Monday, April 30, 2012

"The Downfall Of IBM"

Information Technology writer Robert X. Cringely published an article this past Friday that will be the first in a series about the current state of affairs at IBM that touches on so many themes I discuss here regularly at TDS that I wanted to highlight them. So, without further ado, here is Cringley from betanews:
The direct impetus for this column is IBM’s internal plan to grow earnings-per-share (EPS) to $20 by 2015. The primary method for accomplishing this feat, according to the plan, will be by reducing US employee head count by 78 percent in that time frame.

Reducing employees by more than three quarters in three years is a bold and difficult task. What will it leave behind? Who, under this plan, will still be a US IBM employee in 2015? Top management will remain, the sales organization will endure, as will employees working on US government contracts that require workers to be US citizens. Everyone else will be gone. Everyone.

Now industries and businesses change all the time because they have to or want to. Big companies and small have to adjust to the realities and changing reward structures of their markets and cultures. Or they change to better adapt to new opportunities. But what’s happening at IBM is different than that. It’s different because this incredible American success story, if it continues to follow its current course, will utterly fail. It’s different, too, because neither IBM management nor Wall Street seem to have the slightest notion of the peril facing the company. My deepest fear is they simply don’t care.
Gee...greater profitability through firing employees by a group of shortsighted, greedy senior managers who care only about the value of their stock portfolios. Where have I seen this before? Only in countless other stories I've posted here at TDS over the past year.

But please continue:
IBM seems to believe it is cheaper to replace a skilled worker with two or three unskilled workers to do the same job. That is like hiring nine women to make a baby in one month. While it looks good on paper it is not practical and is not working. The language barrier for IBM’s Indian staff is huge, for example. Troubleshooting, which was once performed on conference calls, is now done with instant messaging because the teams speak so poorly. Problems that an experienced person could fix in a few minutes are taking an army of folks an hour to fix. This is infuriating and alarming to IBM’s customers.

IBM’s five year plan ending in 2010 was supposed to double EPS from just under $5 to about $11. (Today it is closer to $13.) During the last five years there was an accelerated push of jobs offshore for cost reasons, high attrition rates, and longer product release cycles. The next five year plan for 2015 is to again double EPS to about $20. Can this be done? Probably, but the particular way they are going about it is also likely to destroy IBM.

IBM’s biggest money maker is its Global Services business, which also employs the most people. Ten years ago Global Services was an even larger part of IBM but the company is now making a lot less on its contracts, and the turnover of business is brisk. It is in Global Services where you see the most jobs being shipped offshore. But the problem is the offshore teams often lack the skill and experience to do the work, problems mount, customers like (most recently) The Walt Disney Company get upset and leave.

I’ll be providing more details in subsequent posts, but I want to end here with a point about how patently unfair and simply stupid this is. When I wrote about IBM five years ago the cost reduction program was called LEAN and it was supposed to mold from Big Blue a hyper-efficient business machine. Yet today IBM has more layers of management than it had in 2007. These extra layers come at a cost both in dollars and in accountability. Those extra layers insulate IBM’s top management from responsibility for their decisions. At the highest levels in Armonk they think things are going beautifully because they are out of touch with the reality of their own company.

Today at IBM the US workers who try to save the business are the first in line to lose their jobs. Management accountability is gone. The people who mess up get to keep their jobs; and those trying to retain the business lose their jobs.
Make no mistake, what is going on at IBM as reported in this piece is horrible, but it is hardly unique. Corporate America has become a wasteland in which the jackals and hyenas are ripping many companies apart seeking the maximum short term profit. These business school psychopaths care nothing about the companies, their employees or the health of the American economy in general. As long as they get theirs and can get out before the collapse, all is well in their world.

Bonus: This clip has been the subject of so many Internet parodies, it is time to reclaim the original for just how powerful it is


  1. Wow, IBM has fallen a long way since they secretly maintained ties to nazi Germany and helped facilitate the holocaust.

  2. When I first watched "Downfall" a few years ago, what struck me most powerfully was the theme of fanatical denial taking hold among the tiny privileged elite as their world literally collapses around them. Not only in the bunker scenes, but in the scenes of orgiastic parties held by party functionaries while Russian shells are falling outside. I found this evocative, instructive, and possibly prescient with regard to the fate of the USA. Some of the 'net parodies are funny as shit too!

    1. Great analogy, Huey. Nazi comparisons get overused far too often in our public discourse, but that observation is spot on.

      The parodies are funny, but they have kind of jumped the shark lately. :)

    2. It's especially appropriate to connect IBM and Hitler.

      Remember, "Big Blue" helped the Nazis organize and automate inmate record-keeping in the death camps...

    3. Denialist ruling elites never coming to accept reality is really a common theme throughout history. I'm reminded of Emperor Valentinian III who reigned for 25 years just prior to the total disintegration of the Western Roman Empire.

      The amazing thing about Valentinian was that despite a total ineptitude at governance, the onslaught of Hunnic invaders, and witnessing a multitude of rebel commanders and warlords attempting to overthrow him, he managed to rule for so long.

      He spent his entire reign surrounded by yes-men who helped him concoct harebrained schemes for reviving the empire inside of a luxurious fortified citadel at Ravenna, and all the while wasting the remnants of the imperial treasury on luxury goods imported from Syria and Constantinople.

      What he is most remembered for was the murder of Flavius Aetius. In a fit of jealous he murdered the empire's last remaining military commander who held any sort of authority over a Roman army mostly consisting of barbarian mercenaries and urban militia.

      I just can't fathom why senior managers, ruling elites, CEOs, etc. do things that a harmful for society as a whole. Do they want to live in an unstable world where their very positions are threatened by economic or societal turmoil?

  3. Hmm, Downfall is on netflix instant queue, I think I'll go watch it.

  4. My place of work uses a lot of IBM software to run their email and collaboration software.

    When we need outside help with it we hire consultants to come in and setup the systems, these consultants are mostly ex-IBM employees who are the best at what they do. Our in house staff can handle the day to day operations and maintenance.

    This will be tough on the average good worker, not everyone can become a 'consultant' or freelancer.

  5. Its been said the truth will set you free. In 2004 I was forced out of IBM by a very abusive mnager determined to claw his way to the top. At the time,I blamed myself and felt a failure. I now finally see what has really been going on. Total mismanagement by delusional self-serving corporate elites, hell-bent on short-sighted profit. They will destroy IBM for just a few more bucks. In the mean time laying off every last decent hardworking employee. I no longer feel any guilt or shame. I no longer give a damn about IBM. sometime down the road I expect IBM to cease to exist.

  6. What strikes me in that clip is Hitler's passion. He wanted to win because he wanted Germany to win, for the greater good, if you like.
    Today's leaders and elites only want to win for their own good and they'll get away with it too. Big difference. Looks like Hitler had it wrong.

  7. This sounds familiar.

    There's quite a bit of similarity to my own past experience of the corporate clusterfuck known as Unisys Corporation.