Only the paranoid survive.
That oft-quoted phrase, invoked once more by Louis Gerstner at the closing general session of LIMRA’s annual meeting in New York City on October 28, may be as applicable to life insurers today as it has to been to high-tech companies operating in a cut-throat business environment. During Tuesday’s wide-ranging talk on his tenure as IBM’s former chairman and CEO, Gerstner warned that life insurers will likely face unprecedented opportunities and challenges in the coming years, each driven by tech advances that IT companies like IBM have enabled.
“There are two forces in world that will dominate the business community over next two decades: first, the rising middle class in emerging markets; and second, the emergence of e-marketplaces. The latter should be a particular focus for people in this [general session]” said Gerstner.
“The consumer will be doing almost everything through e-marketplaces in the future — payments, banking, investments — and maybe also life insurance purchases,” he added. “Standing between you and these e-marketplaces is only the regulatory environment.”
And the regulators, added Gerstner, are not a “sufficient shield” for life insurers and financial services professionals looking to protect their businesses from online providers. Among them: tech giants like Amazon, Apple and Google, as well as business upstarts.
Concomitant with the technology-driven upheaval lay opportunities for companies intent on taking market share from competitors. For CEOs across the financial services world, said Gerstner, such instability can be the best of times.
Facing the abyss
For IBM, it was the worst of times when Gerstner arrived at the IBM in 1993, an IT behemoth then on the verge of bankruptcy.
The company’s business units often were run as fiefs, their executives making decisions with a view to enhancing resources or the authority of their unit, rather than the well-being of the company. Reflecting this lack of cohesiveness, individuals received salary increases and bonuses based on their individual performance, not that of the company.
The problems extended to rigid businesses and procedures that slowed product innovation, discouraged communication among divisions that should have been collaborating more closely, and prevented the company from responding nimbly to an evolving market for PCs and other IT equipment and services.
IBM was also notorious for being customer-unfriendly, a problem then (as now) endemic to many IT companies. Witness the many hardware and software products that don’t integrate —or don’t connect at all —with third-party solutions.
For IBM, the source of the company’s troubles was its “success syndrome” — the belief that business processes and strategies that worked well previously will continue to fuel to a company’s growth. In a static market, that may hold true, but not in dynamic one like IT where the players, riding technology gains and shifts in marketing positioning, constantly threaten to surpass their competitors.
“Organizations tend to fall in love with their existing products and processes,” said Gerstner. “People get caught up in the status quo. When someone says, we may have to change, there is a real resistance.
“This is destructive,” he added. “Even when there is a recognition of a need to change, companies often fail to execute in aligning their operations with market demands. I see this a lot.”
A shake-up of IBM’s stultified corporate culture, said Gerstner, was needed if the company was to compete and restore itself to financial health.
“The key to changing an organization is recognizing what’s going on in the marketplace and articulating a sense of crisis and urgency,” said Gerstner. “If you don’t do this, corporate inertia will continue the existing pattern of behavior.”
Changing how business was done at Big Blue was not easy going. Reengineering IBM to be a more customer-facing organization, said Gerstner, was akin to “setting your hair on fire and putting it out with a hammer.” The job required not only a well-articulated vision of the business transformation, but also effective execution on the blueprint — a critical step at which many businesses fail.
One reason: Opposition on the part of key executives who are expected to communicate the CEO’s message consistently and often; and who are depended on to enforce new company policies.
IBM had its share of foot-draggers. Gerstner cited the example of a high profile exec in charge of IBM’s operations in Europe and Asia who was not forwarding Gerstner’s communications to employees under his purview. Despite meeting with Gerstner about the issue he continued in his ways — and ultimately was fired for his intransigence.
This “public hanging” had the desired effect: Adversaries fell into line and got with the program. IBM’s transition to an IT services business (which grew to nearly 50 percent of company revenue) proceeded apace, helped in part by the recruitment of talent from outside the company. But Gerstner said he focused in greater measure on tapping the potential of the firm’s existing employees.
“IBM at the time I took the helm had more Nobel laureates than did most countries,” he said. “So I decided to define my team from the inside — I knew I could find people who would respond to my calls for change.
“We ended up with ratio of about 75 percent internal people and 25 percent recruited externally,” he added. “Building and growing your own talent is the best way to go.”
IBM’s overhaul engendered other changes both large and small. The public uniform of IBM employees for most of the 20th century — a dark suit, white shirt and tie — was replaced by a more flexible policy on attire: dress for the occasion.
Remaking IBM into a customer-centric business also entailed the jettisoning of rules that allowed business divisions to fight with one other over budgets and priorities; and the adoption of best practices that encouraged greater teamwork and transparency in communications so that product development and other issues could be identified early and resolved collaboratively.
The overhaul also encompassed meetings: their frequency, how they were conducted, and who got to participate in them.
“It used to be that people running a slide presentation controlled the meeting agenda,” said Gerstner. “In my first month on the job, I turned the projector off.
“I said, ‘We’re no longer having slide presentations. You send us PowerPoint slides in advance, then we’ll discuss issues raised by the presentation in the meeting. And only people who need to be in the meeting will attend.’”
Leading the way
None of these changes would have happened without firm direction from the top. CEOs endeavoring to turn around failing businesses, Gerstner insisted, must be “disciplined problem-solvers.” But they sometimes need to dig to identify the issues.
Case in point: Though sales data showed that IBM was losing ground to its competitors, customer satisfaction surveys indicated that buyers of Big Blue’s products were happy with the company. How to explain the dichotomy? After inquiring into the issue, Gerstner found that IBM pollsters were skewing survey results by only interviewing customers known to be content with the company’s solutions.
Customer satisfaction surveys conducted by IBM at the time of his departure, Gerstner added, show comparably high scores — the difference being they then reflected accurately on customer sentiment. Increased customer satisfaction and loyalty led, in turn, to a rebound in revenue and the stabilizing of IBM’s position in the marketplace.
As well as of its employee base. When Gerstner arrived at IBM, the company had lost 100,000 people; an additional 140,000 were downsized as part of the company’s restructuring. The company proceeded to recruit up to 200,000 people— many of them employed in entirely new positions as it honed its new focus on business software and services.