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Although the company, based in Armonk, New York, has already taken several drastic steps to snap out of its prolonged slump, many industry analysts remain unconvinced of IBM's ability to re-emerge as a major force in the industry. The moves so far, they say, are little more than Band-Aid solutions that cover up deep financial and technological wounds. IBM's challenge is not just to shrink in size but also to remake itself completely into a nimbler and more market-oriented player, in much the same way that American Telephone & Telegraph reshaped itself after the breakup of the Bell System eight years ago. And even that would hardly be enough to restore IBM's dominance in an increasingly fast-moving and decentralized industry that is becoming less and less dependent on a single pacesetter.
IBM's corporate culture has been drastically altered by the radical changes under way. After years of enjoying the comfort of lifetime employment, IBM workers now labor under the threat of dismissal and the pressure of pay-for- performance. For many IBMers, the company's announcement last week that it may abandon its no-layoffs policy merely formalized what Big Blue has already been doing. Although IBM largely relied on attrition and early-retirement programs to reduce its labor force by 100,000 from a peak of 406,300 workers in 1985, the company began de facto layoffs last year through a new employee- evaluation process that grades workers according to internal goals. Those who haven't measured up have been fired.
Still, analysts insist that IBM must get even leaner -- perhaps paring at least 50,000 more jobs within the next two years -- if it is to meet the challenge from smaller and nimbler competitors. Says Bruce Lupatkin, an industry analyst: "There's still a lot of fat left." CEO Akers agrees that layoffs are necessary for the company's long-term survival. "Although it's a difficult step to take," he says, "it's one that, given the realities, if we must do it, we must do it."
Job reductions alone, however, will not be enough to restore IBM's competitive edge. Distracted by endless rounds of cutbacks, the company lost sight of the ball. IBM fumbled in market after market: it fell behind in computer-chip technology, and it engaged in a self-destructive battle with software powerhouse Microsoft over the direction of desktop-computer programs. Even worse, IBM began losing money and market share in two of its vital markets: mainframes and personal computers. Here IBM is faced with a double quandary: it remains the world leader in the market for mainframes, but the large systems are fading fast in importance. Meanwhile, personal-computer systems have been growing in strategic value just as IBM has lost its technological virility.