Big Blues: a book review (of sorts)

My nonfiction book from the most recent library trip was Big Blues: The Unmaking of IBM, by Paul Carroll (New York: Crown, 1993, ISBN 0-517-59197-9).

Partway through reading it, I posted something mildly snarky on Friendfeed about enjoying this sort of book now and then: the “doomed business” book for a business that later turned out to be not quite so doomed as all that. (I read a similar book about Apple, written during the period when it was most plausible to suggest that Apple was a goner.)

I’ve finished it now. This isn’t really a review, but a few comments on this book–and, I think, the problems with this sort of book in general.

Not a bad book

It’s not a bad book. In some ways, it’s a good book, although I would have expected Crown to do a better job of editing–a few items are repeated to the point of annoyance (e.g., the overhead projectors built into rosewood desks). On the other hand, the book was clearly done in somewhat of a hurry: it appeared in 1993 and covers events through April 1993.

Carroll covered IBM for the Wall Street Journal for seven years. That gave him a wealth of contacts. IBM didn’t cooperate on the book (company policy), but he quotes lots of people by name and a few anonymously.

I think the first sentence in the previous paragraph may also point up a possible flaw in the book: To some extent, if you’re covering one company for quite a long period, it’s hard not to become a homer–hard not to start seeing things from the company’s perspective.

Thus, it strikes me that Carroll hammers pretty hard on the notion that Intel and Microsoft were pretty much nothing companies made into giants because IBM didn’t maintain enough control over them. He seems to take it personally that, by 1993, both companies were showing profits of one or two $billion…while IBM took an $8 billion loss in 1993.

The perils of prediction

The biggest problem with the book is that Carroll seemed to think he could predict the future, at least enough to tag IBM post-1993 as a relatively minor company. He also seems not to have regarded the new CEO (Lou Gerstner, an “outsider”) as having much chance of turning things around in any major way.

In 1993, almost certainly IBM”s worst year, it lost $8 billion. It went from over 400,000 employees in 1985 to 225,000 in 1995–although it had started to regain revenues at that point, up to around $72 billion gross.

Here’s the thing: In 2013, IBM had just about $100 billion gross revenue and $16.4 billion profit–and 431,000 employees.

Fact is, Gerstner and his successors did turn IBM around. They got rid of commodity divisions, things where they never could turn a big profit. Mainframes–seemingly irrelevant by 1993, as I read Carroll–never really went away. And IBM put together a package of higher-value services and products that seem to have served it in good stead.

Not that Intel and Microsoft have done too badly either. I keep hearing how Microsoft is irrelevant and doomed, but in 2013 it had roughly $78 billion in gross sales (about 3/4 of IBM) and $21.9 billion in profits (about 4/3 of IBM!), with around 127,000 employees. Intel’s a smaller company, with $52.7 billion in gross sales in 2013 and $9.6 billion in profit (with 107,000 employees), but it’s not exactly in its last throes either.

The final chapter makes much of the devastation caused by IBM’s drop in stock prices and by firing people. I can’t speak to the latter, but the former is interesting. To wit, looking at stock prices for late July, adjusted for splits:

  • In 1980, IBM was at 16
  • In 1985, it was at 33
  • In 1990, it had declined to 28
  • In 1993–at bottom–it was down to 11
  • By 1994, it was already back to around 16
  • By 1995, it was back to nearly 28: in other words, people who held IBM stock in 1990 and didn’t give up on it were whole.
  • In 2000, it was roughly 112
  • In 2005, it was down to roughly 84
  • In 2010, it was up to 128
  • In 2013, it was up to 197

If you bought IBM in 1985 and sold in 1993, you got shafted.

If you bought IBM in 1985 and hung on to it until 2000, you did pretty well…

General lesson?

I’m not sure there is one, other than “prediction is hard.”

As I remember, one key element of the Apple book’s negativity was that it seemed clear that Apple would never gain a substantial share of the PC market. That turned out to be right: Apple doesn’t have a substantial share of the PC market. But it does have some other little products that seem to be doing OK–OK enough so it had $170.9 billion in gross revenue and $37 billion in profits in 2013, with 80,000 employees. Just as IBM is no longer primarily a mainframe computer company, Apple isn’t primarily a personal computer company.

Times change. So do companies–even big, old, apparently-sclerotic ones like IBM.

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