But by the 1980s, the bruising computer industry made the hockey rink look positively amicable. When Akers offered his resignation to his board last Monday, he knew he had lost his biggest game. The fortunes of his company had spiraled downward during his eight years at the helm, He had tried to slim the lumbering giant, cutting 100,000 jobs from the rolls, and to reorganize the company into a constellation of smaller, more nimble units with a greater presence in high-profit software services. But Akers proved too much a creature of his company’s culture to lead a revolution. His efforts always seemed to be too little, too late. Losses mounted until recessionary 1992 saw an awesome $5 billion in red ink. Livid shareholders had seen the value of their holdings drop by half in recent months, and then last week saw their stock dividend slashed by more than half. Publications including Business Week, The Economist and Fortune called for Akers to step aside. His boardroom bosses debated his resignation, but they soon accepted the inevitable. “A lot of the directors were frankly surprised,” says board member James Burke, the former Johnson & Johnson chief. “I wasn’t. I watched him suffer under the pressure … You could feel the stress.” Top deputies also stepped aside. On Thursday, a somber Akers said in a video message to his troops that he acted “because I love this company … I am convinced that we are going to see this through to an IBM that is renewed and stronger and prospering once again.”
It was the second supposedly unassailable, centralized empire to crumble in as many years-with Akers playing the role of Gorbachev. Now IBM’s 300 000 remaining employees-and a public that once looked to Big Blue as the world’s most powerful and innovative enterprise-are wondering who will next lead the company and what will happen next. Though IBM still has smart people, strong technology and promising products, a good deal of pain-or worse-lies ahead. Industry analyst Charles Ferguson sees the possibility of an “implosion” like those that have crippled other laggard computer makers like Wang Laboratories Inc., now in Chapter 11. “It’s a real possibility,” says Ferguson, author of “Computer Wars,” a withering critique of IBM-“unless they get a grip.”
Though by all accounts Akers made the choice himself, there was little doubt he would have to go before long. He had already brought back retired executive Paul Rizzo, a man Akers had edged out for the top job. Akers, who was not available for comment, had become the focus of discontent for IBM’s workers, shareholders and employees. One administrator of a large pension says that while he was surprised by the news-and felt Akers was moving the company in the right direction-“The negative publicity mounts, the leader spends all his energy on survival, he becomes scared to take short-term hits. When that happens, he can’t lead anyone because people aren’t sure he’ll be there for long, and then performance suffers.”
When Akers took over in February 1985, the company’s prospects seemed boundless. The company that had revolutionized mainframe computing with its business-friendly 360 series was the most profitable in the world. Four years before, IBM had introduced its personal computer, and it soon became dominant in the nascent PC industry. The Justice Department had dropped a 13-year-old antitrust suit in 1982. Upon taking over, Akers-a former navy pilot who already had 24 years as an IBMer when he reached the top-told The New York Times that he expected his company to pass $180 billion in sales by the time he expected to retire in 1994: “I feel pretty well prepared.”
The IBM he was prepared to run was not the IBM of the 1980s. By Akers’s time the company was less devoted to bringing on the future than to preserving its past success. Its labs might have held hot technology-IBM scientists invented the superfast microprocessors, known as RISC chips, that now give punch to powerful workstations-but the inventions languished in a departmental tug of war as rivals beat Big Blue to market. “The problem has never been technology,” says Richard Shaffer, publisher of the Computer Letter. “It’s been lethargy and bureaucracy.”
As PCs became cheaper and more powerful, they put pressure on IBM’s mainframes and minicomputers. Big Blue lost control of the PC market, too, by letting the standards it set slip away to its partners. Microsoft gained control of operating systems-the software that controls basic machine functions-and Intel designed the microprocessors at the heart of each PC. Though IBM had the contractual right to create variations of Intel’s chips to add value to its line, the company didn’t act until recently. Former IBM vice president Paul Low, whose responsibilities included the highly regarded semiconductor operations, says while he’s not sure if capitalizing on the chip would have changed IBM’s fortunes, “it was my fault … I didn’t follow through and force it through.” IBM tried to retake the market with its PS/2 line, which was partially incompatible with existing PC hardware, but clones were so reputable and plentiful that the public sided with them instead of IBM.
