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The Pulpit
The Pulpit

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Weekly Column

Leaner and Meaner Still: IBM's U.S. operations continue to shrivel.

Status: [CLOSED] comments (135)
By Robert X. Cringely
bob@cringely.com

Last May I wrote a column titled "Lean and Mean" (it's in this week's links) that was all about the deteriorating situation at IBM Global Services where contracts were being lost for poor performance, jobs were being stupidly underbid, the workforce was demoralized, and huge layoffs were imminent. I wrote that up to 150,000 workers might lose their jobs in the coming year. That column caused a frenzy so great among IBM workers and the local press in IBM towns like Rochester, Minnesota, that Big Blue actually issued a press release denying it was true. My column was wrong, they said. IBM doesn't even have 150,000 U.S. workers to lose. Life was still good in the world of IBM.

Really?

I don't take any satisfaction in forcing companies to come clean or to go underground, but IBM did the latter. They simply stopped issuing press releases concerning U.S. layoffs or force reductions. It's not that the company didn't continue to lose U.S. workers, just that they stopped talking about it.

And it might have worked, because frankly I didn't want to write about this topic again. I find it depressing. But in the past week I have heard from a number of readers asking for an update. These readers seem equally divided between men (they are all men) who want me to admit I was wrong all along and other men who seem to be expecting even more layoffs, yet another shoe to fall. Ironically many of these readers claim to be IBM employees, even though they are on different sides of the argument. You'd think that as insiders they'd have a common experience, but no.

So I reluctantly took another look at IBM and what I saw was not pretty. Things are not better. If anything they are worse.

First let's look at the layoff and force-reduction picture. Too many readers are fixated on that 150,000 number and on next week being the start of 2008. I get no joy from predicting large numbers of lost jobs, and reading the old column I'm not sure it wouldn't be just as correct to put the end date in May, a year after I wrote the original piece. But no matter. It would appear from my research that IBM is well on track to meet that job loss estimate if we include U.S. contractors in the number.

How can that be? Did we miss the memo?

IBM has been adding jobs like crazy this year in Argentina, Brazil, China, India and Russia -- all low-cost, low-benefit operations. In India alone, for example, the company says it has hired 20,000 additional employees in the last year, bringing IBM's Indian employment to 73,000 workers.

Curiously, IBM seems incapable, however, of producing a number for either its current U.S. employees or total world employment. How is it the company can know how many workers it employs in India yet not know how many it employs in the United States?

An old boss of mine once explained that it is always cheaper to get people to quit than to lay them off. Layoffs involve severance payments, retraining, and placement assistance, while quitting requires only accepting an ID badge and locking the door behind the departing employee. More employees have quit IBM this year than have been laid off. And it is not hard to see why. The work conditions are poor and the benefit situation is deteriorating to the extent that for many workers it may not be worth sticking around. IBM's pension plan dies next week, for example, to be replaced by a 401K plan.

One supposed IBM employee who wrote to me this week claimed his pension was untouched, yet all it takes is a Google search to give public details of the pension conversion that has been in the works for more than a year and not at all a secret. A possible answer to this paradox is that the IBM employee in question is from Europe, where local laws make it difficult to fire employees for cause, much less strip them of their retirement benefits. Or maybe he's lucky enough to participate in a second IBM pension plan that isn't being converted, a plan the company doesn't like to talk about because it implies that some IBMers are better than other IBMers.

What's most interesting about the IBM pension plan conversion is something that has not yet been announced -- how much money the company will deposit in the new 401K plan to cover its obligations under the old pension plan to workers who have yet to retire. IBM's pension plan has been dreadfully underfunded for years and next month we'll get an idea how bad "dreadful" really is.

IBM retirement health care benefits also appear to be going in the tank. Apparently the company changed the plan this year but made no significant public announcement because recent retirees have been quite surprised to learn that it may be cheaper for them to buy private health insurance than to go with the IBM plan for retirees. This is not retroactive, by the way, or we would have heard an outcry from the tens of thousands of happily retired IBMers from the good old days.

There is one more aspect of IBM's medical insurance that is worth mentioning. IBM is not a good negotiator of its major business contracts. IBM does not get its various services at especially good prices. Many of IBM's contracts are usually part of a business exchange -- IBM provides hardware, software, and/or services in exchange for services from a company. On the surface it looks like a good deal. However, if you look at what IBM is actually getting and its price, it is usually not such a good deal. I suspect IBM's retirees are not getting the best possible price for their medical insurance.

