`I'm Going To Let The Problems Come To Me'

The man who just took on the toughest management challenge in Corporate America would have you believe that he's planning a busy but highly unstructured, less-than-stress-filled inaugural period in the job. "I'm going to approach this job very heuristically for the first month or so," says Louis V. Gerstner Jr., IBM's new chief executive. "I'm going to be as fluid as I can. I'm going to let the problems come to me."

Even without inviting troubles, though, reality is likely to intrude. Outsiders insist that Gerstner must act quickly--or see Big Blue slip into corporate paralysis, putting it even further behind rivals and deepening its financial woes. In the period ended Mar. 31, IBM is headed for its second consecutive quarterly operating loss. For 1993, Big Blue is likely to post a huge operating loss, warns Charles Ferguson, co-author of Computer Wars, a book about IBM. "This year will really be a disaster, and if they don't shut down facilities and get rid of people, it will be an unmitigated disaster," he figures. Wall Street's gloomiest guess: a loss of $627 million.

Gerstner's schedule is already getting Even before he showed up in IBM's Armonk (N.Y.) headquarters for his official start on Apr. 1, he had torn up his original plans for that day to meet with the company's key international managers, who were in town for a gathering. That opportunity surfaced at a meeting Gerstner held with IBM's top 20 managers soon after he was named to replace John F. Akers on Mar. 26.

The day before his election by IBM's board on Mar. 30, the former chairman and CEO of RJR Nabisco Holdings Corp. sat in a 40th-floor office at IBM's midtown New York skyscraper and in an interview with BUSINESS WEEK outlined how he would take the company's reins. Although he declined to disclose specific plans, he did discuss his basic management approach.

He also revealed that a secret 3 1/2-hour meeting in a Washington hotel room with an unnamed senior IBM executive in early March played a "critical part" in his decision to accept the job, despite his inexperience in high-technology businesses. "I went through question after question," Gerstner says. "He had to arrive incognito, and I slipped out of other business I had there. It convinced me that a great deal of what needed to be done would fall into the `managing change' category." According to a well-informed source, the executive was Vice-Chairman Paul E. Rizzo, a longtime IBMer called out of retirement in January to aid Akers. IBM director James Burke, head of the board's search committee, arranged the meeting.

Gerstner also dismissed the idea that he'll soon choose a president with a technology background to replace Jack D. Kuehler, as has been widely predicted. "I have no idea how best to organize IBM," he sighs, showing frustration with what he later termed the "frenetic, maniacal press announcing everything weeks and weeks in advance." ("By the time I joined IBM, I was old news," he quips.) Gerstner hinted that he wants to get to know IBM's people before choosing a president--or even deciding whether to have one. His fondness for decentralization works against the idea.

FREE ADVICE. Gerstner was well-briefed. Before he took the job, which will pay him $2 million in salary in 1993 plus a potential $1.5 million performance-based bonus, stock options, and a $5 million bonus to sign on, Burke had inundated him with documents on the company written by insiders and outsiders. "Apparently, IBM gets a lot of free advice," Gerstner notes. He talked with several outsiders and read Computer Wars. Over the Mar. 27-28 weekend, Gerstner took home four briefcases of work.

Nonetheless, Gerstner says he won't decide what to do at IBM until he completes a major reconnaissance mission. "I've got to immerse myself in this company," he says. "I want to see as much, hear as much, and feel as much as I can in the context of the ongoing business of this company. I don't want to [just] call in people and have them speak to me." So, though he will schedule many formal meetings with higher-ups, he'll also meet over meals with midlevel employees and tour the company's far-flung facilities. Along the way, he will ask a lot of questions. In the next month, he'll also venture to Europe and the Far East, two key profit centers that are foundering.

Gerstner's survey will go outside the company, too. "I'm going to spend as much time with customers as I can," he says--something he told top managers was "the most important thing I want to do." As if to provide evidence, when one manager invited him to come to "part of" a two-day meeting with U.S. customers in May, says Gerstner, "I said I'd be there for the whole thing." Still, he admits that he hasn't yet figured out a way to observe customers informally, as he did at RJR by visiting supermarkets. Then, there are IBM's business partners to meet, Gerstner adds.

`A PUZZLE.' What's behind these inquisitions? "In my mind is a list of issues that I view as a puzzle," he explains. "As I go through these meetings, one will get a little clearer and one will get a little more complicated." From that, Gerstner will attempt to design "a tough-minded, hard-hitting strategy. That takes a lot of analysis, a looking outside rather than inside. That takes a lot of debate. And ultimately, it takes a lot of risk-taking." Once he's got a strategy, he says the trick will be getting IBM to pursue it with "a maniacal devotion."

But if Gerstner, the IBM neophyte, displays confidence, skeptics abound. "No matter who was chosen, the odds are against him," contends James O'Toole, executive director of the University of Southern California's Leadership Institute. By all accounts, righting IBM will require major change in the company's deeply held, highly structured political culture: To keep pace with rivals, it has to be faster-acting, more entrepreneurial--and probably, broken into pieces. "To get effective change, you build on the values of the company, but IBM's values don't mesh with the structure of a holding company with small independent units," O'Toole says. Even if they did, cultural change takes time, and IBM doesn't have much right now.

Gerstner soon must make several key decisions, including whether to split up IBM, which businesses to expand, and who should run those key units. He has to figure out a way to manage the decline of the company's once vast mainframe business. He has to decide which facilities to close and how to cut staff to bring IBM's costs in line with such rivals as Apple Computer Inc. and Compaq Computer Corp., which post revenues per employee of two-and-a-half or three times IBM's $213,000. Ferguson believes that as many as 130,000 of IBM's 280,000 workers will have to go, though IBM will have to hire some people with different skills, too. Gerstner himself will soon hire a chief financial officer.

No wonder the doubters currently outnumber the believers. "It's an impossible job," Ferguson says. In contrast with other ailing companies, where news of a change in CEO sends the stock up, IBM's is flat, languishing around 50, down from a high of 176 in 1987. To change that, Gerstner will have to kick his plan for action into high gear.