Advice on How IBM Can Retain Greatness
To: John F. Akers
Chairman and Chief Executive
International Business Machines
Subject: Boosting IBM
John:
Because you are a realist, you know that this past year can best be described as a blend of frustration and disappointment. Key shipments in mainframe disk drives slipped, software sales from the highly touted applications systems division are growing at rates less than half the industry average, and IBM stock has woefully underperformed the Dow. The only people more confused about IBM’s direction than Wall Streeters are your own employees and customers.
You’re certainly saying all the right things, but IBMers and your customers aren’t hungry for rhetoric. They’re hungry for the opportunity to push IBM to new levels of excellence. The challenge is how? How can IBM be great as a business and information technology innovator? That’s what this memo is about.
The dynamics of your industry have changed in ways you have yet to publicly acknowledge. My fear is that, much like post-Oil Shock General Motors, IBM may be a great company on the verge of losing its greatness. Most of the following advice comes from people who have spent decades at the company and who care very deeply about its future, both as a business and as a great institution; some of it comes from customers who are looking to you for more than just products and services. Please take this advice in the spirit in which it is intended.
1. Stop treating your customers as consumers.
A decade ago, IBM marketing reps could saunter onto a customer site confident that they knew more about data processing than the customer. That’s no longer true. Today, your customers know more about what they need than you do. IBM succeeded too well in convincing industry that information is a strategic commodity. Nevertheless, many of your people still behave as if Big Blue is the font of all information systems wisdom. That’s as annoying as it is untrue.
It’s particularly annoying because the typical IBM rep now has more than 2,000 product and service offerings to keep track of; they know less and less about more and more. In other words, at the same time your customers have gotten smarter, your people in the field have become more ignorant. That’s an inevitable byproduct of trying to be a full-service provider. So knock off that ridiculous ad campaign that makes IBM out as omniscient. A little humility would go a long way.
Start treating your customers as people whom you can learn from as well as sell to. Create sales and engineering teams that are rewarded not only for selling systems but also for getting customers to co-develop applications that can be used industrywide. The success of your AS400 minicomputer was due in large part to customer involvement in development--the rare exception to the rule. Publicly encourage your people to leverage customers’ knowledge into IBM’s own offerings.
Similarly, your “business partners” effort to co-market with software companies and others is an excellent idea but frequently creates tensions that leave the customers’ concerns subordinate to “partnership” problems.
You have got to sit down with your top managers to define how IBM can create “proprietary relationships” with customers rather than “proprietary technologies” for them.
Yes, IBM is a technology leader but your customers are less willing to pay a premium for high technology than for platforms that let them readily design cost-effective environments for managing information. You have to persuade them that you’re not just selling solutions--you’re empowering them to build their own solutions today in ways that won’t trap them tomorrow. A commitment to greater joint development lets you build new solutions, relationships and technologies.
2. Be less strategic and more tactical.
IBM has more strategies than NATO and the Pentagon combined. Unfortunately, the company seems unencumbered by any tactical sense. One longtime IBMer remarks that you prefer to “steer the ship and see what the market does” rather than “let the market drive these things.” That’s not my idea of customer-responsive. The reason is obvious: IBM moves too slowly to be tactical. Big Blue still relies more on momentum than initiative. With the notable exception of the IBM PC, product development still takes years. Technical development is not treated as urgently as sales development. The result is vaporware.
You’re (slowly) moving in the right direction. But now that high-tech product cycles can turn in less than 18 months, you can’t afford to take two years to get to market. And yet, we almost never hear IBM talk about its quickness in market response. Why? Shouldn’t IBM be prepared to crash develop products like laptop computers that clearly have become market staples? Shouldn’t you publicly champion speed to market as a virtue and change your compensation system accordingly?
Ironically, the current Harvard Business Review features former IBM Senior Vice President Ralph Gomory arguing that accelerating the product development cycle is the key to industrial competitiveness. Speed is critical to customer responsiveness. So soften the grand visions and offer hard technology. Emphasize customer response over strategic aspirations. Customers would rather buy great systems than great strategies.
3. Opt for bold investments rather than bold acquisitions.
OK, the Rolm telecommunications acquisition was a disaster but the MCI and Intel investments weren’t. You’ve taken bite-sized equity stakes in lots of little software firms. That’s smart. Do much much more of it. But ownership matters less than influence. Position IBM as the world’s investment banker for provocative software. Use these investments to boost your innovation image. A rising software tide lifts all your hardware boats. Careful investing gets these companies to do your software research and development dirty work for under 40 cents on the dollar.
Have fun. Scare a few people. Why not buy 10% of Compaq Computer? Fifteen percent of Cray? Twenty percent of Stratus Computer? Buy a Macintosh software company. Send the message that you’re prepared to invest in quality information technology firms anywhere in the world. You’ve got cash--use it. Emulate Olivetti; invest in networks of technology firms in Europe.
Not only will these investments command attention, they’ll give you a window on technology and management that you couldn’t possibly build in-house. This also enables you to raise the quality standards of various market niches even as you set the technical standards. Whatever you do, don’t call this “diversification”--describe it as what IBM should naturally be doing. Get people to take IBM’s strong presence in growth markets for granted. Confusing? Yes, but don’t call it “confusion”--call it “choice.”
4. Break up IBM.
It’s better to be a Gorbachev than a Honecker. As recent events confirm, planned economies don’t work as well as market forces. Right now, IBM’s $60-billion annual economy resembles Kremlin econometrics more than Adam Smith. Ask any IBMer who works with customers and they’ll tell you they spend more time coordinating things inside the company than with the outside world. That’s bad. So make a virtue of necessity. “Deregulate” IBM.
Ideally, you should set up a holding company ( a la Citicorp in global banking) to coordinate--not control--the efforts of multibillion-dollar IBM-lettes. Keep the key technologies like semiconductor packaging and magnetic recording in the holding company (not to mention network and telecommunications standards) but spin out the entry systems division as a stand-alone company, as well as the mainframe group, the workstation-Unix people, and the AS400 minicomputer folks. Turn your semiconductor plants loose onto the marketplace. Lead IBM as a coalition, not as a monolith.
Will it be a test of your management abilities to get these new companies to alternately cooperate and compete to serve IBM clients? Absolutely. But only by splitting IBM can you assign accountability, encourage greater customer contact and development and respond swiftly to market challenges.
Do you run the risk of creating half a dozen weaker IBMs? Yes, but only if you don’t believe that your people can handle new responsibility and added competition. In your heart and mind, you know that competition from American Telephone & Telegraph, Apple Computer, Digital Equipment and Sun Microsystems has made IBM a better company in the 1980s. Why not lose market share to your own companies instead of someone else’s in the 1990s?
By any measure, IBM is a national asset. You have managed to keep the company’s full employment practice through difficult times and you have made major commitments to support this country’s technology base. Look deep into your company and you will see talented people who want to add value to both IBM and their customers. Listen to your customers and you’ll hear people tell you that IBM isn’t as responsive as it can be.
If you do that, I think you’ll agree that you have the unique opportunity to turn IBM into several great global companies. You can be the steward of a great tradition or a leader who builds a new generation of companies upon that tradition.
Either way, good luck.
