USA: Heller on management - How IBM went off-beam. (1 of 2)

USA: Heller on management - How IBM went off-beam. (1 of 2) - Robert Heller takes a critical look at IBM following the attack on its complacency made by its very own chief executive.

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Last Updated: 31 Aug 2010

Robert Heller takes a critical look at IBM following the attack on its complacency made by its very own chief executive.

IBM is to American business what the Statue of Liberty is to America - the proud symbol of its achievements and greatness. Will Americans find it any easier to accept harsh criticism of IBM when it comes from the company's own chief executive? In fact the most surprising aspect of John Akers' attack on IBM's complacency was not his language but its leakage - an executive who heard the blast at a small seminar tapped his notes into the electronic mail system, which spread them like wildfire.

The copy to my hand is a devastating read. The 50% fall in first-quarter profit on a 5% revenue drop took Akers by surprise. The many and varied reasons that he was given for underperformance were ALL EXCUSES. He was "sick and tired of visiting plants to hear nothing but great things about quality and cycle time - and then to visit customers who tell me of problems". The quality of work was not good enough. There were "too many people standing round the water cooler waiting to be told what to do" - and so on.

The inspiration for this diatribe was apparently sitting through the business reviews from each division: every one had "experienced negative growth" in that awful first quarter, prompting Akers to blast off at his senior executives and then to the seminar.

The denizens of large businesses are neither unintelligent nor unobservant. Business Week quotes a marketing woman who blames "the cult of the executive" and the yes-men whom it breeds. A software developer thought that "John Akers is frustrated because the old way of doing things isn't working". And a chip designer surely put his finger on the magic button when identifying the "biggest problem": that "Akers doesn't seem to be accepting responsibility".

That was not how the electronic leaker, an executive named Brent Henderson, saw it: "I wanted to accurately convey the resolve and candour in his message. It's reassuring to see that the man at the top understands the issues and has a sense of urgency to deal with the present situation. He earned my respect." Without much respect, that is what Akers is paid for: and very handsomely, at $2.2 million last year. Understanding and urgency, however, are only part of the deal. Chief executives are expected to execute effectively.

In terms of jobs, Akers has certainly executed: the current 373,000 payroll is down by 47,000 since 1986, with another 14,000-plus to come. But excess employment does not explain IBM's loss of market share. That reflects deep systemic weaknesses which Akers, on his own admission, has failed to eradicate. His basic difficulty is that, for all its slippage, IBM retains all the inertia of being enormously successful, or successfully enormous. In 1989 it sold as much as the world's next five computer and office equipment makers put together.

But in relative as opposed to absolute terms, IBM has been falling heavily under the impact of a host of far smaller competitors: the Lilliputians have Gulliver tied up in knots. In consequence, IBM has lost the confidence of business leaders. Worse, once IBM was among the very select few to average a long-term 20% on equity, without ever dropping below 15%. From 1986 to 1990 the average was 13% - and it is falling.

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