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heat and resistance management:

thy name is

hrm

By Alok S Bhattacharya

"I came to see in my time at IBM, that culture isn't just one aspect of the game-it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value."
Lois V. Gerstner, CEO, IBM Corporation

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n 1990, IBM was the most profitable company. By 1993, it was on way to losing $16 billions, and in the watch list for extinction. Computer industry had radically changed. Even the Economist, normally reliable, had this at its editorial: In an industry driven by rapid technological changes, and swarming with nimble, smaller firms, can a company of IBM's size, however organized, react quickly enough to compete? Can IBM earn enough from expanding market segments such as computer services, software, and consulting to offset the horrifying decline in its mainframe sales, from which it has always made most of its money. No. Not true. Lou Gerstner must have chuckled when he cited above in his trailblazing book on IBM turnaround "Who says elephants can't dance?" (Harper Collins, 2002). He had reasons to; because, yes the computer giant did earn enough. The large American icon did change. The elephant did dance. Gerstner stepped away in 2002. IBM was back as number one in the world in the IT services, hardware, enterprise software (excluding PC's) and customdesigned high performance computer chips. IBM led the future direction of the industry-a future in which business and technology would not be separate tracks but intertwined in which the industry would be driven not by hardware and software, but by services.

culture. More than anyone else, he drove our cultural transformation. Therefore, he deserves recognition as one of the heroes of IBM's transformation." Hats off, Mr. Bouchard, for such rare, succinct, down-to-earth citation. The accolades to you came from a dignitary no less than the chief executive of the IBM, then operating in 160 countries with 300,000 professionals and $86 billions in sales. Though originally a non IBMer, yet for appointment of this CEO, the IBM board of directors would not hesitate to use good offices of even the US president. They would not, because in Gerstner, their search had ended for "a broad based leader, and a change agent--one who was skilled at generating and managing changeto begin with strategic and cultural change to shake IBM back into action." Gerstner accepted the job, and insisted that Bouchard managed the HR function in the IBM leadership team.

Creating an HR perspective
Of course I have no direct information from the book on how exactly Bouchard managed the heat of transformation, and its pre-cursor-the resistances from people and the organization. The book by Gerstner for very right reasons (and with due apologies, for a change) did not provide a separate chapter as HR initiative. The right reason, I guess, is that in his change management, every initiative flew not from internal processes but from an external source-the market place. The market place and customers dictated strategic decisions e.g. investments, restructuring, optisizing, downsizing, delegations, compensations, sell outs, acquisitions-all involving pain before any gain, resistances and heat. Gerstner presented in the book a graphic scenario of the IBM he took over in 1993, that to me was a concretism of organizational misalignment. HR issues in that change strategy were easy to deduce. I did that deduction for providing a context for this article, and used it to focus on the role realities of HR managers. I begin below with brief history of IBM, its rise to and fall from pinnacle of the IT industry. I then go on to failure analysis of causal factors, and improvement initiatives for the change management for turnaround. In the analyses, I have used generic concepts and experts views to finally arrive at a conceptual framework on generic HR role model seeking realignment in any business organization. However I must make it clear, this article is not any kind of business review or publicity on what IBM did, or is. I used IBM story because it provided a rich source of information and learning on organizational misalignment. All information about IBM here is from the book by Gerstner, and as otherwise stated.

The HR head, a rare hero of turnaround

Most other success stories I came across on cultural transformation, were written by HR professionals. The authors did provide specialized HR perspective, but usually oversimplified the process of attitudinal improvements. They linked certain performance improvements directly to the HRD/OD interventions, with no direct evidence on whether the latter caused the change or some other organizational factor did. Also if the improvement in performance was sustained over time remained unknown. Such programs usually lacked comprehensiveness, as they sought either behavioural improvements, or strategic change, or improved resource management, but no one integrated them for application to work place. HR function continued to be ambiguous, and islanded. The IBM story is different. It is penned, not by the HR head or a consultant, but by the chief executive who did not also like using shadow writers. He had personally led the organizational change, and brought in compatibility between strategy and culture by following a principle that market place and customer would drive all decisions. That automatically integrated line and staff groups as it aligned all individual actions with market driven organizational activities. Everyone in line as well as in the staff function had either a role that was strategic, or none. The following is what he had to say for HR in the book above. "In the end 'making it happen' came to personal leadership-not just my own but that of hundreds of IBMers, who were delighted to throw off old rigidities, and behavior patterns. Tom Bouchard, head of HR, stood tall and took the heat as we transformed the IBM

