May 6th, 2007
Is IBM Planning Huge Layoffs?
By Michael Santo
Executive Editor, RealTechNews
It’s a rumor floating around the Internet … and it sounds outrageous … however, in this age of globalization and outsourcing, it wouldn’t surprise me. Although I’ve seen it in more than a few places, the start of the rumor was a Robert Cringley column at PBS.org. It certers around an IBM project called LEAN that, as the name sorta implies, is meant to turn the corporation into a lean, mean profit-making machine that will … short-term … be really good for the stock.
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.
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. Source: I, Cringely
We Say: Like I said, this is all a rumor, but I would be remiss if I didn’t post about it … While I am no economist, I have strong feelings about offshoring / outsourcing. While it’s great for the corporation in the short-term, it disenfranchises the American worker and leads to a squeeze on the once-healthy middle class. You only need look at the manufacturing sector to see how a whole sector of jobs has left the country … and if, as some theorize, global warming and peak oil lead to a time where importing of virtually all our manufactured goods is no longer viable, we may regret having dismantled our manufacturing infrastructure.
Further, Cringely makes some good points in the article about how IBM and other tech companies are complaining about the lack of technical workers in the U.S., and thus how the H1B program needs expansion. Here’s your solution, 150K technical workers about the hit the streets! Additionally, as Cringely says, and I have spoken about privately for years, it’s not that technical workers are unavailable but that cheap technical workers are unavailable. As always with corporations, it’s all about the profit (don’t get me wrong, I understand that is what they are supposed to do … make money) … especially since greater profit means greater bonuses for the CEO, right?
Sampath says:
I hear what you are saying! But if you dont provide emerging markets access to US markets (in the form of services), these countriesd will do the same…50% of GE and IBM’s revenues are from outside the US…not to mention banks, consumer goods, cos, etc……US is not allowing H1B due to love, but due to economic necessity…BTW follow your blog, regularly..great posts..
May 6th, 2007 at 6:02 pm
Charles says:
Michael,
Clearly you don’t understand that a business’ sole purpose is to make money. Period. Otherwise your comment would not have the bias it does.
Everybody likes the idea of a global economy until it’s their economy that goes to another part of the globe.
There is this expectation that someone should get a job, often something specialized, and believe that they should be able to do that job for the rest of their life in their geographic location. Life has never worked that way.
Back in the hunter/gather days if a specific animal was wiped out, then you had to learn to hunt something else or move. Or find some berries to eat. No matter what, you had to adapt to the conditions around you.
How is that any different now?
Disenfranchise the American worker…. please. In America you have the right to pursue happiness. It says nothing about forcing some entity to pave the way for you.
Sorry for the rant, but you’ve struck a chord with this one.
If you needed to get the oil changed in your car you would balance the cost and the level of service. You might pay more for better service, but I seriously doubt you would pay two or three times more. You might even drive out of town if the deal was good enough.
Why should a business operate any differently?
May 6th, 2007 at 11:38 pm
Webbster says:
Sampath,
The whole H1-B process has been highjacked Indian Outsourcers. When exactly does an emerging economy stop emerging and play by the same rules and standards that we play by?
You don’t allow Indian work to be offshored to other countries, why is that?
Charles,
That’s the problem. Everything is a short term solution. That short sightedness only looks at next quarters bottom line. Core assets are sold off to make next quarter look better, at the expense of long term goals and needs.
CEOs, CFOs and CIOs really don’t have to do good work. One way or the other, they will be paid very well, even if they know the path they take will lead to the company’s disintegration.
May 7th, 2007 at 5:29 am
Charles says:
Webbster,
The article mentions nothing of ‘core assets’. It suggests that IBM may be outsourcing over 100,000 jobs.
If an American or foreign company offered you twice your salary to do the same job, you would weigh the situation and probably take the offer. You would not work at a company for half the money out of loyalty. Why would you expect the company to do something which you would not?
