Values-based change at IBM

Sam Palmisano took over as CEO of IBM in 2002. His predecessor Lou Gerstner had made major changes but, as Palmisano explained: 'Then there was "a burning platform"'. In 2002 there was a need for a continuation of change but 'instead of galvanizing people through fear of failure, you have to galvanize them through hope and aspiration'. Palmisano believed it was impossible to do in a company as complex as IBM by relying on structures and control systems. It had to be through values.

In July 2003 over a three-day period over 50,000 employees took part in an intranet discussion on company values: the 'Values Jam'. Much of what was posted was highly critical. IBM talked a lot about trust but spent endless time auditing people; no one questioned the views of senior executives; mistakes were not tolerated or seen as part of learning. It was uncomfortable and some senior executives wanted to pull the plug on the exercise. But Palmisano insisted it continue and joined in, posting his personal views and acknowledging problems.

In many respects the values that emerged extended what IBM already espoused: 'dedication to every client's successes, 'innovation that matters - for our company and the world', 'trust and personal responsibility in all relationships'. However they were not being enacted. So the next step was to identify where the values were not being delivered. This was also rolled out to an online jam again , identifying examples of processes and routines contrary to the values. Palmisano then instigated changes in control systems to bring them in line with the values.

This included changes to the incentive scheme for managing directors of IBM businesses, through to providing funds to line managers to use at their discretion to generate business or develop client relationships. Price setting was also made more client-friendly, especially for products and services crossing IBM businesses, involving significant reworking of the IBM pricing routines.

Turnaround at Pace

Pace manufactures products for the digital TV markets: in particular set-top boxes for customers such as BSkyB and Canal+. When Neil Gaydon took over as Chief Executive in 2006 the company was facing bankruptcy with a loss of 15m (~a16.5m; ~$22.5m) on sales of 175m and a bank facility that had just been withdrawn. By 2010 the company was reporting profits of 69.9m on revenues of over 1 billion. Gaydon broadened the customer base. At the turn of the century 90% of revenue came from just two customers. By 2010 Pace had more than 100 customers worldwide. In addition he focused on key areas of market development; in particular on high definition television and on pay-TV operations which have a higher price level and offer better margins. However he also introduced a major reorganization of the company. He significantly pruned management and organised the company into small teams focused on particular customers. Each team was given a lot of freedom, controlled its own profit and loss account and bonuses were linked to the teams' performance, incentivising everyone to get results. Pace, notorious for late deliveries and over-runs on R&D costs, significantly improved its reliability and cost control.

Q3. Compare the different approaches of Palmisano and Gaydon. Why were they different?