Akers to IBM Employees: Wake Up!

May 29, 1991

International Business Machines Corp. Chairman John F. Akers is fed up.

Although IBM may publicly blame its problems on a slow economy, Mr. Akers is saying the real problem goes far deeper. He is telling IBM managers that IBM has been steadily losing market share to competitors -- and that he's tired of it. He is complaining that the quality of IBM products is inadequate. In addition, he is telling managers to fire far more marginal employees.

While bits and pieces of Mr. Akers's message have made their way outside IBM's walls over the past few months, the most detailed and sternest version yet has surfaced in the form of notes that an IBM manager took at a small group seminar Mr. Akers addressed a month ago. The manager, Brent Henderson, who wasn't available for comment, apparently thought he was circulating the notes just to people in his area. But, through the magic of IBM's extensive electronic-mail network, the word quickly spread through the company.

"We won't rip the IBM company up in a bad economic cycle . . . but after six years with one approach . . . it's time to try another," the notes quote Mr. Akers as saying.

Mr. Akers's pique and dismay are surfacing at a time when IBM's reputation for leadership in the computer industry, a key technology for American industrial success in the 21st century, is under broad re-examination. IBM's overall market share world-wide has slipped to about 23% from 37% as recently as 1983, according to the Gartner Group Inc. market-research firm. The company's reputation as a stock-market leader and growth stock that always rebounds from adversity is also losing currency.

All of that frustrates Mr. Akers, who has been straining to rejuvenate the company since its earnings hit their peak in 1984 but has only managed to stem the speed at which competitors have eroded IBM's proud tradition. Mr. Akers is 3 1/2 years away from IBM's mandatory retirement age of 60 and is starting to talk in terms of what he hopes will be his legacy, so there seems to be a heightened sense of urgency in his statements.

Much of what Mr. Akers described would consist simply of communicating that urgency to employees. "The fact that we're losing market share makes me goddam mad. I used to think my job as a {sales} rep was at risk if I lost a sale. Tell them theirs is at risk if they lose" one, Mr. Akers is quoted as saying.

"I'm sick and tired of visiting plants to hear nothing but great things about quality and cycle time -- 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.

"The tension level is not high enough in the business -- everyone is too damn comfortable at a time when the business is in crisis."

An IBM spokesman, while confirming the basic validity of the notes, cautioned that the notes aren't a verbatim transcript of the meeting. He added that Mr. Akers and others have been delivering stern messages internally for months now. He said the executives aren't merely reacting to the problems IBM disclosed late in the first quarter -- problems that meant IBM's operating earnings fell 50% in the quarter and that led securities analysts to expect them to fall about 30% for the full year.

The spokesman said the tough messages don't change IBM's position that the company's prospects will improve once the world-wide economy turns around. He said the messages merely mean that IBM is tired of the loss of market share that has been gradually going on for several years now and feels the need to accelerate its restructuring.

"They're intended to be long-term messages that are meant to improve the business, but they're not meant to improve the business next month," the spokesman said.

Still, many industry executives see IBM's problems continuing, and some analysts say the latest round of restructuring is the start of something major.

"There is a fundamental rethinking of the business going on," says Steve Cohen, a securities analyst at SoundView Financial Group Inc. who has been negative on the company for almost a year. "IBM's cost structure presupposes premium pricing." But computer hardware has become so standardized and price wars so severe that "IBM won't be able to get premium prices for who knows how long," Mr. Cohen says. "If that's the case, then the fundamental business model is wrong, and you have to do something about it."

In addition, IBM's room to maneuver seems to be getting smaller, simply because it has already done so much. By the end of this year, IBM will have cut its work force to fewer than 360,000, down 47,000 from five years ago. It has moved so many people into new jobs, often in new locations, that two years ago a book on IBM's personnel practices described the IBM restructuring as the biggest movement of people since the troops came home after World War II.

While IBM announced another job-reduction program in March and hinted that more might be coming, most of its recent moves have just been fine-tuning. It announced a change to its U.S. pension-plan that gives employees modest incentives to retire early. It said it would close most of its U.S. headquarters operations the week of July 4 so it could save money on air-conditioning, cafeteria costs, and so forth. It told employees they had to start taking the vacation they used to carry over from year to year, so the company can cut the payments it has to make for deferred vacation when people retire. (One side effect of the increased vacation-taking is that IBM has found it can't schedule big meetings on Mondays or Fridays. A consultant who works with IBM has complained that has made life tough because executives at the company are tied up in meetings all day Tuesday, Wednesday and Thursday.)

Mr. Akers is quoted as saying at the April seminar that he doesn't see room for major asset sales, given that IBM in March completed the sale of its typewriter, laser-printer and office-products businesses.

The one way Mr. Akers might be able to cut employment sharply is through firing -- known as MIA, or management-initiated attrition, in IBM-speak. That is a delicate issue at IBM because of its no-layoff tradition and because the distinction between layoffs and extensive firings can be thin, even if the company fires only those it considers to be marginal performers.

While it's not yet clear how much firing will pick up, Mr. Akers is quoted as saying at the seminar that "our people have to be competitive, and if they can't change fast enough, as fast as our industry . . . goodbye."

He is quoted as saying that only one of every 200 people at an IBM lab was fired last year and as advocating "a forced march on the MIA problem."

Not everyone, of course, sees things the way Mr. Akers does. One IBMer, reacting on an internal network to the seminar notes, wrote: "I think it is time the people at the top accepted some part of the responsibility for our present problems." He added: "I don't see any sign of that happening." Another complained of the "arthritic bureaucracy" and said his attempts to circumvent the process were discouraged.

Mr. Akers singled out parts of the world where IBM was doing much worse than he expected -- managing to cover most of the world in the process, according to the notes.

He is quoted as saying that four years ago a U.S. sales force of 20,000 delivered $26 billion of revenue, while in 1990 25,000 people produced just $27 billion. "Where's my return for the extra 5,000 people?" he is quoted as asking.

Mr. Akers is quoted as saying that IBM has been losing market share in Japan for two years and that first-quarter results were "disastrous" in that country. He is quoted as noting that the European economy is stronger than the U.S. economy and that indigenous European computer makers are faring poorly. "The business benefits should therefore accrue" to IBM, he is quoted as saying. "Where are they?"

The notes quote Mr. Akers as saying that "share loss in any sector of the business would not be tolerated."

The notes begin with Mr. Akers complaining that his messages get filtered as soon as listeners leave the room. That, Mr. Henderson explains, is why "I left the room with a real sense of obligation to spread his word."

The IBM spokesman said that effort was laudable but, with word circulating so widely, added that Mr. Akers might have preferred that his message be communicated "in a more controlled manner."

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