If a company can get the same (or similar) level of service for a third the price, then why wouldn’t it do that? A company does not owe you anything. If it finds out it needs American resources state side, then it will hire them back. If those resources no longer exist, then the salary will climb until there is someone available to do the job. Supply and Demand.
In a global economy, holding on to the idea that there is an ‘us’ (American worker) and a ‘them’ (Indian worker) is wrong and inpractical. Economy and capitalism no nothing of borders.
American workers manage their personal lives exactly how a CEO manages a businesses. You probably practice your own style of outsourcing by shopping online outside your state. Or maybe having a service performed by a company that lives out of state.
Those tax dollars could be going to your state’s budget (schools, transportation, etc.), but you choose to disregard that so that your financial ‘bottom line’ looks better.
The reason this strikes a chord with me is because it amounts to people wanting their cake and eat it to. Sure there are bad CEO’s, but I would say there’s a much greater percentage that are worth there weight in gold.
Every job I’ve had, there was some worker that wasn’t worth a $1 an hour. We are all people, and CEOs are no different.
May 7th, 2007 at 9:42 am
Webbster says:
Charles,
Your assumption is that they are getting the SAME service at a third of the cost. That’s a real big assumption, and I’ve got facts below to say that’s not correct.
Let me explain in a finer detail. A few years ago Paul Strassman wrote the article “Outsourcing is Still for Losers”, where he points out those companies that move towards outsourcing are the ones struggling to increase profits. In other words: Not the ones having trouble making money. These geniuses running these losers decide that it’s not a management problem, or a marketing problem, or a product/service development problem, but an IT problem. Paying too much money for IT labor. Suddenly, the IT department doesn’t have “developers”, instead they have “coders”. The culture gets transformed to believe their own BS, that it’s the business people that are the true crown jewels of the company, and the IT people are just worker bees, making too much money.
This would be like GM deciding that the looks and marketing of a new car are heads and shoulders above reliability and performance.
While outsourcing can work for some cost cutting measures, it’s far from the being the cure for loser companies.
Deloitte released a study that 70% of large companies had negative experiences with outsourcing and 25% brought outsourcing projects back in house. Why? It didn’t turn out to be the big costs savings program that these geniuses said it was. There were many “overhead” costs not originally included, and the realization that IT does have some crown jewels. After the dust clears, these companies are found to be structurally disadvantaged.
All those IBMers can do is hold on until the next regime change, or realize that you’re not considered an asset to the company and move on to a company that believes you are.
May 7th, 2007 at 10:32 am
Michael Santo says:
Sampath. thanks for the kudos. For the rest, this is a complex and divisive issue and I don’t expect agreement.
All I can say is, if my kid was about to enter college, I would tell him to pick a career that cannot be outsourced.
May 7th, 2007 at 11:22 am
Rick says:
Charles,
I like the religious intensity of your argument. That a company’s sole purpose is to make money is true in the sense that yeast’s sole purpose is to keep multiplying. Until it runs up against the sides of the petri dish. Outsource enough of the middle class jobs and who’s going to be buying anything in this consumer economy of ours?
In the end it used to be said that what was good for GM is good for America. The opposite is now true. What’s good for the management of IBM is truly horrific for America. So why should the government bother with low/no corporate tax rates if it won’t see a net return in the form of jobs/income tax? If IBM actually does this then I say they’re no longer an American company. The can go live with Halliburton.
May 7th, 2007 at 6:12 pm
Charles says:
Rick,
Actually, if someone comes up with a better position, I’m more than willing to let mine go. It’s just that I’m more interested in adapting to how things are instead of bemoaning how things aren’t the way I want them to be.
I never said that outsourcing was the nirvana of corporate profitability. It is like anything else in the world, it can be used very well, or very poorly.
Like it or not, outsourcing works. It saves companies money even if quality takes a hit.
