Manage-Wise

Face reality and tackle your vulnerabilities

It is very hard for people who have enjoyed success to face reality and accept the fact that certain things they do could be significantly improved. It goes against their pride and their self-image. One of the most important things an individual or an organization can do is to develop a mindset that constantly assumes that things can be improved and aggressively pursues alternatives. Here are some good steps to follow to figure out where things stand:

Review all aspects of your business model. For each component, ask what the best players are doing and whether you have an advantage. If you have been doing things the same way for a long period in a particular area, force yourself to investigate alternatives thoroughly. This is the kind of exercise that typically never happens. People get so busy executing day-to-day activities that they rarely take time to step back and look at the big picture.

Be objective. This is the hard part. People who have experienced success and are experts in their legacy practices see things through very biased eyes. It takes energy and hard work to start with a clean piece of paper and create new approaches to things that you have become accustomed to doing in a certain way.

Case study

Let’s look at an example of an industrial giant that was almost driven out of business because it couldn’t see that it had become completely out of sync with its customers.

In the early 1990s, IBM was an example of a previously successful company whose top managers were simply not realistic. They were clinging to the ways in which IBM had operated for years, and they could not imagine any viable alternatives. When the board increased the pressure on the company’s managers, they claimed that there was no better way to run the place and suggested that the company might as well be broken up into numerous smaller companies. But they never developed a specific plan to do so that looked compelling. The board of directors ran out of patience and hired a new CEO.

When Lou Gerstner became the CEO of IBM in 1993, he ran into some incredibly entrenched legacy practices. While Gerstner describes these in detail in his book Who Says Elephants Can’t Dance? There are a few that are so classic that I want to point them out here.

The first thing that infuriated Lou was IBM’s process of strategic decision-making, which consisted of groups within the company forwarding proposals to the Management Committee, often referred to as the MC. When Lou joined the company, there were six members of the MC, and it met once or twice a week, typically in a very formal, long meeting with lots of presentations. Being a member of the MC was the ultimate position of power that every IBM executive aspired to. Every major decision in the company was made by MC.

The difficulty with this decision-making process was that over the years, IBM people had learned how to manipulate the system to get issues handled. Anything that was going to be truly contentious was worked out among the various groups in IBM to finally reach a compromise consensus. The consensus proposal, which reflected these compromises, was forwarded to the MC for presentation, discussion, and final decision. By the time the MC got a proposal, however, there really wasn’t much to discuss because the compromises needed to appease possible dissenters had already been made. Unfortunately, such compromising also dilutes the impact.

Lou hated this watering-down process. He believed that the industry was moving so fast and the technology was so complex that risks had to be taken. A committee process based on compromise was no way to generate big, distinctive, disruptive ideas that could have a big payoff for IBM.

The second thing that was driving Lou nuts was IBM’s complex financial management process. The difficulty was that each group in the complex matrix of geographical units and product divisions had its own set of financial systems and budgets.

It was extremely difficult to pull together consolidated financial statements for all of IBM. Allocations were changing all the time, and accountability was almost completely absent. All of this made it very difficult to find out the real status of various projects and, most importantly, to set specific goals and hold people responsible for achieving them.

The third area where Lou uncovered flaws in the business model was how confusing IBM was from a customer perspective. IBM’s product activities were fragmented, and the sales organization was very complex and internally focused, causing customers to be confused about how to deal with IBM. Customers were very disappointed by IBM’s lack of responsiveness, undoubtedly because of this organizational complexity.

Making fundamental changes

Given all these problems, Lou had to make some very fundamental changes in the company. He knew he had to clean up the complexity and point the entire organization in a specific direction that would get it focused and lead to success.

Within six months of his arrival, he announced to all IBM employees via email that their new role in life would be to solve the customer’s information technology (IT)- related business needs. Basically, his mission was to transform IBM from a computer company to a much broader technology and services company. He totally reorganized the company around customers, and he made a huge push to increase IBM’s services revenue.

All of this involved some very tough decisions, such as massive layoffs, the sale of some operations, and the closing down of several manufacturing plants, many projects, and several offices. The prior business model had become massively bloated, fragmented, lethargic, and crammed full of legacy practices.

Once Lou decided on the direction in which to take the company, he used every opportunity to make sure that the industry, and IBM employees, knew what to expect from the company in the future.

Excerpt from ‘Seduced by Success’ by Robert J Herbold. Reproduced with permission © 2007, Tata McGraw-Hill Publishing Company Limited. Price: Rs 450. Vishwanath_Ghanekar@mcgraw-hill.com