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From Near Bankruptcy to Industry Leader: How Listening Turned Around IBM

Posted on June 04, 2015

When Lou Gerstner was named CEO of IBM in 1993, it was only because top executives at Apple, Motorola, and Microsoft were not interested in the job.

Gerstner, an executive with stints at American Express and RJR Nabisco, was a true outsider appointment for the tech giant and marked a notable break in tradition. The company was previously well known for lifetime employment and promoting from within.

It was a bold move by a desperate company. There was a reason for the saying "No one gets fired for buying IBM" but things had shifted badly for the titan. A company once so dominant it bordered on being a monopoly, IBM had been undercut by a proliferation of cheaper personal computer clones that used the same Intel chips and Microsoft operating system. When Gerstner took the reins, the company was rapidly falling behind and on the brink of bankruptcy.

Further, Gerstner found IBM culture had become insular and rife with warring factions and departments. Outgoing CEO John Akers was a company loyalist, staying true to the traditional way of doing things. In his book about his time at IBM, Gerstner less generously described IBM culture as "inbred and ingrown."

How He Did It

As an outsider with no emotional attachment to any of IBM's products, Gerstner was in a good position to perceive the real problems and offer possible solutions (like all new employees).

Gerstner immediately realized management “presided rather than acted,” and the company was more preoccupied with itself than its customers. To solve the problem, Gerstner started a listening tour called Operation Bear Hug. As part of the project, managers were given three months to meet with customers, ask them about their problems, and discuss how IBM could help.

Managers then relayed these messages to Gestner and other executives in memos. In effect, Operation Bear Hug created a new communication pipeline directly from customers to top executives and gave it an enormous competitive advantage.

Gerstner didn't stop there. Daily he "bear-hugged" employees, toured company work sites, and hosted gatherings to share information, debate ideas, and address concerns. Holding 90- minute unscripted Q&A sessions with staff, he sometimes spoke with 20,000 workers at a time. All the while Gerstner listened hard, reserved judgment, and attempted to remain objective. He later said, “I listened, and I tried very hard not to draw conclusions."

And, as we've documented on this blog many times in the past, being able to share ideas with management delivered tremendous gains. Operation Bear Hug shifted IBM’s culture from an inwardly focused bureaucracy to a market-driven innovator, and the results were stunning. From 1993 to Gerstner's retirement in 2002 IBM's market capitalization rose from $29 billion to $168 billion.

Nobel Prize winning scientist Linus Pauling once said, "If you want to have good ideas you must have many ideas." As one can see in Gerstner's turnaround of IBM, creating communication channels between client and executives, and fostering an environment where suggestions can be presented and debated openly, leads to massive gains. When companies are not functioning well, it is often due to a breakdown of communication. Opening up these channels can make all the difference.

If your organization is ready to open up the lines of communication and challenge your employees to be an active part of your company’s success, then give us a call at Vocoli 888.919.5300 or send us an email at sales@vocoli.com.

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