A Broad Decentralization at I.B.M.

By David E. Sanger
The New York Times

January 29, 1988

In a sweeping restructuring intended to reverse three years of disappointing performance, the International Business Machines Corporation yesterday created five new, highly autonomous organizations that will be responsible for all of the company's innovation, design and manufacturing.

The moves are intended to greatly decentralize the world's largest computer manufacturer, giving far more responsibility to a younger generation of managers and significantly reducing the role of I.B.M.'s Armonk, N.Y., headquarters in the day-to-day operations of the company. Under the plan, thousands of I.B.M. employees will switch jobs or find themselves working for new managers as part of an effort to put new spark into a company that insiders say is bloated and that customers complain has often not kept up with competition.

''This is a fundamental change in the way we do our business, as significant as any we have ever made,'' John F. Akers, the company's chairman, said yesterday. ''If it works, it will make our employees more entrepreneurial, more accountable and more independent.''

Trend of Decentralization

With yesterday's action, the company that has until recently ranked among the most admired in the world for its management prowess joins a growing list of American corporations that are pushing responsibility for decision-making far down the chain of command. If I.B.M. succeeds, it will likely ratify a management style for huge corporations that calls for an extremely small headquarters staff - so that all but the most critical strategic decisions can be made by the same people who deal with the company's customers.

Presumably, the I.B.M. organization responsible for personal computers could now decide by itself to bring out a new model rather than justifying it to headquarters. But Armonk would retain responsibility for setting overall standards, including seeing that the company's products contain state-of-the-art technology.

But analysts yesterday were doubtful that the restructuring, which comes on the heels of enormous tumult and belt-tightening at I.B.M., will pay off anytime soon.

Problem of Linking Systems

I.B.M.'s problems, they maintain, are still rooted in the linking of incompatible computer systems. The company's giant mainframes that are the lifeblood of multinational corporations still cannot communicate smoothly with its mid-range machines and with personal computers that now sit on the desks of millions of white-collar workers. Speeding up the pace of innovation alone, analysts warn, may not ease the confusion among computer users that many blame for I.B.M.'s slower growth. Some, even within I.B.M., fear it could reduce coordination among product managers at a time when products must be more closely linked.

In an hourlong presentation to the press yesterday, Mr. Akers disputed that view. ''We think that the incompatibility among products is kind of yesterday's problem,'' he said. The challenge now, he said, is to drastically cut the time it takes to turn new technologies into new products - a process that I.B.M. employees have long complained gets bogged down in reams of paperwork, endless management reviews and, often, battling among I.B.M. divisions.

Since he became chief executive in 1985, the 53-year-old Mr. Akers, a former fighter pilot with a reputation for independent action, has long complained that too many decisions were made at the top. Yesterday, he said that he had instigated the series of changes I.B.M. is now putting in place.

Changes in Top Echelon

As part of the restructuring, Mr. Akers also announced a series of changes in I.B.M.'s top echelons. The post of vice chairman, which had been vacant at the company since the middle of last year, will be shared by two I.B.M. veterans: Kaspar V. Cassani, the former head of I.B.M.'s European operations, and Jack D. Kuehler, an outspoken engineer who has been the driving force behind many of I.B.M.'s most successful mainframes and who has a reputation within the company as one of its harshest internal critics.

Another longtime I.B.M. executive, Terry R. Lautenbach, will take over as general manager of a new entity within the company, called I.B.M. United States. Mr. Lautenbach will be responsible for overseeing virtually all of the company's product development and its domestic marketing arm, two parts of I.B.M. that Mr. Akers has long complained do not operate in sync.

The series of announcements touched off a buzz of activity at I.B.M. offices around the world yesterday, as employees gathered in cafeterias and hallways flipping through reorganization memos that sometimes ran 25 or 30 pages. ''Everybody's spent the day trying to figure out whether tomorrow morning they will be doing something different,'' an executive in Rye Brook, N.Y., said late yesterday afternoon. ''It may be days before we understand exactly what happened.''

Extent of Change Debated

While employees and analysts disagreed about just how extensive the changes will be, Mr. Akers termed them among the more drastic since 1956, when Thomas Watson Jr. took over after the death of his father, I.B.M.'s founder. But one analyst, Stephen C. Dube of Shearson Lehman Brothers Inc., joked, ''One of I.B.M.'s main businesses has always been reorganizing itself.''

In time, many employees, particularly those in Westchester County who are attached to I.B.M.'s headquarters staff, are likely to find themselves in staff positions elsewhere in the company, though they likely will not have to move out of the area. Mr. Akers said yesterday that he hoped to accelerate a two-year effort toward significantly reducing I.B.M.'s headquarters staff, sending ''several thousand'' of those employees back into the trenches of sales offices, manufacturing sites and research facilities.

