For Ibm Europe, `This Is The Year Of Truth'

Big Blue's investors and rivals got a clear signal that IBM Europe, like its American counterpart, is looking for dramatic ways to change its business. The sign: IBM France's $466 million bid for software specialist CGI Informatique. Buying CGI would further reduce IBM Europe's dependence on computer hardware sales and move the company into the fast-growing area of software and services.

But the CGI deal is just part of a strategy to shake up the $25 billion division. In late March, IBM Europe Chairman Renato Riverso finished a yearlong effort to slice the Continent into some 200 autonomous business units, each with its own profit plan, employee incentives, and customer focus, such as air-traffic control systems across Europe or banking in Germany. "We used to manage from the top, like an army," says Riverso. "Now, we're trying to create entities that drive themselves." If Riverso succeeds, IBM Europe could become a model of change for IBM worldwide.

'SINK OR SWIM.' Riverso's drive for autonomy is causing its share of pain. Some 10,000 jobs will be gone in a year, thanks to cutbacks at once-thriving factories such as the mainframe facility in Montpellier, France. Of the 2,000 jobs there, 500 will be gone by 1994. Another 500 workers will be set loose in an autonomous unit that will seek new customers for its microchip packaging services--although they, too, may face the ax if the new business doesn't turn profitable within a year.

Top management feels it has little choice. "This is the year of truth," says Christian Nivoix, marketing vice-president for IBM Europe. "We sink or swim." With IBM Europe's profits dropping steadily, the pressure is unlikely to let up. IBM's problem in Europe, as elsewhere, is that its mainframe sales are falling faster than its sales of personal computers, workstations, software, and services are growing. European sales of IBM's top-end mainframes, estimates International Data Corp., fell 15% last year, to $4 billion--nearly twice the market decline--as aggressive rivals Amdahl, Hitachi, and Germany's Comparex all took away business.

Early results of Riverso's reforms are promising. A half-dozen pilot groups averaged 3% higher profit margins in 1992 than before, for example. And shipments of PCs, the first line to be managed under an independent Europewide team, shot up about 35% in the first quarter of 1993 over that of 1992.

Still, the new plan carries plenty of risks. Because the new marketing units are free to negotiate for products and services from other IBM entities and can even seek outside suppliers, they could waste time haggling over prices instead of swiftly meeting customers' needs, admits Nivoix. And just when most companies are building up planning operations that span the entire European market, IBM is doing just the opposite. "They may focus so narrowly that they'll lose sight of the bigger trends," warns Charles P. White, European analyst for market researcher Gartner Group Inc.

The most novel plans are in store for Montpellier and three other European factories in England, Sweden, and Spain. All four will whip up their own designs and seek new markets as independent businesses. The IBM printer plant in Jarfalla, Sweden, for instance, is working with a British design firm and a Japanese manufacturer to produce ink-jet printers suitable for fax machines, bar-code scanners, and other equipment outside of IBM's traditional office systems. After cutting 40% of his 1,000 jobs since 1990, plant director Bo Alerfeldt is energized by these prospects but isn't fooled by all the pep talk about entrepreneurship. "If we fail," he says, "the danger of far deeper cuts is very serious." So is the likelihood of further drastic change at IBM Europe.