And changing retirement health benefits is a good way to encourage older employees to leave the company. Why stay?

So IBM is getting rid of tens of thousands of U.S. jobs yet escapes public attention. Since most of these are experienced IT workers, one would assume they can get good jobs. WRONG! Thanks to the H1B visa program they can't. Or if they can, it is with terrible pay. The USA has more than enough IT workers for its needs. H1B shuts them out of those jobs.

I have a friend in the Midwest who runs a small job placement service specializing in programmers. He has an engineering degree and is good at spotting talent. A few years ago the people he placed made about $70,000 a year, but no more. Last year he placed someone at a big firm. This person had 20 years of programming experience and was really good. The job paid $21,000. Then the employer laid this worker off during his first week on the job, bringing in an H1B replacement. That employer was MasterCard.

In an election year this ought to be a powerful issue, but only if politicians take the time to understand it. This goes WAY beyond IBM.

But IBM is the poster child for bad management. IBM's leadership appears transfixed on two things -- selling and cutting costs. They are pushing their sales force very hard and squeezing commissions at the same time. They are cutting everyone and everything. What IBM does not understand is how to run a business well. Everything and everyone in the company should be generating income for the corporation. The leadership should be coaching and facilitating this effort. Every line of business should be constantly monitored and there should be constant adjustments to ensure its short- and long-term success. IBM really doesn't do this. All decisions come from the top. There is no delegation of authority. Business units can flounder for years from neglect. When their financials begin to fail, they then get lots of help from the top -- the wrong type of help.

Sadly there are many IBMers in Europe, Asia, and South America who think they are the future of the company. They see the big USA job cuts as proof THEY are better. But they aren't better, just cheaper -- and with the dollar falling maybe not cheaper for long. IBM management isn't going to listen to them either. In the end it is the CUSTOMER who pays IBM's bills and everyone's paychecks. It is not IBM or Wall Street. Business is about keeping customers happy, a trick the guys in Armonk seem to have forgotten. Or maybe they never knew.

Comments from the Tribe

Status: [CLOSED] read all comments (135)

Common declaration by
IBM Network Service Delivery employees, worldwide against the outsource to AT&T
Supported by national unions, works councils and the IWIS (IBM Workers International Solidarity) global network. www.allianceibm.org

Since the Press announcement of 2 months ago, IBM has not given to the affected employees sufficient and detailed communication about the outsourcing of services and workers to AT&T.
We ask together, with one voice, to both IBM management and AT&T management for:
1) A guarantee of employment, where both companies subscribe and guarantee the employees will keep their jobs for at least 5 years (time of the outsourcing contract)
2) Voluntary transfers
Furthermore it will be necessary to start , as soon as possible, a negotiation process with the legal representative employee organizations or the employees themselves in case representative bodies donít exist, about:
Voluntary transfers (including GOM applications) from IBM to AT&TĖ no involuntary transfers will be accepted.
IBM & AT&T deal and further strategy the terms and conditions for the employees to be transferred
Re-entry options back into IBM in case of failure of the deal
Compensation and/or welcome packages
Criteria for selection of employees
If no news is received from IBM and AT&T in the next few weeks, we are planning to organize legal, press and public initiatives against this outsourcing, country by country, and start a possible union international mobilization (a global actions day).
Communique signed by:
Alliance @IBM CWA Local 1701--USA
Executive Body of IBM Workscouncil of Vimercate, Italy by mandate of NSD employees CFDT--France
CGT-FO--France
CFE-CGC--France
IG Metall--Germany
UNITES Professionals--India
IBM Chapter JMIU--Japan
CCOO--Spain
PESYI--Greece

Unionyes | Jan 08, 2008 | 2:28PM

The American worker needs to wake up and smell the Globalism. The elite of this world have absolutley no national loyalties and couldn't care less about any worker, especially American workers right now. They want to flatten out the workforce so American workers on par with the rest of the world, including 3rd world nations. Wake up to the new world order. The companies have sold this to the worker, to love their servitude, as global companies, to make global profits. This is nothing more than a neofeudalistic system...wake up people.

american | Jan 09, 2008 | 12:55PM

The American worker needs to wake up and smell the Globalism. The elite of this world have absolutley no national loyalties and couldn't care less about any worker, especially American workers right now. They want to flatten out the workforce so American workers on par with the rest of the world, including 3rd world nations. Wake up to the new world order. The companies have sold this to the worker, to love their servitude, as global companies, to make global profits. This is nothing more than a neofeudalistic system...wake up people.

american | Jan 09, 2008 | 12:55PM