Louis Gerstner—who stepped in to lead International Business Machines Corp. when it was on the brink of collapse and revived it as a technology industry leader—passed away Saturday. He was 83.
IBM’s chairman and CEO Arvind Krishna announced Gerstner’s passing in an sent to the company’s employees on Sunday, but did not provide a cause of death.
Gerstner’s nine-year stint as chairman and CEO of the firm known as is frequently cited as a case study in effective corporate leadership.
On April Fool’s Day 1993, he became the first outsider to run IBM, which faced a choice between bankruptcy or dismemberment after a period as the undisputed leader in personal computers and mainframes. He shifted the Armonk, New York-based company toward business services and away from hardware production, reversing a plan to split it into a dozen or more semi-autonomous units—dubbed “Baby Blues”—in pursuit of higher profits.
Gerstner cut costs sharply and sold off unproductive assets, including real estate and IBM’s fine art collection. He laid off 35,000 of the company’s 300,000 employees, who had grown accustomed to a culture of lifetime tenure rooted in principles set by former CEO Thomas Watson Sr. in the early 20th century.
He emphasized company-wide teamwork to replace the tradition of loyalty to individual divisions, and tied compensation to corporate performance rather than individual results. To meet performance goals, he focused on regular accountability instead of waiting for annual reviews.
“People do what you inspect, not what you expect,” he .
Gerstner’s key change was scrapping IBM’s culture of selling bundled products that only worked with other IBM goods—from PCs to operating systems to software. Products he deemed losers were discarded. He on OS/2, an operating system meant to challenge Microsoft’s Windows that had failed to gain customer popularity.
“His leadership during that period reshaped the company,” Krishna wrote. “Not by looking backward, but by focusing relentlessly on what our clients would need next.”
Focus on Middleware
IBM turned its attention to so-called — software for databases, systems management and transaction management. The company became an impartial integrator for businesses’ networks and systems, willing to help regardless of whether the hardware bore the IBM name.
Gerstner made an early bet on the internet and e-business, correctly predicting these trends would reduce focus on personal computers and increase demand for servers, routers and other sophisticated equipment that leveraged IBM’s service expertise and targeted buyers familiar to its sales force, like chief technology officers.
Later in his tenure, he also made strategic acquisitions such as the $2.2 billion purchase of Lotus Development Corp., whose Notes product was critical for helping IBM customers collaborate across entire enterprises.
The shift from hardware to services boosted IBM’s services revenue from $7.4 billion in 1992 to $30 billion in 2001. Adjusted for stock splits, its share price rose from $13 to $80 during his nine years as CEO, and its market value grew from $29 billion to about $168 billion.
“If I had a vote, the most significant legacy of my tenure at IBM would be the truly integrated entity we created,” he wrote in Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change (2002). “It certainly was the most difficult and risky change I made.”
Louis Vincent Gerstner Jr. was born on March 1, 1941, in Mineola, New York, to Louis Gerstner Sr., a milk truck driver, and Marjorie Rutan, a secretary and college administrator. He was one of four brothers.
He graduated from Mineola’s Chaminade High School, a competitive Catholic institution, then earned an engineering degree from Dartmouth College and an MBA from Harvard University.
Partner
After Harvard, he joined McKinsey & Co. as a consultant. He became a partner in four years and spent 12 years there before taking a role with .
He worked in the credit-card division first, then took over travel-related services. Under his leadership, Amex—then primarily a travel card provider—increased its retail presence and launched premium cards that allowed customers to carry unpaid balances.
With his path to Amex’s top blocked by CEO James D. Robinson III, Gerstner agreed to run RJR Nabisco Inc., where he stayed four years before joining IBM. His main focus there was reducing the $25 billion debt from the leveraged buyout that formed the tobacco and consumer products firm.
IBM’s board began searching for a new CEO after ousting John Akers in January 1993, as the company reported its largest annual loss. In choosing Gerstner, the board prioritized managerial experience over computer expertise. (Gerstner’s brother Richard had worked at IBM for 30 years and led the division including personal computers.)
From Gerstner’s first day in April 1993 to the January 2002 announcement of his departure, IBM’s shares rose ninefold while the S&P 500 Index gained 154%. Sam Palmisano succeeded him, first as CEO then as chairman when Gerstner retired at the end of 2002.
In 2003, Gerstner became chairman of the , the Washington-based private-equity firm. He oversaw its expansion into Asia and Latin America and early IPO preparations (completed in 2012). He retired in 2008 but remained a senior adviser.
With his wife Robin, he had two children. Their son Louis III died in 2013 after a choking accident at a restaurant.
Through , the family has supported biomedical research, environmental and education programs, and social services in New York City, Boston and Florida’s Palm Beach County. They have been longtime supporters of the .