07/22/96 IBM: HISTORY, BUT NO LESSON

IBM: HISTORY, BUT NO LESSON

BROKEN PROMISES
An Unconventional View of What Went Wrong at IBM
By D. Quinn Mills and G. Bruce Friesen
Harvard Business School Press -- 210pp -- $22.95

The CEO of IBM is frustrated. There's a huge gap between his company's stated goals and its achievements. The stock has tanked, morale is in the basement, and the company's products have not kept up with the changing market. Customers complain that new models are taking too long to emerge. Worse, they're starting to crab about a maddening bureaucracy: Simple questions get routed through 18 different IBMers. To regain technological leadership, the CEO pushes for an overhaul of the product line, but the sales force worries about switching from high-margin products to new technology with lower margins.
Sound familiar? Surely this must be the tale of John Akers, the CEO ousted by IBM's board in 1993, or perhaps the scenario of the first months of his successor, Louis V. Gerstner Jr. Nope. The IBM sachem here is none other than the legendary Thomas J. Watson Jr. And the time is the early 1960s--just before the most profitable period in IBM history. So begins Broken Promises: An Unconventional View of What Went Wrong at IBM, in which Harvard business school professor D. Quinn Mills and Andersen Consulting executive G. Bruce Friesen probe the roots of Big Blue's woes to provide lessons for other big corporations. Unfortunately, after a good start it quickly turns into an academic and too often dry account that provides much less than it promises.
What went wrong, argue the authors, was that IBM went back on two unwritten commitments it had made over the years to customers and employees. Mills and Friesen call these ``singleness'' and ``loyalty.'' IBM convinced customers that only Big Blue could handle all their computing needs--from printer ribbons to mammoth computers that required special air-conditioned rooms. It guaranteed top-notch products and blanket service by scores of IBM engineers--all working at the customer's office. The customer rented the equipment, and IBM took care of everything.
For employees, IBM's job security was legendary. It wasn't unusual to find two generations of the same family represented. There were never any layoffs or unions. And this loyalty to employees buttressed the promise to customers: A happy and motivated workforce meant good service.
The common wisdom that IBM stumbled because it fell behind in technology is wrong, say Mills and Friesen. Yes, IBM relied too long on mainframes at a time when rapidly advancing semiconductor technology--some of it invented at IBM--was quickly changing the computer industry. But Big Blue's failure to respond, they suggest, was a symptom of a more fundamental problem: IBM's shift from rental to sales in the early 1980s began a dramatic change in the nature of the customer relationship, making the giant just another computer maker competing on price.
The bond between the company and its workers began to fray with massive reorganizations in the 1980s, followed by layoffs. An unanticipated consequence was to sever long-term relationships employees had with customers--a link that might have kept IBM better tuned into market changes, say the authors.
A consultant at IBM through much of the 1970s and 1980s, Mills clearly knows the pre-Gerstner era. He and Friesen, his research assistant when he was at Harvard, interviewed numerous executives and had access to internal documents. When looking at IBM from a historical perspective, the authors excel. For example, they make a persuasive case that the seeds of IBM's disastrous performance in the early 1990s were planted in the rapid expansion and shift to outright computer sales begun in the early '80s.
Readers expecting the inside scoop on one of the great business disasters of the 1990s, though, will be disappointed. The book is academic to its core and devoid of any IBM personalities. Moreover, the authors rarely quote IBMers whom they've interviewed. In the preface, they thank Akers for his contribution, but there's not a quote from him in the book. Indeed, Akers, the man often held most culpable for IBM's woes, gets off with barely a scratch.
The most glaring flaw is the book's claim to having an unconventional view of IBM. Rather, the authors oversimplify the widely held understanding of why IBM cratered in the early '90s. True, most observers focused on the decline of the mainframe and IBM's technological ineptness. But IBM's hubris has also been widely reported, as has the broken tradition of job security.
What's more, the authors give remarkably short shrift to present-day IBM, discussing Gerstner and his actions only in the penultimate chapter. There they provide no more than a superficial examination of issues. At times, Mills and Friesen just don't seem to know the high-profile company. They misspell the name of the executive who led the development of the IBM PC, Don Estridge. Later, they say that small-to-medium-size companies feel ignored by IBM and question whether the company is going to miss out on these hot-growth outfits in the future. In fact, Gerstner & Co. have made sales to this segment one of IBM's top priorities.
The lessons of IBM's experience are now common wisdom among executives--listen to customers, understand your business, fight bureaucracy, etc.--and, sad to say, the authors add little to these. Indeed, the key broken promises here are those of the authors of this rather conventional account of IBM.
BY IRA SAGER