IBM Planning Sweeping Job Cuts to Boost Big Blue Bottom Line?

Ann All

Have any doubts that unsubstantiated rumor is the grist that powers the old Internet mill? Try this simple exercise: Search for "IBM" and "layoffs" on your engine of choice. You'll get pages of results filled with coverage based on a column by well-known tech pundit Robert Cringely.


Cringely, a longtime critic of IBM's management, contends that Big Blue is about to embark on the biggest round of layoffs in its history. Citing his "many friends at Big Blue," Cringely says the goal of the so-called LEAN (supposedly an acronymn for the jingoistic Lay Off Every American Now) project is to lay off at least one American worker for every overseas hire in the company's Global Services division.


Some financial analysts who cover IBM have been quick to dismiss the rumor, with Annex Research President Bob Djurdjevic calling it "hogwash." Another analyst calls the number mentioned by Cringely, 100,000, "kind of ludicrous" as it would decimate IBM's global workforce of 350,000.


As we all know, one area where IBM is decidely NOT cutting staff is India. Using IBM's overseas activities as a starting point, Cringely mentions just about every hot-button issue related to outsourcing and offshoring in his column, including the proposed expansion of the H-1B visa program.


According to the Alliance at IBM, a group trying to organize a union for IBM employees, some 1,300 workers in the U.S. services division have been told their jobs will be eliminated. (That's right, the announcement came from a group of employees trying to unionize, not Big Blue's press office.)


It's worth noting that IBM hasn't confirmed this, though some folks see the company's acknowledgement during a recent earnings call that it is planning "a series of actions to address our U.S. cost base" as the smoke pointing to a bigger blaze.


At least one point made by Cringely has the ring of truth. "The point of this has nothing to do with the work itself and everything to do with the price of IBM shares," he says.


Well yes, like it or not, nearly every business today puts its obligations to shareholders before its obligations to employees. IBM is a global business that takes a beating from Wall Street every time it fails to perform up to financial analysts' expectations, as it did last quarter.


Is it so surprising that IBM wants a big presence in India, where IT spending grew more than 25 percent in 2005? A burgeoning domestic market is leading Indian services firms to go after homegrown business after virtually ignoring it for years.


Cringely also notes that a strong move to offshoring could eventually bite into IBM's Big Blue bottom line, another point that we suspect may be true. "...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," says Cringely.

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May 12, 2007 5:08 PM Ted Ted  says:
It seems to me that one group potentially in a position to do something about this Share Price Insanity are the Pension Funds.a. They represent a substantial proportion of investor funds. If they said with one voice that they wanted corporations and/or Wall Street to behave in a different way, they would have to be listened to.b. It is in the name of investors that corporations are acting so hard to boost their share price.c. One of the principal levers that corporations are operating to boost the share price is the pension rights of employees and retirees. In IBM's case, it's also hitting the jobs and wages of employees.It is a vicious circle. Companies are paring back pensions and wages in order to please investors, who are in part other pension funds.If pension funds agreed they were going to break this cycle of meanness, we might see a renewed, civilised standard of executive behaviour in the Anglo-Saxon business world. Reply
Aug 8, 2007 12:12 PM The Management Consultant The Management Consultant  says:
Here we go again! A chorus from the wings...There are few dogs who can chase there tails for long without loosing direction. It is a sad fact that many American companies pursue self-destructive business models. Share price vs. headcount vs. revenue ratios. Have the lessons still not been learnt? Reply

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