Unsubstantiated rumor : IBM to lay off 150,000

[w¡n9Nµ7 §£@¥€r 123]

Last year I wrote a series of columns on management problems at IBM Global Services, explaining how the executive ranks from CEO Sam Palmisano on down were losing touch with reality, bidding contracts too low to make a profit then mismanaging them in an attempt to make a profit anyway, often to the detriment of IBM customers. Those columns and the reaction they created within the ranks at IBM showed just how bad things had become.

Well they just got worse.

This is according to my many friends at Big Blue, who believe they are about to undergo the biggest restructuring of IBM since the Gerstner days, only this time for all the wrong reasons.

The IBM project I am writing about is called LEAN and the first manifestation of LEAN was this week's 1,300 layoffs at Global Services, which generated almost no press. Thirteen hundred layoffs from a company with more than 350,000 workers is nothing, so the yawning press reaction is not unexpected. But this week's "job action," as they refer to it inside IBM management, was as much as anything a rehearsal for what I understand are another 100,000+ layoffs to follow, each dribbled out until some reporter (that would be me) notices the growing trend, then dumped en masse when the jig is up, but no later than the end of this year.

LEAN began last week with a 10-city planning meeting for Global Services, which wasn't, by the way, to decide who gets the boot: those decisions were apparently made weeks ago, though senior managers have been under orders to keep the news from their affected employees.

If you work at IBM Global Services, ask your boss outright if you are on the list to be fired. It puts the boss in a bind, sure, but might lead to a sort of "Alice's Restaurant" effect in which hypocrisy is confronted and exposed.

LEAN is about offshoring and outsourcing at a rate never seen before at IBM. For two years Big Blue has been ramping up its operations in India and China with what I have been told is the ultimate goal of laying off at least one American worker for every overseas hire. The BIG PLAN is to continue until at least half of Global Services, or about 150,000 workers, have been cut from the U.S. division. Last week's LEAN meetings were quite specifically to find and identify common and repetitive work now being done that could be automated or moved offshore, and to find work Global Services is doing that it should not be doing at all. This latter part is with the idea that once extraneous work is eliminated, it will be easier to move the rest offshore.

All this is supposed to happen by the end of 2007, by the way, at which point IBM will also freeze its U.S. pension plan.

The point of this has nothing to do with the work itself and everything to do with the price of IBM shares. Remove at least 100,000 heads, eliminate the long-term drag of a defined-benefit pension plan, and the price of IBM shares will soar. This is exactly the kind of story Wall Street loves to hear. Palmisano and his lieutenants will retire rich. And not long after that IBM's business will crash for reasons I explain below.

I am told there is a broad expectation at all levels of IBM familiar with the LEAN plan that it will cause huge problems for the company. Even the executives who support this campaign most strongly expect it to go down poorly with employees and customers, alike. But in the end they don't care, which shows that only the reaction of Wall Street matters anymore.

So we can expect round after round of layoffs, muted a bit -- as they were back in the Gerstner days -- by some of those same people being hired back as consultants at 75 percent of their former pay (50 percent of their former cost to the company since they won't be getting benefits). Throw in some overtime and it won't look bad on paper for the people, but it is also very temporary.

Taking a pure business school approach to this news, it probably doesn't look so bad for IBM. What's wrong with a multinational corporation moving work to its own overseas divisions? Squint hard enough and it can even look like good management. Global Services IS overweight and inefficient. Something has to be done and the company has already considered (and apparently rejected) a range of options, right up to putting Global Services on the auction block.

The problem with LEAN is that offshoring on this scale creates huge communications and logistical problems, doesn't generally improve customer relations, and won't save money for years without the parallel gutting of the pension plan.

And it is just plain mean.

This is a policy based on perception. Streamlining and downsizing look good to customers unless it is their project that is being chopped, because implicit in LEAN is that Global Services will be eliminating not just employees but customers, too -- customers whose contracts were underbid and whose projects may never be profitable for IBM. Maybe such axing of customers is necessary, probably it is inevitable, but it hardly has a ring of corporate honesty. Customers to be dropped haven't yet been notified, either.

It is especially disconcerting for an action of this scale to take place at a time when many companies (including IBM) are complaining about a shortage of technical workers to justify a proposed expansion of H1B and other guest worker visa programs. What's wrong with all those U.S. IBM engineers that they can't fill the local technical labor demand? They can't be ALL bad: after all, they were hired by IBM in the first place and retained for years.

What is unstated in this H1B aspect of the story is not that technical workers are unavailable but that CHEAP technical workers are unavailable. Lopping off half the technical staff, as Global Services is apparently about to do, will eliminate much of the company's traditional wisdom and corporate memory in an act that some people might label as age discrimination.

