There’s a great “Seinfeld” scene in which George, after fretting that he has become impotent, rediscovers his manhood and shouts, for all the world to hear, “I’m back, baby!”
That pretty well describes IBM these days.
Given up for dead by many people just five years ago, Big Blue has enjoyed under Lou Gerstner one of the great turnarounds in the annals of U.S. business. With record sales and profits in 1997 and a stock price that’s shot through the roof, the Armonk, N.Y., company has regained its title as king of the computing world.
Look anywhere in the industry and you’ll find IBM’s footprints. Eight out of 10 mainframe computers sold carry the company’s logo, and an IBM AS/400, the most popular commercial business computer in the world, is delivered to a new customer every 12 minutes of every working day.
IBM is among the leading makers of personal computers. It’s one of the top manufacturers of hard disk drives. And it makes microprocessors both for itself and other computer-makers.
It also is one of the top software companies in the world: Nearly three-fourths of all the corporate data in the world is managed by IBM’s software, on IBM computers.
As if that weren’t enough, IBM is among the leading makers of supercomputers–its Deep Blue system routed world chess champion Garry Kasparov without breaking a sweat.
And, finally, the company routinely leads the United States in patents, which come out of eight research laboratories. IBM scientists recently have developed a hard disk drive capable of holding 25 gigabytes of information, and have found a way to replace aluminum in computer chips with copper, which conducts electricity 40 percent better.
What has really enabled IBM to prosper, however, is its ability to help businesses develop, implement and maintain computer systems for the Internet age, including networks, intranets and electronic commerce Web sites. IBM goes in and provides the equipment–both its own and other companies’–and then services the system. Such services now account for 25 percent of IBM’s sales
“The kind of detail and deliverables they can get into are astounding,” said analyst Daniel Kunstler of J.P. Morgan. “A lot of companies can talk about creating a seamless global network, but this is complicated stuff, and they can deliver it.”
Bolstered by its “solutions for a small planet” TV ads, IBM has projected itself as the company others turn to for their technology needs. It has been far more successful in promoting that image than has Hewlett-Packard, its nearest competitor.
“IBM has the largest service organization on the planet. H-P’s not even close,” said James Poyner, an analyst with CIBC Oppenheimer. “IBM has focused on pulling its various entities together to provide a total bundle, and H-P is just now pondering these issues.”
Compaq, by acquiring Tandem and Digital Equipment, also signaled its desire to be like IBM, but has a lot of catching up to do.
The heady confidence in Armonk these days contrasts sharply with five years ago, when IBM, an icon of American business since the 1920s, was on the ropes after losing money for three straight years–including $8.1 billion in 1993 alone.
IBM found itself caught in a shift away from mainframe computers to client-server systems that could be run with smaller, less-expensive computers.
At the same time, IBM’s PC business was in turmoil. After pioneering PCs in the early 1980s, the company had watched helplessly as a horde of IBM clones overwhelmed the market.
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IBM also was having trouble in the PC software business, where its OS/2 operating system was in the process of being overwhelmed by Microsoft Windows.
By 1993, it was clear that the company was on the ropes, despite restructurings that had cut the workforce from 400,000 to 300,000. In April of that year, the board sent Chief Executive John Akers packing, replacing him with Gerstner, who had been CEO of RJR Nabisco, the big food conglomerate.
Gerstner started out with two strikes against him. He was the first outsider ever to head up IBM, and he knew zip about technology.
In retrospect, however, both of those apparent drawbacks were actually strengths. Gerstner wasn’t burdened by the traditional blue-suit mentality that had paralyzed the company. And he cared much more about selling products than what went inside them.
Asked about his grand vision for IBM, Gerstner said he didn’t have any. What he wanted to do was play to the company’s strengths, using its vast resources and global presence to forge a product-services company second to none.
To achieve that goal, Gerstner lopped off another 35,000 jobs and began to cut back on research spending. At the same time, he made it plain that pure research would take second place to research that led directly to products.
He also retooled the PC division, reducing a confusing product line to a manageable number of models and doing a better job of managing the retail channel.
At the same time, Gerstner, despite being a technological neophyte, recognized early on that IBM could use the Internet as a vehicle for its global business.