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“I resist the idea that there is a new economy-something that is separate and distinct from some other economy.”

When former American Express and RJR Nabisco executive Louis Gerstner Jr. arrived at IBM in April 1993, he took the helm of what seemed like a sinking ship. The company was hemorrhaging money, had lost its direction and, it seemed, its will to compete. Plans were in place to break IBM into smaller, independent businesses. But Gerstner shelved those plans and told his charges their hopes lay in wielding the sweeping power of the existing Big Blue, if it could be retooled for a new day of unceasing competition.

The turnaround has since become legend. Gerstner pushed IBM into the services business, now the fastest-growing segment of the roughly $90 billion company. Big Blue has also branded itself as the e-business leader, while continuing to innovate in storage, semiconductors, database technology and high-end computer systems.

However, as Gerstner-Lou to employees- stresses, there is never room for complacency. Last July, the IBM chairman and chief executive officer reorganized the firm to focus more sharply on the twin needs to protect and build current businesses while also going more aggressively after emerging opportunities-in particular by applying its computing and database expertise to plumb huge opportunities in genomics and the life sciences. In one of his most detailed interviews in recent years, Gerstner exchanged multiple e-mails with TR Editor at Large Robert Buderi about his brand of leadership, where IBM is headed, e-business and the promise of information technology.

TR: You came to IBM when the company was losing billions annually and had suffered a seemingly mortal blow in its ability to innovate. What were the major challenges back then?

GERSTNER: Even back in the dark days of 1993, I never believed that IBM’s technical community had lost the spark of innovation. If anything, one of the frustrations our technologists felt most acutely-along with our customers and shareholders-was that the company was too consistently slow to seize innovation, turn it into products and get them to market. That was a much bigger institutional shortcoming than a lack of innovation.

So that gap between our labs and the marketplace was one problem. It made us slow in an industry where being first is almost as important as being right. We were also in a prolonged three-geography [spanning three continents] recession, which naturally affected us more than it did a lot of our less-global competitors. The image of the mainframe was in a ditch. Our cost structure had been allowed to get way out of line with our competition, and the IBM workforce was dealing with the first wide-scale layoffs in the company’s history.

We took advantage of the crisis to move fast and get our financial restructuring behind us. We had to do that, because we also had to break the organization’s very natural, but very debilitating, obsession with “the problem.” We had to shift the mindset away from internal issues and institutional self-analysis to external issues, getting back into the marketplace and stringing some wins together.

TR: What are the major challenges today?

GERSTNER: I’d group them into two broad categories. Obviously everything starts with e-business, which will drive most of the customer investment in this industry for years to come. Our strategy is in place and makes sense to our customers, partners and investors. We have a strong set of products and services to offer against that strategy. So today, our leadership team spends most of its time on the gritty issues of operations, execution, implementation-sales execution, distribution channels, driving sales to Internet fulfillment, building speed to market. And building a culture that always, always focuses on the marketplace-customers and competitors.

So operational leadership is one priority. The other is technical leadership. With every industry being swept along by the e-business revolution, there has never been a higher premium on the ability to innovate. I don’t know how any company competes today without a thriving research and technical capability. There are major strategic battles being waged right now: in UNIX servers; in the software layer known as “middleware”; in a big shift in the semiconductor business, where the center of gravity is moving away from PC processors to high-end server-class microprocessors at one end, custom logic chips at the other and network processors in between. Last fall we announced a $5 billion investment in our semiconductor business to go after this opportunity. We’re playing a multidimensional game here-battling today’s competitors for immediate marketplace success, and investing in potentially game-changing, longer-term opportunities.

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