IBM to Lead Customers by Following Them

Thomas Watson, the man who created International Business Machines, constantly reminded his employees to think . John Akers, IBM’s current chairman, is a little more demanding. He wants the company to be perfect.

“To have a business of $70 billion and 375,000 people committed to near-perfect execution by mid-decade is fairly unusual,” Akers says. “I don’t think any other company has a stated goal to be as close to perfect as possible.”

Under the rubric of “market-driven quality,” Akers is asking his people to shoot for a 10-fold reduction in product and service defects by 1992--and then asking for another 10-fold decrease by 1994. This isn’t just rhetoric. IBM just won a Malcolm Baldrige Quality Award for its AS 400 minicomputer line, and the company is investing money, time and training to reinforce the message.

That’s fine. Quality should rank right up there with apple pie and motherhood as a basic American value. But this “corpocratic” quest for perfection obscures the more interesting challenges that face the world’s largest and most profitable computer company: What does “market driven” mean in an industry where customers fear they’re not getting an adequate return on their information technology investment? What does “perfection” mean when you’re struggling to link a dozen disparate technologies into a system a customer thinks he wants?

IBM’s real challenge--as Akers well knows--isn’t becoming perfect; it’s swiftly and cost-effectively taking advantage of all the opportunities it has before it.

In fact, in an interview in his office, Akers freely and bluntly acknowledges this. He does what, three years ago, would have been unthinkable. He compares IBM unfavorably to one of its competitors, Sun Microsystems, the hot Silicon Valley workstation company.

“Let’s use Sun as an example,” says Akers. “It brings performance to the market at a very fast clip and has been able to do that better than anyone else. That’s why they’re doing so well; people like performance improvements at what’s seen as a reasonable price. So if IBM wants to be successful vis-a-vis Sun, we have to do what they’re doing at least as well as they’re doing to even have a chance to be even with them.”

Of course, IBM isn’t interested in being even with Sun--it wants to do better. “We ought to be able to do better than Sun,” says Akers. “I think there are opportunities for us that are unique technically and relationships-wise.”

For one, he asserts, IBM should be better at networking the workstations to what is probably an existing installed base of IBM machines. The problem, though, is that networking, linking and integrating disparate hardware, software and telecommunications technologies, is far harder than most people expected. Five or six years ago, most organizations had systems dedicated to solving specific problems. Today, distributed computing means that different computers are trying to talk with each other about a wide variety of unanticipated problems.

“We’re trying to do things that have never been done before,” Akers acknowledges. “We’re doing invention on the fly with customers. It’s visible, it’s awkward and it doesn’t always work the first time. It used to be that everything was clickety click by the time it was installed in the customer’s office. Those days are gone.”

So much for perfection. The reality is that because IBM has more customers and more technologies than anyone else, they have a greater challenge--and opportunity--in linking it all. The issue isn’t creating “defect-free” systems for customers. It’s making sure that IBM’s systems engineers and market representatives learn from each other so that they don’t reinvent the wheel at new customer sites.

Increasingly, the bulk of IBM management time is going to be spent making sure that tricks and techniques learned at key customer sites are readily transferable to others. That means IBM is going to be relying even more heavily on training, expert systems and outside contractors to make sure that its people know as quickly as possible how best to design and configure systems.

This could translate into enormous competitive advantage. Why? Because IBM has more well-trained people than anyone else. While Unisys appears to be going down the tubes, NCR appears poised to be acquired by AT&T; and Digital Equipment Corp. struggles to maintain sales, there’s IBM--as solid as the rock of Gibraltar--with a swarm of people ready to deal with any problems. Yes, there’s also Sun and Apple, but they are niche players attempting to appeal to broader markets. The Japanese? Superb technology, but Fujitsu, NEC and Hitachi have a long way to go before they rival IBM’s infrastructure.

When Akers says, “I think IBM spread-eagles the computer industry,” that can be taken two ways.

The most profound change promoted by Akers and his management team has less to do with quality and service and everything to do with perspective. Instead of IBM using its products to define the market, IBM wants to let its customers define IBM. This is a radically conservative strategy. Unlike a Sony, which uses technologies developed in house to create markets, IBM wants to be more responsive to them.

That’s not to say that IBM avoids innovation--indeed, IBM is making venture capital-type investments in software companies at an accelerating pace. It’s that the company’s priority over the next few years will be “market driven.”

This is good news for IBM customers who are already suffering from high-tech overload and huge capital budgets for their information technologies. It’s not very good news for people who believe that IBM’s great size, resources and marketing capabilities should enable it to bring a little excitement to the marketplace.

Indeed, one of the reasons why Silicon Valley companies like Sun and Apple enjoy some success is that they know how to get people excited about new technologies. IBM would rather its customers be pleased. I would argue IBM should gun for both.

Indeed, Akers said that IBM’s “low-end systems development” group in Japan may come out with palmtop and notebook computers for the high-end of the consumer market (this despite comments Akers made several years ago that the low end doesn’t offer the kind of profit margins IBM wants).

Then again, if IBM can become as responsive as Akers wants, the need to be first to market declines. With its enormous breadth, depth of product and manufacturing capabilities, IBM is well positioned to be a fast follower. If IBM can slash its new product development cycle to 12 months from 24 months, it will exert the sort of heat that can make even a Sun Microsystems sweat.

The challenge here is comparable to the challenge of connecting up customer sites: IBM has to better accelerate the flow of technological innovation through the organization. That may be antithetical to perfection--but that’s how you get to market before the Suns and Microsofts have established themselves too securely.

These have been very difficult times for IBM. Its historic 15% annual growth rate has decayed. “We are at a point where we have learned how to have a highly successful business at an 8% to 10% growth rate,” Akers says.

IBM’s chairman describes a company whose priority is now process--getting things done and getting them done right. Executing the fundamentals. Getting the customer as intimately involved in the development cycle as in the sales cycle.

IBM has decided that it is now going to lead the industry by exerting influence instead of control. Indeed, the company is going to lead its customers by following them. By no stretch of the imagination is this an exciting strategy that will lift the industry to new heights. But then, nobody has ever claimed that IBM was exciting--only that it cares very much about being very successful by doing well for its customers.