SURPRISE! THE NEW IBM REALLY LOOKS NEW
With great fanfare last December, John F. Akers announced IBM's Declaration of Independence. IBM's nine product divisions, said the embattled computer giant's chairman, would now run as more or less separate businesses, free to do "whatever it takes" to conquer new markets--and pull IBM out of its long slump. Show me, responded a chorus of disillusioned customers, critics, and investors. After six years of failed turnaround plans, skepticism was only natural. IBM's stock kept diving--to a 10-year low of 81 3/4 in April.
But guess what? Now, several of Big Blue's lines of business, or LOBs, are actually showing startling signs of vitality and flexibility. They're breaking old rules and writing new ones. The company's personal-computer unit, for instance, announced on May 5 that it's diving into the mail-order business. Taking orders for PCs over the phone may not seem like a Big Blue thing to do, but it just might regain market share.
`HYPERACTIVE.' And IBM divisions are moving swiftly to shed their losers. On May 7, Ellen M. Hancock, general manager of IBM's Networking Systems business, was scheduled to announce that the company is unloading its last stake in Rolm Co., the money-losing maker of office-phone systems it bought in 1984 for $1.6 billion. IBM sold Rolm's manufacturing unit and a half-share in Rolm's marketing arm to Germany's Siemens in 1989. Now, Siemens is buying the rest for an undisclosed price. Hancock says the sale "was really led by our line of business." She reviewed it with Akers only after discussions had begun.
Indeed, all over IBM, executives are suddenly eager to cut deals with anybody who can give them a shortcut to the technologies, products, and markets they need (table). The PC division, for example, is negotiating with other computer makers, including PC clonemaker Northgate Computer Corp. Lucie J. Fjeldstad, vice-president in charge of IBM's Multimedia Group, says she's talking possible linkups with major entertainment names, such as Time Warner, Disney, MCA, George Lucas, and Steven Spielberg. Her mission: give IBM a major role in the merging worlds of computers and television.
When it comes to dealmaking, "IBM's getting hyperactive," says Joseph P. Schoendorf, a partner at San Francisco-based Accel Partners, a venture-capital firm that is working with IBM on a deal with startup Parallan Computer Inc. (table). "It's seriously changing the way it's doing business." One recent example: Rather than wait for its own designers to come up with a new kind of computer to anchor networks of workstations, IBM is turning to startup Auspex Systems Inc. In the past, sheer pride would have prevented such a deal.
Competitors and customers, meanwhile, report that you can now negotiate for just about anything made by IBM's divisions. That includes not just complete computers but also bits of software, disk and tape drives, and microchips. The LOBs are swimming in excess manufacturing capacity, says Robert Djurdjevic, president of Annex Research Corp., a market researcher, "so anything is fair game."
ANYTHING GOES. And no customers are off-limits, it seems. Under the old rules, top management would routinely quash any deals with outsiders that might hurt another IBM division. No more. IBM's data-storage division, for example, now called Adstar, recently shipped 25,000 new 3 1/2-inch Corsair disk drives to outside customers before the product was introduced in an IBM computer. That would have been unthinkable a year ago.
Similarly, Filenet Corp. just signed a contract to resell IBM's RS/6000 computers as part of its document-imaging systems. The deal went through despite IBM's earlier investment in another company that uses RS/6000s for imaging--and a major internal effort to sell imaging on IBM mainframes. Filenet Chief Executive Ted Smith says he was surprised at the lack of internal flack at IBM. The corporate types whom he expected to slow down or block the deal "got out of the way and stayed out of the way," he says.
MORALE BOOST. Nowhere is the new IBM more evident than in its PC group, led by General Manager James A. Cannavino. His goal is to make IBM a leader once again in PCs and to fight Sun Microsystems, Hewlett-Packard, and Digital Equipment in engineering workstations. IBM insiders say Cannavino helped spearhead the December reorganization, and since then he has pushed autonomy well down into his organization. "Cannavino has created a real sense of urgency among his troops," says Accel's Schoendorf, "and he has empowered them to do something about it."
Cannavino has become one of IBM's leading wheeler-dealers, too. Since putting the finishing touches on Big Blue's historic linkup with Apple Computer Inc. last fall, he has been chasing after new deals. On May 12, he is expected to announce two: the Northgate investment--possibly an outright buyout--and a stake in Parallan, which makes "superserver" computers that dish out information to networks of PCs. Cannavino started discussions with Parallan between sessions at a computer conference on the French Riviera last September.
The prospect of these deals and the quickened pace are lifting morale at Personal Systems, which has seen its share of the PC market slip from 27% in 1985 to 15% in 1991. "It's a very invigorating environment," says Fernand B. Sarrat, assistant general manager of Personal Systems. The PC business now, he says, is essentially several small companies addressing their own markets--desktops, portables, servers, and software, for instance. "Each is measured as a business unto itself," mainly in terms of return-on-assets, Sarrat says. "There's a lot of accountability."
The result has been an intense market focus and a fresh way of thinking. And it seems to be spreading to other parts of IBM. "At every level, IBM people are feeling a lot freer," says one ex-IBMer who remains close to the company. "It used to take months for them to return my phone calls. Now, they seem to be able to turn on a dime."
Turning on a dime and turning a profit, of course, are entirely different propositions. IBM still has a long way to go in cutting costs and chasing new markets. But if nothing else, the December reorganization finally has injected some new life into the mammoth computer maker. "There used to be a lot of naysayers," says one Silicon Valley veteran who has worked closely with IBM for many years. "Now they're gone. IBM knows how to get down to business." That might even convince the skeptics that this time the turnaround could actually happen.John W. Verity in New York, with bureau reports