Tough Times at IBM, Other Big Businesses
IBM's news this week that it would eliminate another 25,000 jobs and shut more plants in 1993 sparked a bit of philosophizing by Henry Kaufman, the well-known Wall Street economist: "Leadership is not permanent in any walk of life, including business."
Cynthia Latta, an economist with DRI/McGraw-Hill, was more cutting: "It shows how companies which are at the forefront of things are likely to become dinosaurs."
Of course, International Business Machines Corporation is far from extinct. But investors, alarmed by the talk of a dividend cut, quickly pushed the stock price down to a 11-year-low by close of trading Wednesday. IBM remains, though, the nation's biggest computer company and any competitor that ignores it takes a decided risk. After making a $1 billion cut in development spending, IBM will still be laying out more than $5 billion per year on research, development, and engineering.
Big Blue is not alone among the icons of United States industry facing difficulties. Ford Motor Company announced Wednesday it would take a variety of one-time charges against 1992 earnings totaling nearly $7.7 billion to account for retiree health costs and the layoff of 10 percent of its British workers. General Motors Corporation and the United Auto Workers union unveiled an early retirement plan for hourly workers - part of a major effort by GM to shrink in size and end its massive losses.
The Aerospace Industries Association said in its annual report this week that its 57 member companies would altogether suffer job losses of 117,000 this year as a result of weaker sales of both civilian and military aircraft. Sears, Roebuck & Co. has been losing market share to discounters and specialty stores. Pan American Airways has gone out of business. Even American Express is changing its leadership as this credit-card phenomenon hits a bump.
What's going on here?
One factor is the prolonged period of slow growth in the US. That has hit the auto companies hard.
This week there was further evidence that the economic recovery continues, probably at a faster pace. Housing starts were up slightly in November to a seasonally adjusted annual rate of 1.24 million. Production of the nation's factories, mines, and utilities rose 0.4 percent in November for a second straight monthly gain. The Federal Reserve boosted its initial estimate of a 0.3 percent increase in industrial production in October to 0.5 percent. The US Chamber of Commerce reported a jump in business con fidence, although a Dun & Bradstreet Corporation survey found little change. Auto sales were up moderately in early December. Credit-card usage in the holiday season has surged. Inventories shrank in October, perhaps opening the way for new orders.
As US companies restructure, however, their widespread layoffs hold back the expansion. "It is going to be a modest recovery," Dr. Kaufman says.
A second factor is increased international competition. US carmakers certainly have been hit by Japanese auto companies.
A third factor is technological change. IBM's largest business, making mainframe computers, has been hurt by the growing popularity of smaller, cheaper machines - personal computers, minicomputers, and desktop computers called workstations. Companies must move fast to keep up with technology.
Robert Lawrence, a Harvard University economist, says some organizational modes that have worked in the past don't work today. Companies such as GM and IBM may no longer be able to afford a department-store-style approach, producing such a wide range of products. "The benefits of bigness aren't so great as they used to be," Mr. Lawrence says. Inefficiencies of a huge bureaucracy and organization are outweighing efficiencies from bigness.
Such companies may need to break up into smaller units. "You don't have to be large to be efficient," he adds.
Today's business changes are unlike those created by the merger-takeover boom of the 1980s. That, notes Kaufman, was largely sparked by "financial buccaneers." He, Ms. Latta, and Lawrence figure the present restructuring should lead to more- efficient, better-managed companies as they become more nimble and move resources to better uses. "But these things are often painful for the people involved," Latta says.