The backdrop of the IBM story

In 1924 Thomas Watson Sr. formed the International Business Machines (IBM) Corporation. For the first half of the century, IBM's business machines embraced a broad line up of commercial products; from scales and cheese slicers to clocks and typewriters. Like Ford,

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Rockefeller, and Andrew Carnegie, Thomas Watson senior was a patriarchal, powerful leader. His own values like hard work, decent working conditions, fairness, honesty, respect, impeccable customer service, jobs for life-defined the IBM culture. IBM managers believed in competing vigorously, and providing quality service. Of prime importance was the fact that IBM was a pioneer in computations long before people talked about computers. By 1947, IBM revenue was $119 millions, and it was set to be the world's largest company. In 1956, Thomas Watson junior, who succeeded his father as CEO, brought IBM and the world into the digital computer age. In IBM's case technology shift came with semiconductor chips. IBM built System 360 with chips, and the system was cheaper, more reliable, backward compatible- wildly successful mainframe family. IBM also ended up with the world's largest software business. Why? Because System 360 would not be usable without an operating system, or a database, or a transaction processing program or software tools, or languages. Only IBM could supply such products as they were all tied to System 360, called vertically integrated. It was truly a large, truly a complex company, capable of delivering truly end-to-end solutions under one roof. The company's market share had exceeded 30%. Revenues grew at a compound growth rate of 14% from 1965 to 1985. Gross profit margins were amazing-about 60%. Then the environment changed. IBM's existence suddenly was at stake. In the mid eighties, suddenly tens of thousands of new IT companies appeared, each providing only a narrow, a tiny piece only of the total computer solutionlike only microchips, or storage systems, or databases, or operating systems. Many companies could now make parts of an overall solution, thus shattering IBM's hold on the total architecture of computers. Secondly, customers slowly learnt to believe in providing computing facility to individual employees i.e. in distributed computing, as opposed to centralized computing. Each employee having a PC could get access to critical business data. Since PCs were already from Microsoft and Intel, the duo pleaded successfully to their customers they use same PC technology for back office servers as well, which so far were the monopoly of the IBM. Competitors like Hitachi, Amdahl were pricing 30-40% below IBM. Still IBM had not reduced prices, because that would mean loss of revenue and profits. Mainframe sales dropped as did IBM's market share. Robert Coffey et al. (Management and Organizational Behaviour, 1994, Irwin) wrote then: "IBM recorded a sales decline for the first time since1946 and reported its first loss ever in 1992 of $2.8 billions IBM slashed jobs from 407,000 employees in 1986, to 322,000 by 1992. IBM's personnel department staff shrank 90%, from 400 to just 40, and the European headquarters was trimmed from 2000 to 200." Gerstner added that in the subsequent months of 1992, the loss mounted to $16 billions. "John Akers the CEO during 1986-92 recognized that the vertically integrated industry was ending. He started disaggregating IBM, in keeping with his perception of above new industry model."

How things went from bad to worse

Coffey et al further added: "John Akers closed dozens of plants, gave greater autonomy to restructured divisions, and tried to push decisions to lower levels to make managers more responsive to market place. He restructured IBM into thirteen essentially autonomous divisions. Nine of these provided development and manufacturing for distinct lines of business. Four provided marketing and support services, designed to present a united retailing and selling face to customers to one of the four world geographic areas. But IBM's bureaucratic systems enabled many managers to squash an idea or a project while few executives had the authority to approve proposals. Akers had never said "innovate and improve". The organization had not responded quickly enough to these changes. In January 1993, John Akers had to resign as CEO." Gerstner added "Watsons own values like impeccable customer service, jobs for life-defined the original IBM culture. IBM managers traditionally believed in competing vigorously, and providing quality serviceThe IBM culture arose in an environment without intense competition. People grew soft, risk averse and slow. With sustained market share, people lost touch with external realities-because they were irrelevant to success of the company." As against above, John Akers sought significant structural change. And we shall see soon it led to serious organizational misalignment. The following describes a desirable state on alignment in an organization. (Source: Donald Tosti, Aligning organizational cultures: Beyond privatization, human resource development-global changes and strategies, 1994, Allied Publishers) "Any significant organizational change, strategic or cultural, must take into account organizational alignment, consisting of compatibility between the strategic and cultural paths and consistency within them. The values held in the organization should be compatible with the strategic goals. Examples of values may be openness and innovation, to encourage using new ideas and information, to create a level of customer

What went wrong

In this new environment, IBM faltered. IBM was slow in delivering distributed computing, and Microsoft and Intel were in no position to deliver an integrated solution. So these companies offered add-ons to the basic IBM system. And it worked-impact of all this dynamism was lower prices and more choices. IBM had failed to give priority to the PC market. IBM surrendered the PC's highest value component -the Operating System-to Microsoft and the microchip to INTEL. Both companies were at top of the industry, when Gerstner took over. IBM's sustainability depended heavily on the mainframe-90% of the company's profits came from these large "Servers" and the software that ran on them.

