Can This Elephant Dance?

Only three years ago IBM's bigness was its strength, enabling the company to dominate the computer industry so thoroughly that its competitors cried out for antitrust relief. No more. Today Big Blue's bulk has become a colossal burden. While the rest of the computer industry has emerged from an overall slump and surged forward with robust sales increases, IBM has plodded along (1987 revenues: $54.2 billion, up just 8% in a two-year period). IBM has tried to become lighter on its feet by cutting staff, modernizing factories and streamlining its process for getting new products to market. But results ! have been slow in coming. Last year's profits of $5.3 billion were 20% below the 1985 level.

For years, many insiders have blamed headquarters. And in fact Big Blue's corporate staff in Armonk, N.Y., was keeping a tight, often stifling lock on decision-making authority. But suddenly IBM is trying to loosen its collar. Last week Chairman John Akers announced a historic restructuring in which the company's top management will transfer much of its decision-making authority to five newly created groups that will act almost like separate companies. "This is a major decentralization," said Akers. "The benefit will be that our management team will spend less time at corporate headquarters and more time with customers." The shake-up, which Akers called "my idea," squelched suspicions that the 53-year-old chairman's authority might be eroding along with IBM's profits. Says Steven Milunovich, who follows the computer industry for the First Boston investment firm: "Akers wants to teach this elephant how to dance, and he was growing impatient with its progress."

While IBM still carries heavy clout in the market for large mainframe computers, the company is getting bullied in two important product categories: personal and midsize machines. With its PCs holding sway as the industry's standard for business applications, IBM once commanded nearly 40% of the $25 billion personal-computer market. Today, IBM's share has shrunk to less than 30% as its recent models have suffered assaults from competing formats like Apple's versatile Macintosh. IBM's newest line of personal computers, the Personal System/2, got off to an initially promising start after its introduction last April, selling 1 million units within seven months. But IBM fears a repeat of the past when it was tripped up by nimble copycat companies that produced lower-cost knockoffs of its first line of PCs.

IBM has endured similar indignities in the booming market for midsize data- processing computers, the $15,000-to-$200,000 machines used by Big Business and Government. While IBM is still the biggest in the $18 billion market, with a 17% share, Massachusetts-based Digital Equipment (fiscal 1987 revenues: $9.4 billion) has moved up swiftly with its VAX model by selling machines twice as fast as IBM's at about half the cost. Hoping to retaliate, IBM developed a minimainframe computer, the file cabinet-size 9370, which was dubbed the "VAX killer," a rare signal of Big Blue's anxiety about a smaller competitor. But IBM's new machine has lacked sufficient software to be fully competitive against the now entrenched VAX. IBM sold fewer than 5,000 of its VAX killers last year, far from a knock-'em-dead performance.