Friday, July 25, 2014

A View from Beneath the Dancing Elephant: Rediscovering IBM's Corporate Constitution, by Peter Greulich

I want to give this book five stars because I know the author and think quite highly of him.  As a lamentation, it deserves that high rating.  It is also a great history of IBM's early culture.  The book is very readable and relatable.

Is this book only for current and former IBM employees, the former to learn the history, the latter for the catharsis?  As a business text, it misses the mark.   I'd like to see a follow on book that closes the gaps.

Many years ago, IBM was known for its extraordinary corporate culture: good performers could count on having their jobs forever, the firm showed loyalty to its employees in acts both small and large, and employees were proud to refer to themselves as "IBMers."

Because employees returned this gift of loyalty with un-coerced dedication of their own, spouses and children also got some attention:  periodic awards dinners at which spouses were invited, usually with entertainment; an annual "Family Day" event where IBM would take over a local fairgrounds and provide rides, entertainment and food for the family; an annual "Holiday Party."

I'm sure my own children remember the holiday parties at the Watson Research Center with a Santa and an age appropriate gift for each child, and the family day events at an amusement park in nearby Connecticut.

Mr. Greulich maps the notion of spending on (investing in) employees as a natural outcome of the original "basic beliefs" of the firm, which provided the moral and ethical compass -- what Mr. Greulich refers to as the "constitution" -- for the firm's behavior toward its employees, and for its employees towards each other.

Those basic beliefs were:
  1. Respect for the individual.   This was about developing employee potential, ensuring two-way communications with management, and an attitude towards the workforce which was explicitly not just transactional.  It is the belief that led to IBM's formal statement to hire and promote independent of one's race, color or creed, in 1953 -- 11 years before the US Civil Rights Act.
  2. Service to the customer.  The wording here was meaningful: "our products and services bring profits only to the degree that they serve the customer and satisfy his needs."
  3. Excellence must be a way of life.
As Mr. Greulich points out, things have changed so much that you'd be hard pressed to find an recent IBM hire who can relate to those times past.   Today, instead of a relationship based culture, there's more a transactional culture:  expect no loyalty from the firm, work for the paycheck, assume you'll leave eventually, at your choice or IBM's.  Instead of trusting in management, one is by default skeptical of them, partly because of the annual lay offs (euphemistically called "resource actions").   In today's world, the constitution of basic beliefs, and the way that IBM implemented them, seem hopelessly old fashioned.

Up to this point, it is easy, especially for a former IBM employee who worked there prior to the early 1990s, to join in on the lamentation.   But what about the business story here:  would I recommend the book for a university course on business organizational models, or ethics and responsibility toward employees, or anything similar?

There are a number of business questions which go unanswered.  Now in fairness, Mr. Greulich might not have been aiming for a broad business readership demographic for his book.  He might have written it primarily for IBM employees past.   But, if he were to extend his analysis to consider the broader business context, he might consider these sorts of notions:
  1. Mr. Greulich portrays the basic beliefs -oriented culture as wonderful -- and surely they were for most employees.  But were they an effective business approach in terms of any meaningful metrics beyond employee attitude and loyalty?   For example:  if the culture was so great, why were there so many layers of management, and so much bureaucracy, leading to such a high general and administrative expense?  

    How is it that the firm made so many errors that it found itself at the brink of bankruptcy (just prior to Lou Gerstner's turn as CEO in 1993)?  Why is it that one of the first action items that Mr. Gerstner identified for IBM's recovery was to refocus the entire firm on client success?  This even though the compass had explicitly identified service to the customer as a basic belief.

    From an outside observer's point of view, those basic beliefs didn't do much to prevent disaster at IBM in the early 1990s.  Given the customer focus issue, one might imagine that -- at least one of --the basic beliefs were completely ineffective.  How did "respect for the individual" align with the legions of checkers upon checkers in the bureaucracy?   It doesn't seem difficult to imagine why someone would think it is time to eliminate this ineffective constitution.

  2. Mr. Greulich alludes to the notion that Mr. Gerstner might have found ways to incorporate the basic beliefs into his restructure of IBM from 1993 to 2002.   But given their abject failure to positively influence the firm's financials, what would have been Mr. Gerstner's motivation?  To spend considerable funds "just" to assure workforce loyalty and delight may have seemed irrelevant to him.   He was brought in explicitly to "fix the numbers," so the key question is, how does a "historical IBM basic beliefs approach to the workforce" facilitate the combination of margin improvement, revenue generation, and new product investment required to succeed? This would be a very interesting research topic.

  3. In the post-Gerstner leadership era at IBM, Mr. Palmisano (and then Ms. Rometty) took over as CEO.  Unlike Mr. Gerstner, they were long time IBM employees; they could remember the basic beliefs that Mr. Greulich describes as IBM's constitution.   So: why didn't they find ways to bring those beliefs back into play, to eliminate annual layoffs (which anyone, even without management training or an MBA could figure out would be extraordinarily demoralizing and disruptive in the long term), and stop raping (if not repair) the old -style pension system?

    Mr. Palmisano choose to restructure those basic beliefs using input from his "values jam" to rebuild them.  Presumably he thought that approach would resonate with his employee base. The net was: dedication to every client's success, innovation that matters, and trust and personal responsibility in all relationships.  Notably though, Mr. Palmisano's list was all about how the employees should act, and not about how the firm should behave towards those employees.

    I wonder if Mr. Palmisano's values list would have justified breaking through race, color and creed barriers back in 1953.   Still the question:  why not return to "old IBM beliefs?"   Is it because he didn't see them working effectively at the goals that matter to him (revenue and earnings growth)?  Why might this be the case?   What adaptations might enable a highly loyal employee base and not unreasonable add to costs?   The key difference between these questions and the ones in (2) above are that here the lead executives were quite familiar with the old culture, as opposed to Mr. Gerstner who had no prior IBM employment experience.

  4. As much as IBM had been an anomaly in its corporate culture prior to the early 1990s, in the 21st century today's IBM appears to act with the norm.   Most (if not all) US firms eliminated their defined benefit pension plans over the past 20 years.   Recent college graduates are told they should expect to change jobs frequently and not stick with the same firm for decades (as their parents might have).  Is this propaganda to reflect the discontinuation of benefit models that would encourage a long-term workforce, or is it a reflection of the changing values of American companies (i.e., towards a contractor -like, transactional and short term relationship with employees)?

    Are there US -based firms today that reflect the "old IBM culture" - and if so, how are they doing on any metrics?  Does Costco fit the model?  If so, is their retention rate a consequence, and a meaningful benefit?   How about Google?  How about firms in the rest of the world?
In summary, while Mr. Greulich's book is well written, the target audience appears to be long-term or former IBM employees who can find catharsis in the read.   For this, five stars.   I was, however, hoping for a text that I could recommend to others, say as a guide to how to organize a 21st century firm, or as an analysis of the tradeoffs between employee relationship and business results. 

A View from Beneath the Dancing Elephant: Rediscovering IBM's Corporate Constitution

1 comment:

Peter E. Greulich said...

Carl, thanks for the review. I am sure that our on-going conversations will benefit us personally, corporations of today and the future, and hopefully the society we both live in. We need this heart-to-heart discussion not only in our economic system, but the political one as well.

It is through respect for each other, not necessarily agreement, that we find the best path, eh?