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Think (Again)

As IBM marks its centennial, its finance team plays a critical role in driving continuous transformation. CFO Mark Loughridge explains how, and why.

So, did life change for the finance department when this new team joined with a mandate to effectively rescue the company?

Our mission was to become the radar, the GPS, for the organization, and at the time that was very difficult to do. Our international expansion involved setting up many individual headquarters around the world, which had become very powerful fiefdoms. They would even put out their own annual reports and have their own boards of directors, for no real purpose.

From an information standpoint, we couldn’t gather data consistently across all these regions, and given the pressure we were under, people were not as forthcoming as we needed them to be. We grappled with this for a couple of quarters, and we knew we were failing. These were the darkest days in my 34-year career here, because we in finance weren’t bringing the data to the table that we needed to bring.

But it wasn’t just about data.

No. We took a very big step and went to all of the countries, to the business units and the manufacturing and development sites, and said, “Hey, you know all those accountants who work for you? They now work for us.” A lot of executives objected, and many were summarily fired.

There’s a lot to be said for the urgency of a situation — when the oxygen is running out you make decisions and you get going on them. So we consolidated all of the accounting globally, built a central information warehouse, and made substantial progress toward having a single, consistent source of data that everyone could access. Over time we extended its use, from accounting to cost estimating to expense and revenue planning, and even to sales metrics downstream.

This also allowed us to unpeel the business equation. We could pull out data pertaining to software and establish software as a separate business, for example, and the same for services. We could see the real economics, the real profitability, and create a distinct management structure around each business.

When you sum it up that way, it almost sounds easy.

It was a pretty desperate period for us! We weren’t sure whether we would even make payroll, so we were working around the clock. We’d have a full [finance] staff meeting at 8:00 a.m. on Saturday and leave at noon on Sunday. Then, on Sunday, the controller and I would meet at a local deli and draw straws to see who would deliver the data book to Lou Gerstner versus Jerry York. If you got to go to Lou’s house all you had to do was drop it off. But if you had to go to Jerry’s, it was like dental surgery as he went through all of the numbers with you.

There was also pain of a different sort as IBM divested many products, some of which were considered the core of its identity.

We divested things that had become commoditized, including PCs, printers, hard drives, flat-panel displays, and D-RAM chips. That last one was particularly traumatic for our R&D guys. We invented D-RAM, and the guy who invented it has been with us for 50 years and still goes to work at the Watson Research Lab in Yorktown.

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