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satisfaction. Objectives and practices represent decisions about how to implement strategies and values: the kinds of goals and objectives people set for themselves and the results they expect of their work units; the typical ways in which they interact with customers and others, both within and outside the organization. Activities and Behaviour represent what really happens on day-today basis; the kind of activities people choose to spend time in; and the way they behave as they perform those activities. People's day-to-day behaviour should be consistent with the values that they and the organization espouse. The way an organization chooses to measure its performance will determine its ability to "stay on track" and its ability to develop support systems and policies that are in line with values and strategies. An organization that looks at results exclusively in terms of outcomes such as sales volume and profit measures, will have a picture of its short-term success, but will lack information that may be critical for its long term health, such as customer satisfaction and retention measures." As against above criteria, here are Gerstners typical observations in 1993 on the IBM culture. engineers spent good time on presentations to top management using high-sounding jargons and abbreviations which only insiders understood. But not once they raised the question of customer segmentation, nor they compared IBM's offering to those of competitors; no one attempted integration across topics that could have created a total IBM view. Customer was absent in the agenda, which also meant indifference to changes in the environment and lost opportunities. Bright MBAs worked as executive assistants to top managers, and wielded much more power beyond their charter. What they did not do was interacting with customers." "IBM was truly inefficient. Each division created it own inventory system, accounting system, fulfillment system, distribution system for each of its 124 business units. There were 128 CIOs, each managing their own architecture and funding home grown applications. No co-operation on any common financial issue was possible because IBM maintained then 266 different general ledger systems. HR systems were so rigid, that one had to be fired by a division to be employed by another."

Analysis: Why things went wrong

Goals and values were not aligned. Gerstner said" You cannot transform an institution if the incentive programs are not aligned with your strategy." Gerstner noted that earlier, bonuses were paid to executives solely on the performance of their individual units. The compensation system comprised of salary, and very little in bonus, stock options or performance unit. Annual increments were typically given to all employees except those unsatisfactory with very little variance between top ranked and bottom-ranked employee. All employee skill groups such as software engineers, hardware engineers, finance professionals, salesmen were paid within a salary grade level, regardless of the fact some skills were in higher demand externally. Liberal benefits like pension, medical, lifelong employment etc existed. There was little benchmarking of IBM's practices vis--vis other companies. IBM had a family oriented, protective environment where equality and sharing were valued-over performance driven differentiation. It was then not only out of touch with realities of market place, but also unable to satisfy the paternalistic underpinning of the historical IBM culture. Objectives and practices were not aligned. Gerstner observed "there was an extraordinary pre-occupation of managers with internal processes as the cause of IBM's problems. There were long discussions on transfer pricing between units, or alternative divisions of authority. What drove people was not what the customers wanted, but departmental targets. Each geographic unit, the product divisions (the elements of the organization matrix) insisted on its own budget. Allocations were continuously debated and changed. There was no single budget. Accountability was difficult to determine." Activities and behaviour were not compatible. Gerstner observed, in high level meetings: "Bright IBM

Improvement initiatives
Gerstner did not issue any vision statement, but his leadership inputs created a short term strategy but long on details. See below the three parts of his mission statements communicated to managers: The first part created a statement of purpose for the company, intended to stop dissolution of the company. "We certainly want decentralized market driven decision-making. But is there not some unique strength in our ability to offer comprehensive solutions, a continuum of support? Can't we do that and also sell individual products? The second part, framed a clear, specific, goal that focuses people's efforts and company's strengths. "We would be more aggressive in the client-servers area, we do these solutions more than anyone else does, but we have been typecast as mainframe company. We are going to be the only full solutions company." Finally, a description of what results will be like as the mission is achieved: "Over the next decade, customers would value companies that could provide solutions that integrated technology from various suppliers and, more important, integrated technology into processes of an enterprise. The IT Industry would be services led, not technology led. Services could be a huge growth engine for IBM.." As far as objectives and values go, Gerstner had laid out his expectations as: redefine priorities starting with customers; develop and deliver open distributed user based solutions; reestablish IBM leadership position but not the old dominance; and listen to customers and deliver the performance they expect. He had continuously pumped in "Only IBM had that broad-based capability to integrate different technologies and standards. Only IBM was capable of providing genuine problem solving to solve complex

