IBM to Lay Off Half of Global Services Division

Rolgar writes "Cringely says that IBM has begun massive layoffs in a quiet manner, starting with 1300 employees, but by the end of the year, the total will rise to at least 100,000 and probably closer to 150,000 employees, nearly 40% of their U.S. workforce. Some people will be temporarily retained as contractors at a fraction of their salary, and eventually, IBM will also dump many of the unprofitable customer contracts worked on by Global Services or outsource the work to Asia. If these people are looking for work, that could seriously drop wages for technical workers in the US since they will have to compete with these people for available jobs."

Comments

Thanks Cringely

[winkydink]

I'll wait until I hear it from a journalist. No, you're not.

Re:Thanks Cringely

[phalse phace]

Sounds like they need to get rid of Sam Palmisano instead.

Re:Thanks Cringely

[jeffmeden]

Since Americans started getting squeamish about hearing the term "Massive layoffs". Sure, they aren't going to announce it to the world as such. Once the layoffs pick up pace (assuming this report is true) IBM will start touting the 'revenue improvement' due to the 'cost saving measures' of their 'recent reorganization' that coincidentally involved eliminating a bulk of their labor. Then, watch as stock prices soar on news of improved profit per share.

Re:Thanks Cringely

[Ryan Amos]

Americans get squeamish about massive layoffs, but investors certainly do not.

Re:Thanks Cringely

[Johnny5000]

Americans get squeamish about massive layoffs, but investors certainly do not.

That's because "Americans" actually have jobs and work for a living, and are concerned that their job may be next on the chopping block, and "investors" can just shuffle their money from one investment to another without that concern.

Re:Thanks Cringely

[Cutting_Crew]

"Employees face not only job loss but the indignity of training their off shore replacements."

i know how to handle this. tell your boss or manager AND/OR IBM to shove it. tell them you WILL NOT train the very person who is going to replace your job for the sheer means of satisfying the stockholders. if they want the cheap labor that bad, then let them figure out how to train them and pay for them to be trained themselves.. and try to do that from 5,000+ miles away. then let's see how they feel about offshoring.

Re:Thanks Cringely

[MightyMartian]

It's true of most corporations, but most certainly true of IBM that management never get touched. They really only did a management purge once that I'm aware, back in the early 1990s, and that was just middle management. It's a general rule that the incompetent CEOs get to completely fuck over the company in every possible way before someone finally figures out that they shouldn't be left alone to manage a Dairy Queen never mind a multi-billion dollar company. Part of that fucking up is to fire a good portion of your workforce, outsource them to India, demoralize the remaining workforce, have your projects then seriously compromized, your customer satisfaction go down the tubes and then watch a stagnant or downward-pointed share price now start some sort of nasty nose dive. Finally the board and the shareholders get all pissed off, fire you (which means paying you millions to vacate your office), and you head off to some other company and start fucking them over.

Re:Thanks Cringely

[shofutex]

Even if they do get fired for fucking up, they get millions of dollars anyways. You walk away rich whether you're good or bad--where can I sign up?

Re:Thanks Cringely

[Alioth]

The dollar is already collapsing - it wasn't all that long ago when £1 bought only about $1.45. Now £1 will buy $2 - and there's every indication that the dollar is going to continue losing value.

This does at least insulate us from the rising cost of oil for the time being, since oil is traded in US$, and US$ is falling almost as fast as the price of oil is rising.

Re:Thanks Cringely

[RobertM1968]

That's what happened at CompUSA... all the upper management we liked and respected (who seemed to care about the "grunts") all upped and left... by the time us on the front lines knew what happened and was happening, it was too late - though some of the uppers did try giving us hints...

Re:Thanks Cringely

[Red Flayer]

since oil is traded in US$, and US$ is falling almost as fast as the price of oil is rising.

Insulates you in Great Britain; doesn't insulate the US. Furthermore, we're very close to seeing oil traded in EUR or in a 'basket' of currencies. One of the primary reasons for the current war in Iraq was that Iraq was starting to sell oil in EUR (another was the hope that US control of Iraqi oilfields could have broken the back of OPEC).

If oil comes off the dollar, the US is even more screwed, since petrodollars will stop coming into the US, and other nations will have less reason to hold USD. Furthermore, there will be less incentive for countries like Korea, China, and Japan to buy T-Bills (which they currently do for a *negative* return once dollar depreciation is factored in) -- which results in them selling them off, which then causes the dollar to drop further.

