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ONGC GROWTH STRATEGY
The case describes the growth strategy
and diversification plans of the
Government owned Oil and Natural Gas
Corporation Limited (ONGC) the largest
oil exploration and production (EampP)
company in India ONGC has near
monopoly in Indias oil EampP industry
producing nearly 90 percent of the
countrys crude oil and natural gas Till
the late 1990s the company was mainly
confined to upstream activities of EampP
In order to reduce risks inherent in
confining to one activity and to achieve
financial stability and steady growth
ONGC acquired a major equity stake in
Mangalore Refinery and Petrochemicals
Limited so as to enter the down stream
activities of refining With this ONGC
became the first integrated oil company
in India
The case examines the benefits and drawbacks of oil EampP Company entering
into refining and retailing businesses The case also discusses the possible
benefits and disadvantages of ONGCs plans in 2004 to enter insurance power
generation and shipping businesses as part of its diversification program
Issues
raquo Examine the growth strategy of a public sector oil exploration and production
company
raquo Study the internal and external factors that contributed to the growth of
ONGC
raquo Critically analyze the vertical integration strategy of ONGC by entering into
refining and retailing businesses
raquo Examine the latest diversification plans of ONGC to enter insurance power
generation and shipping businesses and identify synergies if any with its core
businesses
raquo Chalk out a future growth strategy for ONGC
raquo Gain insights into the oil and energy industry in India
Introduction
The Oil and Natural Gas Corporation Limited (ONGC) was the largest oil
exploration and production (EampP) company in India The company enjoyed a
dominant position in the countrys hydrocarbon sector with 84 per cent market
share of crude oil amp gas production Around 57 per cent petroleum exploration
licenses in India for over 588 thousand sq km belonged to ONGC
The company was the first to achieve Rs
100 bn net profits in the Indian corporate
history ONGCs major products included
petroleum crude natural gas liquefied
petroleum gas (LPG) kerosene and
petrochemical feedstock For the fiscal
year ended 2002-03 the company
reported gross revenues of Rs 353872 bn
and net profit of Rs 105293 bn With
market capitalization of US$ 15 bn
ONGC was ranked 260 in
BusinessWeeks Global 1000 list of the
worlds top companies by market value
for 2003-04 Since the mid 1990s ONGC
had faced the problem of declining crude
oil and gas production The company
made efforts to consolidate its position in
the business by acquiring foreign oil
equity through its wholly owned
subsidiary ONGC Videsh Limited
(OVL)
OVL was formed to help ONGC secure a strong foothold in the international oil
market With the acquisition of Mangalore Refinery and Petrochemicals
Limited (MRPL) ONGC became the first integrated oil company in India
With ONGCs core business showing
signs of stagnation the company chalked
out a massive diversification plan to go
into downstream activities such as LNG
marketing diesel naphtha and kerosene
ONGC was also contemplating forward
integration opportunities in gas
petrochemicals and the power sector
The company also announced its
intentions of entering the insurance and
shipping business in the next couple of
years However ONGCs diversification
plans received a major setback when the
Government of India (GoI) announced
that the company should stick to its core
business rather than venturing into
unrelated areas
Prior to independence there were two companies in India involved in the
exploration of oil - the Assam Oil Company in the North-Eastern region and the
Attock Oil Company in the North-Western region
Both companies had meagre oil exploration outputs as major parts of India were
deemed unfit for exploration of oil and gas resources
After independence the GoI realized the
importance of developing the oil and gas
sector to achieve rapid industrialization
In the 1950s private oil companies
carried out exploration of hydrocarbon
resources in the country
However a large portion of offshore
regions remained largely unexplored In
the mid 1950s the GoI decided to
explore oil and natural gas resources in
various regions of the country This
resulted in the formation of the Oil and
Natural Gas Directorate at the end of
1955 as a subordinate office under the
then Ministry of Natural Resources and
Scientific Research
The department was constituted with a team of geoscientists from the
Geological Survey of India
However soon after the Directorates formation it became evident that it would
not be possible for the new body to function efficiently due to limited financial
and administrative powers
In August 1956 the Directorate was raised to the status of a Commission with
enhanced powers but it continued to be under GoI control
In October 1959 the body received
further elevation both in status and
