Getting Through Highly Uncertain Times - Some Lessons Learned

What does it take to get through highly uncertain times, like the ones we’re in the middle of as we confront the Covid-19 pandemic?  Like most of us, I’ve lived through times of high uncertainty in both my personal and professional lives.  On the personal front, my main observation is that most of us are much more resilient than we realize.  I leave it to psychologists and other experts to offer advice on what it takes to get through such times.

But, when it comes to getting through tough times in our professional life, I’d like to share some lessons learned based on my experiences when IBM, - the company I joined in 1970 after completing my university studies, - almost went out of business in the early 1990s.  Let me describe a few of those lessons.

For over 20 years IBM enjoyed a commanding position in the fast growing IT industry, thanks to its family of mainframes computers launched in 1964.  In 1986 IBM was the most profitable company in the Fortune 500, with more than 400,000 employees around the world, as well as being repeatedly ranked the most admired US company in Fortune’s annual survey.

Then everything changed in just a few short years.  In the 1980s, rapid advances in microprocessors and related technologies opened the door for less expensive, PC- and UNIX-based client-server solutions.  These new microprocessor-based platforms, along with their software and services, commanded significantly lower profit margins than the mainframe margins to which IBM had become accustomed.  By the early 1990s, IBM was losing billions every year, running out of cash and close to bankruptcy.

Few companies survive the kind of near-death experience that IBM went through in those years.  Quite a number of previously successful IT companies didn’t survive these highly disruptive technology and market transitions, - e.g., Digital, Wang, Silicon Graphics, Compaq.

Why was IBM able to survive while so many other IT companies didn’t make it?  I’ve thought a lot about this question.  In my opinion, IBM’s survival was made possible by three major factors: talent and R&D investments; trustful relationships; and wise leadership.  Let me briefly discuss each of these.

Talent and R&D investments.  You never, ever want to first learn about an incoming asteroid when it’s about to hit, and then have to improvise your survival strategy in the middle of a crisis.  Highly talented people should have anticipated the potential disruptive technology and market shift, - the equivalent of spotting an incoming asteroid, - years before, and should have started to get ready for the new environment by developing the appropriate product and market strategies.  Companies often view investing in research to help them anticipate and plan for the future as low priority, unnecessary expenses.  But, this is like not insuring your house because the probability of a fire or some other catastrophic event is relatively small.

For several years, IBM’s technical community had been predicting the technology shifts which almost killed the mainframe business, - from expensive bipolar technologies to much less expensive CMOS microprocessors.  Consequently, they had been designing and prototyping the microprocessors and parallel architectures needed to transition the mainframes to the future, along with what it would take to migrate the huge installed base of systems software and customer applications.

But, dealing with new, highly complex systems requires considerable humility.  Initially, it wasn’t at all clear whether this novel parallel sysplex architecture would be able to support high performance, mission critical transaction applications.  Only after considerable testing and experimentation were we comfortable that it would work.  The mainframe transition was very challenging but by the mid 1990s, a new generation of CMOS-based mainframes started rolling out - a major factor in IBM’s survival.

Trustful relationships.  Another critical survival factor are the trustful collaborations with clients, business partners, research communities, and other stakeholders that take years to build.  This is particularly important if you’re developing sophisticated, complex solutions that at first may not work so well.  You must view yourself as part of an ecosystem whose members trust each other and work together to solve common problems.

“The secret of Big Blue’s longevity has less to do with machines or software than with strong customer relationships,” wrote The Economist in a 2011 article.  “From the beginning, as a maker of complex machines IBM had no choice but to explain its products to its customers and thus to develop a strong understanding of their business requirements.  From that followed close relationships between customers and supplier.  Over time these relationships became IBM’s most important platform - and the main reason for its longevity.”

Wise leadership.  In April of 1993 Lou Gerstner became IBM Chairman and CEO, the first outsider appointed to the position.  This was, in my opinion, the third major factor in IBM’s survival.

Most executives, no matter how smart and experienced, would have been overwhelmed by the profound changes in technology, business models, and markets that were disrupting the IT industry.  Gerstner proved to be a unique leader.  He imbued the IBM workforce with a strong sense of urgency, prodding it to address the serious problems the company faced.  He surrounded himself with executives who knew the company well and understood what needed to be done.  He also brought in a few key outside experts, - most prominently Jerry York, who had considerable experience in turning around troubled companies having been Chrysler’s CFO during its crisis in the 1980s.  Given the extent of IBM losses, Gerstner had to institute a massive restructuring of the company in his firs two years, including layoffs and plant closings.

Early in his tenure he was faced with a few critical decisions.  IBM’s previous leadership had been working on a plan to break up the company into a loose federation of thirteen so-called baby blues.  But, after talking to a number of IBM’s key customer, Gerstner reversed the decision. Customers told him that IBM was much more valuable as an integrated company that could help them solve complex problems and build industry solutions than as a provider of piece parts or components.

Finally, Gerstner focused on transforming the IBM culture that had gotten it in such trouble to begin with.   “I came to see, in my time at IBM, that culture isn’t just one aspect of the game -  it is the game,” he wrote in Who Says Elephants Can't Dance?.

IBM had been the very model of an inward-looking company that pretty much built everything itself, and whose various units competed, rather than cooperated with each other.  Gerstner realized that you couldn’t integrate the company in front of the customer if it was not integrated internally.  He instituted a number of measures, including changes in compensation incentives, to make sure that people in IBM worked together as a team.  Under Gerstner, the IBM culture became significantly more market-oriented and collaborative, paving the way for the company’s strong embrace of the Internet and Linux, as well as open standards and open-source communities.

Let's hope that a combination of talent and R&D, trustful collaborations, and wise leadership will help get us through our current uncertain times.     

Comments

[Pasquale Di Cesare]

Thank you for this post Irving. I joined IBM in early 1994 and lived in first person IBM transforming and rising again, going through most of what you write about. I still recollect people discouraging me in joining but what a bad choice would I have made, had I listened: I would not had the privilege, beside working with my Academy & Research (A&R) Clients, CERN in particular, of meeting you in person, be inspired by your work and be concretely supported. In my former Clients environment, several of the technology you mention and for which you played such a disruptive role in IBM, were in use or being experimented and foreseen for the future. Your and several other enlightened technology leaders’ actions were instrumentals to my task, despite the uncertainties. I early retired in 2015 and the importance the A&R Client environment is to my eyes again emphasized today, 26 years later since I joined. I strongly feel, when reading with interest the recent Arvind Krishna’s letter to employees, strategic technology choices such as hybrid clouds, AI, Linux, open source, RH OpenShift etc … constitute in large part the ground of those A&R Clients daily work or are evaluated for the future. I greatly appreciate the support IBM has provided. Clearly to me the “Talent and R&D investments”, e.g. with IBM Research, was absolutely key and Lou Gerstner’s “Wise leadership” of paramount importance. The book you cite contains many of the communications I still recollect receiving as young IBMer, a precious resource I enjoy revisiting from time to time. And I hope and think to some extent I contributed to that “Trustful relationships” with the Clients you emphasize: I am extremely grateful to you, IBM and many of my former colleagues and management!

[Z. Sarah]

Thank you for sharing all this insight and background story for IBM in the 90s towards today and the future. Always looked to IBM as a leader in technology. To make high end technilogy you would need a strong backbone of all these elements mentioned.