The worst part of all is that nobody at IBM I have talked to thinks this can or will help the business. It will probably just speed up the death spiral.

http://www.pbs.org/cringely/pulpit/2007/pu...504_002027.html

[Mr. Big Dog 10,747]

What is unstated in this H1B aspect of the story is not that technical workers are unavailable but that CHEAP technical workers are unavailable. Lopping off half the technical staff, as Global Services is apparently about to do, will eliminate much of the company's traditional wisdom and corporate memory in an act that some people might label as age discrimination.

The worst part of all is that nobody at IBM I have talked to thinks this can or will help the business. It will probably just speed up the death spiral.

One would hope that such undertaking will take a giant like IBM under. It's going to take a huge failure like this to have the folks that are busy looting America's economy wake up to reality.

[w¡n9Nµ7 §£@¥€r 123]

ET,

What if they do it and it works?

That is a much scarier thought than them going under.

[Mr. Big Dog 10,747]

ET,

What if they do it and it works?

That is a much scarier thought than them going under.

Yes, that would be scarier. I just don't think it'll work.

[w¡n9Nµ7 §£@¥€r 123]

ET,

What if they do it and it works?

That is a much scarier thought than them going under.

Yes, that would be scarier. I just don't think it'll work.

If they do it slowly, it could.

I've seen the impact first-hand from my work at an outsourcing organization (competitor of IBMGS) of slow attrition. Over the course of two years we were down to 50% the original workforce. The work was still getting done, quality was down slightly (but with the savings due to 1/2 the workforce, the client didn't care).

[Otto 83]

I think the number is grossly overstated in the article - depending on who's counting (and when) IBM employs 300+thousand employees world-wide - clearly cutting it in half would imply massive (and yet undisclosed) financial issues...

[Mr. Big Dog 10,747]

I think the number is grossly overstated in the article - depending on who's counting (and when) IBM employs 300+thousand employees world-wide - clearly cutting it in half would imply massive (and yet undisclosed) financial issues...

Good point.

[w¡n9Nµ7 §£@¥€r 123]

Some posts from the IBM Yahoo! Message Boards...

IBM is going to layoff I hear upwards of 40% of it's global services employees in an attempt to make that lame unit look sexy for sale in the near future. IBM is pulling in and is going to focus much more on technology going forward, after all it is International Business Machines, not International Business People. This layoff news will be announced this week or next and I am trying to determine if this will make the stock price go up or down, any thoughts?

--

i work for big blue too...and we have lost 30% of our people and 1st, 2nd & 3rd line managers are being layed off

today.

--

Layoffs.. I work in Fishkill IBM and heard of the Global Services layoffs.. then last week I recieved a Forbes new bulletin that said IBM bought a Serbian company that does global sevice work.. so I wonder where it will eventually end up?

I do worry for us all.. can't help it.

--

you lame brain thinks IBM is going to sell off the Business unit that produces 56% of the companies total revenue huh...geeze..

--

Your Revenue reduction number is not correct. Many of the employees being let go are for IBM internal environments, and are not directly correlated to Revenue. Also realize that even though IBM is cutting American resources, many (not all) are being replaced by global resources.

This reduces IBM cost structure while not having major impacts on the revenue numbers.

Regards

--

Well, IBM US service employees are too expensive. For $140/hr(billing) system service contract, IBM may pay about $60/hr to tier-1 pimp, while Tier-3 or 4 pimp gets about $45/hr and hires Asian (H1-B) tech slave for $35/hr without benefits and string attached to do the real job.

Now tell me why should IBM keep US tech who costs more than $80/hr (with benefits and burdons) and string attached!

Hey, this is a Global Economy, buy cheap and sell high! So being an investor let make money now!

--

Well, my question is:

Why is IBM in such hurry to apply LEAN, in order to cut work force in such large scale?

My understanding is that IBM started training of LEAN process at most 6 months ago, and applying it starting May 1st.

IBM has always been outsourcing jobs to India, it doesn't have to go through LEAN to do so. Why now, why suddenly?

Something is really fishy.

It took Toyota more than 25 years to mature LEAN and benefit from it, IBM is trying to copy that in a total different culture (US vs. Japan) in less than 6 months...

[Mr. Big Dog 10,747]

Some posts from the IBM Yahoo! Message Boards...

IBM is going to layoff I hear upwards of 40% of it's global services employees in an attempt to make that lame unit look sexy for sale in the near future. IBM is pulling in and is going to focus much more on technology going forward, after all it is International Business Machines, not International Business People. This layoff news will be announced this week or next and I am trying to determine if this will make the stock price go up or down, any thoughts?

--

i work for big blue too...and we have lost 30% of our people and 1st, 2nd & 3rd line managers are being layed off

today.

--

Layoffs.. I work in Fishkill IBM and heard of the Global Services layoffs.. then last week I recieved a Forbes new bulletin that said IBM bought a Serbian company that does global sevice work.. so I wonder where it will eventually end up?

I do worry for us all.. can't help it.

--

you lame brain thinks IBM is going to sell off the Business unit that produces 56% of the companies total revenue huh...geeze..