powers with the Commission being
converted into a statutory body by an act
of Parliament This act came to be known
as the ONGC Act in 1959
According to the act Oil and Natural Gas
Commissions main functions were to
plan promote organize and implement
programmes for the development of
Petroleum Resources and the production
and sale of petroleum and petroleum
products produced by it and to perform
such other functions as the Central
Government may from time to time
assign to it
Industry experts felt that ONGC new strategy was essential They felt that there
was a pricing cycle for crude (Refer Exhibit I for world oil prices for three
decades) gas refinery margin marketing margin petrochemical margin and that
international prices operated on different cycles in each case
This meant that confining to one sector
whether upstream or downstream or
petrochemicals would make any
organization vulnerable to the ups and
downs of a particular cycle The
integration of these activities would
ensure profitable operation across a
number of cycles and financial stability
ONGC acquired 297 mn shares of MRPL
from the AVB group for Rs 2 per share in
March 2003 The company pumped in Rs
6 bn by issuing fresh equity of MRPL
increasing its equity stake to 51 per cent
Later on ONGC purchased 356 mn
shares from institutional investors and
increased its stake in MRPL to 715 per
cent This deal was worth about Rs 39
bn The total amount invested by ONGC
in MRPL was about Rs 10494 bn
The Growth Plan
ONGC tried to overcome the declining production of oil and natural gas by
focusing on new domestic production enhancement programs offshore
exploration and technology upgradation To improve productivity and financial
performance ONGC concentrated on human resources development and
financial restructuring
For the fiscal year 2004-05 ONGC
planned to spend approximately Rs 100
bn on capital expenditure relating to
exploration and development of domestic
oil and gas properties As part of
production enhancement redevelopment
of Bombay High oil wells was given top
priority This involved two projects
called Bombay High North
Redevelopment and Bombay High South
Redevelopment which were expected to
cost around Rs 82 bn The program
aimed to achieve an additional 76 mn
tonnes of producible reserves of oil and
gas ONGC expanded its global
operations through its subsidiary OVL
by making sizeable capital investments in
Vietnam Sakhalin (Russia) and Sudan
The Deregulation
The GoI deregulated the Indian oil industry with effect from April 01 2002 by
doing away with APM This meant that domestic oil companies could take
independent decisions based on import parity and market forces in pricing
petroleum products
It also meant that oil PSUs would lose
state protection and would have to face
the global competitive business
environment Industry experts felt that
deregulation would give an edge to
domestic PSUs in marketing their
products due to their strong investment
base superior infrastructure and extended
distribution network They felt that
dismantling APM would also result in
increased profitability for oil companies
As expected the dismantling of APM
benefited ONGC significantly For the
fiscal year 2002-03 ONGC reported a 70
per cent jump in net profits to Rs
105293 bn as opposed to Rs 61979 bn
in the previous year ONGCs revenues
increased from Rs 225142 bn in 2001-
02 to Rs 342773 bn in 2002-03 an
increase of 534 per cent
Future Plans
In mid- 2004 ONGC was contemplating forward integration opportunities in
gas petrochemicals and the power sector It announced plans to set up major
power plants using natural gas at Dahej in Gujarat and another plant at
Mangalore in Karnataka
An agreement was entered into with Gujarat Government for setting up a
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
raquo Critically analyze the vertical integration strategy of ONGC by entering into
refining and retailing businesses
raquo Examine the latest diversification plans of ONGC to enter insurance power
generation and shipping businesses and identify synergies if any with its core
businesses
raquo Chalk out a future growth strategy for ONGC
raquo Gain insights into the oil and energy industry in India
Introduction
The Oil and Natural Gas Corporation Limited (ONGC) was the largest oil
exploration and production (EampP) company in India The company enjoyed a
dominant position in the countrys hydrocarbon sector with 84 per cent market
share of crude oil amp gas production Around 57 per cent petroleum exploration
licenses in India for over 588 thousand sq km belonged to ONGC
The company was the first to achieve Rs
100 bn net profits in the Indian corporate
history ONGCs major products included
petroleum crude natural gas liquefied
petroleum gas (LPG) kerosene and
petrochemical feedstock For the fiscal
year ended 2002-03 the company
reported gross revenues of Rs 353872 bn
and net profit of Rs 105293 bn With
market capitalization of US$ 15 bn
ONGC was ranked 260 in
