At Ibm, More Of The Same Only Better?Catherine Arnst
When Louis V. Gerstner Jr. took over as chief executive officer of International Business Machines Corp. three months ago, speculation was flying that he would make dramatic changes fast. After all, his predecessor, John F. Akers, was widely branded a failure for not moving far enough quickly enough to overhaul the giant's bloated organization. But three months into the job, Gerstner has made it clear that he has no intention of reconstructing IBM. Instead, the man everyone saw as the Great Changemeister is determined, for the moment, to carry out a set of policies put in place by none other than the much-maligned Akers.
The most significant statement of direction to come out of Gerstner's office since he took over on Apr. 1 was a memo to his top executives dated July 2. In it, Gerstner says IBM will keep doing what it had been doing under Akers, only more efficiently: "I do not want to undertake a major reorganization of IBM at this time." The company should focus on customers, markets, and competitors over the next 12 to 18 months, he says, rather than on internal changes. But he also believes IBM has yet to test fully many of the changes Akers put in place. "I want to make sure the current system is implemented well before we try alternatives," the memo says.
MARKETING MAN. The system Gerstner is most focused on is also the one that most closely affects the customer--IBM's huge sales force, 40,000 strong in the U.S. They were once considered IBM's biggest asset, the famous "Blue Suits" who led customers toward new technologies, from electric typewriters right through to personal computers. But in recent years, as the products and the company have become increasingly complex, the sales force has had more and more difficulty in explaining it all to the customer.
Gerstner, the former CEO of RJR Nabisco Inc., is a marketing man by background, and to him attention to the customer has always been the key to success. And customers--like IBM's 200 largest, whom Gerstner met with in Chantilly, Va., this May--are telling him they would be most satisfied if they can get what they've always had from Big Blue: one salesperson, what IBMers call a "single face," to call for the lowdown on the whole breadth of IBM's products and services, from mainframes to portables.
Akers was a big advocate of the single face. That's why, when he divided the company in late 1991 into 13 lines of business based on product type, the sales force was kept as a separate monolith, organized along geographic lines. Akers did put in motion one change several years ago: the development of product and industry specialists within each sales group. These specialists, known inside IBM as "fighter pilots," work with a sales team that specifically targets, say, the banking industry. They were first launched in Europe, with the U.S. following suit last year.
Gerstner wants more pilots, and he wants the manufacturing and product development staffers in the 13 lines of business to become more heavily involved in developing their skills and even determining compensation.
That should help the sales force play another of IBM's longtime, long-appreciated roles: computer adviser to the customer. "IBM helped American business learn the mainframe model in the '50s and '60s," says Dennis H. Jones, chief information officer for Federal Express Corp. "Now they should be putting as much focus on helping make the transition" to new technologies.
NO RUSH. IBM must also do a better job of turning new technologies into products customers want to buy. Akers' reorganization of the company by business lines went some way toward that end by cutting away layers of bureaucracy, allowing the units to react more quickly to market changes--witness the success of the IBM PC Co. this year. The fighter pilot system might help, too, says Gary M. Stibel, a principal of New England Consulting Group in Westport, Conn. "Just as these information specialists can help customers solve their problems better, they can also feed better data back to headquarters about what the customer wants."
Still, having information and acting on it are two different things, and Gerstner has yet to indicate how he will get IBM's lumbering product development and manufacturing infrastructure to move more efficiently (table). As of today, he hasn't even begun to formulate a new long-term plan. "Lou is not rushing to make significant changes in vision," says Gerald M. Czarnecki, IBM's newly arrived head of human resources.
He is, however, still following through on Akers' two-year-old restructuring. Analysts estimate that at least 50,000 IBMers grabbed a voluntary buyout offer that expired on June 30--more than twice as many as the company anticipated. That could mean a charge of about $2 billion when second-quarter earnings are announced on July 27--on top of the $200 million quarterly loss analysts were already expecting.
There could be more to come. IBM's remaining work force of 250,000 may need to be cut by an additional 25,000 to 50,000, some analysts estimate. The company refuses to comment on whether it will institute any further layoffs, but Gerstner has asked the heads of all IBM's businesses to detail the resources they need to operate profitably.
Gerstner may have signaled his desire to make big staffing cuts with at least two of the executives he has hired for his inner circle. Both Czarnecki, formerly CEO of Bank of America-Hawaii, and his new chief financial officer, Jerome B. York, once CFO of Chrysler Corp., are old hands at corporate restructuring.
But some industry eyebrows were raised at Gerstner's choice of career IBMer M. Bernard Puckett for the newly created position of director of corporate strategy. As an IBM strategist in the 1980s, Puckett helped put in place the multibillion-dollar expansion of production that is now being dismantled. "He is closely associated with the mistakes of the past," says Robert Djurdjevic, president of consulting firm Annex Research in Phoenix.
SUNDAY PHONE CALLS. In general, however, Gerstner wins far more praise than knocks from customers and analysts for his methodical start. "I don't think he's moving too slowly," says Jay Stevens, analyst with Dean Witter Reynolds Inc. "It's an extraordinarily complex multinational company. I think he's going quickly, under the circumstances."
He's certainly traveling quickly. Gerstner has spent more than half his time visiting IBM sites and the rest talking to employees, customers, and competitors. He has traveled to 25 facilities in North America, spent a week in Europe and another in Japan, met with the heads of IBM's Latin American operations, and canceled his traditional two-week vacation in August to tour research facilities. He regularly meets with groups of up to 100 employees and gets about 25 electronic-mail suggestions a day from staffers at all levels. These are passed on to IBM executives--with his handwritten notes attached.
Weekends offer no respite. IBM Director of Communications David B. Kalis, who came with Gerstner from RJR Reynolds, says the boss typically takes three briefcases full of work home every weekend. "And I know he reads it," says Kalis, "because we all get phone calls from him Sunday afternoon."
Gerstner may not be planning great changes, but he's certainly working hard at something. That could mean a lot more memos in the next few months.
GERSTNER MOVES IN DIRECTIVES Told shareholders he won't break apart IBM, said he won't reorganize sales force ORIENTATION Visited IBM sites in the U.S., Europe, and Japan; plans to spend August visiting research facilities NEW APPOINTMENTS Brought in Chrysler's Jerome B. York as CFO, former Bank of America-Hawaii CEO Gerald M. Czarnecki as human resources director, and made IBM insider M. Bernard Puckett chief strategist DATA: BUSINESS WEEK