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How to Lead Change in your Business: Learning from IBM’s transformation under Lou Gerstner.

In this article we are distilling lessons on business change and turn around from former IBM CEO Lou Gerstner’s interview on Guy Raz’s podcast ‘Wisdom from the Top’.

If you’re after some engaging interviews with top CEO’s and founders check out Guy Raz’s podcasts ‘Wisdom from the Top’ and ‘How I Built This‘.

Lou’s story at IBM is playing the game of change management on level 9000. Achieving organisational change in one of the most institutionalised institutions in history is about as hard as it gets. 

The Audit: Clarity, Causation, and Circumstances

In each position Lou starts with an audit of the business

  • Financial condition of the business: Time is money, and the less money you have the less time you have to turn things around. Stopping the bleed buys time for change to show results. 
  • Culture & Processes: Are these hindering or helping the business to leverage and coordinate the collective talent of its people to meet it’s goals?
  • Market Alignment: How attuned are the products or services of the business to the demands and direction of the market?

He stabilises the financials to buy time.

He finds what products or services of the business are closest to the direction the market is going. He makes sure to understand what about it is aligning with what the customer wants. This is the means to take the business on the offensive and get the growth he wants.

With clarity on the things the business will deliver to the market to get it’s growth, he can then work to shape the culture and processes to empower and incentivise his people to serve these tangible goals. 

The Future and the Trap of the Familiar

Lou makes a real point of the trap many businesses fall into of holding onto the things that were their bread & butter, but are not the future. At American Express it was travellers cheques, at IBM it was mainframes. 

This applies just as well to law firms, holding on to traditional areas of practice that are increasingly unprofitable and unappreciated because they feel safe and familiar, rather than accepting what declining margins and demand mean for the future of the business. 

Fear and the Plan: Make the Necessity of Change Personal

Lou’s experiences mirror my own here in achieving change in a business. For change to happen, the people need to be staring failure in the face personally. They need to see that they will personally fail to hit the expectations upon them if they continue to operate in the old ways.

Change is effortful. The brain is lazy. And change requires realising that the pain of staying the same is greater than the pain of change.

The other unspoken insight here is that most people will change only as much as they need to. As soon as they are no longer concerned about hitting the requirements of their position, change will stop and they’ll be uncooperative with any further innovation. 

Coupled with the making the necessity of change personal, is the laying out of a clear game plan and everyone’s role in it for what we will do and how we will do it in order to succeed. If you want to take people off the old path, you have to provided them with the new path. 

A large part of leading change is design and planning. Mapping out the course ahead and designing the solutions that will be used on the challenges along the way.

Steering the Ship: New Systems and Incentives for a New Destination

As it is said, you can’t keep doing things the same way and expect a different result. Lou points out, the processes and incentives of the organisation drive it’s behaviour. 

Change requires clarity around what the business needs to tangibly deliver to achieve the results you want, and then ensuring that the processes and incentives help and reward your people to deliver on those things.

Your processes are the rules and tools by which your team coordinates with each other. Processes that aren’t aligned with the behaviours and outcomes you want will be a friction on your business costing you money and frustration. 

Similarly, if you want to change behaviour, you have to identify what it is that you want people to do, identify some tangible deliverable that requires that behaviour, and incentivise it (incentives can be positive and negative).

As a law firm, if you want to improve cash flow, incentivise the things that drive cash flow (e.g. incentivise completing matters quickly). 

Staying on Course: Getting your information directly 

Lou was big on his managers knowing their area and customers just as well or better than the people they were leading. They needed to understand this directly.

There’s an obvious problem with relying on the people you are managing for the information that you need to manage them.

There is also an obvious problem with relying on manually compiled reports by other people for the information that you need to make quick adjustments in times of change. 

Direct knowledge is the best. 

Lou insisted that his managers regardless of their role go and speak to 5 customers each month about what they needed and what problems they needed solved. When the managers pushed back he told them that he expected to see 5 reports of 4 pages each from each of them every month of their customer meetings and he would read every one of them personally. 

This strategy comes back to making the behaviours you want into tangible deliverables and incentivising them, and to making the risk of failing to change personal to the individual. 

The Importance of Why: Resilience, Clarity, Growth

Lou maintains that the purpose of a company needs to be about more than just creating a return for the shareholders. A company needs to have some way in which it intends to improve the community that it operates in.

At the heart of anything that is said to have meaning or purpose is the aim of helping to benefit others or alleviate difficulties for them. When a company has a ‘why’ that matters to the people in it, it will have the focus to stay on course, the resilience to persevere, and the discipline of action to maintain pressure on the hard problems at each stage of growth. 

How we can help you drive change in your businessIf you’re interested in ensuring that your firm has the systems, incentives, and information it needs to change and grow, Hivelight is building a paint-by-numbers solution for that just need. Submit your email at for early access.

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