BusinessWeeks Global 1000 list of the
worlds top companies by market value
for 2003-04 Since the mid 1990s ONGC
had faced the problem of declining crude
oil and gas production The company
made efforts to consolidate its position in
the business by acquiring foreign oil
equity through its wholly owned
subsidiary ONGC Videsh Limited
(OVL)
OVL was formed to help ONGC secure a strong foothold in the international oil
market With the acquisition of Mangalore Refinery and Petrochemicals
Limited (MRPL) ONGC became the first integrated oil company in India
With ONGCs core business showing
signs of stagnation the company chalked
out a massive diversification plan to go
into downstream activities such as LNG
marketing diesel naphtha and kerosene
ONGC was also contemplating forward
integration opportunities in gas
petrochemicals and the power sector
The company also announced its
intentions of entering the insurance and
shipping business in the next couple of
years However ONGCs diversification
plans received a major setback when the
Government of India (GoI) announced
that the company should stick to its core
business rather than venturing into
unrelated areas
Prior to independence there were two companies in India involved in the
exploration of oil - the Assam Oil Company in the North-Eastern region and the
Attock Oil Company in the North-Western region
Both companies had meagre oil exploration outputs as major parts of India were
deemed unfit for exploration of oil and gas resources
After independence the GoI realized the
importance of developing the oil and gas
sector to achieve rapid industrialization
In the 1950s private oil companies
carried out exploration of hydrocarbon
resources in the country
However a large portion of offshore
regions remained largely unexplored In
the mid 1950s the GoI decided to
explore oil and natural gas resources in
various regions of the country This
resulted in the formation of the Oil and
Natural Gas Directorate at the end of
1955 as a subordinate office under the
then Ministry of Natural Resources and
Scientific Research
The department was constituted with a team of geoscientists from the
Geological Survey of India
However soon after the Directorates formation it became evident that it would
not be possible for the new body to function efficiently due to limited financial
and administrative powers
In August 1956 the Directorate was raised to the status of a Commission with
enhanced powers but it continued to be under GoI control
In October 1959 the body received
further elevation both in status and
powers with the Commission being
converted into a statutory body by an act
of Parliament This act came to be known
as the ONGC Act in 1959
According to the act Oil and Natural Gas
Commissions main functions were to
plan promote organize and implement
programmes for the development of
Petroleum Resources and the production
and sale of petroleum and petroleum
products produced by it and to perform
such other functions as the Central
Government may from time to time
assign to it
Industry experts felt that ONGC new strategy was essential They felt that there
was a pricing cycle for crude (Refer Exhibit I for world oil prices for three
decades) gas refinery margin marketing margin petrochemical margin and that
international prices operated on different cycles in each case
This meant that confining to one sector
whether upstream or downstream or
petrochemicals would make any
organization vulnerable to the ups and
downs of a particular cycle The
integration of these activities would
ensure profitable operation across a
number of cycles and financial stability
ONGC acquired 297 mn shares of MRPL
from the AVB group for Rs 2 per share in
March 2003 The company pumped in Rs
6 bn by issuing fresh equity of MRPL
increasing its equity stake to 51 per cent
Later on ONGC purchased 356 mn
shares from institutional investors and
increased its stake in MRPL to 715 per
cent This deal was worth about Rs 39
bn The total amount invested by ONGC
in MRPL was about Rs 10494 bn
The Growth Plan
ONGC tried to overcome the declining production of oil and natural gas by
focusing on new domestic production enhancement programs offshore
exploration and technology upgradation To improve productivity and financial
performance ONGC concentrated on human resources development and
financial restructuring
For the fiscal year 2004-05 ONGC
planned to spend approximately Rs 100
bn on capital expenditure relating to
exploration and development of domestic
oil and gas properties As part of
production enhancement redevelopment
of Bombay High oil wells was given top
priority This involved two projects
called Bombay High North
Redevelopment and Bombay High South
Redevelopment which were expected to
cost around Rs 82 bn The program
aimed to achieve an additional 76 mn
tonnes of producible reserves of oil and
gas ONGC expanded its global
operations through its subsidiary OVL
by making sizeable capital investments in
Vietnam Sakhalin (Russia) and Sudan
The Deregulation