--

Your Revenue reduction number is not correct. Many of the employees being let go are for IBM internal environments, and are not directly correlated to Revenue. Also realize that even though IBM is cutting American resources, many (not all) are being replaced by global resources.

This reduces IBM cost structure while not having major impacts on the revenue numbers.

Regards

--

Well, IBM US service employees are too expensive. For $140/hr(billing) system service contract, IBM may pay about $60/hr to tier-1 pimp, while Tier-3 or 4 pimp gets about $45/hr and hires Asian (H1-B) tech slave for $35/hr without benefits and string attached to do the real job.

Now tell me why should IBM keep US tech who costs more than $80/hr (with benefits and burdons) and string attached!

Hey, this is a Global Economy, buy cheap and sell high! So being an investor let make money now!

--

Well, my question is:

Why is IBM in such hurry to apply LEAN, in order to cut work force in such large scale?

My understanding is that IBM started training of LEAN process at most 6 months ago, and applying it starting May 1st.

IBM has always been outsourcing jobs to India, it doesn't have to go through LEAN to do so. Why now, why suddenly?

Something is really fishy.

It took Toyota more than 25 years to mature LEAN and benefit from it, IBM is trying to copy that in a total different culture (US vs. Japan) in less than 6 months...

Ah, the internal rumor mills. Always fun, isn't is?

[w¡n9Nµ7 §£@¥€r 123]

Always. I was an active participant, 2 years ago, during my own 'close encounter' with a corporate reorg. 30% chopped off right at the get-go, I survived. Then, in the next two years, another 1/2 of the remainder was gone. I quit soon after.

My memory of the Yahoo message boards is that I got a lot of good information from them. The fact that I could tell who the posters were, which ones were on the 'inside' and which were not, helped.

[Mr. Big Dog 10,747]

Always. I was an active participant, 2 years ago, during my own 'close encounter' with a corporate reorg. 30% chopped off right at the get-go, I survived. Then, in the next two years, another 1/2 of the remainder was gone. I quit soon after.

My memory of the Yahoo message boards is that I got a lot of good information from them. The fact that I could tell who the posters were, which ones were on the 'inside' and which were not, helped.

Yeah, I've been through it. And it may happen again. We just went though a restructure at my current employer. That ain't the end of the world. One door closes, another opens. It's the way it is these days.

[w¡n9Nµ7 §£@¥€r 123]

Yeah. Only problem is, when the opened door... opens in India. LOL.

[Mr. Big Dog 10,747]

Yeah. Only problem is, when the opened door... opens in India. LOL.

Well, some things are hard to move over there (or out of the US).

I think I'm looking pretty good on that end.

[w¡n9Nµ7 §£@¥€r 123]

A colleague at IBM today told me he has heard from his first and second line managers that the total # of layoffs within IBM Global in the US will be around 40,000.

[russ 1]

All the more reason to be in business for yourself. At $150 an hour, you would be suprised how many clients view you as a bargain compared to IBMGS, Accenture, or HP. Those guys charge more, but make their money by using less experienced workers. They usually want long contracts too (2-3 years). It isn't easy to get the big guys to do a $100,000 PO, their sales expenses are too big.

For a project that might take 3 senior, experienced guys 6 months at $200/hr each, Accenture will give you 20 college hires at $150 a piece (paying them about 60 w/benefits). They are mostly learning, not actually doing much. Project will take years. The same 3 senior guys will do most of the work. Accenture's 800 or so partners will continue to get rich, play golf, and negotiate more such deals. (This is capitalism - the partners deserve the money for being smart). Accenture is public, but the bosses still make the money in stock. IBM is basically the same.

If you know your stuff, go do this stuff on your own. Charge at least 3 times what you make now. Ask for 5 times as much. Customers do not want second-rate experts. Sell them advice, and farm out the busy work (take a big cut out of that too). Most companies won't do competitive bids for unique requirements under 50k. Most big vendors won't even bother to bid these accounts. When the deadlines slip, they extend your PO (just make sure all of your SOWs are always done 10% under budget).

Added benefit: When a project is clearly a cluster f###, you can politely pass on it. If you are nice, tell the client why you aren't taking it. When it comes true in 3 months, they will usually pay whatever you ask to clean up the help mess. At this point, the vendors are pretty nice to you (often, they will hire you on their dime to look good in front of thier customer.) Or, you get to do something else.

Why didn't someone teach me this in college?

Well, IBM US service employees are too expensive. For $140/hr(billing) system service contract, IBM may pay about $60/hr to tier-1 pimp, while Tier-3 or 4 pimp gets about $45/hr and hires Asian (H1- B) tech slave for $35/hr without benefits and string attached to do the real job.

Now tell me why should IBM keep US tech who costs more than $80/hr (with benefits and burdons) and string attached!

Hey, this is a Global Economy, buy cheap and sell high! So being an investor let make money now!