Seeing red over IBM's blues
Akers' tirade necessary, many say
Kathy Rebello and John Schneidawind
May 30, 1991
Corporate CEOs often appear incredibly rational - controlled, unflappable, their emotions packed away as they calculate every strategic move. But not so these days for IBM Corp. CEO John Akers, who usually is as cool as Anchorage in January.
In a startling display of raw emotion, Akers let loose at a recent management meeting about IBM's poor performance of late. According to a memo leaked to the press this week, Akers said everyone at IBM is ``too damn comfortable at a time when the business is in crisis'' and IBM employees are ``standing around the water cooler waiting to be told what to do.'' Akers is traveling in Europe and couldn't be reached for comment Wednesday. But IBM spokesmen confirmed the essence of Akers' remarks - and his somber mood.
At the meeting, the chairman fumed over the unsatisfactory return from adding 5,000 people to IBM's sales force, demanding, ``Where's the beef?'' And he threw a curve into a company proud of its no-layoff policy by saying, ``Our people have to be competitive and if they can't change fast enough, as fast as our industry ... Goodbye.''
What's this from the quintessentially pragmatic and cautious CEO? Has Akers gone over the edge? Not at all. In fact, management experts say Akers has taken on the take-no-prisoners attitude necessary to pound a fumbling behemoth back into shape.
``I am pleased to hear he got mad and screamed and yelled,'' says Donald Frey, former CEO of Bell & Howell and now a management professor at Northwestern University. ``I'd like to see it happen at GM and Sears and every other place that's become a bureaucracy.''
IBM, once the envy of many in the corporate world, has fallen from grace. Its worldwide market share in the computer industry, which racks up revenue of $400 billion a year, has dropped from 37% in 1983 to 23% today. The fallout from this decline was never more evident than in 1991's first quarter when IBM reported the first loss in its history. Hit hard by declining sales in nearly every hardware line - from mainframes to personal computers - IBM posted revenue of $13.5 billion, down 4.5% from a year ago. Its net loss, largely due to a one-time accounting adjustment: $1.73 billion.
So it should be no surprise there is tough talk going on at IBM. But people are still shocked to hear about the chairman's snarling tirade. ``Akers has always had the persona of being a self-assured, contained executive who has everything under control,'' says J.P. Donlon, editor of Chief Executive magazine. ``This outburst is an admission he doesn't have everything under control.''
Although the press and outsiders are surprised, Akers' tone isn't new to IBM's top executives. Insiders say Akers has been persistently urging them to improve their performance and demanding better results.
This week's uproar stems from an April 25 management meeting at IBM's Advanced Management School in Armonk, N.Y., where Akers addressed - or rather dressed down - a group of IBM executives. It was just four days before IBM's annual shareholder meeting in Kansas City, Mo., and things were tense. Akers told the executives he wanted his message to get out to IBM employees, and one of the attendees - Brent Henderson, a branch manager at IBM's general business marketing group in Calgary, Canada - took that literally. He wrote a detailed four-page report on Akers' comments, saying he ``wanted to accurately convey the resolve and candor in (Akers') message.''
According to Henderson, Akers pulled a hand-scribbled sheet of paper from his coat pocket and ticked off complaints about every geographic division, naming each executive in charge. Akers singled out IBM's U.S. operations, headed by George Conrades, for especially stinging criticism. Akers noted that four years ago, IBM's U.S. sales force of 20,000 delivered $26 billion in revenue. Now 25,000 U.S. salespeople produce annual revenue of just $27 billion.
``Where's my return for the extra 5,000 people?'' asked Akers. ``What the hell are you going to do for me?''
After the meeting, Henderson sent a computerized version of his memo to a small group of co-workers via IBM's electronic-mail network, called the professional office system, or PROFS. - From there, the memo zipped from computer to computer throughout IBM's worldwide electronic-mail network, with other IBM employees adding comments as they passed the contents along.
``We think the PROFS memo's `25,000-mile journey' started in mid-May, circa May 17,'' says IBM analyst Bob Djurdjevic of market researcher Annex Research. ``Our local (Phoenix) IBM branch office, for example, received it over a week ago'' or around May 20.
This week, an unidentified IBM employee mailed a copy of the memo in a plain envelope to Gannett Suburban Newspapers in White Plains, N.Y., owned by Gannett Co. Inc., publisher of USA TODAY. An employee also faxed copies to The Wall Street Journal and The New York Times. IBM says it will take no action against Henderson. ``This isn't something like a severe embarrassment,'' says spokesman Peter Thonis. ``Henderson obviously thought he was doing the right thing.''