The GoI deregulated the Indian oil industry with effect from April 01 2002 by
doing away with APM This meant that domestic oil companies could take
independent decisions based on import parity and market forces in pricing
petroleum products
It also meant that oil PSUs would lose
state protection and would have to face
the global competitive business
environment Industry experts felt that
deregulation would give an edge to
domestic PSUs in marketing their
products due to their strong investment
base superior infrastructure and extended
distribution network They felt that
dismantling APM would also result in
increased profitability for oil companies
As expected the dismantling of APM
benefited ONGC significantly For the
fiscal year 2002-03 ONGC reported a 70
per cent jump in net profits to Rs
105293 bn as opposed to Rs 61979 bn
in the previous year ONGCs revenues
increased from Rs 225142 bn in 2001-
02 to Rs 342773 bn in 2002-03 an
increase of 534 per cent
Future Plans
In mid- 2004 ONGC was contemplating forward integration opportunities in
gas petrochemicals and the power sector It announced plans to set up major
power plants using natural gas at Dahej in Gujarat and another plant at
Mangalore in Karnataka
An agreement was entered into with Gujarat Government for setting up a
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
oil and gas production The company
made efforts to consolidate its position in
the business by acquiring foreign oil
equity through its wholly owned
subsidiary ONGC Videsh Limited
(OVL)
OVL was formed to help ONGC secure a strong foothold in the international oil
market With the acquisition of Mangalore Refinery and Petrochemicals
Limited (MRPL) ONGC became the first integrated oil company in India
With ONGCs core business showing
signs of stagnation the company chalked
out a massive diversification plan to go
into downstream activities such as LNG
marketing diesel naphtha and kerosene
ONGC was also contemplating forward
integration opportunities in gas
petrochemicals and the power sector
The company also announced its
intentions of entering the insurance and
shipping business in the next couple of
years However ONGCs diversification
plans received a major setback when the
Government of India (GoI) announced
that the company should stick to its core
business rather than venturing into
unrelated areas
Prior to independence there were two companies in India involved in the
exploration of oil - the Assam Oil Company in the North-Eastern region and the
Attock Oil Company in the North-Western region
Both companies had meagre oil exploration outputs as major parts of India were
deemed unfit for exploration of oil and gas resources
After independence the GoI realized the
importance of developing the oil and gas
sector to achieve rapid industrialization
In the 1950s private oil companies
carried out exploration of hydrocarbon
resources in the country
However a large portion of offshore
regions remained largely unexplored In
the mid 1950s the GoI decided to
explore oil and natural gas resources in
various regions of the country This
resulted in the formation of the Oil and
Natural Gas Directorate at the end of
1955 as a subordinate office under the
then Ministry of Natural Resources and
Scientific Research
The department was constituted with a team of geoscientists from the
Geological Survey of India
However soon after the Directorates formation it became evident that it would
not be possible for the new body to function efficiently due to limited financial
and administrative powers
In August 1956 the Directorate was raised to the status of a Commission with
enhanced powers but it continued to be under GoI control
In October 1959 the body received
further elevation both in status and
powers with the Commission being
converted into a statutory body by an act
of Parliament This act came to be known
as the ONGC Act in 1959
According to the act Oil and Natural Gas
Commissions main functions were to
plan promote organize and implement
programmes for the development of
Petroleum Resources and the production
and sale of petroleum and petroleum
products produced by it and to perform
such other functions as the Central
Government may from time to time
assign to it
Industry experts felt that ONGC new strategy was essential They felt that there
was a pricing cycle for crude (Refer Exhibit I for world oil prices for three
decades) gas refinery margin marketing margin petrochemical margin and that
international prices operated on different cycles in each case
This meant that confining to one sector
whether upstream or downstream or
petrochemicals would make any
organization vulnerable to the ups and
downs of a particular cycle The
integration of these activities would
ensure profitable operation across a
number of cycles and financial stability
ONGC acquired 297 mn shares of MRPL
from the AVB group for Rs 2 per share in
March 2003 The company pumped in Rs
6 bn by issuing fresh equity of MRPL
increasing its equity stake to 51 per cent
