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ROOM AT THE TOP
At IBM, the succession from one chief executive to another has always been as orderly as the passing of the crown from one generation of the British royal family to the next. Indeed, in its 78-year history, Big Blue has had just six chiefs: The legendary Tom Watson Sr. led the company for decades, and his son took on the job for the next 15 years. Succeeding s all rose gracefully from president to become chairman. "Many American companies seem to have a tenure for the of only four to five years," says Chairman John F. Akers. "That's not the way IBM has historically approached the challenge."
But now, just three years away from IBM's traditional retirement age of 60, Akers has no heir. His president, Jack D. Kuehler, is nearing retirement age himself. And during the past three months, Big Blue's chairman has accepted resignations from some of his highest-level executives, including the two possible successors, C. Michael Armstrong (page 66) and DGeorge H. Conrades. In the past six years, 30 of the company's officers have turned in their Big Blue IDs, Akers says.
The chairman also says those departures are simply business as usual for executives who have spent decades at IBM. "Very often, individuals look to new adventures and new opportunities," Akers told BUSINESS WEEK. But the resignations come amid unparalleled upheaval at Big Blue: The company in 1991 posted its first annual net loss ever--$2.8 billion. And it's trying to shed 20,000 workers this year, and perhaps an additional 20,000 next.
EMPTY DESKS. The goal: to turn the computer titan into a federation of more-or-less independent companies. The job is barely begun. And as Akers works away, he'll have to carry on without many of the executives who rose with him through the ranks.
The latest defections are a direct result of IBM's Thanksgiving reorganization. Conrades' resignation, for instance, comes after what analysts who follow IBM call a "public execution" in November, when he was sidelined from his post as No. 1 U.S. marketer. And the resignation of Armstrong, world trade chief, to take the top slot at Hughes Aircraft Co. came after Akers warned him that he was unlikely to win the company's top job. "He always wanted to run his own show," Akers says of Armstrong. "When it became clear to me and therefore to him that he wasn't going to run IBM, I agreed to tell him. And I did that last fall."
The empty jobs at the top of the company--Akers says he isn't going to fill Armstrong's slot--are all the more striking because of earlier departures. In 1991, Carl J. Conti, ex-mainframe chief, retired. Last year, too, Edward E. Lucente, a 30-year er and president of IBM's Asian operations, was hired away by Northern Telecom Ltd., the Canadian telecommunications-equipment maker. And there are more to come: Headhunters and executives at competing companies say they're aware of "hundreds" of executives looking to move.
Many of those who have already left took advantage of the company's lucrative early-retirement options, launched in mid-decade as the company's sales and profit growth began to slow. Indeed, IBM has used the option to cut 60,000 people from its payrolls during the past six years. Along the way, the company lost a great deal of experience and talent.
`IN THE DUMPER.' But are things so bad now that IBMers are storming the exits? Or is the new IBM, with its flattened structure, simply a place where old-style IBMers feel uncomfortable? "John Akers is investing in the next generation of executives, in their mid to late 40s," says Conrades. "It's important that everyone be pulling in harness." Ex IBM-ers say they're not surprised to see the exodus of so much top talent. "Not everyone agrees with all the strategies and tactics that the company is taking," says John Torres, a 23-year veteran who left two years ago to become general manager of Dataquest/Ledgeway, a consulting company. "After a while, the fun goes out of it. You go through so many reorganizations that the objectives keep changing, and you get frustrated."
Akers' strategy mainly calls for the corporate equivalent of Ultra Slim-Fast. A slimmer company should do better in a market whose center of gravity is shifting from high-margin mainframes, IBM's core business, to networks of cheap, commodity-like desktop computers. "The industry is in the dumper, and IBM is in the dumper," says Conrades. "We're playing in the all the fastest-growing areas. We have a product mix and manufacturing capacity problem. But we'll work that pig through the python. Akers is bound and determined to see that through."
And that may require new skills at the top. Akers envisions his new IBM as a "portfolio of companies," each measured by cash-flow and return-on-asset goals. To make that work, financial skills more than operational ones may be required of IBM executives, who in the past have been mostly salesmen and product managers. "I wouldn't be shocked if the next CEO is a financial guy," says Rick J. Martin, a computer analyst at First Chicago Corp. and an ex IBM-er himself.
The question of who-or what- IBM needs at the top clearly hasn't been decided. But it appears that the most likely candidates to step into Akers' shoes are the executives running 's 14 business units. Many are vice-presidents in their mid-40s, such as M. Bernard Puckett, in charge of a software division, and Robert J. LaBant, who took over U.S. marketing from Conrades. "I think the people coming along now are all more highly skilled than the generations before that," Akers says. "That's been true all the way along."
TRANSFUSION? Other possibilities? Akers could choose to stay on as beyond age 60a retirement age he calls "not a hard-and-fast rule." That would give Akers more time to realize his far-reaching but inevitably painful reorganization. Having initiated the changes, he may be the right guy to see them through, which will likely entail closing factories and shedding tens of thousands of additional employees.
And if Akers truly wanted new blood, IBM could reach outside for a CEO--perhaps after the company had become more profitable and the work force had grown accustomed to the new structure. That would be unprecedented at IBM, which has a long tradition of internal promotion. Says Akers: "Absolutely expect to see people coming into the business from professional ranks outside."
Those outsiders will surely enter at a level well below CEO. Still, it's a welcome change for some insiders. Warns an ex-IBMer, with 17 years at the company: "Inbreeding is stifling IBM's ability to think any new thoughts. Akers ought to start hiring people that don't come from the school." As Akers knows better than anyone else, no single person is going to fix IBM's problems overnight.John W. Verity in New York, with bureau reports