IBM's biggest challenge is to regain industry leadership - that means the emerging market for distributed computing - Editorial

IBM's next CEO has at least one really big decision to make. In articulating a new corporate vision for IBM the options seem clear: a vision based on better management of IBM's traditional businesses, or one that realigns the entire organization around a new principle -- distributed computing leadership.

Proponents of the first option see a bunch of loosely knit and moderately profitable companies managed by the principles appropriate to each distinct business model. This is a wise strategy for increasing the effectiveness of many of those individual business units. But not for the IBM Corporation.

Despite a great deal of industry conjecture, this "federation of companies" scenario is highly unlikely. Under it IBM would pay much higher taxes. And it would require massive worldwide reorganization to comply with different international laws restricting ownership of the new companies.

The second option is much more in line with IBM's traditional values. Yet it relies on technologies and expertise that stretch the company's current strategies. IBM's long-term mantra should be "distributed computing leadership."

Like every computer company, IBM faces a host of technological and marketing challenges if it is to remain competitive. But unlike some of its competitors, IBM's most daunting challenge is to reconstruct its financial management strategy -- not just its businesses -- around the new cost-of-computing dynamics of the smaller systems it will be selling more of in the future. IBM knows that selling mainframes is no longer a luxury.

In fact, it knew that a long time ago. It just wasn't sure when PCs would become powerful enough and inexpensive enough to render mainframe price/performance completely noncompetitive. That happened last year. Customers are no longer willing or able to justify mainframe MIPS that cost up to 1,000 times the price of PC MIPS.

Even as IBM toed the waters with what is now an almost $10 billion PC business, it continued to avoid recognizing that imminent fact. It continued its mainframe binge. The sweet nectar of 40% gross margins was too tempting. Having tasted them during the '60s and '70s, the company could not discipline itself to go back in the '80s. It could not convince enough of itself that the party was almost over.

Has IBM sold its large-systems customers a bill of goods? No. Could it have been more honest? Sure. But much of IBM really believed in the mainframe. The company has only recently looked at distributed computing as more than a passing fad. It has only recently begun to admit it was wrong. Acknowledging the problem is the first step. Progress from that point is measured in neither good intentions nor promises but sustained action.

Either of the two plans will require sacrifices. Some IBMers may desire only the federation-of-companies approach, because it seems to promise decent results with a minimal amount of pain. They might feel that the other approach by comparison will ask too much of them. Inertia is on the side of the less ambitious plan.

But the time is now for IBM to embrace a new charter. It is like a hungover reveler. Giddy from years of 40% margins, it became soft and vulnerable. Now, it has seen the errors of its ways. It knows it must change.

IBM has the germ of a very good plan. The message could be still clearer and stronger that it has truly changed. Organizing IBM around the guiding principle of dominating the distributed computing business, not just making the big old company more efficient, is precisely the strategy and message needed.

COPYRIGHT 1993 International Data Corporation
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