Thread: Lean and Mean: 150,000 U.S. layoffs for IBM?

http://www.pbs.org/cringely/pulpit/2007 ... 02027.html

Lean and Mean: 150,000 U.S. layoffs for IBM?

[Bob Cringely]

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.

[And in the comments section, someone quoted Ozymandius]

The scary part is this is one company. What happens to our economy when other companies do the same thing? Hundreds of thousands of middle class US workers will no longer be paying into the tax pool, instead they will become a drain on it. Also they will no longer be making the purchases in the market place (cars, houses, electronics, etc) so other industries will feel the pain as well.

We are on the path to an America with an elite upper class, no middle class, and a huge poverty stricken lower class.

This scares the hell out of me! Our government is letting this happen. They can't be so blind as to not see the consequences.

Of course they see it, that is their GOAL!!

Years ago I worked for a fairly large but local ambulance company, it was a great place to work, we were well respected and provided inter hospital transport and emergency services, years late the company was sold to a major corporation from there on things went down hill, people were fired and others quit, crews were cut back and we became the worst provider in the county, nobody liked us. We were told all this was done to improve the profit margine, I couldn'd imagine how ruining a company would improve anything, they had to be losing money but a guy explained to me that it was not how much money was made but how much they could sell their stocks for so the rich got richer and the poor working guy who helped get them there is left out in the street with no care on their part.

It IS other companies too, EDS, Novell, many others. I can't imagine what will be left for an American to do for a living. If we thought there were a lot of foreclosed houses out there now .... In my area almost all the building is housing or retail. I'm starting to see the signs I saw before people admitted the last recession out loud: lots of business vacancies where there used to be activity. It was at least 6 months before I saw my impressions confirmed in the press. Also, I have a friend who tells fortunes for a living (she's a Wiccan with her own store) and she mentioned back at the beginning of the last recession that all of a sudden people started coming to her for advice because they'd suddenly been laid off. I'll check in with her to see what she's hearing. Sort of a canary in the coal mine.

This scares the hell out of me! Our government is letting this happen. They can't be so blind as to not see the consequences.

What is even worse, is that the government is encouraging it through tax policy and incentives. Again, as Lou Dobbs has said: "War on the Middle Class".

...Imagine: getting a tax break for dismembering your domestic workforce, relocating production to a cheap labor nation, and then taking a tax credit/break for doing so... sounds downright criminal to me.
I am almost to the point where when I see companies doing this, I think they should either a) lose all trade privileges to do business in the US OR b) require a much increase tariff applied to their goods or services coming into the US.

a country with the very very wealthy and the very very poor with no middle class is called a third world nation. look at every third world country, you will find wealth, but only in the hands of a few and they are very strongly underscored with the poverty, but what you wont see is the middle class. corporate greed has taken over this country, they want cheap slave labor , it improves the bottom line. no one cares about the poor middle class tax paying American, not the greedy corporation and not our greedy power hungrey politians.

Originally Posted by Lone_Patriot

a country with the very very wealthy and the very very poor with no middle class is called a third world nation. look at every third world country, you will find wealth, but only in the hands of a few and they are very strongly underscored with the poverty, but what you wont see is the middle class.

Has there ever, in recent history, been a third world country of the type you describe that became a first world country?

I can't think of any, myself, and that makes sense, since the people who hold all the wealth and power have no intention of giving any of it up, and in fact always want more.

Unfortunately, that's the direction I see this country moving in.

The summary of the IBM layoff rumor is this: that for years management has been competing with India, Inc. (Wipro, Infosys, TCS, etc.) by underbidding contracts then flogging the workforce to make the numbers. Meanwhile, they've been building up their own India presence (and China and South America too) so that some day, those third world numbers will favor them as well. Supposedly, that day has arrived.

So now, the US workforce for the most part must go. Only the 'face men' among the workers, and the top management teams will be left. Anything even halfway interesting and actually productive (development, research, innovation, systems integration and architecture, etc.) will go to you know who.

This trend has been going on in a variety of companies for at least a decade. Back when I was job hunting for a year in '01, I used to think it was odd that I never saw an IT opening in Weld County, Colorado. Seems that back in '93 they gave their whole IT operation to ACS, that's why. This led to many debacles, such as an incarcerated inmate being able to download employee SSNs, found on hard copy in his cell, from the sheriff's file server, but that didn't make them rethink anything.

We are now in the age of 'good enough' IT, in the wake of "IT doesn't matter anymore." Or as one colleague put it: now management is paying 1/3 as much for 1/5 the support, but to the upper managers in the skybox that seems like a fine deal.

Meanwhile, I manage VIP desktop support at a top research university. But the Foundation who solicits donations went with a remote support service before I was hired - Centerbeam. Wonder how long I have?

Originally Posted by BetsyRoss

This trend has been going on in a variety of companies for at least a decade. Back when I was job hunting for a year in '01, I used to think it was odd that I never saw an IT opening in Weld County, Colorado. Seems that back in '93 they gave their whole IT operation to ACS, that's why. This led to many debacles, such as an incarcerated inmate being able to download employee SSNs, found on hard copy in his cell, from the sheriff's file server, but that didn't make them rethink anything.

Yup, I remember that leak of SSN's here, as well as the leak of SSN's of anybody signed up for child support. There was just another security breach recently as well, read that ACS's contract will not be renewed.

I may be on the jobhunt soon, sure wish there was more tech in Weld. I'm just afraid there is no safe area to jump too. Nothing is safe from offshoring, hopefully I can find a small company around that needs somebody.