerstner joined IBM in 1993 with the company in a very bad situation and immediately killed the "Baby Blues" breakup plan - no more independent product units for PCs, various servers, storage, semiconductors. Instead: one monolith optimized for selling professional services to enterprises. Outsourcing became the flagship.
This saved IBM then. It also set a ceiling on what IBM as a technology company could ever be again. The services pivot worked commercially. Outsourcing grew into a maybe 20 billion/year business, ironically eventually spun off as Kyndryl in 2021. But the cultural shift - from building systems/cutting edge-tech to managing other people's systems - hollowed out IBM's product DNA.
Consider that IBM's last major hardware win was the RS/6000, circa 1990. That's 35 years without a new product category victory. Meanwhile, IBM had countless pieces to own which is cumbersome -- and sad -- to list, and the list would be long. VMs invented in the 1970, running on every mainframe as an example: VMware ate the corporate market while the cloud hyperscalers built actual technology services based on it. You could probably get business consulting on it from IBM in the same time.
IBM Research remained well-funded throughout - still producing papers, still winning awards. But research was not focused to support a technology business any more, it even got pulled into service client engagements (!), subordinated to billable hours rather than productization. The research labs that gave us the bar code, DRAM, RISC, relational databases, and the scanning tunneling microscope became a presales asset.
The counterexample of large technology company in later trouble is Siemens: a conglomerate that actively manages distinct businesses as distinct businesses. Healthineers spun out and thrived. Energy spun out when it needed different go-to-market models. Industrial automation runs independently. No insistence on "one face to the enterprise customer", yet they can probably provided it if needed (don't know). They did their portfolio reshaping without strategic rigidity and the Gerstner betting on a single non-really-tech managed IT services anchored in shallowish business more than anything else horse and not the technology herd of horses.
Gerstner's legacy is complicated. He unquestionably prevented IBM's collapse financially then. But the rescue vehicle became a prison. A company with IBM's research depth, enterprise relationships, and installed base should have built the cloud, should have owned enterprise AI, should have been where AWS, VMware, TSMC even, and more low-hanging Salesforce are now.
Gerstner himself probably wouldn't be recognized as an IBMer by most who worked there before him. Brought in by a probably desperate board to save a company he then remade in a different image entirely. He saved IBM by making it something else he knew to be valuable from his prior work as a business leader. Whether that something else was the best available option, or merely an option he was familiar with: purchasing abstract solutions from a single source, is the open question his tenure leaves behind. This post argues it was the wrong one, dead wrong that is. In hindsight it was just good for the business strategic outsourcing (which is managed IT for large enterprises) side of things, wrong for much else.
Siemens as a company with similar issues of a collapsing core business ca. 2000, even much more so than the mainframe ever did, is the anti-thesis in terms of approach taken. It actively manage distinct businesses as distinct businesses, reshaping portfolios without insisting on a single face or a single model; an approach that turns out to work better looking at it now in comparison than trying to play seller of a single face to enterprise customer as a monolith. Most of the business are both technologically strong and financially in a good shape.
IBM under Gerstner set course on being a monolith optimized for selling and delivering professional services, stripped of the technology capabilities the company was built on. IBM evidently was saved then. Was it the only/best route to take? Probably not, as the low ceiling on what IBM as a technology company could be afterward turned out to be too low to stand or produce not a single major hardware win thereafter for over 35 years.
More bluntly: he transformed a legend into a fallen angel. IBM today is a shadow of what it was, what it stood for, and what it could have been. Gerstner himself fits the pattern of a business turnaround guy - an outside business consultant who saved IBM by remaking it in his own image. He never became an IBMer. But he did make IBM something else.
Sure, RLX were first to market by 6 months or so, but it was IBM that made the blade concept a success.