Later on ONGC purchased 356 mn
shares from institutional investors and
increased its stake in MRPL to 715 per
cent This deal was worth about Rs 39
bn The total amount invested by ONGC
in MRPL was about Rs 10494 bn
The Growth Plan
ONGC tried to overcome the declining production of oil and natural gas by
focusing on new domestic production enhancement programs offshore
exploration and technology upgradation To improve productivity and financial
performance ONGC concentrated on human resources development and
financial restructuring
For the fiscal year 2004-05 ONGC
planned to spend approximately Rs 100
bn on capital expenditure relating to
exploration and development of domestic
oil and gas properties As part of
production enhancement redevelopment
of Bombay High oil wells was given top
priority This involved two projects
called Bombay High North
Redevelopment and Bombay High South
Redevelopment which were expected to
cost around Rs 82 bn The program
aimed to achieve an additional 76 mn
tonnes of producible reserves of oil and
gas ONGC expanded its global
operations through its subsidiary OVL
by making sizeable capital investments in
Vietnam Sakhalin (Russia) and Sudan
The Deregulation
The GoI deregulated the Indian oil industry with effect from April 01 2002 by
doing away with APM This meant that domestic oil companies could take
independent decisions based on import parity and market forces in pricing
petroleum products
It also meant that oil PSUs would lose
state protection and would have to face
the global competitive business
environment Industry experts felt that
deregulation would give an edge to
domestic PSUs in marketing their
products due to their strong investment
base superior infrastructure and extended
distribution network They felt that
dismantling APM would also result in
increased profitability for oil companies
As expected the dismantling of APM
benefited ONGC significantly For the
fiscal year 2002-03 ONGC reported a 70
per cent jump in net profits to Rs
105293 bn as opposed to Rs 61979 bn
in the previous year ONGCs revenues
increased from Rs 225142 bn in 2001-
02 to Rs 342773 bn in 2002-03 an
increase of 534 per cent
Future Plans
In mid- 2004 ONGC was contemplating forward integration opportunities in
gas petrochemicals and the power sector It announced plans to set up major
power plants using natural gas at Dahej in Gujarat and another plant at
Mangalore in Karnataka
An agreement was entered into with Gujarat Government for setting up a
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
resources in the country
However a large portion of offshore
regions remained largely unexplored In
the mid 1950s the GoI decided to
explore oil and natural gas resources in
various regions of the country This
resulted in the formation of the Oil and
Natural Gas Directorate at the end of
1955 as a subordinate office under the
then Ministry of Natural Resources and
Scientific Research
The department was constituted with a team of geoscientists from the
Geological Survey of India
However soon after the Directorates formation it became evident that it would
not be possible for the new body to function efficiently due to limited financial
and administrative powers
In August 1956 the Directorate was raised to the status of a Commission with
enhanced powers but it continued to be under GoI control
In October 1959 the body received
further elevation both in status and
powers with the Commission being
converted into a statutory body by an act
of Parliament This act came to be known
as the ONGC Act in 1959
According to the act Oil and Natural Gas
Commissions main functions were to
plan promote organize and implement
programmes for the development of
Petroleum Resources and the production
and sale of petroleum and petroleum
products produced by it and to perform
such other functions as the Central
Government may from time to time
assign to it
Industry experts felt that ONGC new strategy was essential They felt that there
was a pricing cycle for crude (Refer Exhibit I for world oil prices for three
decades) gas refinery margin marketing margin petrochemical margin and that
international prices operated on different cycles in each case
This meant that confining to one sector
whether upstream or downstream or
petrochemicals would make any
organization vulnerable to the ups and
downs of a particular cycle The
integration of these activities would
ensure profitable operation across a
number of cycles and financial stability
ONGC acquired 297 mn shares of MRPL
from the AVB group for Rs 2 per share in
March 2003 The company pumped in Rs
6 bn by issuing fresh equity of MRPL
increasing its equity stake to 51 per cent
Later on ONGC purchased 356 mn
shares from institutional investors and
increased its stake in MRPL to 715 per
cent This deal was worth about Rs 39
bn The total amount invested by ONGC
in MRPL was about Rs 10494 bn
The Growth Plan
ONGC tried to overcome the declining production of oil and natural gas by
