International Business Machines Corp. is altering its corporate structure significantly to cope with increasing competition and the changing nature of the data - processing market, say industry observers.
The nation's seventh largest corporation is expected to make an announcement today on some aspect of its future reorganization plans.
Despite record third-quarter earnings and even brighter prospects for 1979, IBM faces potential difficultures unless it makes certain marketing changes that almost certainly will be reflected by an evolvingg corporate structure.
In July, IBM announced that it would conduct a study that "focuses on whether giving greater self-sufficiency to business units" would enhance IBM's market position. The study is being conducted by a "cross-functional team which reports to IBM's corporate office" - presumably, regularly and directly to IBM Chairman Frank T. Cary.
One change being studied is the establishment of the general business group, which houses the office products dividion, a whollyowned worldwide subsidiary of IBM.
In August, IBM reorganized its systems products dividion into two new divisions, promptong one IBM watcher to remark, "They're beginning to draw the dotted lines."
One ramification of these demarcations is the increase in internal competition among the various divisions at IBM. "Internal competition is greater than ever before," comments Ted Withinton, a senior staff member of Arthur d. Little Inc. in Cambridge, Mass.
Washington points out that internsified internal competition will prevent complacency and enable IBM to maintain or increase its competitive edge in the data-processing marketplace.
This is how IBM tries to prevent a hardening of the arteries," says market analyst Stephen McClellan of Solomon Bros. in New York.
One reason IBM is critically concerned with maintaining its dominance of the market is the specter of a revenue gap. Ideally, IBM preefers to maintain a 12 percent to 14 percent annual growth rate, but improvement in semiconductor technology have caused hardware prices to drop, and IBM does not expect to makeup in sales what it has lost in prices. Thus, unless IBM shifts from its emphasis on hardware, it may be unable to achieve the "per annum" growth rate it desires.
Moreover, the market for computers and other data-processing equipment has unfolded and expanded, and computers now are working in new areas. With this migration has come an increased demand for services in the software realm: systems engineering, software engineering, custom-designed computer programs, etc.
In 1975, IBM, as part of a court settlement with Control Data Corp., agreed not to engage in the services business in the U.S. in any way services business in the U.S. in any way beyond required customer service until 1979. Many analysts, including Ulric Well of Morgan Stanley, expect IBM to re-enter the services business in some fashion when the agreement expries.
Also, in recent years, IBM has increased emphasis on the services aspect of data processing. "IBM is shifting from the hardware end to the softwave end," says Barry Tarasoff of Wainwright Securities.
Analysts speculate that emphasizing services will enable IBM to bridge the revenue gap.
Tarasoff points out that "value added" hardware, hardware with sortware provided, also will enhance the marketability of IBM's products. However, Tarasoff feels that the price structure will prove more important than the corrorate structure.
Yet Charles Lecht of Advanced Computer Techniques in New York disagrees. He feels that IBM will retrofit the corporate structure - as ATIT is doing - to maximize and emphasize the services side of marketing to complement the hardware production.
Lecht envisions that IBM will evolve into a holding company with several wholly owned subsidiaries.
"The break-up will occur as a supernova - with fragments of IBM all over the country like GM and LTV, "asserts Lecht.
McClellan of Soloman Bros. Sees this as "a possible alternative for IBM." But an IBM spokesman denies that IBM has any such plans. Lecht retorts that, whether by evolution or revolution, IBM will become at least a "defacto" monopoly.
But there is a general consensus that IBM's ultimate corporate structure could be substantially different from the present one.
Says Withington of Arthur D. Little, "There will be a decentralization of authority and responsibility at IBM to permit greater flexibility and speed into the market."