Gerstner Pushes Ibm To Efficiency, Accountability After Two Years Under Direction Of Chief Executive Officer, Big Blue Is Showing Signs Of Adaptability

When an engineer in 1993 came up with the quirky split keyboard that would allow full-size keys on a smaller laptop computer, the company jumped to use it.

In 1989, the engineer who invented the joystick cursor control for laptops spent months trying to get IBM’s PC division to notice. He finally put out a press release on the innovation, leaving reporters to ask IBM executives when they were going to use it. They did, but three years later, in 1992.

Both ideas made IBM’s laptop computers stand out among the competition.

The difference these days in getting new products to market typifies the change of attitudes that Louis Gerstner Jr. has tried to instill in the world’s largest computer company since becoming chairman and chief executive officer two years ago.

Gerstner, who will preside over his third IBM shareholders’ meeting Tuesday, was not directly involved in either development, as an example of the company’s progress. The keyboard, known as Butterfly, was developed in conjunction with and is being produced by Spokane-based Key Tronic Corp.

“We’ve put an emphasis on making decisions,” Gerstner said. “We’ve removed many of the obstacles. We’ve made it unfashionable to do some of the things that slowed down decisionmaking.”

In addition, he said the company has changed some of its compensation practices to rely more heavily on stock options, giving executives more connection to shareholders.

Such moves will extend all the way to the company’s board of directors. A board-backed proposal at the annual meeting in Charlotte, N.C. would require half the annual compensation for a director to be made in IBM stock.

Reforms like these are why Gerstner was the first outsider hired to lead IBM.

The company was struggling to realign its products and structure with demand that began to shift in the 1980s, a time when it was comfortably rolling in profits. It was also trying to cope with the technology industry’s first major drop in growth, a trend tied to the 1990 economic slowdown.

The company cut 150,000 jobs since 1990, the last 45,000 under Gerstner, and resorted to layoffs for a few thousand, for the first time in IBM history.

Since late 1993, the company’s profitability gradually improved because of the cuts. And last week, IBM reported earning $1.29 billion in the first three months of the year, a first-quarter record, and the first in years to be tied to growth rather than cost reduction.

The performance sent IBM’s stock to its highest level since the summer of 1992. It closed at $93.50 Monday, compared with $43 two years ago.

In another sign the company is on the right track, financial analysts who quizzed IBM top executives spent more time discussing the economy than product strategy.

“The thing I’d look for now are concerns in more of a general economic sphere,” said Bob Djurdjevic, president of Annex Research, a consulting firm in Phoenix.

IBM’s chief financial officer Jerome York said the company is watchful for signs of an economic slowdown but hasn’t seen a slackening yet in its business.

IBM does two-thirds of its business outside the United States and a small part of the boost in its first-quarter results was because the dollar declined so sharply against the Japanese yen and German mark during the period.

While the latest currency fluctuations helped IBM, they trouble the company because they erode the confidence of businesses and consumers, which may cause them to put off purchases of new technology, Gerstner said during an interview at his office last week.

“What worries me is that the instability gets beyond the point of simply being a short-term event,” he said. “We have many of those every year. We have to live with those. Hopefully these are individual events and not a fundamental deterioration of the stability of currencies in the world.”

Gerstner, who just returned from Asia to visit customers and IBM operations, said he believes the company is doing a better job satisfying customers.

“They like the change they see in IBM but they’ve got an unfinished agenda with us,” he said, noting too many technology products have proprietary qualities that make them hard to operate with things created by other companies.