Ibm's Board Should Clean Out The Corner Office

Once again, the news from Armonk is bleak. On Jan. 19 IBM posted a 1992 loss of hearly $5 billion, the biggest in U.S. coporate history and an operating loss in the forth quarter--its first ever. For all the restructurings, personnel shifts, and product initiatives, the world's biggest computer maker still resembles nothing so much as a flailing giant unable to extricate itself from the mire of an outdated strategy and culture. No wonder more and more IBM-watchers are calling on the board to dump Chief Executive John F. Akers.

The directors, who will meet next on Jan. 26, seem to think the free advice is worth just what they paid for it. They shouldn't. Righting IBM requires a fresh perspective at the top. If IBM's board is not discussing Akers' ouster--and considering an outsider as a successor--it, too, needs fresh blood.

Risky delay. Firing and replacing a CEO is particully20tough at a company as big and complex as IBM. Choosing the wrong person could be disastrous for thousands of employees and shareholders, as well as the U.S. economy. But the risks of delay are even greater. "A collapse equivlent to those experienced by Wang,20Control20Data, or Prime [Computer] is not at all improbable," warns consultant Charles H. Ferguson, a former IBMer and author of the forthcoming Computer Wars. He has written to Big Blue's directors urging a new strategy.

The case against Akers could begin years ago, when he and IBM's other top executivies refused to believe that their key mainframe business would soon be eclipsed by smaller machine--despite IBM's own sizable PC, minicomputer, and workstation sales. Long after it become clear that the cost and complexity of mainframes were making them uncompetitive, they remained IBM's strategic cornerstone. Even Akers' famous 1991 tirade urging IBM's sales force to get moving--seen as a plus then--fought reality. Mainframe sales have gone into a tailspin.

Since then, Akers has made two more major stabs at fixing the company: a late-1991 plan to break IBM into 13 independent units and a late-1992 plan to further empower them. Although billed as bold moves that would alter IBM's bureaucratic nature, they, too, have produced little improvement.

The most damning bill of particulars against Akers, however, concerns his recent actions. In December, IBM bolstered management by rehiring two retirees, Kaspar V. Cassani and Paul J. Rizzo--both mainframe-era veterans. Then, Akers compounded that error by elevating Robert J. LaBant, a top salesman, and Ned C. Lautenbach, known for his marketing skills, to the management committee--and making them heirs apparent. Each is a loyalist, unlikely to propose the necessary drastic steps. "They are not the right solution," says the CEO of a successful large company--and IBM customer.

Not surprisingly, Akers' personnel choices show that IBM is still a closed system. The route to the top has been through sales, marketing, or finance--not technology--and dependent on political skills. Doing something the IBM way is more important than getting it done, and delivering bad news to higher-ups has been a sure way to short-circuit a career. Still, Akers' recent moves have set off alarms. They show that Akers neither understands the magnitude of the problem nor the speed required to solve it--let alone the right formula for change.

SHORT LIST. That's why, if they haven't already, IBM's directors should take matters into their own hands. Saving IBM requires more than a tweak here and a tweak there. Many industry experts say the company must cannibalize the mainframe business in a steady, managed way, with smaller, high-powered products of IBM's own. To change so dramatically, "you need someone who can make a fresh start," notes Harvard business school professor Rosabeth Moss Kanter, an expert on large companies. Directors should thus begin searching for an outsider to handle the job. And since, as executive recruiter Thomas J. Neff notes, few people would fit that bill, directors should look within IBM for any so-called inside-outsiders who have survived IBM's culture.

Is IBM's prestigious board up to the job? James E. Burke, the former Johnson & Johnson CEO who acts as IBM's lead director, could not be reached for comment. Last fall, he backed Akers squarely. It's unlikely the independent directors have since changed their minds. But considering IBM's condition, at the very least, they now should be meeting alone regularly. They should have embarked on a fact-finding mission--seeking information and analysis, with Akers' cooperation, from middle management, customers, and computer mavens, the way John Smale did in the past year at General Motors Corp.

Last, they should be setting performance goals and deadlines for achieving them. Somebody's feet--Akers' or a successor's--must be held to the fire.

Before it's here, it's on the Bloomberg Terminal.