What the Best CEOs Know[c] 7 Exceptional Leaders and Their Lessons for Transforming Any Business

In December of 1992, IBM's then CEO John Akers developed a plan to break up his company into several smaller units. The plan—to some extent motivated by the Justice Department-inspired break-up of the Bell system into the "Baby Bells"—had many advocates, especially within the company. With IBM in such dire straits, many insiders believed that several independent units (dubbed the "Baby Blues") competing against one another would have a better chance at surviving. But Gerstner's first major decision, upon taking up the reins, went in the opposite direction. He decided not to break up the company, arguing that implementing the plan would "splinter [IBM] into a collection of piece-part providers":

There wasn't going to be an IBM; there was going to be six or eight IBMs—effectively no IBM. So we made the very early decision—the most important decision I'll ever make in my business career—to reverse that direction and keep IBM whole.

Gerstner made this decision after spending his first months on the job racking up tens of thousands of air miles as he met with customers and managers all over the world. At the end of this odyssey, he was convinced that IBM's hoped-for resurrection would depend on the company's ability to provide a full range of computer products and solutions, rather than simply providing hardware or software. If IBM could do that, customers would look to it to solve all of their computer problems, not just provide piecemeal equipment or stopgap IT measures.

What customers needed, Gerstner said, was "somebody who could sit in the middle of a lot of very-difficult-to-integrate technology and pull it all together ...an integrator who could translate all the technologies into business value."

The alternative [to breaking up the company] was to keep IBM together and to make the breadth of our products, services, and skills our most potent competitive advantage.

In reaching this momentous decision, Gerstner unwittingly played out one of IBM founder Thomas Watson's favorite maxims: "Don't talk machines, talk the prospect's business." And while his own investigations proved critical, the new CEO now needed every part of IBM in order to talk to prospects and find new ways to define and solve their business problems.

The lessons from Gerstner's first months on the job provide valuable insights for other managers grappling with difficult challenges:

• USE EVERY WEAPON IN YOUR ARSENAL. Gerstner knew that he needed all of IBM in order to transform the company, which explains why he kept the company whole. The same lesson pertains even at moderate-sized companies. Make sure that you use every part of the company when you are rethinking corporate strategy or making other far-reaching changes. In these turbulent times, you cannot afford to leave any division, unit, or individual on the sidelines.

• LET THE CUSTOMER IDENTIFY YOUR ACHILLES HEEL. Gerstner knew that the company was in dire straits. In his conversations with customers around the world, he acknowledged that painful fact and asked the customers where the company had gone wrong. That is a key lesson. Your managers and employees may know a great deal about the company, but your customers will provide a fresh perspective.

• GET YOUR FINANCIAL HOUSE IN ORDER AND FINALIZE YOUR VISION BEFORE YOU IMPLEMENT ANY SWEEPING NEW PLAN. When Gerstner declared, "The last thing IBM needs now is a vision," he was focusing on the billions of dollars the company was losing annually. He knew that he had to lead the company out of the "abyss" first. Only after implementing severe cost-cutting measures did he turn his attention to transforming the company culture and developing the vision of IBM as a global solutions company.