Has IBM Done Enough??

With Personal Systems remaining part of IBM, some believe the computer giant is not giving the division enough of the freedom it needs to be successful in the intensely competitive PC market.

By holding onto Personal Systems, IBM is signaling that PCs and workstations are “part of the crown jewels” and too valuable to spin off, said Ulric Weil, a principal in Weil & Associates, a Washington consulting firm. “But if they stick with their culture of 65 years, they might crush the life out of it.”

Weil questioned whether IBM is serious about truly becoming a “holding company” for independent businesses. “This is a blueprint, conceived at the very highest levels of management,” he said. “But there is no clear-cut timetable for implementation.”

A former top IBM executive, who declined to be identified, questioned whether Personal Systems will get the message that it can “do whatever it wants” without being made a separate unit. That’s something IBM appears unwilling to do at this point.

Doug Kass, senior analyst for Dataquest Inc., a San Jose, Calif., market-research firm, said the reorganization “still doesn’t address critical issues facing IBM.” IBM cannot compete against low-priced, more nimble competitors with short-term design and manufacturing capabilities, he said.

“IBM can reorganize until it is blue in the face,” he said, “but it will never get the time-to-market down to where it can identify a market niche, build a box and get it on the market at a [low enough] price. This certainly helps IBM be more aggressive. Whether it’s a business model [that matches] its rivals that are hurting it badly, I’m not sure.”

It is going to take IBM’s wieldy bureaucracy a significant amount of time to implement changes, according to Kass.

“IBM doesn’t work quickly to do anything,” he said. “It’ll be a while before it’s implemented.”

Martin Ressinger, an analyst at Duff & Phelps Inc., a Chicago investment bank, agreed. “Presumably this will increase the flow of products at some indeterminable point in the future,” he said. “This is not a short-term fix. I wouldn’t expect this to go as far as anyone wants it to go. The restructuring is a painful proposition.”

Another potential problem is that the restructuring may not eliminate infighting, which has stalled product development in the past.

“As long as they essentially compete internally with each other, it is not going to be beneficial to the end user,” said a network services manager at a Midwestern architectural engineering firm. Unless IBM totally separates its divisions, he said, the infighting will keep crushing products before they reach the marketplace.

One clear aim of the restructuring is to reduce IBM’s lengthy product-development cycle, which requires coordination among many IBM divisions.

“The plan-approval process [in IBM] takes more time, in many cases, than the competitors’ development time,” said one IBM insider who declined to be identified.

However, splitting out business units won’t help cut the cost of IBM products, he said, because the individual units will still buy many components and services from other businesses within IBM.

That is another reason why IBM has to push hard to cut head count and costs, said Bill Bluestein, a senior analyst with Forrester Research Inc., a Cambridge, Mass., market-research firm.

“If those people are still in corporate, the money to support them has to come from somewhere,” Bluestein said.

Last week’s announcements were just the start of an evolutionary process as IBM decides just how much freedom it wants to give its units.

“I’d expect them to set up 10 to 12 independent companies and evaluate them through the end of ’92,” said Phillip Rueppel, an analyst with Sanford C. Bernstein & Co., a New York-based investment firm. “In 1993 they’ll keep going one step further and attempt to make the difficult decisions of what to keep, spin off, fold in, sell.”

If business units such as Personal Systems are given more freedom, “you will see a very energized employee dealing with them across the table,” said Dan Wilkie, a former executive with IBM’s Entry Systems Division, which designed the IBM PC. “In the long term, they’ll see a much more responsive team. They’ll get aggressive as hell,” said Wilkie, now president of Solbourne Computers Inc., a Longmont, Colo., maker of SPARC-compatible workstations and servers.

Earlier this fall, IBM showed some of that aggressiveness with a slew of new hardware technology, including its own 386SX chip, a 5-pound pen-based tablet, a color laptop computer, multimedia products and a sweeping joint-development agreement with Intel Corp.

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