IBM fires small-town workers
theguardian.comI was previously an IBMer (not US based) until I left a couple of years ago, and I know someone very close to me who has just been offered redundancy from IBM (also not US based).
I appreciate the company's responsibilities are to the shareholders, but their approach seems to be short-sighted.
The culture in IBM seems to be if you are a sales person or a project manager you are the well-treated elite, and anyone else (i.e. the researchers, the developers, designers, consultants - basically anyone who actually makes anything that IBM sells) can go fuck themselves and are treated as dispensable/replaceable assets.
They're painting themselves into a corner - there are only a limited number of times you can get rid of the people on the ground actually doing anything before it really starts to hurt.
I think they've realised this and that is why they are now just buying companies rather than creating their own offerings.
Is it too late? Probably - they are only just getting their act together with cloud offerings whilst a bookshop has become a market leader. I dont think they can catch up.
Ex IBMer here. They're not cutting the fat anymore, simply because there isn't much fat left to cut. It's mostly cutting into muscle and bone these days.
Spot on regarding their cloud offerings. The thing is, just owning Softlayer and Cloudant etc. doesn't magically make then a compelling player in that space. While they do have mindshare in corporate IT, they have less so with developers and hackers on the bleeding edge, and even less so in the startup scene. If you think "Database in the cloud" for example.. what comes to mind. DB2? Informix? Nope. More like DynamoDB, Redis, MongoDB, CouchBase and the like.
IBMers doing competitive analysis attending Amazon's re:Invent 2013 conference must've been virtually shitting their pants during every keynote speech.
>> They are only just getting their act together with cloud offerings whilst a bookshop has become a market leader.
Nice one. I can say similar things about SAP.
Interesting, possibly related fact - SAP was started by former IBM employees.
> The culture in IBM seems to be if you are a sales person or a project manager you are the well-treated elite, and anyone else (i.e. the researchers, the developers, designers, consultants - basically anyone who actually makes anything that IBM sells) can go fuck themselves and are treated as dispensable/replaceable assets.
That's a somewhat-sensible philosophy for a services company/consultancy (whose brand-name is its biggest asset) to take, though, isn't it? The only people IBM has to keep, to keep the lights on, are the salespeople (who introduce new customers) and project managers (who liase with current customers.) Everyone else is a black box that customers won't notice the replacement of. They could outsource everything but those people to subcontracting firms, and "IBM the services company" would persist.
If the company does not care about the quality of those services then I guess they can do that. How long will the brand stay after that is a another question. I would not bet for long.
When your compensation consists of $500,000 fixed salary with bonus of $2 mil - $5 million, naturally you're going obsess over Wall Street numbers.
I think executives should be penalized for layoffs, because with proper resource management, layoffs can be greatly minimized.
In fact, EPS increase through asset sales, layoffs, stock buyback should all count against their bonus figures.
Corporate executive greed is a cancer that no one seems willing to cure.
> with proper resource management, layoffs can be greatly minimized.
This is a pretty bold assertion. We're not talking about a few jobs at the margin, eg. one report speaks of 25% of the hardware business.
No company hires just because. They have a plan and need people to execute it. If those people do their jobs well and still the company fails, then logically, you would keep the workers and replace the management. But it never seems to work like that.
Say that IBM had a plan that involved hiring 5000 pastry chefs. They did their jobs excellently, but it turned out that nobody wanted servers that baked doughnuts. Fire the management who came up with that stinker, or not, either way--but what good will come in keeping the 5000 pastry chefs?
When life gives you lemons, you make lemonade.
Still though... some way of tying the effects of management actions that harm workers to the compensation of management themselves would at least reduce the inherent moral hazard here.
But I'm not even sure the most "fair" way to do that... what if you bring in a new CEO right as the mismanagement of the last CEO finally blows up the balance sheet? Wouldn't seem fair to the new guy to make him pay for it.
Is IBM selling or otherwise closing 25% of their hardware business? If not, haven't the executives horribly failed at resource management to have 25% of the workforce underutilized for a long period of time with no efforts to actual utilize them?
