IBM in transition

Electronic News, July 27, 1992 by Bill Gage

With criticisms of being too big and too slow, IBM is an easy target in a market which has been especially hard hit by a recessionary economy. With all the assaults from analysts and press, the question can be asked "Is IBM doing anything right?"

Not only is IBM doing something right, IBM is doing a lot right. To look at the criticisms of IBM is only half the picture. Consider the following:

* IBM is too big. IBM may get mired in organizational suffocation, but it has enormous resources to bear on any problem it chooses to focus on.

* IBM is too slow. Up until the recent past, IBM has missed many marketing opportunity windows.

* IBM is not cost competitive. Again, one can argue that for several years IBM product announcements were plagued by a high-priced "me-too-edness" syndrome with a vague concept of who their customers really were.

* IBM is plagued by HIH (Not Invented Here) syndrome. IBM has made industry-shocking alliances in the past year that counter this thinking.

IBM has taken major steps to decentralize. Major companies have splintered off to become separately owned and run businesses or IBM "companies" which can make their own decisions based on operating revenues and expenses. IBM does move slowly; these announcements are not coming rapidly but they are coming. The corporate mission is to allow operating units to make decisions completely and quickly without numerious headquarter-level reviews.

IBM announced another job reduction of 20,000 jobs for the year 1992. Regardless of how these job reductions take place, i.e. special incentives or pre-retirement packages, the expenses are being cut.

To be a price-performance leader you must pay attention to costs, you must pay attention to technologies, and primarily you must take risks. In a large, large organization there are constant struggles over managing costs. This struggle stems from the idea that if you order millions of something, the cost per unit goes down. This is a fundamental truth. The problem arises when parts in stock are not exactly right to do the job or a rapidly-moving technology obsoletes some or part of the function available in the "stockpile." In either of the aforementioned cases, a short-term cost savings jeopardizes an evolving technology decision.

Additionally, huge central procurement organizations grow and grow and grow. They eventually become so large and powerful that many or all product and technology decisions must include their review. These central procurement organizations are a death knell for fast moving technologies and low-cost products. Part of the effect of breaking up the Big Blue company into Baby Blues (a la AT&T and the Baby Bells) is to break the stranglehold of the central procurement organization.

A very good example of this is the new Motorola relationship. IBM has traditionally done all of their custom design processor semiconductor work inside the company. This is now being done through a business alliance with another company. IBM has also demonstrated that they are serious about new technologies. From a hardware and software perspective, IBM is driving its technology. This is evidenced by IBM's splash into the workstation market with the introduction of the RISC System 6000 and AIX version 3. At the time of the announcement, IBM management committed to new releases and cost reductions every 6-18 months (based on new technologies and cost-reduced current technologies). And IBM is living up to its commitment.

While driving its technologies, IBM has recommitted to listening to its customers. A drastic example of this is IBM's reintroduction of AT bus machines and portable computers. Re-entering markets that it has dropped is not the corporate style of IBM. However, based on customers asking for these Big Blue solutions as well as presenting a substantive marketing opportunity, IBM, in non-IBM fashion, re-entered these markets.

In terms of the traditional total Big Blue solution, IBM rocked the industry with its IBM/Apple announcement. Not only was this an unthought-of alliance, it bordered on heresy in the industry--two separate sects, two orthogonal cultures, giants in their own fiefdoms--but no one would believe a marriage. When these giants met, it was always head-to-head. There was always a winner and always a loser. This alliance is so ominous that analysts and consultants still refer to it as the "recent IBM/Apple" announcement, as though time has stood still in the wake of this industry Marriage of the Titans.

IBM is managing through tough times. IBM is a big target; it is a slow-moving target; it is an easy target. IBM is too big, too slow, too uncompetitive and too proprietary. So, as they say in IBM, "What's the bottom line?"

The bottom line is that IBM is in transition, and IBM is moving. Its bigness allows it to focus more resources on problems than any manufacturer in the computer industry. Decentralization is allowing IBM to focus resources and to concentrate on critical technologies and time-to-market issues. A commitment to the customer which previously appeared to be lip service is now a corporate mission statement.