Building Strategy around Culture

In early 1993, IBM was clearly in a tailspinits mainframe revenues had gone down by 50% in
three years and profits were plummeting. Industry analysts had written off IBM as an also-ran
dinosaur that would become extinct in seven years. 1Most people saw IBM as a huge company
unable to adapt to a changed technological market in which mainframe computersIBMs main
productwere becoming extinct. The Economist went so far as to say that IBMs humiliation is
already being viewed by some as a defeat for America.
At this time, when IBM was struggling to reclaim its lost leadership position, Lou Gerstner took
over as its new CEO. We wont repeat the entire story of how Gerstner re-energized the
technology giant and made it more powerful than it was beforeGerstner himself has already
recounted that fascinating story for us. 2
But what stands out as we look back with 20-20 hindsight at IBMs recovery under Gerstner is a
statement Gerstner made in a talk at the Harvard Business School: The thing I have learned at
IBM is that culture is everything. He reiterated in his book that followed a few weeks later: I
came to see, in my time at IBM, that culture isnt just one aspect of the gameit is the game.3

Charles H. Ferguson and Charles R. Morris. Computer Wars. New York: Random House, 1993.
Lou Gerstner. Who says Elephants Cant Dance?

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Gerstner realized that IBM employees were brilliant, driven, forceful and extremely salesoriented. But the companys culture promoted and rewarded individualisma think-me-first
approach. What had to change was the company culture. Gerstners subsequent re-moulding of
the companys culture into a think-collective one transformed IBM into an even more powerful
company than it once was. It is a classic illustration of how culture belongs in strategy, and that
strategy and culture are not apart. For the impact Gerstners focus on culture had at IBM see
Figure 1, which plots the stock-performance of IBM from 1985 to 2000.

Figure 1: IBM Stock prices from 1985 to 2000

Eight years later, in late 2000, John Rowe became the fourth CEO in 5 years at another
American giant, Aetna. The 150-year-old insurance company was hemorrhaging revenues,
losing $1 million a day; its rapport with physicians and patients was being severely challenged,
and several lawsuits had been filed against the company. 4 Rowe, like Gerstner at IBM,
recognized the importance of culture. But his tack was different. While Gerstner set out to
4

Jon Katzenback, Ilona Steffen, Carol ne Kronley. Cultural C an e t at St cks.

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change the culture at IBM, Rowe built on the companys culture at Aetna. He engaged in deep
conversation with employees at various levels across the company and found that the
organizational culture at Aetna had some strong positives: a commitment to patients, and
physicians; an underlying pride in the history and purpose of the company; widespread respect
for peers; and a sense of dedication to the profession. Rowe and his partners began a series of
interventions around these values. For instance, they decided to focus on a commitment to
customers by playing up the companys traditional reputation for quick response in times of
natural disasters. Such interventions began to have considerable impact because they started to
rebuild in employees a lost Aetna pride. Again the performance of the company on the stock
market tells the story effectively (see Figure 2).

Figure 2: Aetna Stock prices from 1995 to 2010

These are but two examples of a bunch of companies that have had remarkable turnarounds
because of the CEO or senior managements attention to organization culture. Companies
across the world have made culture a critical component of strategy and effected remarkable
recoveries, often in very competitive markets. NedBank of South Africa is one such example.

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Under the leadership of Tom Boardman, the company focused on culture and transformed itself.
Over six years from 2003 to 2008, headline earnings for NedBank rose from a dismal Rm55 to
Rm5765, and ROE rose from a pathetic 0.4% to a healthy 20.1%. Strong leadership and a focus
on changing the organizational culture and values enabled this transformationit led to
increased investor and customer confidence, and above all created a sense of trust and loyalty
among employees. DaVita, the California-

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