Kind of like how many people go to SuperCuts instead of a ‘hair stylist’. Quality and service will take a hit, but it’s good enough compared to paying $20+ more. (No offense to anyone at SuperCuts… I’ve went there for the last 20 years
)
Your comment did get me to do a little poking around to find out more about corporate taxation and I found the following on Wikipedia (say what you will about it’s accuraccy…)
“In the United States, the federal corporate rate is 35%. But since 1999, when Treasury announced the “check the box” system many corporations can elect to be treated as a pass-through entity, thereby skipping the entity level 35% tax and having all income pass through to the shareholders. This is the tax treatment that the much discussed “S” corporations receive but now many more types of state-law corporation may avoid double taxation by “checking the box”. Dividends are also subject to a lower rate of income tax in the United States.
This federal corporate rate is the second highest rate among the world’s most developed economies (those in the OECD — the Organisation for Economic Co-operation and Development). Only Japan is higher. The median is 30.0%, with notably low rates for corporations headquartered in Bulgaria (10%), Ireland (12.5%), Hungary (16.0%), Iceland (18.0%), Slovakia and Poland (19.0%).[1]”
How many pension funds, mutual funds, 401Ks, and small investors own IBM stock?
Everyone speaks of the future as if the sky is falling. The reality is that it’s a slow ebb and flow of resources, markets, and business.
I guess I don’t hold CEO’s or corporations to a higher standard than I hold myself.
Every person in America looks for ways to reduce their tax burden as much as possible. Every person in America expects to shop for goods and services where ever it is that gives them the best price.
We all do the same things that we accuse CEO’s and corporations of being evil for.
May 7th, 2007 at 9:12 pm
Jav Atar says:
The funny thing about all this outsourcing business is this: The USA is the only country on the planet that does not have labor laws to protects it workers and jobs.
Why is IBM not laying off these kinds of numbers in Europe and other countries? Cause the severance they have pay is much more prohibitive.
A layoff of the magnitude being discussed will surely help to erode the middle class … So when Charles can’t drive to the store to buy food for his family because the road has deteriorated and is not passable, then maybe he will wake up.
Sure we need to adapt to the global economy, but we need our government buffering that adaptation for our citizens, rather then letting the USA be the buffer of every other country’s adaptation.
May 8th, 2007 at 1:53 am
Charles says:
First off… it doesn’t seem that IBM even has 150,000 employee’s in the U.S., so a layoff of that magnitude would entirely shutdown all of US operations. I don’t think that’s very likely. But it’s also likely that IBM has grown fat and overstaffed in it’s recent years of success.
How long do you want a government to buffer an adaptation to oursourcing? We’ve known for well over 5 years, maybe longer, that outsourcing is a growing trend. Does the average American need a decade to prepare for a career change? Give me a break.
I have no idea what you mean by the USA being a buffer to other adaptations. A company can get someone to do a comparable job for a third the cost. It’s that simple.
There is no question that businesses treat employee’s as assets. And when any asset (employee, system, machinery, etc.) becomes too expensive to maintain, or there is something more efficient or cheaper, then you get rid of it.
It’s not warm and fuzzy, but it’s life. People don’t like being compared to a piece of machinery, I get that. But that is the reality of the situation.
What in your life time would lead you to believe anything else?
May 8th, 2007 at 9:42 am
Webbster says:
Charles,
Simple accounting: Assets are economic resources that are owned or controlled by an entity. But, Liabilities are claims, debts, obligations to a company.
To some companies, their employees are assets to others they are liabilities.
I’ve already pointed out to you where and why companies split in this mode, but you presist to ignore.
That’s the reality: Find a company treats you like an asset. Be an asset. And always know that there are “Charles’” out there in the world to not work for.
May 8th, 2007 at 10:13 am
Charles says:
Webster,
Resorting to a personal attack… nice.
I pushed this issue as hard as I did to see if someone here could bring a new angle to the discussion. So far, all I’ve heard is, “Corporations are evil, CEOs are evil, and forget the rest of the world, I should just be able to keep my job forever without changing.”
