IBM Unveils a Sweeping Restructuring In Bid to Decentralize Decision-Making

Management Responsibility Shifted to Six Groups Overseen by Lautenbach

By Michael W. Miller and Paul B. Carroll, Staff Reporters
The Wall Street Journal

New York, N.Y. -- January 29, 1988 -- International Business Machines Corp., frustrated by three years of disappointing results, unveiled a sweeping effort to decentralize decision-making at the world's largest computer company.

IBM Chairman John Akers described the changes as the company's biggest restructuring in at least six years and possibly its biggest in three decades. They shift broad responsibility from Mr. Akers's beleaguered management committee to IBM's six main product and marketing groups.

The high-technology giant also named one of its toughest troubleshooters, Terry Lautenbach, to a powerful new post overseeing all six groups.

IBM has long been criticized for being too unwieldy to spot market niches and develop new products quickly. Mr. Akers is known to have fretted in recent years that he was spending too much time resolving daily turf battles and logjams.

"This is a major delegation of authority," Mr. Akers said. "In many ways, we now have several IBM companies." Mr. Akers, who has shunned the press over the past year, spent an hour here yesterday explaining the restructuring to a group of reporters.

IBM, based in Armonk, N.Y., also took steps to resolve some deep in-house marketing clashes that had pitted rival products in competition for the same customers. It moved its personal computer division into the same group as its older typewriter division, a sign that those two markets are converging. It also moved a slow-selling line of midrange computers into the same group as IBM's core business: the large mainframe computers that run most big companies' and governments' finances.

Among a slew of management changes that accompanied the reorganization, IBM named Ellen Hancock to succeed Mr. Lautenbach as head of the company's telecommunications business. The operations, which include the former Rolm Corp., have revenue in the billions of dollars. Ms. Hancock, 44 years old, is thus the most powerful woman in IBM's history and among the most powerful in any corporation today.

Mr. Akers was clearly under heavy pressure to make changes at IBM, as the company's turnaround proved increasingly elusive. While its mainframe business is still the overwhelming market leader, it has seen market share erode badly in recent years in midrange products and in personal computers, its most visible market. Analysts said that last year, IBM's U.S. revenue fell slightly, while many other computer companies saw business surge.

Wall Street has been losing patience with the company. IBM's 1987 earnings would have fallen for the third year in a row without special items. Its stock lagged the Standard & Poor's 400 by nearly 40% in 1986 and by about 10% last year.

Still, company insiders said, the restructuring was entirely Mr. Akers's plan, and wasn't forced on him by the IBM board. A director said the board learned of the plan at its meeting last Tuesday. "John found everything was coming onto his desk, and he had more than he could cope with," another director said. "He wanted an organization which resolved more problems before they got to him."

IBM told analysts that the restructuring won't cost any money, and analysts don't expect it to affect IBM's short-term earnings or stock price. IBM shares closed at $113.75, up $1, in New York Stock Exchange composite trading yesterday, on volume of more than 1.2 million shares.

In part, Mr. Akers's restructuring of IBM is simply an effort to reinvigorate his troops and shine up the company's tarnished image. He rechristened every one of IBM's blandly named product groups, giving them some uncharacteristic new glitz. For example, the old Information Systems & Storage Group will become IBM Enterprise Systems.

"These kinds of changes are part of IBM's culture," said Bob Djurdjevic, an industry consultant and former IBM employee. "This recharges the top executives' batteries. It kicks the year off on a high note and starts them running in a new direction."

Whether the cosmetics and cheerleading will translate into more revenue isn't certain. IBM only last year finished a massive contraction that clearly didn't solve all of its problems. Tens of thousands of employees moved into sales jobs, and more than 13,000 others took early retirement.

Yesterday's changes also gave elevated titles to Mr. Akers's top two lieutenants on IBM's management committee, Kaspar V. Cassani and Jack D. Kuehler. Formerly executive vice presidents, both executives became vice chairmen.

Both men are older than the 53-year-old Mr. Akers and aren't considered likely successors. The new decentralization leaves them with fewer day-to-day line responsibilities, though IBM said both will continue to "review" different parts of the company.

Mr. Lautenbach, 49, is often mentioned as a possible future IBM chief executive, and his new job, general manager of IBM U.S., clearly advances him. Still, Mr. Akers isn't likely to step down for several years, and IBM tea-leaf readers say a few other executives are every bit as likely as Mr. Lautenbach to emerge on top.

They include George Conrades, who runs the personal computer and typewriter group; C. Michael Armstrong, chief of IBM's European operation; and Edward E. Lucente, IBM's top U.S. marketer. Analysts had been watching Mr. Lucente's fate in yesterday's restructuring, for signs of approval or disapproval of IBM's marketing strategy, but his status in the company didn't appear to change.

Mr. Akers emphasized that one of his most urgent objectives is to make IBM faster at bringing out new products. "Our development and manufacturing teams will frankly spend less time at corporate headquarters," he said. In addition, he said that over the next couple of years, "many thousands" of corporate staff members will be moved into posts that bring them into closer contact with customers.

One new product area the reorganization appeared to emphasize is a segment of IBM's midrange product line known as the 3X. Formerly in a division with IBM's other midrange computers, it now stands in a group by itself.

Some analysts suggested this separation could confuse midrange customers, or brand the 3X a "stepchild," as Mr. Djurdjevic, the consultant, put it. Other analysts said they believe Mr. Akers's assertion that the separation is a sign of IBM's high hopes for the 3X, which has more than 250,000 customers. One of IBM's biggest new products of 1988 will be the first major addition to the 3X line in years, a machine code-named "Silverlake."

Key Changes in IBM's

Corporate Overhaul

-- More responsibility moves down from Chairman John Akers's six-man management committee to six product and marketing groups.

-- Terry Lautenbach gets the powerful new job of overseeing all six groups.

-- A troubled midrange-computer line moves into the same group as the more successful mainframe business.

-- Typewriters and personal computers move into the same group.

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