York's History, Thoman is In! (Sep 1995)

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PHOENIX, June 14, 2004 (08:15 PDT) - The tough-talking, but not so quick on delivery[1], IBM CFO, Jerry York, resigned from the company today to join Kirk Kerkorian, a wealthy Las Vegas-based investor who has been trying to take over Chrysler. Two years and four months ago, York was hired away from Chrysler by the IBM chairman, Lou Gerstner, after he (York) had lost his bid for the top Chrysler job, despite Lee Iacocca’s backing, to Robert Eaton. York is being replaced by Rick Thoman, IBM’s PC business head, and a long-time Gerstner associate.

From our vantage point, this should be the day the IBM stock goes up! That’s because thoughtfulness and empowering have replaced bullying and centralizing at Armonk’s top financial post.

Instead, IBM went down in early trading following this disclosure, even though the Dow was up over 20 points. Which just goes to show us the difference between perceptions and knowledge. And that Wall Street trades only on perceptions.

You see, York left behind a legacy of a tough executive, who has been credited by Wall Street with masterminding the IBM restructuring efforts. But those who worked with York inside IBM know better. “He won’t be missed much around here, I can tell you that,” said a senior IBM executive about the news this morning. “He wasn’t a people person.”

But York was lucky. Which is sometimes more important than being a “people person.” He was a large wrecking ball at a time when wrecking jobs were in demand at IBM. But it would be false to assume that he engineered the project, or even made it possible, the insiders say. He happened to be the right type of person at the right time at the right place. He untied the knot and let go with the wrecking ball.

But it was the IBM chairman (Gerstner) who gave the nod. “We had all this stuff (the cost cut-backs) figured out even when Akers was still around,” said a long-time IBM insider. “It’s just that Akers didn’t have the guts to do it. Gerstner did.”

Of course, he could better afford to do it. After all, it wasn’t the Gerstner legacy the IBM CEO had asked York to wreck.

Thoman: For a Better Tomorrow?

What sort of a difference can we expect from Thoman as IBM’s CFO?

First, Thoman has a more rounded business background. His international management experience is impressive. This will prove invaluable in a company like IBM, which derives more than 62% of its revenue from non-U.S. markets. Thoman even speaks French fluently and is a good listener (which would be a rare combination even in France J).

He is also a quick study, as his re-engineering of IBM’s troubled PC Company has proven.

But York had publicly criticized the IBM PC Company performance with such a vigor, that some media were beginning to wonder how long Thoman would last in that job. We thought that it was the wrong question to ask (see ANNEX BULLETIN 95-23, 3/23/95). Today’s announcement has shown why.

In summary, York was the right sort of a CFO when something had to be shrunk. But Thoman seems like a better choice when the challenge is building a company back up again. Sooner or later, Wall Street will get it, too. But with its track record, chances are it won’t be sooner.

Happy Bargain Hunting!

Bob Dj.

P.S. Late-Breaking News

(12:08 PDT)

Bob Stephenson, the top IBM North America sales and marketing executive, will replace Thoman as the head of the IBM PC Company. Stephenson is a no-nonsense hard-driving executive who will undoubtedly make the most out of the PC business, as he had done in his previous tough assignments (e.g., in Asia/Pacific when Japan’s economy started to sputter).

But we hope that one of the questions someone at IBM (maybe Stephenson?), would ask is if the company should be in the PC manufacturing business in the first place? We have been asking it ever since the “red ink” started to flow. Which was even before the PC Company was formed in September 1992 (see ANNEX BULLETIN 92-44, 8/28/92). And again when Jim Cannavino was in charge in March 1993 (see ANNEX BULLETIN 93-26, 5/01/93).

Our basic premise was that, if the PCs are going to become as common as the telephones in every home, as some IBM executives (correctly) expect, who is to say that the Big Blue, the high-margin “long distance service” business, has to necessarily manufacture the low-margin sets? Even AT&T was happy to see that part of its empire broken up into the RBOCs, while it retained and prospered from the long distance business.

Not Learning from History

(from ANNEX BULLETIN 95-36, 4/27/95)

Also Out?

IBM Financial Police[2]

...Some people don’t seem to learn from history. They say about the French generals, “they forget nothing, and they learn nothing.” But there are no French anymore among the top echelons at Armonk. Yet one wonders...

Until recently, we thought that the “leadership-by bullying” management style at IBM was dead and buried... Perhaps emboldened by IBM’s return to profitability, and seeing the stock in the 90s, even the “bean counters” seem to feel they should be wielding “two-by-fours” of their own.

Last January, this writer, speaking as a customer of one of his services to Jerry York, IBM’s CFO, complained that some of York’s people weren’t doing a good job. When York took no action, in late March, we wrote to him, saying, among other things:

“...if you can rationalize the inconsistent treatment of the above two IBM constituencies, please do. But I am sure you realize that that’s a trick question. Even if you do manage to do it, you’d only be confirming that the old IBM culture is still strong at Armonk, and that you’ve become a part of it. The former IBM leaders have always managed to rationalize absolutely everything. They just never seemed able to do the right thing.”

