Review of “Who Says Elephants Can’t Dance,” by Louis Gerstner

Louis Gerstner was the recent Chief Executive Officer of International Business Machines at the time he wrote this story of his ten years at the company.

Technology platforms tend toward monopoly, and the monopoly that build IBM was the System/360. IBM sold a high-margin, integrated computing solution for companies that limited the uncertainty large computer buys experienced, at the cost of a higher price tag. Because IT is cost center for most companies, overpaying for computer equipment (relative to market rates) but with the need for a less skilled IT workforce (relative to companies that bought less expensive equipment) made IBM an attractive force.

Like all monopolies, IBM faced challenges relating to understanding the market and empathy for other stakeholders. Unlike Microsoft, IBM was able to avoid a consent decree, but the defensive market practices that IBM engaged in during the lawsuit (1969-1982) may have harmed IBM’s long-range competitiveness. The trust threat to IBM’s System/360 monopoly came not from the Department of Justice, but from Unix, a family of operating systems that was born in 1969 at the AT&T Bell Telephone Laboratories. (The 1969 date is probably not a coincidence. If IBM had been able to protect its business Unix would have been irrelevant. )

Unix, an operating system family for ‘computer computers’ (which is now featured on many smartphones), was soon joined by the down-market competitor of PCs running Microsoft operating systems and Intel computer chips. The cost advantages of Unix and Microsoft against IBM soon became substantial enough for corporations to save money buy building their own IT departments to handle Unix and PC systems, and IBM’s System/360 fell behind..

Many in IBM supported breaking up the company into smaller, nimbler, competitors. The madness of that period can summed up in this chart, part of an article insisting that IBM be broken up:

Gerstner understood the market IBM was in was technology services. In the 1960s, as today, most companies do not want to be in the Information Technology business. Whether you talk about “software as a service,” or “cloud computer,” or whatever, the basic concept is the same: moderately-priced reliable service is better than internally-sourced attention-demanding IT. Sadly, by the early 1990s, the System/360 family not was just one of many computer architectures, along with Unix and Windows, and so IBM was no longer a one-stop shop.

This is the situation that Gerstner inherited.

There were two naturally roads for IBM in the 1990s to return to being a sole-provider. One was to double-down on the System/360 family, and fight off Unix and Microsoft. Another was to abandon any hope of reestablishing a monopoly in computer equipment, and flee up the value chain by being a consulting & integration computer. Gerstner, who several times in the book decries the focus on technology platforms as irrational, chose the second.

I’ve been thinking about monopolies a lot recently (which has inspired excellent posts on other blogs, as well), and have written about IBM in the past, as well. Who Says Elephants Can’t Dance is the fascinating story of a former monopoly reborn as a competitive market player.  While like other books (including On China by Henry Kissinger, and Deng Xiaoping and the Transformation of China by Ezra Vogel) you need to read between the lines on occasion, the book was well worth it.

I listened to Who Says Elephants Can’t Dance, unabridged, on my Kindle.