IBM Announces Details of Plan to Break Its Business Into More Autonomous Pieces

By Paul B. Carroll, Staff Reporter
The Wall Street Journal

December 6, 1991

International Business Machines Corp. announced the details of a sweeping plan to redefine itself by breaking its business into increasingly autonomous pieces.

The announcement mostly matched the expectations that have been raised in the past two weeks, during which IBM said it will cut 20,000 jobs next year and made clear that a fundamental reorganization was coming. Surprising was the extent to which IBM treated the announcement as business as usual, rather than just the first installment in a series of ever more radical changes. IBM's attitude appears to indicate that change will come more slowly than many in the industry had expected.

"I think this is the beginning, just the beginning," Chairman John F. Akers said in a telephone interview. He added, however, that most of the additional changes will be in people's attitudes or will be smaller changes within IBM's various businesses. While there has been considerable speculation that IBM would announce more high-level changes in coming months, Mr. Akers said that "I think structurally we're pretty much in place for the time being."

He said that he didn't try to communicate any particular sense of urgency to his top 550 managers at an all-day meeting Wednesday -- beyond the concern they already felt because IBM's earnings have plummeted this year and because a recent high-level demotion sent the message that no one's job is safe.

The meeting "was a frank reprise of 1991," Mr. Akers said. "It was what we should be proud of and what we should improve." He added that, while IBM will watch its expenses closely, "we expect to have growth next year, and we expect to gain market share."

Mr. Akers also acknowledged that many of the changes announced yesterday were just a continuation of a reorganization in January 1988, which, at the time, he called the most drastic decentralization in IBM's history. He said, for example, that IBM's core headquarters staff has already been cut to 1,000 from 8,000 a few years ago.

As expected, IBM said yesterday that it will make its data-storage and printer businesses into separate operations. Previously, they had been lumped in with IBM's mainframe business.

IBM also announced an array of changes in responsibilities. For instance, its different product groups now get to set their own prices and control their manufacturing operations, taking over that responsibility from various marketing groups.

That's not only designed to give the product groups more autonomy but is aimed at imposing discipline on marketing operations that IBM has decided are bloated. Marketing expenses will no longer just be divided up among the product groups. The marketing arm will now have to buy machines from the mainframe group and will have to be sure that reselling the machines can more than cover expenses.

Still, an interview with Paul Low, who runs IBM's Technology Products line of business, shows how evolutionary all the changes are likely to be. IBM has been talking for several months about selling more of its basic technologies to competitors, and a well-publicized sale of some memory chips had raised the prospect that IBM might even consider getting into the commodity semiconductor business. Dr. Low said IBM will, in fact, sell more memory chips than it has in the past, but only as it finds itself with excess capacity.

He added that his group will try hard to sell products that are less like commodities, such as microprocessor chips, circuit boards and complex packages that encase chips. Dr. Low also said IBM would continue to look for alliances, such as the one it signed this summer with Apple Computer Inc. and Motorola Inc. on IBM's RS/6000 chip and the one it signed earlier with Siemens AG on memory-chip technology. He said he needs outside funds to ensure he can make the sorts of investments he has to make to keep IBM on the leading edge of technology.

But Dr. Low said he won't add any capacity in expectation of outside deals. He added that all outside deals combined may cover just 10% to 20% of his costs and may take three or four years just to get to that level. In addition, while IBM's reorganization will speed the change in his organization, the change was really set in motion four or five years ago.

"This will take time," he said.

Copyright (c) 1991, Dow Jones & Co., Inc.