OPINION: How marketing insights let IBM transform itself

When Lou Gerstner arrived at IBM as chief executive, the company was on the verge of bankruptcy. This was after achieving its best results ever only three years previously.

This former consumer goods marketer, now retired as chief executive but still chairman until the end of the year, wasted no time in turning the company upside down, from an inwardly-oriented, arrogant behemoth into his vision of a flexible and customer-focused provider of computing solutions.

He tells the story in a book published this week called Who Says Elephants Can't Dance?

You'd be forgiven for groaning at the thought of yet another high-profile US chief executive dispensing words of wisdom from on high. But it's probably worth giving Gerstner a glance because he has ostensibly fixed something that was very broken by exploiting established precepts of strategic marketing.

For example, one of the first things he did when he arrived was to ask his 20 top executives to write a short paper which answered the questions: What is your business? Who are your customers? What is your marketplace?

What are your strengths and weaknesses? Who are your main competitors?

And he told them to give him the answers without the help of any visual aids, because if they couldn't explain their business in their own words, then they obviously didn't understand it. The subsequent transformation of the company saw IBM turning in sales last year of £55bn and enjoying a net income of £4.9bn.

Gerstner was helped by the fact that he was an outsider and thus could take a dispassionate view of what needed fixing. But, with losses mounting, he had to work fast to get every employee to grasp the - for IBM - rather radical notion that they had to put the customer first, IBM second and their own business units third.

What Gerstner, with his roots in marketing, understood was that an obsession with customers has to be the driving force of a successful business. And there are signs that more chief executives are beginning to appreciate that cost-cutting alone is not a survivable strategy.

According to new research from business research organisation The Conference Board, the biggest management issue in 2002 identified by its survey of 700 business leaders from around the world is that of customer loyalty and retention, cited by 42% of chief executives. This takes over the top spot from last year's finding of changes in competition as being of most concern.

Admittedly, reducing costs follows closely behind, at 38%. But that's not surprising. As The Conference Board points out, a climate of competition and cost-price squeezing is what makes customer loyalty and retention especially critical. Because when competitors act aggressively to take away your customers, those customers then respond with tougher price resistance and increased service demands, which puts more pressure on costs.

Customer evangelism means more than issuing edicts, however. Gerstner, for example, spent his first few months finding out what was wrong with IBM by listening to customers, consultants and employees.

Only then could he begin the massive turnaround. Because, as many companies have found to their cost, trying to transform themselves without knowing what really needs changing usually leaves them in a worse position than if they had done nothing at all.

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