The conventional wisdom about IBM(s ibm) is that Louis V. Gerstner, the RJR Nabisco executive who became IBM’s CEO and chairman in 1993, righted the ship, taught the elephant to dance, and insert-whatever-turnaround-metaphor-you-want here.
There’s no doubt he did turn around a struggling company founded nearly a century before by Thomas J. Watson. But he also helped sow the seeds for IBM’s current distressed situation, according to a new ebook, The Decline and Fall of IBM by Robert X. Cringely.
One of the negatives Gerstner brought to IBM was the notion of superstar CEO with pay package to match. According to the synopsis of Cringely’s book on Amazon.com:
Only the Watson family had become rich running IBM with later CEOs like John Opel and John Akers living comfortable lives with lots of perks, but they never got BIG RICH. That changed with Gerstner. Sam Palmisano an IBM lifer followed Gerstner as CEO and followed, too, the Gerstner playbook. Palmisano retired three years ago with a retirement package worth $241 million, replaced by IBM’s first woman CEO, Ginni Rometty, who certainly expects a comparable golden parachute.
When top executives don’t have skin in the game, things get out of whack. If IBM does well, its CEO does well. If IBM tanks, its CEO still does well. Top execs are insulated from the fate of the company.
Current and former IBM insiders noted that IBM’s emphasis on innovation and invention has been on the decline for years, Watson being the exception to that rule. The past few decades at the company have seen a transformation from an R&D-driven company where engineers and developers were valued to one where marketers and lawyers are valued more.
IBM makes much of the fact that it spends about $6 billion on R&D annually, but that figure has been pretty much unchanged for years. In its rankings of the top 20 R&D spenders worldwide, Strategy & (formerly Booz & Company) ranked IBM 16th last year.
When you look for transformative technology now — things like augmented reality glasses, self-driving cars, electric cars, etc. — they’re more likely to come from Google(s goog), than IBM despite the polished PR IBM pours into projects like its annual 5 in 5 technologies extravaganza.
In a book excerpt posted on Re/code, Cringely writes:
Lou Gerstner saved IBM from a previous crisis in the 1990s, and then went on to set the company up for the crisis of today. Gerstner was a great leader who made important changes in IBM, but didn’t go far enough. Worse still, he made a few strategic errors that helped the company into its current predicament. Sam Palmisano reversed some of the good that Gerstner had done, and compounded what Gerstner did wrong. The current crisis was made inevitable on Palmisano’s watch. New CEO Ginni Rometty will probably take the fall for the mistakes of her predecessors. She simply hasn’t been on the job long enough to have been responsible for such a mess. But she’s at least partly to blame, because she also hasn’t done anything — anything — to fix it.
Cringely probably doesn’t look kindly on Palmisano’s edict that IBM hit $20 earnings per share by the end of 2015, a move made to assuage shareholders but that has damaged morale and IBM’s ability to build great products, so I’ll have to read the book to find out.
Part of IBM’s problem is now that terrible morale, exacerbated by a continuing wave of layoffs driven by the $20 EPS mandate. It appears the only people not on the chopping block at IBM are those in the C-level suite — the very executives who engineered its decline, or at least watched it happen.