To me, IBM is a dead company, no matter how cool Watson is. My perception of IBM is a consultant company. While IBM research still makes tons of awesome progress in AI and security, IBM looks like GE and Bell Lab to me. I don't know who is the legacy now... I wonder how IBM employees feel about their job.
IBM's Q4 revenue was $27.7 billion. The consulting branch, Global Technology Services brought in $9.9B of that revenue. The software group, SWG, brought in $8.1B in revenue. (IBM is only making ~33M per year on Watson right now)
IBM is a bit more than a consulting company. They are in the midst of trying to reinvent themselves as more of a software company because the margins are so much greater than hardware.
IBM is screwing it's hardware employees, but the writing has been on the wall for a very long time. IBM employees got used to the idea that they could work at IBM for life, and retire with the company. They've either missed the signals or felt like layoffs couldn't happen to them. Many of the groups affected by the layoffs in IBM had a furlough last August. I don't know about you, but the moment a company says don't come to work for a week with reduced pay is the moment I start looking for a new job. (I do realize that many people at IBM stay loyal because they are on a pension program and they lose significant income if they voluntarily leave).
These numbers definitely don't tell the whole story. In my experience, the consulting branch is IBM's number one software sales force. Without it pushing products like DB2 and the Websphere line, the software group would have a tough time staying competitive.
>> I do realize that many people at IBM stay loyal because they are on a pension program and they lose significant income if they voluntarily leave.
...or don't want to leave the (significant) severance package on the table.
Reports of IBM's death are greatly exaggerated. People have been saying this for four decades when minicomputers rose, when the PC rose, when the server rose, when Linux rose.
IBM is a market maker and there is no other company quite like it. It always feels unintuitive when they shift, but I expect them to keep on chugging along and continuing to innovate.
Lol at GE being a dead company. How's the weather in lalaland?
So GE is also a dead company?
Typical scenario: - layoffs for short term EPS - current pipeline continues momentum for a bit - CEO gets credited with great success... and moves on to the next company - then the "oh shit" moment, when the lack of personnel becomes apparent
Some CEOs are like locusts. Moving from company to company for a short term frenzy, then moving on to the next.
I hope this is not happening here.
Personally I do not quite follow the current mentality of only thinking about the "shareholder value". If a company is just break even, it still pays earning the livelihoods of its employees. That should count for something - but of course is doesn't because investors can make more money elsewhere.
The current CEO has been at IBM for 33 years while the previous one had been there for 39 years... So no, these CEO don't move on to the next company.
That's not quite the same thing.
You could replace the IBM CEO every week for many years to come with someone who has been at the company for 30+ years.
I understand. But IBM CEOs are just not the "rotating CEO" type. For most (if not all) it was their last position before retiring.
Rather like when the GMG (guardians parent) let those staff go in some of the local press they own when the margins went down for local newspapers?
Killing itself for $20 EPS.
I can't have been the only one to view the $1000 (or whatever it was) in stock options as a blatant bribe. It was pretty clear that the 2015 roadmap was going to sacrifice staff (or bonuses, or conditions, etc) in order to meet its targets and I honestly never understood what the motivation behind it was.
(I left IBM 1.5 years ago)
It's sad to see IBM gut its workforce in the very place it was founded, just to increase its EPS.
I go to a college that is right next to the village Endicott. The population of the nearby city of Binghamton, a member of the Rust Belt, saw its population decline from a peak of 85,000 to its current total of about 47,000 when the manufacturing jobs left. The decline has taken it's toll on the city. Binghamton is now one of the fattest, most depressed cities in America.
http://www.syracuse.com/news/index.ssf/2012/03/america_fatte...
http://www.businessinsider.com/most-depressing-cities-in-ame...
This sucks for the people concerned. But IBM's core responsibility can't be to maintain comfortable jobs that aren't sufficiently profitable. The world has changed dramatically and IBM hasn't changed with it. The longer you go without shedding the dead weight, the more painful it gets, but you still have to do it.