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business problems." So, keeping IBM together happened to be one of his key strategic decisions. IBM's size and breadth, was a distinct competitive advantage. This was his logic to keep the company together to achieve the strategy of "a full solutions company." Gerstner instructed each of the 50 members of senior management to visit in the next three months at least five of the biggest customers. They were to listen to them to show IBM cared and take actions to prove that. He wanted short reports on each visit and he had read them all. By 1995, IBM became a customer focused organization. Customers were divided into twelve groups e.g. banking, insurance, distribution, manufacturing etc. Groups were in charge of budget and all accounts, and personnel. Gerstner installed a new compensation system. It was based on differentiation based on market place for overall pay, individual performance and, pay in market place for increases, bonus on business performance and individual contributions, and stock option awards on critical skills of individuals and IBM's risk of loss to competition. Gerstner needed to convince IBMers they were better off working as one team and not separate fiefdoms. He made stock based compensation the largest element of executives' pay, downplaying the annual cash compensation relative to stock appreciation potential. He believed that executives should not accumulate wealth unless shareholders did the same. He made it as based on IBM's overall performance for those highest level executives who headed business units. For next level executives it was 60% based on consolidated IBM results and 40% on business units results. The system cascaded down from there. This step he found, had most pronounced impact on the attitude to work together. Gerstner had approved the long pending move of the technical team to a new computer architecture based on CMOS technology which if successful would allow substantial price reduction without loss in gross profit. But if the project failed, IBM was dead. But the project did not fail. IBM built with that technology more and more powerful systems. Innovation and risk taking paid. The $1billion invested in the development of the technology brought in $19billions during 1997-2001, from high-end servers. IBM mainframe capacity shipped to customers had declined to 15% in 1993, but by 1994 it grew to 41% and to 60% in 1995-the growth continued to rise. The price of a unit of mainframe moved from $63,000 to less than $2500 in seven years-a 96% decline. Software price performance improved 20% a year for each of the next six years Most of the work in the reengineered corporation (IBM), centred in eleven areas. The first six he called core initiatives, meaning those parts with the business that dealt with the outside world: hardware development, software development, and later both combined as integrated product development, fulfillment, integrated supply chain, CRM and services. The rest focussed on internal processes called enabling initiatives: HR, procurement, finance, IT and real estate. Between 1994-1998, IBM saved from reengineering close to $9.5bn, out of an overall saving of $14bn. Hardware development time was reduced from an average four years to less than sixteen months. On-time product delivery rates improved from 30% in 1995 to 95% in 2001. The inventory carrying costs reducedby$80mn, write off by $600mn, delivery costs by $270mn, and avoided material costs close to $15bn.

The key takeaways and HRs role

IBM experience depicted a picture of HR department like this. HR, as a support or enabling function has to be capable of working in a flexible task-focussed matrix, customer focused systems and stakeholder focused cost management. It needs to be competent to understand technology in business terms, and channelize all resources programs and tools to line managers for superb execution in design, development and marketing of products and services. The following are some important lessons for conceptualizing an HR role model. Enabling role: "We need leaders with right attitudes. For example, if we have staff people who think their job is to monitor line people and turn them in when they do something wrong, no management system is going to work. But if our staff people have the attitude that says "My job is to ensure all the capability of this company is channeled to the person at the point of contact with the customer, I am here to help them win business. Matrix becomes an asset then, because we are using it to deliver IBM values to the market place." Enabling systems: HR function, as an enabling initiative, in the new environment has got to realign organizational support mechanisms. These systems, policies, and structures function as "performance levers" that help (or hinder) people in carrying out the activities and behaviours required to implement strategies and values These include factors like reward and recognition systems, information and measurement system, performance appraisal, compensation and benefits, design of the physical environment, Organizational structure and reporting relationships, training and development, job definition and work design and administrative policies. Enabling matrix: "IBM is a complex organization, and always will be. There are no organizations that are both big and simple. So we have a management system that exists in part, to deal with that complexity. Remember our unique value to our customers is our ability to build integrated solutions. It is our strongest competitive advantage. Our ability to integrate products, skills, and insights is our only sustainable competitive advantage. A well-managed matrix is highly fluid and adaptable. Roles often change; teams form and disband; a decision as to which business unit will lead in a situation is not codified. This puts a premium on the judgment of leaders at every level. "You" decide which opportunities offer the highest potential return. "You" decide where to deploy our people, capital and time. Managing in a matrix is hard work, but it does work Enabling people: "We are not a company of

