IBM chairman under fire for new swipe at workers

Observers say problems are partly Akers' own doing

Geoffrey Rowan
The Globe and Mail

June 20, 1991

The Globe and Mail IBM chairman John Akers has taken another swipe at his employees, the second time this spring that he has blamed them for problems that some feel are his own doing.

On Friday, Mr. Akers sent a message to 370,000 employees over the company's computer system, reinforcing an April statement that there are too many marginal employees, that they aren't working hard enough and that they don't feel enough tension.

"A healthy level of concern and urgency, which I call tension, is essential for everybody in IBM," Mr. Akers said in his most recent message, which IBM officials confirmed yesterday.

Mr. Akers, who took over as president of International Business Machines Corp. of Armonk, N.Y., in 1983 and became chairman in 1985, has presided over what many see as the most dismal period in the company's history.

The stock price fell 23 per cent between 1985 and 1991, while the Dow Jones industrial average rose 194 per cent. Net earnings declined an average of 5.3 per cent a year between 1985 and 1991, with a much bigger drop predicted for 1991.

IBM's revenue grew 6.6 per cent a year in the same period, while the computer industry as a whole saw annual revenue growth of more than twice that.

Still, while times may be tough for Big Blue, blaming the employees isn't a particularly winning strategy, especially when the person doing the blaming isn't necessarily perceived as the best person for the job.

"When a company is in trouble and is having problems, you can't just blame the troops," said David Ticoll, Toronto-based director of emerging technology consulting for DMR Group Inc. of Montreal.

"The generals always have a significant measure of responsibility in the direction of an organization."

In IBM's case, some of the company's current problems relate to strategic errors that were made before Mr. Akers was in control, such as a decision to stop leasing computers and an overbuilding of the company's manufacturing capacity.

But Mr. Aker's inability to recognize the problems despite many early warnings, and his failure to do anything about them are what earn him his poor marks in a performance review done by Phoenix-based Annex Research, said Robert Djurdjevic, a former IBM manager and the president of Annex.

The decision to expand capacity beyond IBM's needs was made when Mr. Akers' predecessors in the chairman's office, John Opel and Frank Cary, faced a capacity crunch in the late 1970s. By 1978, customers had to wait as long as two years for delivery of new products.

Between 1978 and 1983, the company spent $10-billion (U.S.) building new plants in an effort to be the lowest-cost producer of mainframe computers and to beat back a challenge from Amdahl Corp. of Sunnyvale, Calif., which is largely owned by Fujitsu Corp. of Japan.

In 1985, as Mr. Akers was preparing to take over as chairman, he predicted that IBM would generate $180-billion in yearly sales by the end of the decade, and the company continued to expand capacity to meet that anticipated demand. But growth wasn't that fast. IBM had revenue of $69- billion last year.

The rapid growth never materialized and there were plenty of early indications that the demand would never justify the capacity. From 1983 to 1985, IBM's product inventory doubled, to $8-billion, a sign that while the company may have been the lowest-cost producer, it wasn't the lowest- priced producer and consequently many of its products were unsold.

Mr. Akers has also overseen another major strategic shift that many, including former IBM chairman Tom Watson Jr., considered a huge mistake.

In 1975, the company started selling computers instead of leasing them. This has continued through the 1980s, with most of it happening under Mr. Akers' stewardship, creating a false sense of profitability.

"It was really a sale of assets rather than the creation of operational earnings and revenues," Mr. Djurdjevic said. Selling computers rather than leasing them added $50-billion in revenue from 1975 to 1990 and $10- billion in profit over that span but it came at the cost of a guaranteed revenue stream that had grown consistently for more than 70 years.

The company has since started moving back into the leasing business.

"I'm sure you wonder, as I do, if it wasn't necessary to leave the leasing business, why did we leave it," Mr. Watson asked at an interview in Toronto last year.

Industry analysts have also held Mr. Akers accountable for IBM's high operating costs and long delays in cutting staff when it became evident the company was in trouble.

In 1990, IBM spent $20.7-billion on selling, general and administrative costs, nearly a third of its revenue.

When he finally did cut 14,000 jobs, analysts applauded the move but also said it didn't come soon enough and may not be deep enough. Mr. Ticoll said the company may eventually have to cut 100,000 jobs.

The cuts that were made reduced IBM's SG&A expenses by only $400- million this year, which is less than 2 per cent of its 1990 SG&A expenses.

Meanwhile, Mr. Djurdjevic said Mr. Akers continues to blame employees for the problems that management errors have caused.

But Mr. Akers paints a different picture for shareholders. After his April lambaste of employees, he said at the company's annual meeting that "the difficulties we're dealing with reveal that the IBM company is strong . . . our people, the quality of our resources, we have never been in better shape."

The difference in tone from the message to employees that, "the business is in crisis," and the message to shareholders that all is well might be explained by the fact that more chief executives are being forced out of their jobs by boards of directors than by employees, Mr. Djurdjevic said.

In Mr. Akers' defence, Mr. Ticoll said that running a corporation like IBM, with so many different markets and constituencies to serve, is a near impossible task.

"The momentum of a corporation like IBM is gigantic, it's massive."

It's impossible for a giant ocean liner like IBM to change course quickly, unlike all the small power boats it shares the market with, Mr. Ticoll said.

"The recent statements of John Akers are the statements of frustration that you would expect to get and you can imagine how much more of that is going on under the covers."