All in all, there are several major factors currently propping up the USD, and if any one of them were to fail, it's likely the others would follow, resulting in economic disaster for the US, with much of the world to follow.

Note that depreciation of the dollar is a positive for USD debt servicing, which is a major reason why it's been allowed to continue. As soon as the US is forced to take it's debt in other currencies, however (which will likely be around when oil comes off the USD), then the US is in a world of pain.

As for me, I'm contributing to the problem by investing most of my money overseas -- but I can't accept the risk to my long-term investments by having them here in the US.

Re:Thanks Cringely

[umbrellasd]

The most important part of what you just said is that it doesn't take long for people to realize how screwed up the mass layoff was, and then a good portion of that 40% gets reabsorbed back into the machine. So people are worrying that these people will saturate "the market" but in all likelihood, firing half your workforce does absolutely nothing to teach you how to be 40% more efficient. Which means unless some radical transformation in management occurs (and as you just pointed out that's extremely unlikely), IBM will be just as inefficient before but now making 40% less of their customers happy and earning 40% less revenue, which means they'll go, "Oh, shit!" and have a mass hiring in short order.

As far as market saturation while they figure that out, you'd really need to take a look at the qualifications of these people and what work they are suited to as far as where they can realistically go to fill a job (where the employer agrees on their credential and pay level and so do they). Then maybe we could talk about the short-term impact of a glut of IT workers in those particular areas of IT, but again I predict it is just a transitory thing. And I suspect what some other people said is just exactly right. The perceived move to increase efficiency will drive up the stock in the short-term, some bigwigs will cash out, and then the reality of my first paragraph will set in and things will return to (normal - a couple hundred million in bigwig pockets).

And of course, flooding a market temporarily drives average salaries down, which means you can rehire your people at a 15% discount and thus you see just how it works. 100K employees * 15% ($50K median salary at time of layoff) * 1.5 year rehire loop = 1.125 billion dollars. If upper management did their homework, the revenue lost over the period is offset by the short-term float of the stock on investor optimism about the reorganization and there you go: about a billion dollars to spread around to the high rollers as they make a graceless exit, fat wallet in tow.

Digustingly clear isn't it?

Re:Thanks Cringely

[Thangodin]

Of course, massive layoffs never work. There are two kinds of employees--politicians and workers. The workers are too busy to see the boom come down, so they are the ones who get laid off. The politicians keep their eyes on the politics of the company, which means that they don't really have time to get much work done. They are really good at looking good--but not very good at actually getting work done.

Each time you downsize, you cut a disproportionate quantity of productive employees. Think of it as a crash diet; you waste muscle and increase the percentage of fat. This is why crash dieting is a good predictor of future obesity. It's also why companies that go through this binge/purge cycle become less and less competitive with each cycle. Look at Ford, GM, and Chrysler. How many times have they done this? My, now there's a success story...

Ouch.

[daeg]

Let's just hope IBM layoffs are a blip on the map and not a sign of things to come.

Then again, any IT person not in a critical role should always be planning (financially, professionally, and personally) for layoffs or reduced compensation. IT is not, and never will be, a constant line of supply/demand. If you want job predictability, be a farmer.

It's also interesting they are dropping unprofitable contracts. Imagine if someone like Dell did that. More than 5 calls over the same user issue? "Sorry, sir, please repackage your computer and return it to Dell for a prorated refund. We are no longer interested in maintaining this support relationship or maintaining you as a customer."

Go with GCI, Ta-Ta, Sy People, etc

[WindBourne]

IBM is basically off-shoring their staff, and keeping their managers and execs. The problem is that is where all the waste is at.

OTH, the Indian companies are hiring American, but at lower pay. They treat the employees like cattle (presumably like they do in India) and have little to no benefits. But at least the management does not suck. The companies are able to make profits. IOW, it may be time to outsource the American managers who are terrible at doing their jobs.

Re:Go with GCI, Ta-Ta, Sy People, etc

[paeanblack]

OTH, the Indian companies are hiring American, but at lower pay. They treat the employees like cattle (presumably like they do in India)

I doubt you could have chosen a worse way to phrase your uninformed prattle. You are aware of how Indians treat cattle, aren't you?

Whatever happened to verifying sources?

[technomom]

Being an IBMer I was quite alarmed by this headline. But if you read the linked story, you'll see that Cringely is quoting his "many friends" at IBM.

That's not what news people would term a reliable source.

It's not to say that this might not be true but I'd like to hear it from something a little more reliable than Cringely's watercooler.

A fraction of the salary

[optilude]

9.8/10 is also a fraction. And please stop the alarmist protectionist crap.

