Chairman Faces Immense Task in Reshaping IBM : Technology: John F. Akers’ frustrations are reflected in reports of lectures to his managers. But he has been criticized for not making the tough decisions.

Revenues are sagging, profits are falling, customers are defecting--and International Business Machines Chairman John F. Akers is mad as hell about it.

After six years as chairman of the world’s largest computer maker, Akers is showing increasing signs of frustration that his efforts to reshape IBM to fit a faster moving, more competitive and cost-conscious marketplace haven’t worked. The latest bit of evidence came this week in a memo leaked to the outside in which Akers is quoted as telling a group of IBM managers that employees are “too damn comfortable” and largely unconcerned about losing sales or missing production deadlines.

But Akers’ tough talk doesn’t impress investors and analysts. Many say Akers himself--not his managers or employees--is to blame for IBM’s current problems. In their view, Akers, who is just 3 1/2 years away from IBM’s mandatory retirement age of 60, is at fault because he has been unable or unwilling to make the really tough moves--including employee layoffs--required to turn the company around.

“Akers has always talked tough, but talk is cheap,” said Ulric Weil, a Washington technology analyst. “When it comes to action, he’s a mild guy. He’s taken half steps when he should have taken full steps.”

Adds a former IBMer, who asked to remain anonymous: “If this were 1985, you could understand Akers’ frustration. But this is 1991, and he’s still struggling with the problem, not the solution. If he had really been in touch with the business for the last six years, he would have recognized what has to be done. But, like the rest of IBM, he’s been living in a dream world.”

Akers’ frustration underscores the difficulty of managers who have risen from within the ranks of a huge company to change its course once they arrive at the top, management experts say. By the time they have climbed the ladder, these career managers are so much a part of their environment that they can either fail to perceive the need for change or be unwilling to impose the drastic medicine required.

Akers is hardly alone in the challenge he faces. American Telephone & Telegraph Chairman Robert E. Allen, who has spent his entire career at the phone company, has wrestled with some of the same issues Akers faces: bloated staff, increased competition and fast-changing technology.

Although analysts say Allen has so far outperformed Akers, they note that Allen and his predecessors were virtually forced to remodel AT&T; as a result of the revolutionary changes brought by deregulation--a definitive impetus for change that IBM hasn’t faced.

Akers was in Europe last week and unavailable for comment. But a spokesman for the company said Akers has been delivering “hard-hitting lectures” to his management teams for the last six months to spur them to “get more out of their people.”

And some analysts say Akers is, in fact, finally prepared to do the once-unthinkable: ax nonperforming employees. While not calling them layoffs, Akers has told his managers to cut the bottom 15% of their work forces--the equivalent of about 25,000 workers--within the next two years, analysts say.

Akers’ latest comments and apparent intent to pare staff aren’t winning him a lot of friends within the company’s rank and file. Since a version of his speech to the managers first appeared on IBM’s internal computer system last month, many rebuttals have been submitted, including one calling for his resignation.

“The fact that we’re losing (market) share makes me goddamn mad,” Akers, a former Navy pilot, was quoted as telling the managers. “I’m sick and tired of visiting plants to hear nothing but great things about quality and cycle times, and then to visit customers who tell me of problems . . . . The tension level is not high enough in the business. Everyone is too damn comfortable at a time when the business is in crisis.”

Until the 1980s, few could have ever imagined that IBM would ever face such a crisis. However, increasing competition from Japan’s electronics giants and U.S. entrepreneurial ventures, plus a raft of technology advances, have fragmented the computer industry and gradually broken IBM’s virtual lock on it.

“The world as IBM knew it through the 1970s has been completely changed,” said Robert Reich, a professor of government at Harvard University. Reich said that while Akers no doubt understands that the market has changed, he is unable to capitalize on the urgency of the situation because Big Blue has been so successful doing what it has for so long.

“The single largest impediment to change in times of challenge is prior success,” Reich said. “When times get tough, a manager is always going to hear a chorus of voices urging a return to the practices of the past.”

Prior success--IBM is larger than all of its computer-making competitors combined--may indeed be the source of Big Blue’s current malaise.

