UK: IBM STRUGGLES TO REGAIN LOST GROUND FROM SLIMMER RIVALS.

UK: IBM STRUGGLES TO REGAIN LOST GROUND FROM SLIMMER RIVALS. - IBM's boss imposes his eight goals and reveals the shape of things to come.

by Roger Eglin is associate business editor of the SundayTimes.
Last Updated: 31 Aug 2010

IBM's boss imposes his eight goals and reveals the shape of things to come.

When Lou Gerstner took over as boss of IBM, his priority was 'the financials'. With money pouring out of Big Blue at a frightening rate, 52-year-old Gerstner had no time for niceties. He swung the axe on costs and, by anyone's standards, has made a brilliant job of it. The corporation is making a modest profit and Gerstner hopes that the whole of 1994 will be a profitable year for IBM.

But restoring the fortunes of IBM to match the days when it earned 70% of the world-wide computer industry's profits is proving more difficult. Axemanship has to be replaced with skills that foster growth and the company's product strategy has to be refocused in an industry which is changing at a dazzling pace. Gerstner's actions to date suggest he knows what needs to be done; the question is whether he can overcome the company's still stifling corporate culture to achieve the restoration of Big Blue's fortunes.

It is not proving easy. After losses running into billions of dollars an internal IBM survey of 1,200 top managers showed that 40% still did not accept 'the need for change'. At a private, early summer meeting with 500 top staff, Gerstner is reported to have told them: 'You should decide if you want to be here. If you don't, leave.' He is disdainful of the traditional IBM white shirt image, attacks the old corporate arrogance and says employees should feel less 'entitled' to their jobs and, hopefully, less lethargic about putting urgently needed changes into place.

He shook staff to the core by shelving the three 'basic beliefs' imbued in the company by its Watson family founders. Instead of pursuing excellence, providing the best customer service and, most important, showing employees respect as individuals, Gerstner has imposed eight goals that he used to reshape RJR Nabisco, his previous company. These stress urgency, the need for change, the importance of employees seeing themselves as 'owners' rather than being preoccupied by 'inward focus' while respect for the individual now comes eighth. It has angered the company's traditionalists. One wrote in a newsletter: 'Nice try, Lou, but it's hard to think as owners when we're treated as hired hands.' Observers have noted an added edge to Gerstner as the cultural change lags. Abruptly interrupting a customer presentation by one senior executive, Gerstner told the audience that if they didn't get the service they needed 'to let him know'. In June Robert J Corrigan, an IBM veteran of 32 years who had been credited with building IBM's strong comeback in the personal computer business, quit. Earlier top executive Gerald Czarnecki resigned abruptly, after less than a year as human resources chief, following speculation that he had failed to deliver the 35,000 job cuts planned for this year and the rapid cultural shift that Gerstner was demanding.

In reshaping strategy Gerstner has moved at a cracking pace, laying down a series of themes: IBM is to push its core technologies, such as the new superfast PowerPC chips, across more product lines and sell more components such as chips to outsiders; take a much more aggressive approach to getting into the growth of client/server computing; offer networking services to large clients; refocus the sales force, which was traditonally generalist and geographically based, into specialist, industry based teams, and get into new markets such as China using all the weight of IBM's resources.

Much of this is under way. The reorganisation of the sales force is taking place. China's Ministry of Electronics Industry has chosen IBM for a vast project to link some 500 cities with a national 'information highway' data network; in addition IBM is primary consultant on two other major projects. This coup is typical of IBM's ability to use its resources to win big government and corporate contracts.

Sales to other computer manufacturers have risen tenfold to $3 billion since 1990 but though some outsiders such as Ford, Canon and Bell Atlantic are buying the all-important PowerPC chip, IBM is so far finding it hard to challenge Intel's dominance as chip supplier to the computer industry.

The previous management's inability to respond to key market changes means that IBM is struggling to catch up in important areas like client-server computing and the information highway business. The failure to capitalise on the sea-change to client/server computing is the single most important mistake IBM has made in the last decade says Gerstner. In fighting back, IBM faces rivals who had already got their act together. AT and T has taken the lead in the information highway business while Compaq now claims to be ahead in PC sales. It emphasises that in rebuilding IBM, Gerstner has none of the advantages IBM's overwhelming dominance of the mainframe business gave it in the past. Competition and much slimmer profit margins are now the order of the day. Rivals like Hewlett Packard and Compaq are scoring while IBM still struggles to shed its stultifying culture. On what he has done so far Gerstner is an outstanding manager - but what we have seen so far is only the prologue.

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