He also said he expected to see a lot less of many of I.B.M.'s top operating executives at headquarters. ''I don't want those general managers to come share all their problems with the management committee in Armonk,'' Mr. Akers said.

Attempt at Stricter Accountability

Instead, the general managers of each new organization will be judged on the success of their products, with stricter accountability for the revenues and profits they generate. In the past, a sharp separation between I.B.M.'s marketing staff and its developers has led to internal bickering over who was responsible for slow-selling products, and to charges that I.B.M.'s product developers are often unaware of the needs of its customers.

The plan calls for five major I.B.M. development and manufacturing organizations, each of which will be run by a general manager reporting to Mr. Lautenbach and most of which will have a staff with ''a more focused emphasis on marketing planning,'' an I.B.M. spokeswoman said.

One of the groups, called I.B.M. Personal Systems and headed by George H. Conrades, will have responsiblity for I.B.M.'s personal computer division and the division that produces typewriters, computer displays and consumers products. A second division, I.B.M. Application Business Systems, will focus on I.B.M.'s lagging System/36 and System/38, two mid-range office systems that have been battling with little success against minicomputer makers like the Digital Equipment Corporation. That division will be headed by Stephen B. Schwartz, who until recently headed a series of telecommunications projects.

Mainframe Products

I.B.M.'s mainframe products will be developed by a group called I.B.M. Enterprise Systems, headed by Carl J. Conti, who has previously run mainframe operations. The company's local area networks, telecommunications operations, and the remnants of the Rolm Corporation, acquired in 1985, will be run by I.B.M. Communication Systems, headed by Ellen M. Hancock, the company's highest-ranking woman and previously head of the communication products division.

I.B.M.'s technology efforts, from designing new chips to developing system technologies, will be run under a new technology products organization run by Patrick A. Toole, who previously ran the company's information systems technology group.

Edward E. Lucente, who has been considered a rising star in the executive suite by many in the company and who was widely expected to receive a new post, will remain as head of marketing in the United States. But rather than reporting directly to headquarters, he will now report to Mr. Lautenbach.

The Only Major Surprise

The only major surprise in I.B.M.'s new structure is its treatment of mid-range systems, long among its most troublesome areas. Under the new structure, one organization will handle the System/36 and System/38, while the mainframe division will handle the 9370, a super-minicomputer on which I.B.M. had hung many of its hopes for 1987.

But the 9370, a smaller version of the company's largest mainframes, got off to a surprisingly slow start. Small enterprises have largely shunned it for lack of usable applications software, and with its move yesterday I.B.M. seemed to be signaling that it would concentrate on selling the 9370 to large, established accounts seeking to distribute mainframe power around the company.

''I think this is I.B.M.'s admission of failure,'' said Dale Kutnick, an executive vice president at Gartner Securities Corporation, a Stamford, Conn., firm that follows the company closely.

The nature and extent of the changes announced yesterday were kept even from some of I.B.M.'s top management. Only on Wednesday, at a meeting at the Ryetown Hilton in Rye, N.Y., did the company's top 400 officials learn of the changes.

At that meeting, and again yesterday, Mr. Akers warned that the wrenching changes may not be over. ''We're not through, I assure you,'' he said. ''This is far from the end.''

I.B.M.'S Restructuring

A new division, I.B.M. United States, will oversee five new, independent units that will be responsible for worldwide product development and marketing, as well as for domestic manufacturing. The Marketing and Service Group, formerly known as the Information Systems Group, will also be part of the new division.

John F. Akers, Chairman of the board

Kaspar V. Cassani, Vice chairman of the board
Jack D. Kuehler, Vice chairman of the board
Allen J. Krowe, Executive vice president

David E. McKinney, Senior vice president
Frank A. Metz Jr., Senior vice president

Headquarters Staff

Personal Systems
George H. Conrades

* Entry Systems
* Information Products

Enterprise Systems
Carl J. Conti

* System Products
* Data Systems
* General Products

I.B.M. United States: Terry R. Lautenbach

Application Business Systems
Stephen B. Schwartz

* System/36 and System/38
* Related Systems
* Low-end Storage

Technology Products
Patrick A. Toole

* General Technology
* Systems Technology

Worldwide Operations

Communication Systems
Ellen M. Hancock

* Communication Products
* Rolm Systems

U.S. Marketing & Services Group
Edward E. Lucente

* Application Systems
* North-Central division
* South-West division
* National Distribution
* National Service

GRAPHIC: Photos of John F. Akers, Kaspar V. Cassani, Jack D. Kuehler, Allen J. Krowe