| Louis V. Gerstner Jr. | |
|---|---|
| Born | March 1, 1942 Mineola, New York, U.S. |
| Occupation | Former CEO |
| Net worth | $630 million (2002 estimate) [1] |
Louis V. Gerstner, Jr. KBE (born March 1, 1942 in Mineola, New York) was chairman of the board and chief executive officer of IBM from April 1993 until 2002 when he retired as CEO in March and chairman in December. He is largely credited with turning around IBM's fortunes.
He was formerly CEO of RJR Nabisco, and also held senior positions at American Express and McKinsey & Company. He is a graduate of Chaminade High School, Dartmouth College and holds an MBA from the Harvard Business School.
In January 2003, he assumed the position of chairman of The Carlyle Group, a global private equity firm located in Washington, DC. He retired from that position in October 2008 and remains a senior advisor to The Carlyle Group.
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Gerstner joined American Express in 1978 as the executive vice president of its charge card division. A year later he was named president of the Travel Related Services group, which was responsible for American Express cards, traveler's cheques, and travel-service offices. At this time, MasterCard and Visa had begun to compete for the company's market share. However, Gerstner found new uses for the card and found new users. In 1980 most department stores did not accept American Express cards - Gerstner acted on this and by 1985 retail sales were the second most common use of the card, following airline tickets. College students, physicians, and women were singled out in various marketing pushes. Furthermore, corporations were persuaded to issue cards as a more effective way of tracking business expenses. Gerstner also created cards that appealed to higher end clients, such as the gold card, which carried an annual fee of $65 and offered a $2,000 line of credit, and the platinum card, which had a $250 annual fee, a $10,000 check-cashing benefit, and private club memberships for traveling executives.
As sales and profits rebounded, Gerstner was promoted to chairman and chief executive officer of Travel Related Services in 1982 and president of the parent company in 1985. Although he claimed the position at the age of 43, Gerstner dismissed the speculation that his success was the product of being a workaholic. Gerstner told Wayne, "I hear that and I can't accept that. A workaholic can't take vacations and I take four weeks a year" (June 30, 1985).
As chairman and chief executive officer of the Travel Related Services division, Gerstner spearheaded the successful "membership has its privileges" promotion. Gerstner's division was continually the most profitable in the company and in the entire financial services industry. Despite these successes, Gerstner hit a ceiling at American Express. The chief executive, James D. Robinson III, was not expected to retire for another 12 years. The analyst Perrin Long at Lipper Analytical told Jesus Sanchez of the Los Angeles Times: "Lou is a very personable guy. But more than anything else, he is a leader more than a follower" (March 14, 1989). After 11 years at American Express, Gerstner left to become chairman and chief executive officer of RJR Nabisco. During Gerstner's tenure at American Express membership had increased from 8.6 million to 30.7 million.
When IBM's board forced chairman and CEO John Fellows Akers to resign, though he would remain in a caretaker role for three months, the directors first looked within the computer industry for his successor. However Apple's John Sculley, Motorola chairman George Fisher, and Bill Gates of Microsoft were not interested (other rumored candidates included Eckhard Pfeiffer of Compaq and Scott McNealy of Sun Microsystems), so IBM turned to Gerstner who was an outsider to the field.[2][3]
Gerstner is credited with saving IBM from going out of business in the early 1990s. The subsequent refocusing on the IT services business (which grew to nearly 50% of the IBM's revenues), the embrace of the Internet as a business phenomenon, and a broad effort to revive the company's culture are widely seen as having resulted in one of the most remarkable turnarounds in business history.[4]
In his memoir, Who Says Elephants Can't Dance?, he describes his arrival at the company in April 1993, when an active plan was in place to dis-aggregate the company. The prevailing wisdom of the time held that IBM's core mainframe business was headed for obsolescence. The company's own management was in the process of allowing its various divisions to rebrand and manage themselves — the so-called "Baby Blues." Gerstner reversed this plan, realizing from his previous experiences at RJR and American Express that there remained a vital need for a broad-based information technology integrator. His decision to keep the company together was the defining decision of his tenure, as these gave IBM the capabilities to deliver complete IT solutions to customers. Services could be sold as an add-on to companies that had already bought IBM computers, while barely profitable pieces of hardware were used to open the door to more profitable deals.[5]
While IBM had been credited with making the personal computer (PC) a mainstream product, the PC's reliance on Intel chips and Microsoft software meant that IBM could no longer monopolize this market. Outgoing IBM chairman and CEO John Fellows Akers, as an IBM lifer, was excessively immersed in its corporate culture and loyalty to traditional ways which masked the threats to the company.[6][7] However as an outsider, Gerstner had no emotional attachment to long-suffering products that IBM developed in order to try to regain control of the PC market. Gerstner wrote that his colleagues were "unwilling or unable to accept" that OS/2 was a "resounding defeat" as it "was draining tens of millions of dollars, absorbing huge chunks of senior management's time, and making a mockery of our image", despite its technical superiority to the dominant Microsoft Windows 3.0. By the end of 1994, IBM ceased new development of OS/2 software. IBM withdrew from the retail desktop PC market entirely, which had become unprofitable due to price pressures in the early 2000s, and sold the PC division to Lenovo in 2005, just a few years after Gerstner stepped down as CEO.[8] To Gerstner, focusing on the desktop PC ran counter to IBM's view of where the tech world was headed.[9]
In his memoir, Gerstner described the turnaround as difficult and often wrenching for an IBM culture that had become insular and balkanized. After he arrived, over 100,000 employees were laid off from a company that had maintained a lifetime employment practice from its inception. Layoffs and other tough management measures continued in the first two years of Gerstner's tenure, but the company was saved, and business success has continued to grow steadily since then.
Gerstner was named a Knight Commander of the British Empire and given a KBE on the recommendation of former United Kingdom Prime Minister, Tony Blair. The award was for his services to UK education and his contribution to the Internet. In 2008, Gerstner received the Legend in Leadership Award from the Yale School of Management.
Upon his departure from IBM, Gerstner received a 10-year consultancy contract worth up to $2 million annually, plus expenses and full use of IBM facilities and services, such as office, cars, aircraft and financial planning. He is only required to work one month out of the year.[10]
Following his success in IBM, Gerstner has also become a mentor to Howard Stringer, CEO of Sony Corporation to turn around the Japanese corporation.[11]
| Business positions | ||
|---|---|---|
| Preceded by John F. Akers |
CEO of IBM 1993-2002 |
Succeeded by Samuel J. Palmisano |
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