IBM: Behind the Monolith

It Can Be Wrenching to Quit, but a Few Do

By Dennis Kneale, Staff Reporter
The Wall Street Journal

Apr 7, 1986

Max Toy will never forget the day he quit IBM.

Then 34 years old, he was the U.S. sales manager in the personal-computer division. After much agonizing, he had accepted a similar job at a new venture called Compaq. It took all day to reach his boss, who briefly tried to talk him out of leaving before wishing him good luck. Almost immediately, a security guard appeared to escort Mr. Toy and watch him pack.

"That was probably the hardest afternoon in my life," he says. "A week ago I was on the inner circle, and this week I'm dog meat." Later that day at home with his wife, he sat at the dining room table and cried. "I told her don't ever worry about a divorce, because after going through this I'm never doing it again."

Managers who leave the insular, inbred ranks of IBM describe it as the most wrenching decision of their lives. Most have never worked for another company and come to IBM fresh from college, as did more than 70% of the 26,000 professionals IBM hired in 1984 and 1985. Some who try to leave just can't. Mr. Toy recalls that another IBMer who quit to join Compaq changed his mind at his going-away party. "He just couldn't make the break. I understood."

IBM's turnover rate, which averaged between 6% and 8% in the 1960s, was only 2.8% last year, compared with an average of 10.2% at other U.S. companies. Turnover among managers is even lower: only 0.7% in 1985. Of the few who do quit, many are frustrated by IBM's sheer size and its honeycomb layers of 53,000 managers, 15 divisions, five parent groups and other units. After years of faith, they come to doubt the central IBM belief that one individual can make the difference.

And so they shed what they call the "blue blanket" to seek riches and recognition in smaller companies where their impact can be felt. Max Toy wanted more authority sooner than he was likely to get it at IBM. He had joined the IBM sales force at age 27 in 1975; by the time he quit in 1982, he felt he someday could be an IBM division president. But "I wanted it now," he says. In two years at Compaq, he rose to vice president, more than doubled his salary to $147,000 and accumulated 37,500 shares. Last November he joined ITT Corp. as a senior vice president.

Mr. Toy, like many ex-IBMers, didn't leave feeling bitter. Most of them praise IBM's management, training, ethics and treatment of employees. They often try to hire former colleagues. Some still use "we" when speaking of IBM, and many adhere to the classic IBM hallmarks of the white button-down shirt and pin-stripe suit. "I just don't feel dressed in a suit and a colored shirt," says Mr. Toy.

Ironically, however, many ex-IBMers flounder without the same bureaucracy that prompted them to leave. They are steeped in the IBM rules for how to treat employees and customers but falter without the resources to act the IBM way. Some spend too liberally, unaccustomed to tight budgets that can't accommodate luxuries like market research. They can deliberate too long. At IBM, there was always time for study, debate and consensus-building; at tiny companies, timing can determine survival. Dependent on fat staff support, they don't know how to hire and fire. They often depart narrowly trained -- with no experience running a profit-and-loss operation -- and are unprepared for bigger roles at smaller companies.

"Most venture capitalists are wary of ex-IBMers," says Bob O. Evans, a 33-year veteran of IBM who left in 1984 to be a venture partner at Hambrecht & Quist. "There is small company after small company where IBMers have gone out and not been able to turn the corner from corporate life to entrepreneurship."

There are, of course, many successes among the 3,200 names in an alumni directory -- including Gene Amdahl, founder of Amdahl Corp. and Trilogy Ltd., and H. Ross Perot, founder of what is now General Motors Corp.'s Electronic Data Systems unit. Ex-IBMers say they leave with a keen marketing sense, high-minded beliefs for managing workers and a disciplined way of setting clear business goals.

But many others have stumbled. Former IBMer Jesse Aweida founded Storage Technology Corp. but was forced out in 1984 when the company reorganized under Chapter 11. Alan Shugart started diskdrive maker Seagate Technology Corp. and still runs it, but only after he was pushed out of his first try, Shugart Associates, in 1973. "He was much too lavish with resources, and he ran out of them," says Oak Management Corp. partner Stewart Greenfield, an ex-IBMer who was on the Shugart board.