Re:Fuck you IBM

[MontyApollo]

These are mainly services people, performing services for somebody. These somebodies are still going to need services even if it is not with IBM anymore. It is not like they are closing down a manufacturing plant; they are dumping customers, but these customers will just find someone else to do the work. Whoever picks up these contracts will probably need more employees. There will probably be net increase in unemployed people, but a portion much smaller than 100,000.

Re:Fuck you IBM

[Teckla]

I don't understand why people get pissed when this crap happens. The company doesn't owe you a fucking favor. They hire, they fire, they do well, they do poorly. That's life. If you think it's "unfair", tough shit.

America has given many companies the fertile soil needed to create hugely successful businesses. Now these same companies have decided to take a big, stinky shit on that very same America, by offshoring everyone so that a tiny minority of people can go from super-ultra-rich to super-ultra-deluxe-rich.

If you don't see the problem with that, you're a moron.

Let Me Tell You How it Actually Works

[Greyfox]

Lets say you've got small project A. Small project A has 5 or 6 guys working on it. They've been working on it for years, wrote a good bit of the underlying system, know everything about it and can generally tell you exactly where the problem is if you call them with a problem.

Now you fire all those guys and hire a bunch of guys from Brazil at 1/4 the original team's salary. Even if the original team hangs around to train the new guys the new guys have to ramp up from scratch. Even if they're excellent programmers it's going to take them 6 months to a year to even get comfortable with the code, even with documentation in place. During that time the overall application design will get slightly worse as they try to implement new features in ways that don't fit in with the original application design.

In the mean time you've got 150 other tech companies realizing that people in Brazil will work for peanuts and they'll all move in to the country. Now your programmers are realizing that they can get more peanuts if they do the same sort of job hopping that we did in the 90s to get more peanuts. So over the course of the next year your team is replaced by new people who you have to pay a lot more money to and who are completely unfamiliar with your code base again. So now you're paying your Brazilians as much as you were paying your original programming team and they have no experience with your code base. Good job!

You can only save money that way if you buy into the fallacy that people are pluggable resources and experience counts for nothing. If you believe that then you can get as much done with a summer intern as you can with someone with 20 years of programming experience. Give it a shot sometime. And you can find a company that doesn't have that philosophy. I wouldn't want to work for a company that thinks I'm just a body taking up space anyway.

Re:Mismanaged...

[GameMaster]

You may, or may not, feel the need to cry for the IBM employees who are losing their jobs but better people to cry for might be the competent employees in the rest of the IT sector who now have to deal with a flooded job market. As long as they weren't fired for cause, their resumes look just as good as a competent employee's would. Even employed IT workers should be, at least, a little worried as the average pay rate stands to plummet and their higher pay rates become a liability to job security.

-GameMaster

Re:Cringely might be ignoring the long-term...

[Red Flayer]

If we are able to replace US workers for a fraction of the cost, then why aren't consumers able to shop from non-US corporations at a fraction of the cost?

You can. It's called Wal-mart.

The New American Corporate CxO mindset...

[Anonymous Coward]

You can only save money that way if you buy into the fallacy that people are pluggable resources and experience counts for nothing. If you believe that then you can get as much done with a summer intern as you can with someone with 20 years of programming experience. Give it a shot sometime.

But the CxO's of the big American corporations aren't stupid. They know *exactly* just what a house of cards they're building... It's that they just don't care anymore. All they have to do is prop up their company's stock price long enough to fool the shareholders for a short while long enough for their golden parachutes to fill up because they know their days are numbered quite short, and first and foremost on their minds is how to pillage the most from the company for themselves before they're done with it. They are not afraid of Sarbanes-Oxley any more either. Scandals like Enron, Worldcom, Tyco, Arthur Anderson, Global Crossing, and a dozen others in the past half decade have taught the sharks mostly only how not to get caught or how to not get punished if they do get caught.

Not all shareholders are super-ultra-rich

[mangu]

offshoring everyone so that a tiny minority of people can go from super-ultra-rich to super-ultra-deluxe-rich

If you think most managers don't deserve the salaries and bonuses they get, fine, I agree with you wholeheartedly. But the article says "The point of this has nothing to do with the work itself and everything to do with the price of IBM shares".

One usually thinks of shareholders as a mixture of Bill Gates, Darl McBride, and Steve Ballmer. Well, think again. I'm a shareholder of many companies and you are one too, if you have a pension fund, life insurance, or almost any form of investment. The point is that when you go to the bank and talk to your manager, your main preoccupation is how much you will get from your investment.

