IBM-Lotus Honeymoon--Well, Nothing Lasts Forever : News analysis: Big Blue may be full of promises now, but management experts say change is inevitable.
Only last week, they were predator and prey, but on Monday IBM Chairman Louis V. Gerstner Jr. and Lotus Chairman James P. Manzi were a veritable honeymoon couple, sharing a stage at the Wang Center for the Performing Arts in Boston and assuring 2,200 anxious Lotus employees that their future was bright.
“There is no way we can get our $3.5 billion back by downsizing Lotus,” Gerstner told the crowd, referring to the price IBM will pay to buy the software company. “We want all parts of Lotus. . . . We [want to] find ways to work as a team without in any way destroying what’s important to you as a group of people and as a culture.”
Gerstner repeated his earlier promises that Lotus would operate as a highly independent entity within IBM. Lotus’ employee benefits package--which includes spousal-equivalent benefits, four-week sabbaticals after six years on the job and day care--will remain intact. The crowd applauded heartily.
The only problem, management experts say, is that this honeymoon won’t last.
“Any hope that Lotus is going to continue to operate as it has in the past is just fantasy. IBM may really believe this right now, but it’s just not the truth,” said Gerald Ledford, senior research scientist at the Center for Effective Organization at USC. “IBM is not a conglomerate. Lotus can’t be run in a free-standing fashion if this is to make any sense.
“The only way they’re going to achieve the benefits of this acquisition is by bringing the operations together.”
As IBM, fresh from a remarkably shrewd performance in completing the Lotus deal quickly, turns to the challenge of making the buyout work, it faces a delicate task: preserving Lotus’ independence and keeping its valuable programmers happy while meshing IBM’s software projects with those of its new subsidiary. The goal is the emergence of a single, potent software operation, one powerful enough to take on Microsoft Corp., the undisputed leader in personal computer software.
Executives in the computer industry say Lotus and IBM will have to coordinate the development of their software products and that the software teams must work closely with IBM’s hardware designers.
“It doesn’t make any sense to develop products and then throw them over the wall to the other guy,” said one executive, who did not want to be named. “You don’t take advantage of the leverage you gain by working together. There’s no way that Lotus can be run independently, no matter how much both sides would like to believe that.”
Philip Mirvis, a Washington, D.C., organizational psychologist who was brought in as a consultant for the Burroughs and Sperry merger in the mid-1980s and more recently for Hewlett-Packard’s acquisition of Apollo Computer, said there are few precedents for an acquired company’s retaining its identity.
“There’s this quality of the victim and the vanquished that plays out in these things,” he said. “On the side of the acquiring company, there’s this lording over the acquired, a ‘We’re going to teach these guys a thing or two.’ There’s this feeling that the smaller company wasn’t all that well managed, otherwise why would they have had to be acquired? The result is that morale at the acquired company declines and the most marketable people leave.”
But that is exactly the scenario IBM hopes to avoid. In acquiring Lotus, it has purchased talent, particularly the programmers who have created Notes, the breakthrough software that allows PC users in far-flung locations to collaborate.
The lead developer of Notes, Ray Ozzie, was not even a Lotus employee until recently. His small software development firm worked from an office miles from Lotus headquarters, and he only recently sold his company to Lotus.
Ozzie, who is under contract, has given his blessing to the IBM acquisition, but he is intensely loyal to Manzi, who backed Notes when few others saw its potential. Some analysts believe that keeping Ozzie happy was the main reason took the highly unexpected step of asking Manzi to stay on as a chief executive.
Indeed, that decision, and Manzi assertions that he agreed to support the buyout only because IBM had promised to leave Lotus alone, suggest that IBM truly intends to give Lotus an extraordinary degree of autonomy, at least at the outset.
“Look, there is no one employee benefits and compensation package at IBM anyway,” IBM spokesman Rob Wilson said. “They differ by geography. In the IBM/Paris cafeteria they serve beer and wine, which we certainly don’t have in [IBM headquarters in] Armonk [N.Y.].”
But big questions remain, including whether Manzi and IBM software chief John Thompson will be able to work together on product development. The sales forces of the two companies will have to be merged.
And there will be the temptation if Lotus continues to perform poorly--it reported a $17.5-million loss for the last quarter--to make cutbacks to return it to profitability. Indeed, for Lotus employees, autonomy may not always be a good thing: A restructuring announced after the loss, which includes the elimination of dozens of management positions, is proceeding as planned.