You are making this comparison of ‘asset and liability’ with ‘good and bad’, and it just doesn’t work. I suppose any single employee could be one or the other. All depends on how much work they produce for their paycheck.
If you met me in person, you would find me a very likable guy. I’m one of the people that just gets along with everyone in the office and is always easy to work with. In fact, the bulk of my responsibility is change management and getting people to reach a concensus. In a nutshell, you would find me one of the most accomodating and understanding people you ever met.
That said, I have no illusions about my place in the world, my company, or my value within either. I get paid to do a job, I do it, and if I want to continue getting paid, I better have an eye to the future to ensure that what I can offer is what the market needs.
But hey, if you think the world owes you something or a place in it, then rock on.
May 8th, 2007 at 12:35 pm
Webbster says:
Charles,
That wasn’t a personal attack, just a sober observation. There’s no way I’d want to work for you or anybody that thinks like you.
It doesn’t matter that you’re likeable or not. A person’s core values either builds or destroys loyalty, comradery and trust.
You came here, but you’re still not learning.
Your beliefs seem straight forward, but they are really simplistic. Your arguements are just like the simple beliefs of “supply and demand”. Want to sell more, then cut the price. But as we all know (I hope you know) that the world is more complexed then that.
First, you have to have something that people really want, and want it more than other things they want.
Second, they have to have the money or credit to buy.
Third, you have to have it, where and when they need it.
Fourth, marketing and advertising can affect demand.
Fifth, how much and how good your competition is.
Outsourcing is the same way. It’s simplistic to say that (your quote):
“A company can get someone to do a comparable job for a third the cost. It’s that simple”
WRONG
You’re still dealing with the same consulting firms, but they are now in India. And read Wallstreet. Those firms are taking huge profits. Why? Because THEY are the ones taking advantage of the cheap labor. Their profit margins are double what Arthur Andersons and EDS’s traditionally were. That isn’t getting passed to the client.
Ill show you examples of these firms being MORE expensive as time passes.
As I have stated before, but you choose to ignore, IT can be an ASSET. A Competitive Edge.
Examples:
CIO Austin Adams terminated a $5 billion outsourcing deal for JPMorgan Chase after Bank One and JPMorgan Chase merged in 2004 and Adams became CIO of the combined companies. The rationale: Tech was one of the company’s competitive advantages.
Accenture and the state of Texas have agreed to cancel a troubled contract under which Accenture was to operate and maintain the state’s welfare enrollment system.
In a statement, Accenture said it has “not been able to agree on contract changes” desired by Texas Health and Human Services Commissioner Albert Hawkins and is pulling out of the arrangement.
Preppy cataloger and retailer J.Crew Group is reeling in computer work that the company previously outsourced to a service provider, according to a document the company filed Wednesday with the Securities and Exchange Commission.
Supermarket chain Sainsbury’s has reported a better than expected reduction in IT costs less than a year after it terminated its outsourcing contract with Accenture.
A study by Compass Management Consulting of 240 IT outsourcing contracts found that by the final term of the deal, most service providers were charging between 30 and 45 per cent more than the average internal market rate.
May 8th, 2007 at 1:08 pm
Webbster says:
And one more thing Charles,
It’s not about “good” and “evil”, it’s about smart and dumb. When I used the term “geniuses”, I was being sarcastic.
I have to also say that I would work WITH you, but never for you.
You see, that’s what IT people do. We work with all kinds of people: Black, brown, yellow, red, white. Muslim, Catholic, Jewish, Hindu. Men, women, H1Bs, consultants, and lots of very “unique” individuals. But what matters most to us is the person’s intelligence. The way to impress us is with your work and ideas. The same is true with the business people that we work with. For the record, I’ve been in both IT and Business positions.
But I’ll say it again: I would never work for someone who thinks I’m nothing better than interchangeable office furniture. And that’s why I keep saying, to work for somebody that treats you like you’re an asset, not a liability.