focusing on new domestic production enhancement programs offshore
exploration and technology upgradation To improve productivity and financial
performance ONGC concentrated on human resources development and
financial restructuring
For the fiscal year 2004-05 ONGC
planned to spend approximately Rs 100
bn on capital expenditure relating to
exploration and development of domestic
oil and gas properties As part of
production enhancement redevelopment
of Bombay High oil wells was given top
priority This involved two projects
called Bombay High North
Redevelopment and Bombay High South
Redevelopment which were expected to
cost around Rs 82 bn The program
aimed to achieve an additional 76 mn
tonnes of producible reserves of oil and
gas ONGC expanded its global
operations through its subsidiary OVL
by making sizeable capital investments in
Vietnam Sakhalin (Russia) and Sudan
The Deregulation
The GoI deregulated the Indian oil industry with effect from April 01 2002 by
doing away with APM This meant that domestic oil companies could take
independent decisions based on import parity and market forces in pricing
petroleum products
It also meant that oil PSUs would lose
state protection and would have to face
the global competitive business
environment Industry experts felt that
deregulation would give an edge to
domestic PSUs in marketing their
products due to their strong investment
base superior infrastructure and extended
distribution network They felt that
dismantling APM would also result in
increased profitability for oil companies
As expected the dismantling of APM
benefited ONGC significantly For the
fiscal year 2002-03 ONGC reported a 70
per cent jump in net profits to Rs
105293 bn as opposed to Rs 61979 bn
in the previous year ONGCs revenues
increased from Rs 225142 bn in 2001-
02 to Rs 342773 bn in 2002-03 an
increase of 534 per cent
Future Plans
In mid- 2004 ONGC was contemplating forward integration opportunities in
gas petrochemicals and the power sector It announced plans to set up major
power plants using natural gas at Dahej in Gujarat and another plant at
Mangalore in Karnataka
An agreement was entered into with Gujarat Government for setting up a
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
decades) gas refinery margin marketing margin petrochemical margin and that
international prices operated on different cycles in each case
This meant that confining to one sector
whether upstream or downstream or
petrochemicals would make any
organization vulnerable to the ups and
downs of a particular cycle The
integration of these activities would
ensure profitable operation across a
number of cycles and financial stability
ONGC acquired 297 mn shares of MRPL
from the AVB group for Rs 2 per share in
March 2003 The company pumped in Rs
6 bn by issuing fresh equity of MRPL
increasing its equity stake to 51 per cent
Later on ONGC purchased 356 mn
shares from institutional investors and
increased its stake in MRPL to 715 per
cent This deal was worth about Rs 39
bn The total amount invested by ONGC
in MRPL was about Rs 10494 bn
The Growth Plan
ONGC tried to overcome the declining production of oil and natural gas by
focusing on new domestic production enhancement programs offshore
exploration and technology upgradation To improve productivity and financial
performance ONGC concentrated on human resources development and
financial restructuring
For the fiscal year 2004-05 ONGC
planned to spend approximately Rs 100
bn on capital expenditure relating to
exploration and development of domestic
oil and gas properties As part of
production enhancement redevelopment
of Bombay High oil wells was given top
priority This involved two projects
called Bombay High North
Redevelopment and Bombay High South
Redevelopment which were expected to
cost around Rs 82 bn The program
aimed to achieve an additional 76 mn
tonnes of producible reserves of oil and
gas ONGC expanded its global
operations through its subsidiary OVL
by making sizeable capital investments in
Vietnam Sakhalin (Russia) and Sudan
The Deregulation
The GoI deregulated the Indian oil industry with effect from April 01 2002 by
doing away with APM This meant that domestic oil companies could take
independent decisions based on import parity and market forces in pricing
petroleum products
It also meant that oil PSUs would lose
state protection and would have to face
the global competitive business
environment Industry experts felt that
deregulation would give an edge to
domestic PSUs in marketing their
products due to their strong investment
base superior infrastructure and extended
distribution network They felt that
dismantling APM would also result in
increased profitability for oil companies
As expected the dismantling of APM
benefited ONGC significantly For the
fiscal year 2002-03 ONGC reported a 70
per cent jump in net profits to Rs
105293 bn as opposed to Rs 61979 bn
in the previous year ONGCs revenues
increased from Rs 225142 bn in 2001-
02 to Rs 342773 bn in 2002-03 an