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management and workers, we are a company of 300,000 professionals, all of whom are bright, inquisitive and (alas) opinionated." Service industry e.g. outsourcing, is human intensive; in this business you don't make a product and then sell it. You sell a capability. You sell knowledge. You create it at the same time you deliver it. The business model and economics are different. Enabling communication: As software became the connective tissue of the networked world, IBM decided to run its software as, a business, implying it would run even on non-IBM machines. "But what about top professionals in IBM who had dedicated entire career to one or two breakthrough innovations. Imagine the emotions when they find we are strengthening our competitors' products with our outstanding technology only to commit suicide in the market place. Who will explain to them that we should sell their work to our competitors who were out to kill us in the market placelike Sun, HP, and Dell? Imagine the emotions of IBM's sales force that clashed everyday with such competitors when they hear of our decision on such sale of technology as OEM?" Enabling shareholder value: Michael Hammer says in "Reengineering the Corporation", that some of the best performing companies from Japan, develop products twice as fast, utilize assets eight times more productively, respond to customers ten times faster. Their secret is "process improvement process." Optisizing, not downsizing would be the need for such productivity improvements. The first thing to do then is to look at the productivity parameters of the company and compare it with the industry's best. Some parameters for example are: sales revenue per employee, output per employee, value addition per employee (sales-material cost), net profit per employee, and employee cost to sales turnover. Each employee, e.g. in market development, or process development, or product development, must add measurable revenue/value say per million of sales, or per thousands of output. The strength of customer support personnel need be linked also to number of customers; vendor development staff to number of vendors, and HR staff to number of employees. We have to also look at the process competencies because that is the route to build competitive advantage. The HR department needs competence to work out its recommendations on how many people needed, who all should stay, where addition of people needed, and how to minimize grade imbalances.
(Sour Pr ource: Kumar Optisizing: umar, Organizational Imperative mperativ (Source: Pradeep Kumar, Optisizing: An Organizational Imperative, Human Resource Development-Global Changes and Strategies, 1994, Allied Publishers)

So, where is the difference in the takeaways from conventional wisdom? One, HR is internal process, any attempt to paint it as strategic at par with line activities would be futile and counterproductive. Two, the internal process is not islanded, but intertwined with all customer and stakeholder directed activities as enabler for aligning cultural path with the strategy even on day-to-day basis in activities and actions. The enabler HR role needs supporting with highly effective yet flexible system for channelizing all capability to the front line personnel. Three, HR needs to create and exploit highly effective communication settings for productively dissipating the heat in the never ending process of organizational change. Finally, the enabler role needs much broader competencies than we thought-technical, conceptual, managerial and human skills specific to the work place. Only then we could have centre stage role and citations like Bouchards from every sophisticated organization.

Concluding remarks
We often talked or heard of strategy in isolation, proposed them as panacea to performance problems. We next ended up in creating voluminous analysis, complex software and rigid structures which all could set us up to fail the organization. Or, equally commonly, we indulged in high-sounding abstractions and academic generalities of organization culture leaving the job of conceptualizing micro-management of attitudinal changes, to Mr. Nobody. This IBM story and experience were different, as it focused on organizational alignment for strategy and values and provided a "to do" list for achieving the compatibility of both paths. The list as a by-product included realignment on HR front and of HR support function too, for catalyzing the change and for effective management of the fall outs of the organizational change. It established, tacitly though, the meaning of strategic role of HR department in a large, complex, hightechnology organization and in that process indirectly provided a guide map for achieving the hackneyed role HC clarity and competencies of HR managers.

Enabling change: Sound understanding of business needs and proactive approach in dealing with the fall outs of redeployment, restructuring, re-skilling, new compensation systems, and new technologies could go a long way in minimizing the generation and consequences of heat of cultural transformation. This article has focused on such sources of heat in the previous sections, and need no repetition here.

Alok S Bhattacharya retired as Associate Director (Simulators and Technical Training) from the Nuclear Power Corporation of India Ltd (NPCIL), Mumbai in 2004. Prior to that, he worked in NPCIL as General Manager (HRD) and Chief Engineer (Training). His international contributions involved expert missions in eleven European countries in activities such as coordinated research program, peer evaluation, and in authoring guidebooks for development of key nuclear power plant personnel. He can be reached at alokeshipra@yahoo.com

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