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  1. Technology
November 27, 1991


By CBR Staff Writer

The leap of $2.75 to $97.875 in IBM Corp’s share price on the news late Tuesday that the company is finally biting the bullet and instigating a drastic restructuring of the way it does business looks a little overdone on near-term considerations and analysts came to the same conclusion, cut their forecasts and yesterday the shares duly turned tail and shed $2.625 by mid-morning. News of the $3,000m fourth quarter charge – $2,000m for 20,000 or more job reductions next year plus $1,000m for facility closures and asset disposals to trim $1,000m off costs next year and $2,000m a year thereafter unfortunately came through just after Computergram went to press – but was pretty comprehensively flagged in our Loss for 1991 looms as IBM signals it means to wield much bigger axe headline. The concern that the joy may be overdone is occasioned by chief executive John Akers’ statement that We are seeing improvement in the pace of business as shipments of our new product lines build, and we believe fourth-quarter operating results, before any special charges, will be our best this year. However, the environment around the world, with few exceptions, continues to be difficult and highly uncertain, and the industry remains highly competitive. The point here is that IBM typically does a third of its total business in the final quarter – in 1986, it accounted for 34% – and if Akers is saying the company only believes it will be the best quarter of the year, he seems to be hinting that in comparison with normal fourth quarters, the current one is proving quite ghastly. The workforce reductions nearly 5% of the total – will hit the US hardest; the company hopes that 40% will be achieved by attrition, the rest by voluntary redundancy incentives; it will reduce the worldwide headcount to 330,000 or fewer compared with 407,000 at peak in 1986. The company also seems to have found a way to resolve the problem that many of the brightest and best have accepted early retirement: according to Tim Bajarin, head of Creative Strategies Inc, IBM will this time require managers to grade their staff on a 10-40-40-10 basis, with the top 10% marked out to be groomed for management, the next 40% regarded as the top contributors, the other 40% as the lower half, and the bottom 10% to be fired for non-performance – with the process to be repeated every 60 days. IBM says that it will be taking a series of steps to enable each business unit to take control of its own destiny, be more responsive to its own customers and accountable for its own results, although because each business is different, the degrees of independence will range across a spectrum, but each will be subject to intensified market discipline. The IBM marketing and services companies, organised by geography, will focus on market segments based on the companies’ own judgments of opportunities. They will be able to combine the best product and service offerings from IBM and, as appropriate, from other companies, thus providing total solutions that are tailored to customer needs. The IBM manufacturing and development businesses, organised by product, will henceforth concentrate on being the lowest cost manufacturer of up-to-date information systems with a key objective being to shorten substantially product development cycles; they will also be increasingly free to pursue a variety of distribution channels. Crucially, they will be responsible for their own research and development and won’t have to bear overhead costs of developing exotic products – nor will they have to use the IBM sales force. And each major business unit or company, over time, will report financial results individually, and pay of executives will be tied more directly to its performance. And IBM will identify areas of potential growth and manage investments in the most promising possibilities among current businesses, alliances and partnerships, as well as new ventures. While in the past IBM has owned 100% of its business units, the company in the future might remain complete owner or become a majority or minority own

er, of any business unit, Akers said. In one major initiative, Microsocope hears that in Europe, IBM will shortly announce a new company that will market by mail order a new line of low-end 80386SX-based personal computers made to its design by a Taiwanese firm, and that they will carry a non-IBM name that nevertheless brings the company to mind.

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