increase of 534 per cent
Future Plans
In mid- 2004 ONGC was contemplating forward integration opportunities in
gas petrochemicals and the power sector It announced plans to set up major
power plants using natural gas at Dahej in Gujarat and another plant at
Mangalore in Karnataka
An agreement was entered into with Gujarat Government for setting up a
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
aimed to achieve an additional 76 mn
tonnes of producible reserves of oil and
gas ONGC expanded its global
operations through its subsidiary OVL
by making sizeable capital investments in
Vietnam Sakhalin (Russia) and Sudan
The Deregulation
The GoI deregulated the Indian oil industry with effect from April 01 2002 by
doing away with APM This meant that domestic oil companies could take
independent decisions based on import parity and market forces in pricing
petroleum products
It also meant that oil PSUs would lose
state protection and would have to face
the global competitive business
environment Industry experts felt that
deregulation would give an edge to
domestic PSUs in marketing their
products due to their strong investment
base superior infrastructure and extended
distribution network They felt that
dismantling APM would also result in
increased profitability for oil companies
As expected the dismantling of APM
benefited ONGC significantly For the
fiscal year 2002-03 ONGC reported a 70
per cent jump in net profits to Rs
105293 bn as opposed to Rs 61979 bn
in the previous year ONGCs revenues
increased from Rs 225142 bn in 2001-
02 to Rs 342773 bn in 2002-03 an
increase of 534 per cent
Future Plans
In mid- 2004 ONGC was contemplating forward integration opportunities in
gas petrochemicals and the power sector It announced plans to set up major
power plants using natural gas at Dahej in Gujarat and another plant at
Mangalore in Karnataka
An agreement was entered into with Gujarat Government for setting up a
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
Special Economic Zone (SEZ) for this purpose including a 2000 MW power
plant based on re-gasified natural gas In addition another SEZ was planned in
Kakinada Andhra Pradesh to establish a power plant and an LNG import
terminal Another 2000 MW plant was planned adjacent to the companys
subsidiary MRPL in Karnataka However ONGC did not plan to venture into
transmission and distribution of electricity or power trading As gas
transportation was uneconomical power plants were planned at gas fields and
the power generated was proposed to be sold to grids or captive users ONGC
also planned to foray into areas like LNG marketing diesel naphtha and
kerosene which promised higher realizations
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
Louis V Gerstner - The Man Who Turned IBM Around
Abstract
The case examines in detail the way in which Louis V
Gerstner transformed one of the most admired companies
in the US - IBM from a loss-making one to a market
leader
The case further examines the leadership qualities of
Gerstner which contributed to this transformation It also
gives an account of Gerstners past experiences and how
he learned from those experiences
The case details several measures taken by Gerstner to
turn IBM around including customer orientation reducing
work force decentralizing decision making developing e-
business strategies etc
Issues
raquo Understand and appreciate the role of a leader in reviving the fortunes of a loss making company
n 1993 IBM a global leader in the IT industry was in deep
financial trouble The company had reported a record net
loss of $81 billion Many analysts wrote off IBM as dead
However eight years down the line in 2001 the company
reported a net income of $77 billion (Refer Exhibit I)
During the period 1993-2001 the share price of IBM shot
up by nearly 800 This was the period in which Louis V
Gerstner Jr (Gerstner) headed IBM
Under the leadership of Gerstner IBM made a remarkable
comeback and proved its critics wrong In doing so IBM
seemed to have made significant changes which had an
impact on the entire information technology (IT)
industry
It strategically positioned its server family to suit the needs of the emerging Enterprise Resource Planning (ERP)
and e-commerce applications IBM also changed its emphasis from being product centric to being customer-
centric in order to provide complete solutions to its clients Gerstner played a major role in reviving the fortunes
of IBM Under Gerstner the image of IBM was transformed from a company which primarily manufactured
mainframes to a company which offered complete solutions in hardware software and other technologies
Gerstner brought about a radical change in the work
culture of IBM The turnaround was achieved by a series
of well calculated and unconventional moves which
appeared unreasonable to many employees of IBM as well
as industry analysts
According to analysts Gerstners style of functioning was
quite different from that of his predecessors He was a
man of conviction and always followed his own instincts