Well, York didn’t, either. The letter seemed to set him off into a rage. In a reply which read like the vintage old IBM arrogance, he did rationalize the Armonk bureaucrats’ petty little rules, and bristled at this customer(!) for having the nerve to lecture him.

“Way to win the hearts and minds of customers/consultants, Sir, Gen. York, Sir!” we wrote. r

A Kiss of Death

(from ANNEX BULLETIN 95-38, 4/20/95)

During a January 23 financial analyst briefing in New York, IBM’s CFO, Jerry York, perhaps unwittingly paid a tribute to his chief PC rival - the Houston-based Compaq. The IBM PC Company, York said, still had “a fair way to go to (before reaching) a good performance, namely (that of) Compaq’s.” But York’s compliment may have been a “kiss of death.” It reminded us of the old IBM (and the old Compaq) way of “forecasting by hindsight, not foresight.” For, the IBM CFO’s role model was rapidly losing ground to nimbler rivals just as York was praising it. r

Why Grow Share in Low Margin Business?

(from ANNEX BULLETIN 95-32, 4/20/95)

York danced on a key question by an analyst who wondered (as we did in 1992) - why it was necessarily a good idea for IBM to try to grow the share of a low-margin business? (i.e., the PC Co.).

Or that of the OEM, if we may add to it?

Perhaps unwittingly, York did a typical George Conrades-type “two-step side-step” from the 1980s - appearing to answer the question in a humorous way, without addressing its core. Basically, the IBM CFO said that company ought to be in the PC business “because it’s there, and it’s big” (paraphrasing his comment).

Now, if York were New Zealand’s Edmund Hillary, and Mount Everest were the PC business, some people may applaud the man’s courage and determination. But York is no Sir Hillary. And IBM’s PC business is certainly no prize achievement, such as climbing the world’s highest mountain peak. It’s a high-profile, but low-margin, money-losing operation.

Even the much-maligned former IBM chairman (Akers) said at an analyst meeting in San Jose, in June 1986, that if the PCs ever became a commodity, IBM would exit the market (see ANNEX BULLETIN 86-29, 7/07/86).

York’s handling of this question was one of the disappointments in today’s otherwise “gala blue chip” Big Blue event. Is there a chance that maybe even this “new and improved IBM” hasn’t quite yet come to grips with the reality of its business? r

Some York One-liners

(from ANNEX BULLETIN 95-36, 4/27/95)

On PC Business:

“This is not the rocket science business of computing... This is successful marketing and managing to build enough boxes.”

January 23, 1995

“We’re micromanaging this business right now to get it up and running.

April 20, 1995

On Future Acquisitions:

“There is no King-Kong acquisition on the horizon at the moment.”

April 20, 1995

(Some six weeks later, IBM bought Lotus for about $3.5 billion in the biggest-ever acquisition for IBM and the software industry).

On Mainframe Outlook:

In 1993, the mainframe business was at about 50% of the 1991 revenue; in 1994 it will be down another 50%.

January 25, 1994

(The actual decline was about 3%).

York again sounded bearish about the IBM mainframe business, forecasting another revenue decline of about 15% for 1995.

January 23, 1995

(The business is up so far this year. Our forecast for all of 1995 is for about a 3% growth - as it was, by the way, in December 1994 - see ANNEX BULLETIN 94-55, 12/06/94).

On Worth of Analysts

“You’ve probably forgotten more than I’ve learned” (about the IT industry), York said to this writer.

February, 1995

We wish York all the best in his new endeavor, as did Lou Gerstner!

This was Bob Stephenson’s first conference of this kind (in Orlando, FL). It didn’t look like it. Except that perhaps he could have cracked a smile on stage once in a while. But then, George Burns never smiled, either. He left the laughter to the audience. So, there is hope...

Also, during a breakfast with a relatively small group of consultants, Stephenson seemed more relaxed and showed a good sense of humor.

For example, he said that he saw the client executives’ new roles in an IBM organized by industry similar to that of orchestra directors. “They’ll call in the violins, or the brass instruments, as needed” (from the IBM industry units).

“This (the new industry organization) is a counter-culture to IBM,” he explained. “The IBM people (of the old) always liked to own things. Yet (the fact is that) we don’t own anything...”

He also said, tongue-in-cheek, that IBM was responsible for the growth of the customers’ accounts payable departments. “Immigration service is sometimes mild compared to the rules that the IBM bureaucracy imposes,” he said. Vowing to make it easier to do business with IBM, he added that, “we are exposing too much of our internal plumbing to customers.”

Later on, in the “main tent,” Stephenson showed a video which illustrated the bonding which goes on in the new, customer and industry-driven IBM. One IBM rep in Kentucky, for example, even spent a week working at a KFC restaurant serving chicken meals so as to better appreciate his customer’s business.

The new IBM top North American executive also described the new IBM in a nutshell: “We build globally and support locally.” To that end, “everything that supports the client executive must be as good as they are.”