Mr. Shugart concedes he was pushed out of his first company but rejects the criticism. "I don't even discuss it. That was 145 years ago." He adds that his biggest problem after leaving IBM was having to explain ideas to "venture capitalists that used to work at IBM," including Mr. Greenfield.

Ex-IBMers can be square corporate pegs trying to fit into a round, entrepreneurial world. Michael Shabazian, who quit in 1982 to go to ComputerLand and later resigned as president in a dispute with the founder, says people don't seem as loyal or competent outside IBM. "You stop and think the world is crazy; doesn't anybody know how to do business?" says Mr. Shabazian, now a consultant. "The support system wasn't there. You'd read a memo two times and find misspellings, a crooked label, smudge marks."

The toughest part, says N. D'Arcy Roche, a 25-year veteran of IBM who quit last October, is the abrupt transition from a setting of 405,000 employees to his new company of just 82 people. "It's a humbling experience," says Mr. Roche, now president of Soft-Switch Inc., a software company. "At IBM, the well is always deep enough (but) you run out of persuasion. (Now) I can have all the persuasion I want, but it stops at 82 people."

Though IBM works hard at being small -- limiting the size of offices and branches, using one manager for every nine or 10 people and stressing individual contributions -- success breeds bureaucracy. The company has eight independent business units in the U.S. molded in the entrepreneurial style of the personal-computer operation that began as a 12-man task force in Boca Raton, Fla. In four years, that task force grew to 10,000 employees with nine management levels and $4.5 billion in annual sales; in July the division's headquarters will move to New Jersey to be near most old-line IBM divisions.

Some management practices prized in IBM flop elsewhere. After 15 years at IBM, David Hanna quit in 1982 to become president of Grid Systems Inc., a portable-computer maker. As an IBM division director, he chafed when the parent marketing group pored over his strategic plan even though it covered only 10% of the group's business. He says he spent 40% of his time on ceremonial or unimportant matters.

But once his hands were on "all the throttles" at Grid, he faced a new world of tight funds and tough choices. He freely hired consultants on a limited budget and says he waited four months longer than he should have to lay off 5% of the work force. "It's so anti to the IBM culture, it was a very difficult step to take." He was reluctant to fire poor performers "because you're trained to give people a second chance." Mr. Hanna left Grid in 1984 to run Altos Computer Systems Inc., but quit five months later when the founder resumed daily control; he is now a consultant.

Those who leave searching for a larger role generally find it. Edward Mezzanotte, a Boston branch manager who quit last October, says he had greater influence in his first 90 days at ISI Systems Inc., a software company, than in 19 years at IBM.

Mr. Mezzanotte says he began to feel less significant at IBM during the past five years, when IBM grew so huge and its monitoring systems grew ever more sophisticated. Computers in all 250 U.S. branches now enable IBM headquarters to track daily orders, quotas, receivables and expenses. "There is a list or report somewhere, evaluating you and ranking you all the time. It makes it very difficult to run your own show," and add "personal direction or flair," says Mr. Mezzanotte.

Toward the end of his IBM tenure, even Mr. Evans of Hambrecht & Quist saw his influence fade. He is best known for heading the System 360 project, a $5 billion gamble in the 1960s that developed a new mainframe computer, made previous product lines obsolete and formed the design basis for four later generations of machines, including IBM's newest. In 33 years he also ran three divisions and oversaw world-wide development. Still, he couldn't alter IBM's present-day course. He took early retirement in 1984 after arguing bitterly and vainly for changes in IBM's mishmash of mid-range products. Growing bureaucracy was "the toughest part for me," he says. "It became tougher to weld IBM into a new, common path."