If you worry first about the social impact of the companies that make your pension fund and second about the financial results, well, kudos to you, but most people aren't like that. Maximizing a company's profits doesn't mean just making someone "super-ultra-deluxe-rich", it also means providing a decent retirement to people who have worked their whole lives to get it.

It's a material event. Suqeamish doesn't matter

[winkydink]

If IBM, a publicly traded-company, is planning on laying off 1/2 of it's Global Services division, you can bet your bottom dollar that that's considered a material event and they have to publicly disclose it.

Re:Presumably one would need those heads somewhere

[Anonymous Coward]

My current (Fortune 500) company has 150 software engineers in Bangalore. We have over 50 vacancies we've been trying to fill for 6 months. There just are not any qualified people.

One of my guys just got back from Bangalore on Monday. They had a job fair last weekend, big event, free food, etc. 6 people showed up in 8 hours. None of them passed even a rudimentary technical screening.

There is NO ONE in Bangalore available. Where does IBM think they'll get 150,000 engineers? It ain't gonna happen in Bangalore!

It's not outsourcing, it's incompetence.

[Futurepower(R)]

It's not outsourcing, it's incompetence. My opinion: If you read the links carefully, you will get the impression that IBM is an incompetent company run by someone with no technical knowledge. Death is normal for an incompetent corporation.

Links: General information: IBM Employee.com.

Cringley: "... 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..."

IBM employee: "They just cut nearly half our team Tuesday, wtihout even notifying the customer (Who is going apeshit). And 40% is indeed the workforce reduction I've heard bandied about." That comment is anonymous, of course. However, that fits with my experience, which is that IBM is an amazingly incompetent company. The incompetence has been there for a LONG time. Remember, IBM lost more than $2 Billion on OS/2, which in the beginning was fundamentally better than the competition from Microsoft.

IBM is run by a technically ignorant CEO: Samuel J. Palmisano is a technically ignorant CEO: "He holds a Bachelor's degree in history..." Note that his official IBM biography carefully avoids mentioning anything that would give a true picture of his incompetence.

I don't think the IBM layoffs are about outsourcing. They seem to be only about incompetence. Only technically ignorant managers contract with IBM, a company run by someone as ignorant as they are.

Also, I don't think outsourcing is working. U.S. companies get an EXTREMELY bad reputation when calls are answered by an under-trained person who can't speak English. Outsourcing is more an abuse of people outside the U.S. by U.S. managers than it is a way to get things done, apparently. Outsourcing call centers is a very effective way to sell customers on the competition, if the competition has competent employees.

Look at the web sites of any online bank. They are stupid, stupid, and purposely stupid. After people in India learn how to write good banking software, magically some company owned by an Indian will have the best banking software.

There is only one reason for outsourcing. Non-technical managers want the technical responsibility as far away from themselves as possible. It is dishonesty only.

Walk down any street in India and ask yourself: Why are people in India so poor? They are poor because their culture is extremely self-defeating. No matter how well an Indian who is first- or second-generation educated is trained technically, he is still guided mostly by his culture.

The claimed cost savings are not there. They simply are not there. The "cost savings" come from situations like this:

1) It is cheaper to hire Indians for a sloppy, poorly defined project than it is to hire people in the U.S. for a sloppy, poorly defined project, and the result is the same.

2) Many top managers today are like kings. They have complete control, can be as destructive as they want to their company and to other people, and are very ignorant. So when it comes time for a technical improvement that will be a lot of work, and require a lot of responsibility and decision-making, moving the entire project 10,000 miles away seems attractive. The distance offers lots of excuses, and it just doesn't matter to the king how much money is wasted. The "cost savings" are what the king says they are.

We are going through a time in which most managers of technically-oriented companies know nothing about technical issues, and don't want to know anything.

What has the management been doing?

[teh moges]

Seriously, whenever I hear about massive layoffs, the same question pops into my mind:

Why are the employees being punished when this is so obviously a management issue?

If the managers were doing their job correctly, then one of two things would of happened:
1) Either the projects would generate enough revenue to keep the current workforce, or
2) the workforce wouldn't of got "so large" that they need to cull it.

Call it cost saving if you will, but if I were working for IBM and got to keep my job, I wouldn't be turning up Monday. Or any other day for that. If these stories turn out to be true, I'll never buy something from IBM again. If IBM isn't being managed properly, get new managers, not cheaper staff.

I always thought IBM had built its empire on quality and innovation rather then being the cheapest.