Akers tried to shrink his company but long resisted abandoning IBM’s cherished no-layoffs policy. Instead of cutting fast and deeply, he peeled back layers, offering round after round of expensive early-retirement packages that hurt morale and enticed too many good workers to leave. For all the cuts in staff, sales and administrative expenses didn’t improve: in many cases, Akers had merely shuffled workers from headquarters to sales. “He was rearranging the costs, not changing the way IBM does business,” says David Yoffie, a Harvard Business School professor who has studied IBM. Yoffie could not get Akers to articulate an overall strategy for the company. “His strategy was to maintain the status quo. Until 18 months ago, there was repeated denial of any fundamental problems.”
Now nobody can deny the problems. But where are the solutions? Burke says the company must continue the movement to become more entrepreneurial. Akers had started IBM on its way to becoming a “confederation” of 13 companies which would have a great deal of autonomy, and more spinoffs like the successful Lexmark printer and office-equipment company. The plan met with widespread approval-especially from Burke, who points with pride to his 1981 annual report at Johnson & Johnson, whose cover bore the legend: DECENTRALIZATION = CREATIVITY = PRODUCTIVITY. If the units compete with each other, so much the better: “The ‘all for one, one for all’ part of the culture needs to change,” Burke says, though “we need to maintain the goodness inherent in that attitude.” Burke appears eager for the directors to pass control to the new CEO-whom they hope to name by April. “I am not a great believer that boards can run companies.”
Meanwhile, Burke is heading up the search for a new CEO and has said he expects to be done by April: “I don’t think it’s going to be hard to find people who want that job.” He shouldn’t be so sure. It could well be that nobody but an insider will be able to deal with IBM’s entrenched culture and yet nobody but an outsider will be tough enough to fix it. Many of the company’s critics are skeptical of current management. “I don’t believe anyone comes close,” says Dale Sundby, an ex-IBMer whose reform proposals were sent along to board members by California’s influential pension agency, CalPERS. Those favoring outsiders look to established high-tech industry figures like AT&T’s Robert Kavner or former Hewlett-Packard CEO John Young to lead IBM out of its troubles. But going with an outsider could have disastrous effects, contends Jeffrey Sonnenfeld of Emory University’s Center for Leadership and Career Change: “Everybody with promise would be dusting off their resumes.” Sonnenfeld respects James Cannavino, who heads the PC unit, or networking chief Ellen Hancock. “A maverick insider is far more efficient and swift-moving in a time of urgency,” Sonnenfeld says. One possible hybrid solution: formidable ex-IBMers like Michael Armstrong, who left Big Blue to become CEO of GM’s Hughes Aircraft.
One thing is certain: the new CEO will have to use all of his or her magic bullets to wean IBM from mainframes, which still represent more than half of its profits. Here are some new technologies and products the company is betting on:
IBM’s better-late-than-never entry into the world of RISC microprocessors has gained respect in a market dominated by companies like Sun Microsystems and Hewlett-Packard, with powerful RS/6000 workstations used in science, engineering and business. The company is moving the chip up into machines that might replace mainframes, and also down onto the desktop. IBM and Apple hope that new operating-system software created in their “Taligent” partnership will loosen Microsoft’s hold on computing.
The company has sold more than 200,000 of its AS/400 minicomputers; it’s squeezed profits out of a supposedly declining market by asking customers what they want and giving it to them-and improving the entire product line frequently. It’s an example that could serve well in the mainframe market.
Big Blue is now into color-and sound and animation and video. The push to implement “multimedia computing” across its product line comes under a new unit, Fireworks Partners, that also helps business begin using multimedia tools for applications like worker training. “It is our future, and our future is right now,” says Lucie Fjeldstad, IBM’s vice president and general manager for multimedia.
