IBM has announced the death of its former CEO Lou Gerstner, who passed away on Saturday, aged 83.

In his biography, “Who Says Elephants Can't Dance?” Gerstner recounted his middle-class upbringing and time at Dartmouth University and Harvard Business School. At 23, he went to work for management consultancy McKinsey and within nine years became a senior partner before taking a senior role at American Express.

During his 11 years at American Express, Gerstner had his first encounter with IBM when one of the divisions he oversaw adopted computers from Amdahl in addition to its Big Blue mainframes. IBM threatened to withdraw support for its hardware. Gerstner tried to contact IBM’s CEO, only to be met with bureaucratic indifference despite American Express being a very significant customer at the time.

“Cooler heads prevailed at IBM and the incident passed,” he wrote. “Nevertheless, it did not go out of my memory.”

Gerstner next became CEO of RJR Nabisco, a chastening experience as its new venture capitalist owners demanded performance the business was not set up to deliver. After four years in the job, he began to contemplate his next move. IBM’s leadership was the subject of speculation at the time, and Johnson & Johnson CEO Jim Burke reached out to Gerstner and suggested he express interest in the job.

The idea appealed and Gerstner engaged with IBM, but after seeing the state of its books and product strategy, he decided not to seek the role.

Burke persisted and told Gerstner “You owe it to America to take the job.” He and others convinced Gerstner that his work at American Express meant he had the experience to reform IBM, and that his approach of focusing on business fundamentals – strong cashflow and focusing on customers’ needs – would be applicable.

Gerstner decided IBM was a great challenge, took the job, and started work in April 1993.

The New York Times reported his appointment with the headline “Task of Turning Around I.B.M. Is Given to an Industry Outsider.”

Keeping it together

In a letter sent to IBM staff and posted online, current IBM CEO Arvind Krishna wrote that Gerstner “arrived at IBM at a moment when the company’s future was genuinely uncertain.”

“The industry was changing rapidly, our business was under pressure, and there was serious debate about whether IBM should even remain whole,” Krishna wrote. “His leadership during that period reshaped the company. Not by looking backward, but by focusing relentlessly on what our clients would need next.”

“One of Lou’s earliest signals as CEO has become part of IBM lore. Early on, he stopped a long internal presentation and said, simply, ‘Let’s just talk.’ The message was clear: less inward focus, more real discussion, and much closer attention to customers. That mindset would define his tenure.”

Krishna said Gerstner believed IBM “had lost sight of a basic truth of business: understanding the customer and delivering what the customer actually values,” and changed that attitude.

“Meetings became more direct. Decisions were grounded more in facts and client impact than in hierarchy or tradition. Innovation mattered if it could translate into something clients would come to rely on. Execution in the quarter and the year mattered, but always in service of longer-term relevance.”

Gerstner also made many more IBM staff eligible to earn stock options, decided to integrate IBM’s siloed business units, and created its first services and consulting operations that offered business strategy and worked with technologies beyond Big Blue’s own stack. That business, IBM Global Services, became a powerhouse. He also embraced openness, allowing IBM software to run on third-party platforms and rival software vendors to code for Big Blue’s boxes.

He expressed those strategies through acquisitions such as the 1995 deal to buy Lotus for $3.5 billion – then the biggest-ever software deal – and the $743 million purchase of Tivoli in 1996. Buying Lotus gave IBM an entry into the emerging market for custom networked applications running on PCs. Tivoli gave its consulting arm tools to manage diverse IT estates.

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Gerstner’s acquisitions and strategies changed IBM’s culture and helped it surf the mid-1990s wave of internet adoption to grow revenue by around $20 billion a year on his watch. The company also enjoyed strong share price growth.

Dousing dot-coms

But the CEO didn’t believe in internet hype.

In the year 2000, The Register obtained an internal IBM memo in which Gerstner explained that he bet the company on e-business, which he believed was “changing the entire basis of the global economy.”

Gerstner observed the sky-high stock market valuations of early internet companies, the CEOs replicating their strategies, and dismissed it all as “dot-com alchemy.”

“How long it will continue, or why it is so often unreasoned, I wouldn't venture to say,” he wrote in the memo. “But I'm certain that is not the game for most CEOs – whether their companies are smokestacks or dot-coms. For us, the game is to do the hard work of accelerating the transformation of our fundamentals – to understand that the Net isn't really about short-term stock performance but long-term stock and business performance.”

“Of course, not all companies have been seduced by the lure of the magic market-cap wand. Many are hard at work creating alternate distribution channels, reinventing – not just spinning off – their supply chains, and more. This is a period of extraordinary change, with extraordinary opportunities. But we can't seize them through dot-com alchemy.”

When Gerstner left IBM in 2002, it was in better shape than he found it. He even earned an honorary knighthood.

There were casualties along the way: Gerstner presided over tens of thousands of job cuts. The CEO misread consumer and business enthusiasm for PCs, allowing Compaq and Dell to overtake the market it pioneered, and Microsoft to dominate the market for PC operating systems to the extent that IBM gave up on OS/2. Those decisions gave Microsoft and Dell an entry to enterprise computing that both have used to surpass IBM’s revenue and influence. IBM also lost leadership in networking, storage, processor design, and saw x86 servers drive its mainframe and midrange business into niche markets. And IBM Global Services became surplus to requirements in 2020, when it was spun out as part of Kyndryl.

After leaving IBM, Gerstner focused on philanthropy, especially regarding education, and serving on boards. ®