Under Pressure, IBM Searches for New Leadership
IT never used to rain on International Business Machines Corporation, the embodiment of corporate success. Now the company needs more than an umbrella - it is caught in a torrent of trouble.
During the last year, the company's stock-market value has fallen about $30 billion from its high point. On Jan. 19, IBM reported a 1992 loss of $4.97 billion. Shareholders, rattled by the losses, have pressed the computer giant to put on its hip waders.
On Tuesday, IBM's directors reacted to the downpour. The company, based in Armonk, N.Y., announced that John Akers would step down as chief executive officer (CEO), while retaining his title as chairman. In addition, in a move to conserve cash, IBM said it would slash its quarterly dividend of $1.21 a share.
"In the long run this will help the company restructure itself," says William Gorman, a vice president in the equity research department at Provident National Corporation, a Philadelphia bank. However, Mr. Gorman notes that the problems at IBM could not be blamed on one person. "Replacing Akers does not mean the company is turning around," says Gorman.
IBM made the move during a time of great outside pressures. "The timing was exacerbated by external pressures - shareholder pressures, press pressures, ex-IBM senior management pressures, Wall Street pressures," says IBM observer and management consultant Sam Albert of Sam Albert Associates in Scarsdale, N.Y.
Some of those outside forces think IBM is moving in the right direction. "I am impressed with the board; they are more active than Sears or General Motors," says Kit Bingham, research director at LENS Inc., a Washington-based activist investment firm.
RALPH WHITWORTH, president of the United Shareholders Association, calls IBM's actions "welcome changes." He met with a senior IBM official earlier this month to ask that the company's outside directors take a stronger role and that executive pay be linked to the stock price.
Even before Tuesday's announcement, Akers and the IBM board had been in the process of restructuring the company from a vertically structured company into more-autonomous businesses. IBM is breaking up into 13 different business units. Those units are also splitting up into smaller groups as well. "They are getting into the situation of being more nimble, lean, mean and accountable," Mr. Albert says.
The downsizing is part of the parent company's attempts to react to changing business trends more quickly. Computer users have been shifting over from large mainframe computers, IBM's traditional stronhold, to more decentralized types of computing that are less expensive.
IBM has made headway in the area of desktop workstation computers, where its sales are growing by 25 to 30 percent a year and now stand at $1 billion. But "with IBM's revenues of $65 billion, a billion in sales does not matter that much," Gorman says.
As sales have fallen, the company has tried to control its expenses. Since March of 1991, IBM has reduced its worldwide work force by 70,000 and the company has said it will eliminate another 25,000 jobs in 1993.
IBM says it will consider candidates to replace Akers from both inside and outside the company. The company expects the search for a new CEO to take about 90 days. An outsider might take a while to get used to IBM's culture. Employees are known for their extreme dedication to the company. Some of the computer industry's most successful entrepreneurs, such as Ross Perot, found they did not fit into the IBM mold. However, Gorman says an outsider would "do just fine."