A chip-making powerhouse, the company-uses most of its product internally. It could peddle semiconductors. Deeper in its research labs, the promise of technology such as optical computing-using light inside the computer instead of electrons-might someday lead to entirely new technology platforms.
IBM isn’t the only company that’s had to adapt to new technology-and some have done it very well. Companies that “don’t move from one generation to the next are cop-outs,” says consultant Jerry Wasserman of Arthur D. Little. They have to be willing to cast off their sacred cows, as when General Electric sold its treasured aerospace unit last year. Apple Computer saw a new industry of computerized consumer electronics coming-and “unless we changed ahead of it,” says CEO John Sculley, “we weren’t going to have a sustainable company.” After three years of effort, Sculley says, “we have gotten ourselves positioned into most of the major sweet spots for the 1990s.”
There’s a great deal of hurt ahead for IBM, no matter who runs it. Consultant John Logan of Aberdeen Group expects IBM to shrink from today’s $65 billion in sales to $40 billion. Eckhardt Pfeiffer, CEO of Compaq Computer Corp., says IBM must act quickly. He should know: he led Compaq’s wrenching restructuring and return to profitability last year. And while Compaq is a much smaller, more focused company, his advice rings true: “If the direction is clear, IBM will pull out,” Pfeiffer says. “If the direction is not clear, it’s going to be a long, painful process.”
There are troubling signs that IBM still doesn’t get the message. Akers’s confederation plan looks interesting on a chart, but the units have too little independence to please critics. “They keep making compromises and stopping short of doing this thing completely,” says one former IBM executive. That executive says that without completely independent sales and marketing for each division, if one unit sees another unit’s products as a threat to its sales, it could hamper development.
For all its trials, IBM still has believers. Dick Daubenmire, who retired from IBM in 1989, says he recently bought more stock. “I feel today that, as George Bush left the White House under a lot of fire with the country just poised for recovery, John Akers is going to leave IBM with a company just poised for recovery.” Let’s hope Daubenmire is patient: any turnaround could easily be two years off or more. For now, IBM seems ready to try just about anything to force its own spring. At a trade show last week, company reps left their blue suits in the closet and went casual, donning identical white sneakers, beige slacks and blue sweaters over white button-downs. And no red ties! That’s certainly a change. Still, it’s going to take more than a new wardrobe to change Big Blue’s fortunes.
Industrialist Thomas Watson Sr. changes the name of Computing Tabulating Recording Co. to IBM. The company makes everything from time clocks for workers to tabulators and butcher scales.
The company unveils its first electronic typewriter, called the Electromatic.
Watson’s son Thomas Jr. is named president. IBM produces its first computer, the model 701, designed for scientists.
The company quickly corners 70 percent of the mainframe market with it famous System/360 computer.
The U.S. government files an antitrust suit against IBM. Thirteen years later, the Reagan Justice Department dismisses the suit.
The IBM Personal Computer debuts.
John Akers becomes CEO in time for an industry slowdown and the demise of the PC junior.
Earnings decline for second consecutive year, and 10,000 workers take early retirement. But media pundits still forecast sales of $200 billion by 1995.
After slashing 100,000 jobs since 1985 IBM posts big losses and cuts its dividend. Akers resigns.
Ex-IBMer Armstrong, who’s pumped life into GM’s Hughes Aircraft, is a candidate. Tough enough to slash jobs and knows the turf.
The former chief executive of Hewlett-Packard revived a moribund company by overhauling its computer operations and producing the Cadillac of laser printers. His age 60, may be a negative.
If there’s a leading inside candidate for the top spot, it’s Cannavino, the 48-year-old chief of Big Blue’s PC and workstations. Unlike many IBMers, he’s brash, a risk taker and even lacks a college degree. Still, the odds are that the directors will insist on an outside hire.
Kavner knows technology–he once headed AT&T’s computer unit. He also knows what it takes to overhaul a large, slow-moving company. Still, the Ma Bell exec is a long shot.
