After many years, I read Gerstner's "Who Says Elephants Can't Dance" and found that his insights are very profound and have stood the test of time. Criticisms of Wall Street's one-sided focus on revenue growth, for example, are sobering.
In the book, Gerstner speaks:
I also need to point out that these analysts have the misconception that they have an overly simplistic preconception that growth in operating income is the measure of a company's strength. Of course, the growth of operating income is a factor in the growth of a company's value, but it is far from the most important factor. The one-sided pursuit of revenue growth at the expense of net profit is one of the most powerful signals of a management team's incompetence.
Of all the measures of the income statement, operating income is one of the most manageable parts of bookkeeping management. At the time of the book's publication, we can see similar cases around us β telecommunications, Internet companies, and software companies that are under investigation and who have admitted to such fraud are part of a pyramid of one-sided pursuit of revenue growth at the expense of net income.
This one-sided pursuit of operating income has also led to another consequenceThat is, maximizing short-term results at the expense of long-term competitive position, that is, to inflate or maintain ** at the expense of market share.
At IBM, we've done a lot of work to depress revenue growth but increase underlying shareholder value
We don't engage in mergers and acquisitions that only scale up the company but bring little profit.
We reduce the number of hosts** and the resulting decline in operating income to ensure a profitable and expanding cash flow.
We've fundamentally shaken the foundations of some of our software and memory competitors on which we've maintained amazing protection in the past. As a result, we have significantly increased our market share in high-growth segments.
We sold businesses that generated billions of dollars in revenue but didn't fit into IBM's long-term growth strategy.
I suspect that revenue is the easiest thing analysts find to be tracked or understood. However, the best companies must grow their profits faster than their operating income. These great companies are able to manage marginal profits and expenses well, and they know that the most competitive advantage is one that allows them to use operating income as a cost structure and a market-oriented model to compete with their competitors. And most importantly,They understand that it is cash flow, not operating income, that drives the success of the business.
So it's no surprise that the three most powerful companies in the IT industry over the past decade (Dell, Intel, and IBM) have shared two common characteristics (as do GE, Walmart, and other leading companies).γThe first feature is that the first feature is to treat (operating income) as a strategic competitionThe second is the ability to manage costs well β all costs, including taxes, manufacturing, and distribution.
As we enter a new 10-year development period, company leaders should take advantage of the space of e-commerce to be more innovative in manufacturing, engineering, logistics, human resource productivity, and organizational speed. In almost all industries, globalization is causing overcapacity, and the resulting commodification and decline. Therefore,Success will mean getting the company to the right size β not necessarily the biggest sizeProcess innovation, the company's business model, will be as important as the innovation of the company's products.