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January 28, 1988

IBM EMBARKS ON MASSIVE REARRANGEMENT OF THE FURNITURE – BUT WILL IT WORK?

By CBR Staff Writer

IBM is undertaking an unprecedented shake-up of its top executives in response to the deterioration of its position in key markets worldwide. On Wednesday, rumours swept Wall Street that a major shakeup was underway at IBM’s Armonk, New York, headquarters. These rumours suggested that the power of IBM’s chairman, John F Akers, would soon be curtailed, and that Akers himself would be pushed toward retirement. While the details of the story circulating on Wall Street proved to be only partially correct, there apparently were leaks from high within IBM, for the rumours were, in general, accurate. Akers’ power has indeed been diluted by the creation of new management positions that move the ultimate responsibility for IBM’s activities worldwide farther from the former pinnacle of power and towards the company’s front lines in marketing, manufacturing and product development. Investors were heartened by Wednesday’s rumours. When the story moved on the Dow Jones news wire early in the day, IBM’s shares rose; the company’s stock lost most of its gains when IBM issued a carefully-worded denial. IBM’s effort to quell the rumours was an attack on the details, not the spirit, of the speculation. Late Wednesday, IBM invited key Wall Street analysts and a handful of reporters to hastily-arranged meetings to be held the following afternon. Late yesterday morning, two and a half hours in advance of the meeting, IBM sent out a press release that described its scheme of reorganisation. However the new regime works out, the mere recognition of its state of difficulty should bolster IBM’s image with investors and customers. The five new businesses get responsibility for worldwide product development including product line revenue and profitability – and marketing planning, as well as for US manufacturing. Reaction muted For the past three years, the company’s market control and profitability have been under pressure. Some of IBM’s problems stem from increased competition, but much of IBM’s trouble is due to IBM’s own internal confusion – product development delays, political conflicts that exacerbate the incompatibility of its various product lines, and a general inability to field products that properly address customers’ requirements. The result has been an erosion of IBM’s strength in the mainframe business, decay of its power in the personal computer market, and a near collapse of the company’s strength in the critical mid-range. IBM’s new plan appears to address all the issues raised by both critics and disillusioned supporters of the company since IBM’s profits went into a slump more than two years ago. The question remains – for IBM’s shareholders, employees and customers whether and when the $55 billion giant’s reorganisation will work. Has IBM in fact come up with a way to renew its formerly unassailable power over the computer industry? Or has the company, known for its sales skills, merely persuaded itself that it can change by redeploying the personnel at its headquarters. Only time will tell. IBM’s management, never forthcoming, will surely keep its collective lip buttoned. First reaction to the announcement was decidedly muted, if not downright unenthusiastic, and IBM’s share price was up a mere 82.5 cents in a moderate market at 1pm New York time. Hesh Wiener

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