The article suggests that shedding jobs equals not investing in the future, while also mentioning several paragraphs later that IBM is investing billions in new business areas. Increasing EPS means freeing up more cash to invest.
Without knowing the breakdown of which units are being laid off, how do you or the shareholders have the information to know if management is indeed "shedding the dead weight" or is instead tweaking the numbers to meet Wall Street expectations?
You don't. Increased opacity makes it harder to make any judgements. For example, IBM is quoted as saying they have "more than 3,000 job openings", but those could be pro forma openings which aren't expected to be filled, and exist mostly to promote the idea that IBM is hiring. The real test would be the number of people hired, but IBM does not publish that information.
The article does not say, as you believe, that IBM is "investing billions in new business areas". It says IBM "committed $1bn to its new Watson unit and $2.2bn to expand its cloud offerings". Those appear to be an expansion of existing business areas, and not an investment in new ones.
It also says IBM has "investments in areas such as nanotechnology which will bring hundreds of new jobs to New York State." IBM has been in nanotechnology for over 20 years, so you can't conclude from this article that this is a new business area.
The job cuts were largely in STG and GTS and these are the divisions with the most dead weight, so while it's possible IBM cut non-dead weight jobs these cuts do not seem to be random across the board cuts.
Could you define "dead weight" in this context?
Is it that STG and GTS were a net loss to the company, or is it that those groups weren't profitable enough to make the alleged $20/share goal?
If IBM has decided to leave the hardware business as a long term goal, then is it fair to call the hardware people a "dead weight" if that part of the organization is still profitable? The term seems to imply that the people themselves are at fault.
I'm not sure what's alleged about the $20/share goal.
I do not know the income, off the top of my head, for STG and GTS, it's they made a profit, but revenue growth was negative. When you're trying to allocate capital for a business would you rather put your capital towards products with a 5% margin (hardware) or a 85% one (software)?
IBM has been pretty clear that they want to jettison the lower margin businesses in favor of higher margin ones. Maybe dead weight isn't the right term for these employees, but from a business perspective these low margin products are more or less dead weight.
I know only what I read in the linked-to article. I don't how important the $20 earnings per share is to IBM, that they might let off profitable groups solely to make that goal. Hence "alleged."
But "insufficiently profitable" and "dead weight" are not synonymous, just like "maximizing profit" and "greedy bastard" are not synonymous. The first of each pair are economics terms, the second are social terms.
To turn your question around, would you rather put your capital towards products with 85% margin or 75%? Does your choice of one make the other by definition a dead weight?
The margin question is a good one, and you have to ask it in context of IBM. Nobody wakes up and says "Hey, let's go buy SVC for storage virtualization!". You go to buy IBM storage (lower margin) and layer on SVC and the other management software.
Think of a fast food scenario. The marginal cost of cheese on a hamburger is like 95% profit for a restaurant. That doesn't mean that you stop selling hamburgers for $1 and only sell slices of cheese for $0.25.
"Employees in the US, and in those small towns, also say they’re unhappy that IBM is shrinking in America while outsourcing to countries like India."
Aren't they laying off in India now too?
You are probably thinking of Lenovo laying off the employees in the server division they bought from IBM.
IBM had a large layoff in india. IBM's india problems have been quite interesting. See: http://qz.com/173601/ibms-india-problem/
drpgq might have been thinking of this (Seems to match you described as well):
IBM layoffs strike first in India; workers describe as 'slaughter' and 'massive' - https://news.ycombinator.com/item?id=7223582
As opposed to doing what? Keeping these workers on board as an act of charity? IBM operates for the benefit of its shareholders, not its employees; also, water is wet.
Layoff is a blunt instrument that swings in one direction, and cannot be undone. It's easy, but it results in too much unnecessary casualties.
When you've been with a company for 10, 15 years, you accumulate wealth of business knowledge that can always be re-deployed in other areas through careful planning.
That takes more skill than just swinging hammer. But with the absurd money we're paying the executives, shouldn't we expect a little more than just a hammer in their toolbox?
Might as well fire everyone and sell everything then. Maximum shareholder return!