6 Steps to a More Successful Business Transformation
Insurance Experts' Forum, August 16, 2012
“The last thing IBM needs right now is a vision.”
That now-famous quote was uttered at a press conference when new CEO Lou Gerstner was being pressed for an outline of his plans for the beleaguered company in 1993.
IBM, the venerable giant of the computer industry, was being assailed on every front by upstart competitors like Microsoft and Apple and had become a ponderous, slow-moving bureaucracy. Plans were underway to break up the company when Gerstner, an industry outsider, was hired to turn things around.
What did Gerstner do? Within 16 weeks of his arrival, he reversed the decision to break up the company. He cut IBM’s dividend in half and began to slash costs, laying off thousands of workers at a company where lifetime employment was the norm. He disbanded the five-man executive committee responsible for every major policy decision made at the company. He revamped the senior management compensation plan to reward executives for overall company performance rather than for the success of their respective divisions. He jettisoned OS/2, an operating platform in which IBM had invested hundreds of millions and which was the centerpiece of IBM’s efforts to compete with Windows. The battle for the desktop was over, and the financial and resource drain was distracting IBM from efforts where the outcome was still in doubt.
The results were dramatic and immediate. Under Gerstner’s leadership, IBM achieved one of the most remarkable business transformations in history, regaining its position among the world’s most successful and admired companies.
Why did Gerstner succeed at IBM while so many others have failed at other companies? What message was he trying to send with his now-famous comment?
Let’s be clear: It’s not that Gerstner did not have a vision or a plan for how to achieve it. Rather, he understood that IBM’s success hinged on the organization’s ability to execute its plan swiftly and effectively. He knew paying attention to the following principles can help leaders do just that:
• Not all issues are created equal. Three or four outcomes will usually make or break a plan. Understanding what they are and concentrating resources and attention on them to the deliberate exclusion of other things is vital. Smart people can always think of one more task that will add incrementally to a result, but returns diminish quickly.
• Time is of the essence. If you have the key outcomes right, delivering an essential part of the answer quickly is almost always worth more than going for a big bang. Early success creates momentum and gives others confidence that your plan is the right one.
• Get the message right. There should be no doubt as to where you stand on the main issues. Gerstner was unequivocal about what need to change at IBM and what he expected from others. You must be, too.
• Reward the right behavior. People will always act in their own best interest. Make sure the outcomes you are seeking are aligned with that reality.
• Dare to be bold. Slashing IBM’s dividend was positively heretical when Gerstner did it, but he knew he had to get costs under control. Incremental change is often unlikely to produce the necessary results.
• Look from the outside-in. It’s easy to get too close to a problem or too committed to an answer. Find a way to add an impartial, independent point of view to your team.
Not every leader will be confronted with as precipitous a moment as Lou Gerstner faced at IBM. However, being tapped to lead a transformation effort is not uncommon and can be a career-defining experience. Today, the margin for error is smaller than ever, events move swiftly and unexpectedly, the rate and pace of change are accelerating, and the consequences of failure have never been as stark.
The ability to execute effectively and efficiently is as important as your vision of where you want to go.
Keith Glover is a senior consultant at the Robert E. Nolan Company, a management consulting firm specializing in the insurance industry.
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