Henderson was unavailable for comment Wednesday. A recording on his office voice-mail system said he would be away until Friday.
Whether Akers did the right thing in berating his employees is a question that will be wrestled with for some time inside and outside IBM. Some question whether such a critical approach will further demoralize IBM's workforce.
``I think it's a terrible way for Akers to communicate,'' says Djurdjevic, who says IBM's top management deserves much of the blame for the company's poor performance. ``I get the sense there's a substantial core of IBM employees who are ticked off at Akers. ... It's like the coach of a football team saying his players are at fault.''
But most experts say the dressing-down is long overdue. They say that since Akers became CEO in 1985 he has been boldly trying to transform IBM from a slow-moving elephant to one as nimble and responsive to customers as IBM's rivals in California's Silicon Valley. By the end of this year, Akers will have pared the workforce to 360,000 people worldwide - a drop of 47,000 workers over the past five years. And IBM has managed to make an impressive showing with a new line of workstations, desktop computers that are one step up from PCs.
But, for the most part, Big Blue is still lagging. And it may be that after six years of insufficient progress, Akers has had enough.
``What you don't know is how many meetings were before this in which they tried to motivate by the olive branch,'' says Ira Lupert, a top salesman at IBM in the 1970s.
Charles O'Reilly, a management professor at University of California, at Berkeley, says Akers may have had no choice but to come down hard on people. When someone tries to change the culture at a large corporation, there are ``lots of people who don't want to get on with it,'' he says. ``But when a senior executive gets angry it sends a very clear message.''
But John McCarthy, a longtime IBM watcher at Forrester Research, is among those who aren't optimistic. ``Saying people have to work harder has always fallen on deaf ears,'' he says. ``I don't think it's going to make any difference.''
Some of the tough task from Akers' outburst
IBM Chairman John Akers bluntly criticized the company's performance at a meeting of IBM senior management in Armonk, N.Y., held April 25. The results of that meeting, contained in a memo distributed by the branch manager in IBM's Calgary office, were leaked to the press Tuesday. Not all of the quotes are verbatim; they are taken directly from the executive's notes. But they show how deeply Akers is bothered by IBM's continuing loss of business to competitors. Among the highlights from the notes on Akers' comments:
- On keeping IBM's leading position in the computer industry: ``If any one of you is not keeping pace with the industry, then that is unsatisfactory performance.''
- On customer complaints: ``I'm sick and tired of visiting (IBM) plants to hear nothing but great things about quality and cycle times, - and then to visit customers who tell me of problems. If the people in labs and plants miss deadlines, tell them their job is on the line too.''
- On IBM overstaffing: After receiving a letter from an IBM account executive stating that the head count on a project had dropped from 22 to 16 and that revenue from that account had dropped from $35 million to $25 million, Akers exploded: ``For Christ's sake, you don't need 16 people to drive $25 million!''
- On the performance of IBM's operations in the USA: ``Unsatisfactory.''
- On the performance of IBM's operations in Japan: ``Japan has been losing share for a couple of years. First quarter 1991 results are disastrous. STEM THE TIDE!''
- On the performance of IBM's European operations: Akers says Europe has a ``better economy than the USA, with indigenous competitors flat on their face.'' IBM is ``being seen more and more as a European company - the business benefits should therefore accrue. ... WHERE ARE THEY?''
- On changing IBM's corporate culture: ``We get A's for being a company with an ability to change, but with our current structure, A is not good enough.''
- On IBM's stock performance: ``There's no fun in having the stock at a 25% discount. There's no fun in being a no-growth business. It's not the shareholders' fault. The problem belongs to those people who manage the business.''
- On working hard enough at IBM: Too much time, money, and resources are spent talking instead of working at assigned tasks in an excellent manner. And there are ``too many reps popping out for coffee with their customer ... and calling it a CALL.''
- On doing your job: ``If you are in sales, sell; - if you are in manufacturing, build. We do not have time to waste.''
- On steering clear of IBM's massive bureaucracy: The company ``can't afford the time to make sure that everything is `consistent with IBM.' ''
- On the computer industry and competition: It's ``growing 10% worldwide and someone will get the business.''
EAR CUTLINE: AKERS: `What the hell are you going to do for me?'
CUTLINE: CALM BEFORE THE STORM? IBM Chief Executive John Akers says employees are `too damn comfortable at a time when the business is in crisis.'