Mr. Evans doubts a project as risky as System 360 could make it through IBM's myriad layers today. But IBM executives reject that view and cite IBM's rapid entry and success in the personal-computer market. "We're a much better company for him, but I absolutely don't agree," John F. Akers, the president and chief executive officer, says of Mr. Evans. "I think the IBM company is as capable of pulling off risky things today as we ever were."

Walton Burdick, IBM's personnel vice president, says turnover is "insignificant from a statistical point of view. No problem -- not at all." With the names of 6,000 promising IBM managers in computerized "replacement tables" for filling the top 1,500 executive slots as they open up, "we can't use everyone's skills to their full potential -- or what they believe is their full potential," says Mr. Burdick. Some people, he adds, are asked to leave.

The statistical approach bothers many ex-IBMers. Despite the company's low turnover, they say IBM should do more to determine why strong employees leave. Says Victor Leventhal, who left IBM after 18 years to join ComputerLand: "IBM feels that if you leave, the bench is there, and 10 more guys can come in and do it."

Mr. Leventhal had just become a division director when the ComputerLand offer came in 1984. At age 40 he knew he wouldn't rise much further in IBM, and he had always felt "constrained."

"There are 62 levels at IBM. You do it 62 times before you've got it done, and by then the whole thing might have changed," he complains. He felt IBM treated everybody too much the same. It bothered him that he never received a raise exceeding rigid guidelines and that unusual raises required a division president's review. He considered it silly that every branch manager's office had to be exactly the same size, regardless of location or revenue.

But what hurt most, Mr. Leventhal says, was IBM's reaction when he quit. Instead of trying to keep him or find out why he would leave, IBM ended his career with a perfunctory exit interview. "When it was all done," he says, "the division president never said goodbye, and his office was four doors down from mine." After 18 years, says Mr. Leventhal, "I felt, 'Is this it?'"

Famous Alumni: Where Are They Now?

Gene Amdahl, Age 63 -- At IBM 14 years. Left in 1970 to found mainframe-computer maker Amdahl Corp., retired as chief executive in 1979 and then founded Trilogy Ltd.

Alan Shugart, Age 55 -- At IBM 18 years. Left in 1969 for Memorex Corp. In 1973 founded Shugart Associates, a disc drive maker later acquired by Xerox Corp.

H. Ross Perot, Age 55 -- At IBM five years. Left in 1962 to found Electronic Data Systems, now a unit of General Motors Corp. He remains EDS chairman and is a director of GM.

Jesse Aweida, Age 55 -- At IBM 13 years. Left in 1969 and founded Storage Technolocy Corp., which entered Chapter 11 bankruptcy proceedings in 1984. He recently started a computer-leasing firm.

Bob O. Evans, Age 58 -- At IBM 33 years. Took early retirement in 1984 to become a partner at Hambrecht & Quist, venture capital firm.

James D. Edwards, Age 45 -- At IBM 15 years. Left in 1980 to join Xerox Corp. and later held top positions at Bausch & Lomb and American Telephone & Telegraph, where he is president of AT&T's computer business.

David T. Hearns, Age 55-- At IBM 17 years. Left in 1971 to join Xerox Corp., where he is chairman and chief executive officer.

Joe Henson, Age 52 -- At IBM 27 years. Left in 1981 to join Prime Computer Inc. as president and chief executive, posts he still holds.

Robert S. Wiggins, Age 56 -- At IBM 13 years. Left in 1968 and is now chairman, president and chief executive of Paradyne Corp.

Paul G. Stern, Age 47 -- At IBM eight years. Left in 1976 for Rockwell International and in 1981 joined Burroughs Corp., where he is president and chief operating officer.

Robert Holmes, Age 55 -- At IBM 27 years. Left in 1981 and is now president of world-wide marketing at Burroughs Corp.

    EMPLOYEE TURNOVER

    Companies with more than 1,000 employees

    (Annually, in percent of work force)

                    IBM      National Average

    1985            2.8%         10.20%

    1980-85         3.1          11.16

    1976-80         3.5          17.04

    Source: Bureau of National Affairs Inc.