May 8th, 2007 at 5:43 pm
Patty says:
There is nothing good that will come by this except the stockholders and executives will make more money. This will be at the expense of people, like me, who rely on IBM as their main source of income. The current IBMers work 60-80 hours a week, have vested their futures in IBM and will suffer greatly by this action. They work as hard as anyone else and should not be rewarded with losing their jobs.
May 10th, 2007 at 5:59 am
Charles says:
Patty,
Your only reward is the last employee contract and agreement you signed with IBM. You are garunteed nothing more than that, and I’m fairly certain you will not get any more than that.
Your continued employment until you decide to leave is just not part of the equation. When it comes time for layoffs, nobody is going to pull up the timesheets and see who worked 80 hrs a week and who worked 40 hrs. It’s going to be about who are the most expensive people the company can cut and still get the job done.
Not in the history of U.S. capitalism has it ever been any different. I think of some isolated cases where a business owner took a few quarters of losses for his employees, but don’t count on that.
May 11th, 2007 at 11:48 pm
Charles says:
Webster,
You crack me up; you really do. How is it that I’M the one that came here and is supposed to learn? Honestly, that made me laugh.
Except for people’s actions, most things can be boiled down to simple terms. Sure, there are many factors that determine supply and demand, but sometimes the ‘why’ just isn’t important.
San Francisco hospitals didn’t need to specifically no why they could not find Nurses to work in the city, they just knew that they had to offer salaries 20% more than average to attract qualified people. I’m simplifying here because the hospitals probably knew why, but in the end it took 20% more money. Supply and demand worked in the nurses favor. Next time it may work against them.
Somehow I think we’re arguing this topic on two different planes. I’m not concerned whether the CEOs are making mistakes or not. The market and shareholders will sort that out quickly. I’m dismayed that people fault CEOs for using the same business logic that everyone uses in their own personal lives.
Despite your insistence that outsourcing is an abject failure, Gartner expects the industry to exapnd from 21 to 38 billion dollars next year with China coming online as the next top tier services provider. They are 20 to 30 % cheaper than India and will put the hurt on them.
My company has several hundred developers parked off-shore in a certain former Soviet Republic. You would not work for their pay, and the company could not afford to pay your salary. I can assure you it’s not about increasing shareholder profits as there are no shareholders. Hopefully it will continue to do better and hire more North American resources. (Hired two developers first of the year). If my company could not develop off-shore, it would have folded up long ago.
So as you see, outsourcing hurts you, but is helping me. However, that’s not my point.
Basically I feel that:
> Businesses should be able to hire and layoff anyone they want.
> Employees should be able to work and resign from anyone they want.
Like a business, if you position yourself incorrectly in life, you will pay the price and be put out of business (layed off)
It is true that businesses have other purposes than generating profit. But all of those other things are for the sole purpose of generating profit, and any one of them will be sacrificed for the the bottom line. The world just doesn’t care if you have high employee morale, but are taking major losses. Keep taking losses and you won’t have to worry about maintaining employee morale; you won’t have employees.
Whether I think that is right or wrong is irrelevant. It just is. In my mind, it’s like complaining about gravity.
May 12th, 2007 at 12:57 am
jeem says:
In the big business world, its no longer about doing a good job or doing whats right for the customers, it about keeping your job and anything it takes to keep it is ok….. While I totally agree with Charles, it sicken me that I do…. Irony as defined by a former employee and friend of mine - born in india in a village with no electricity, came to America, went to a prestigious school, BS in materials management, and and a PHD in something IT related (all from a top ranked school), became a citizen, married an Indian girl, now has 2 kids, just to have his job outsourced to India…. as he said .. the American dream is becoming a nitemare….. having money isn’t bad…. the love of money is the root of all evil.
May 15th, 2007 at 3:03 am
Phat Farm Store says:
Phat Farm Store…
I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you….
May 14th, 2008 at 9:57 am