Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, March 27, 1993 TAG: 9303270148
SECTION: BUSINESS PAGE: A-4 EDITION: METRO
SOURCE: The Washington Post
DATELINE: LENGTH: Medium
IBM on Friday named Gerstner, chairman of RJR Holdings Corp., its new chief executive officer, ending a difficult search that began in January with the surprise resignation announcement of John F. Akers.
The problems will be stacked deep in Akers' Armonk, N.Y., office when Gerstner moves in. Massive though its recent losses and staff cuts have been, the pain is far from over for IBM, according to industry experts such as Howard Anderson, managing director of the Yankee Group, a Boston-based research organization.
Gerstner's task will be nothing less than reinventing IBM, analysts say. A company that grew fat and profitable with one technology - the mainframe computer - must now adapt to the new world of small computers that store the same data as the old behemoths at a fraction of the cost. One Harvard Business School professor likens the company's plight to that of managers in the steam-engine business when the gasoline engine took over.
What will make the new IBM chairman's job especially hard, analysts say, is that he probably will have to fire many thousands of loyal IBM employees if he is to bring the company's cost structure in line with its likely future revenues.
Gerstner, 50, a precocious management consultant who jumped into the presidency of American Express Co. and then the top job at RJR, must find people to help him re-create IBM.
IBM is still, first and foremost, a hardware manufacturing company that has become trapped in a world looking for service and problem-solving, not just machines, said Robert Djurdjevic, president of Annex Research Group in Phoenix. "It will have to turn itself into a service company, dozens of companies, serving banking, insurance, airlines . . . " he said.
It is the sort of big reach that Gerstner has been taking for a long time, colleagues said.
Born in a comfortable Long Island suburb, Gerstner went to Dartmouth College, then to the Harvard Business School, the perfect launching pad for a career with the big league consulting firm McKinsey & Co.
Smart, articulate, mature beyond his years, friends say, he rose rapidly, advising clients who were almost twice his age, such as the managers trying to unscramble the Penn Central bankruptcy in the mid-1960s.
Most of all, he was completely self-confident, said Robert Schmitz, a partner of Trust Co. of the West, who worked with Gerstner at McKinsey.
"I'd imagine Lou would say this is a unique opportunity, a capstone of a business career, if he could take this important institution and make it into a very successful company once again," said Linda Fayne Levinson, an executive with Creative Artists Agency Inc., the leading Hollywood talent agency.
Levinson, who worked with Gerstner at McKinsey and American Express, added, "He's definitely attracted to tough problems, and as long as I've known him, very skilled at dealing with them."
However, his performance at RJR Nabisco has drawn mixed reviews.
"He has been fair to poor on the operational performance," said one Wall Street analyst who asked not to be identified. "He has been trying for three years to improve the operating profitability of the domestic tobacco business" - the Winston and Salem brands - "and he has not," the analyst said.
Some observers, including IBM employees, think the company can't turn around without a computer expert at the helm. Others say Gerstner's outside status is just what tradition-bound, bureaucracy-thick IBM needs.
Gerstner is expected to hire more outsiders. But he was quick to praised IBM's talent pool; and a key task will be to shore up morale among workers afraid for their jobs, some of whom quickly dubbed their new boss "The Cookie Monster."
"People are concerned that he's from outside the computer industry and wondering whether he's going to rely on some of the same people who have already led us onto the unemployment line," said Lee Conrad, who writes an employee newsletter and is a 20-year IBM assembly worker in Endicott.
The Associated Press contributed to this story.
by CNB