He was seldom disturbed by what his critics said He
believed that his deeds spoke for himself He wanted
results and expected his employees to give the results at
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
any cost He did not mince words when it came to
expressing his views on their performance
Introduction Contd
Gerstner never believed in setting long-term plans
Instead he focused on immediate problems and evolved
strategies to solve them
He identified the needs of customers and developed
solutions to satisfy their needs Gerstner watched the IT
industry closely and carefully and was quick to foresee the
trends which were likely to emerge in the future
He was among the few people who visualized that
networking could transform the way people worked While
visualizing these changes was not exceptional converting
these visions into the potential opportunities was indeed
exceptional
Background Note
Gerstner was born on March 01 1942 in Minolta New York US His father was a traffic manager at FampM
Schaefer Corporation Brewery Right from his childhood his parents stressed the importance of education and
discipline Thus they helped to a great extent in shaping up his attitude towards life Gerstner graduated in
engineering at Dartmouth3 in 1963 Two years later he earned a business management degree from Harvard
Business School
Fresh out of college Gerstner joined the reputed
management consultancy firm McKinsey amp Company in
1965 earning the distinction of being the youngest
manager to be hired by the firm at that time
He soon became noted as a hard task master Within four
years of joining he was promoted as a partner He was
among the selected few who were offered partnership
before six years which was the general practice In 1973
he was promoted as senior partner in the firm and was
responsible for handling major clients Two years later ie
in 1975 he was appointed as a director of the firm He
was the youngest director of the firm
During his thirteen years tenure at McKinsey Gerstner had many accomplishments to his credit prominent
among them being devising the financial strategy practice for McKinsey helping the transportation firm Penn
Central Railway4 to turnaround from the verge of bankruptcy and helping American Express5 to expand its
business He was also a member of the leadership committee at the firm An important leadership lesson which
Gerstner learned at McKinsey was to thoroughly focus on the problem on hand and create an environment which
encouraged people to come out with their ideas irrespective of their designation in the firm
he Tenure at IBM
When Gerstner joined IBM he was sarcastically referred to
as the guy from a cookie company During that time IBM
was passing through the worst phase ever in its nearly
eight decade long history
IBM recorded an operating loss of $325 mn in the first half
of 1993 and the stock price dipped by about 15 percent
within few months of Gerstner becoming CEO
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
The financial situation of the company was deteriorating
The company posted a net loss of $286 billion in 1991
followed by a net loss of $497 billion in the financial year
1992
The Early Initiatives
After joining IBM Gerstners immediate task was to make the company profitable He spent the initial period at
the firm learning about the prevalent situation Gerstner visited different IBM facilities all over the world and met
customers competitors senior executives financial analysts and consultants to get a first hand account of the
actual state of affairs During these interactions he learned that customers still appreciated IBM since it offered
solutions for a host of their computer related needs under one roof
The Turnaround Strategy
In 1994 Gerstner made efforts to improve the reporting
procedures across different units of the firm This helped
him to closely monitor the production schedules cost
schedules and sale of different products
He also started focusing on specific problems related to
individual units He realized that the personal computers
division which had good potential was performing very
poorly
The division was facing tough competition from companies
such as Dell HP and Compaq
Emphasis on e-Business
In 1997 Gerstners network centered computing strategy evolved into a full-fledged e-business strategy for
IBM This strategy sought to leverage on IBMs strengths in big servers huge storage capability bullet-proof
databases massive processing power and expert systems integration IBM provided the complete package for e-
business ie hardware software training security networking and services Lotus Notes Groupware added
another powerful feature to IBMs e-business solutions
The Criticism
Though Gerstner has been credited for his remarkable efforts to turn around IBM the manner in which he went
about this task drew lot of criticism His early moves to keep IBM intact and change the corporate culture of IBM
were severely criticized by the employees
