Gerstner to Step Down as I.B.M. Chief
Yahoo news source
Wednesday January 30 09:00 AM EST
By STEVE LOHR The New York Times
Louis V. Gerstner Jr., an outsider who guided a remarkable turnaround at I.B.M. and transformed its once-hidebound culture, announced that he would step down on March 1.
ARMONK, N.Y., Jan. 29 Louis V. Gerstner Jr., an outsider who guided a remarkable turnaround at I.B.M. and transformed its once-hidebound culture, announced today that he would step down as the chief executive on March 1.
The timing of the announcement was mildly surprising, coming a bit earlier than industry analysts had expected. But Mr. Gerstner's move was widely foreseen within the company and the computer business, as was the decision by the I.B.M. board today to name Samuel J. Palmisano, the president, as the new chief executive. Mr. Gerstner turns 60 on March 1, and he had told colleagues he was aiming for that date, with the final word coming at the board meeting today at company headquarters here.
Mr. Gerstner, who will remain as chairman to advise Mr. Palmisano until the end of the year, would not say in an interview what he will do next. A sturdy, vigorous man, whose regimen includes daily workouts, Mr. Gerstner made clear that stepping aside at I.B.M. would not mean retirement. His interests include public policy and education, as well as business. He had been mentioned as a possible cabinet member in the Bush administration, and he has written a book on education and been chairman of education conferences, promoting national testing and standards of achievement.
A former partner at the consulting firm McKinsey & Company, who then went on to American Express and RJR, Mr. Gerstner would seem ideally suited to become a senior adviser to major corporations, the path taken by his friend and peer, John F. Welch Jr., who stepped down at General Electric last year. And Mr. Gerstner, like Mr. Welch, may well be a sought-after author to write a business book on the lessons learned from his I.B.M. experience.
"I certainly will be doing other things," Mr. Gerstner said. "After the end of this year, and when I'm ready to talk about them, I will. But I'm certainly not going to go off and play golf."
In an e-mail message to I.B.M. employees today, he addressed the matter of the timing of his move. "Let me say something about the timing of this transition, because some people believe I.B.M. C.E.O.'s are required to step aside at 60. That's not so," Mr. Gerstner wrote with the sort of candor that has been a hallmark of his leadership style at I.B.M.
"There is no rule or age limit that requires me to do this now," he added. "I'm doing it because I'm convinced the time is right. The company is ready and so is the new leader. I have never felt more optimistic and confident about our future."
Since April 1993, when Mr. Gerstner joined the company, I.B.M.'s fortunes have improved almost beyond recognition. Then, the company was in deep trouble, its mainstay mainframe business slipping badly, and its profits and competitiveness sliding as well. I.B.M. seemed slow and out of step, losing out to the more nimble technology leaders of the personal computer era, led by its former partner and supplier, Microsoft.
Mr. Gerstner overhauled the company. He cut costs and eliminated the jobs of thousands of workers, and then set about making a lumbering giant of a corporation fast on its feet.
"Gerstner did inject a new culture, a new perspective on the world, into a company that had become very insular," said David B. Yoffie, a professor at Harvard Business School. "That is his most lasting legacy."
In selecting Mr. Gerstner, I.B.M. was not only betting on a person, but also on the nature of a problem. He was a stellar general manager, but not a technologist.
Indeed, as Mr. Gerstner said today, the troubles at I.B.M. were not mainly technical in nature. "If they had been," he said, "I wouldn't have lasted more than about three months because that's not my strength."
After a short time on the job, Mr. Gerstner recalled, it was clear to him that I.B.M. had a storehouse of outstanding technology. "They simply had done a terrible job of bringing that technology to the marketplace. It had become a closed, kind of inward-looking organization."
So Mr. Gerstner set about refocusing the company outward on customer requirements and the marketplace.
This change of focus spilled over into how the company's technology strategy was carried out, according to Mr. Palmisano. I.B.M.'s technologists recognized the importance of the Internet early and communicated that to its executives.
Mr. Palmisano, 50, who came up through the ranks at I.B.M., recalled executive meetings headed by Mr. Gerstner. His strategic focus, Mr. Palmisano said, would be on the pragmatic benefits of Internet technology to I.B.M.'s corporate customers.
Mr. Palmisano recalled: "Lou would say, tell me what it means to the customer, this networked world. Don't talk to me about bandwidth or browsers, or that sort of stuff."
Mr. Gerstner also broke down the fiefs within I.B.M. and shifted the company's center of gravity away from hardware selling big machines and instead toward services. He deftly tapped the technology in I.B.M.'s research laboratories and increasingly invested in software.
But the biggest move was toward services, which meant selling customers solutions to business problems instead of selling them computers.
I.B.M.'s services strategy also meant that it would use technology from others, and not be wedded to its homegrown hardware and software another big break with the Big Blue tradition.
"Lou understood that I.B.M.'s advantage was not the technological lock-in, but the expertise," said Frank Moss, a former I.B.M. executive. "I.B.M. has all these people who understand how to use computing to solve business problems."
I.B.M. also said today that its vice chairman, John M. Thompson, would retire from the company and board on Sept. 1. At one point, there had been speculation that he would help lead the company.
Since Mr. Gerstner joined I.B.M. in 1993, through the end of 2001, the company's share price has increased 800 percent and its stock market value has risen more than $180 billion. From 1994, Mr. Gerstner's first full year as chief executive, to last year, income rose to $7.7 billion from $3 billion, as revenue increased to $86 billion from $64 billion. Today, I.B.M. stock fell $5.15, to $103, on a sharply lower day on Wall Street.
The company's revenue and income were both down somewhat last year from 2000, but the declines were far less than those at nearly every other company in the computer industry. Some financial analysts note that I.B.M.'s practice of overfinancing its pension plan inflates reported earnings, and its policy of aggressively buying back its shares in recent years enhances earnings per share. But most analysts agree that whether these factors are included or discarded, the fundamental story of success under Mr. Gerstner remains intact.
The main uncertainty is growth. It is undeniably more stable, competitive and healthy, but it is unclear whether the reliance on services inevitably means slower growth under Mr. Palmisano.
"I.B.M. has weathered the storm of the last few years better than any other technology company," Mr. Yoffie of Harvard Business School said. "But I.B.M. is not a high-growth company."
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