IBM Bets Its Blue Chips on Outsider to Save Company
IBM made it official Friday, naming as its chairman Louis V. Gerstner Jr. in the enormous gamble that the first outsider in the company’s 79-year history can reverse the steep decline of what was once America’s preeminent corporation.
Confirming days of speculation, IBM said Gerstner, 51, the head of RJR Nabisco Holdings, will become IBM’s chairman and chief executive on April 1. Few managers have accepted a greater challenge.
Its name once synonymous with solidity, no company occupies quite the place in the postwar history of American business as International Business Machines. A leading U.S. exporter, the developer and custodian of a trove of crucial technologies, a “safe” stock held by millions of investors and the company that shaped the computer revolution, IBM was for decades the standard against which other firms were measured.
But the company, once the pacesetter for the world’s computer industry, was overtaken in 1992 by grave problems that had been building, unseen, for years. Its troubles are so severe that analysts say Gerstner may face the ultimate test of reviving an ailing corporate giant.
Gerstner won’t be the only American chief executive facing such a task. General Motors Corp., for example, is attempting to recreate itself after mounting losses, and throughout the U.S. economy big companies are conducting a war on the bureaucracies that have made it so difficult for them to keep up with the escalating pace of change.
During a press conference Friday in New York, Gerstner, who has vaunted management skills but no computer experience, cautioned that there would be “no short-term fix” for IBM’s problems. Pleading for patience from shareholders and employees, he said his first priority was to spend time listening to IBM managers and learning the business. But he said he would take “a no-holds barred approach” and won’t hesitate to make drastic changes.
Analysts said Gerstner likely will have to carve up IBM, spinning off some of its businesses into separate operations and disposing of others. Many have said the future for IBM may lie in becoming a service company.
The new top boss, who said he owns two IBM personal computers and a laptop made by another company, declined to reveal any specific plans for the company, saying only that his goal is coming up with “brilliant strategies and executing them brilliantly.”
The designation of Gerstner capped a hunt that took barely two months but considered more than 100 names, including former Presidential candidate Ross Perot. James E. Burke, the IBM board member who headed the search, insisted Friday that Gerstner was the committee’s first choice.
Burke cited Gerstner’s reputation for decisiveness, strategic thinking and effecting successful change--strengths he said are more vital to IBM now than technological expertise.
Gerstner replaces John F. Akers, 59, who announced his resignation Jan. 26 as IBM reeled from a record loss in 1992 of $4.97 billion. By early this year the company’s stock price had fallen enough to wipe out half its market value since last summer. It was forced to cut staff by 100,000 since 1986, a quarter of its total work force, and another 30,000 are expected to go this year.
IBM’s woes came on as the market for its principal products, mainframe computers and intermediate-sized minicomputers, began vanishing as rivals’ desktop and other smaller computers were shown to perform many of the same tasks at a fraction of the cost.
Akers gamely introduced his successor at the press conference, saying he was “delighted” by the choice. Akers, who had been chairman and chief executive since 1986, said he will retire from IBM’s board but will stay on for a time as an employee to help in the transition.
IBM would not say how much it agreed to pay Gerstner, who reportedly received a long-term contract. But it’s unlikely he agreed to a big pay cut. In 1992, he earned just over $4 million in salary, bonuses and stock options at RJR.
Gerstner had been a highly regarded director at the corporate consulting firm McKinsey & Co. He then joined American Express, where he was president from 1985-89. He was named chairman and chief executive of RJR/Nabisco following its huge leveraged buyout by Kohlberg, Kravis, Roberts & Co., and won praise for restructuring the company and paring down its enormous debt. He leaves behind much unfinished business, however, including disarray in RJR’s biggest business, cigarettes.
IBM’s stock inched up 87.5 cents Friday to close at $51.375, after falling a total of $3.75 on Wednesday and Thursday as shareholders reacted negatively to rumors of Gerstner’s appointment.
Gerstner sought to allay the fears of IBM executives about the arrival of an outsider, and said IBM’s chief strength is that it has “the greatest reservoir of management talent in the world.”
Gerstner won’t be bringing with him his two top lieutenants at RJR, Karl von der Heyden and Lawrence Ricciardi. They were named Friday to become co-chairmen and co-chief executives of RJR, succeeding Gerstner. Gerstner also quelled speculation that his older brother, Richard, would return to IBM. Richard Gerstner had been a high ranking IBM executive before retiring because of a back ailment.
Analysts have said it’s uncertain that Gerstner-or anyone-will be able to restore the company nicknamed Big Blue to its place as the unquestioned leader of the world’s computer industry.
Bob Djurdevic, for instance, president of Annex Research in Phoenix, said IBM is “anachronistic” and must be split up.
He also said Gerstner must move fast to change IBM corporate culture, asserting that the entrenched IBM management style tripped the company up as it tried to respond to its problems. IBM long prided itself on having no layoffs, and the 40,000 who left last year were induced to go by offers of money and benefits.
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