From 1979 to 1984, as IBM revenues doubled from $23 billion to $46 billion, the company developed a myopia and “can-do-no-wrong” attitude, analysts say. The company also started basing its decisions on projections that the fantastic growth of the past would continue well into the future.

Current problems, many analysts agree, can be traced to the 1970s when the company, under then-Chairmen Frank Cary and John Opel, started to build its staff and operations based on projections that its sales would reach $100 billion by 1990 and a whopping $200 billion by 1995. However, revenues last year hit just $69 billion.

Akers long ago recognized that those projections, which he helped make as a member of the executive team of the 1970s, were far off target. But he has been unable to scale the company back and alter its comfortable, employee-centered culture fast enough to avoid being repeatedly tripped up by them.

“They are choking on excess capacity that they put in place decades ago,” said Stephen Cohen, an analyst with Soundview Financial, a Stamford, Conn., brokerage. “They thought the company would grow at 15% per year for decades, but now it’s growing at 6%--or less.”

At the same time, fast-charging competitors have been growing at IBM’s expense. According to the Gartner Group, a technology market research firm in Stamford, Conn., IBM’s overall worldwide computer market share slipped to about 23% last year from 37% in 1983.

And the slide is continuing. In the first quarter of 1991, sales of IBM computers fell more than 17% from the prior year. All computer categories, but especially the PS/2 line of personal computers, were affected.

Reshaping a huge corporation with a deeply ingrained culture is such a difficult task, said Harvard’s Reich, that “it’s a wonder IBM has done as well as it has.”

Indeed, the company’s products are winning high marks and strong reviews from across a wide spectrum. “The current product line-up is the best it’s been in decades,” says Bob Djurdjevic of Annex Research in Phoenix. “To monkey around with that now is to fix something that isn’t broken.”

Still, analysts say, IBM was late to enter such emerging markets as personal computers and workstations and has yet to introduce a laptop computer, currently the fastest-growing segment of the PC industry.

IBM’s real problem, as many insiders and outsiders tell it, is that its costs are still far too high for its current sales levels. According to Djurdjevic, IBM’s sales and administrative charges are running at about 35% of sales, about 10 percentage points above the ideal level.

The cause: IBM’s staffing level, at 360,000 employees.

To be sure, Akers has cut staff. Over the last four years, Big Blue has trimmed about 47,000 employees by offering generous severance packages to willing participants. And the reductions, one of the largest ever in corporate America, were accomplished without violating IBM’s sacred “no layoff” tradition.

But the cuts have been costly, both financially and intellectually. The first round of cuts in 1987 offered employees four weeks of severance pay for every year on the job, up to a maximum of two years pay.

“We all called it an IQ test,” remembered one software company executive who accepted the severance package several years ago. “If you qualified for the package and didn’t take it, you failed the IQ test.”

However, the incentives tended to induce the best and brightest within the company to leave since they stood the highest chance of finding work outside. “There’s been a brain drain of sorts,” said one analyst. “It’s a reverse-selection approach to staff trimming.”

Since then, IBM has reduced the severance incentives substantially. Currently, the company is trying to trim another 10,000 employees and is offering two weeks’ severance pay for each year on the job. And to spur employees into signing up quickly, the company has made it known that the offer will shortly drop to one week per year.

Although cutting employees will reduce costs and improve profits, IBM will ultimately have to increase sales to maintain its market position. That, analysts say, will take even more effort to decentralize authority and decision-making and reduce IBM’s traditional dependence on sales of its mainframe computers, which account for nearly half of company revenues.

“It’s hard going from a big company managed from the top down to a group of entrepreneurial groups bound by lateral ties,” said Harvard’s Reich. “A large culture resists that kind of reverse engineering. But that is what it’s going to take to be as nimble as companies need to be to succeed in today’s global economy.”

If Akers’ previous statements are any guide, he already knows that. However, he may have delivered an assessment of his own performance when he lectured his managers last month.

“It’s not the people’s fault, not the shareholders’ fault,” Akers is quoted as telling them. “The problem belongs to those who manage the business.”