Fat And Mean - IBM's Layoff Plans and the New Downsizing

When Sam Palmisano, IBM's chairman and chief executive officer, announced last year, "Our strong performance is the result of excellent execution and the repositioning of IBM's business model to capture the growth and profit areas of a rapidly changing IT industry," there was little inkling of the night of long knives that was to follow for the people working for IBM Global Services. In a rather unobtrusive manner IBM Global Services laid off 1,300 people from its workforce in the first week of May this year. This did not elicit much comment in the press. But more ominous is the news that the corporate meat cleaver is sharpened for more than a hundred thousand workers at IBM Global Services, which induced panic reaction in the work force. As Robert Cringely, in the Pulpit, notes, '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, but no later than the end of this year.' IBM's Project Lean is all about payroll pruning, which has obsessed corporate America in its dubious quest for short-term profits at the cost of long-term stability and loyalty to its employees. The dynamics of Project Lean are simply to trim the workforce by 1,50,000 out of a total of nearly 1,90,000 people working there. Cringely explains the horrific cost cutting exercise in a clinically chilling fashion 'LEAN is about off shoring 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' continues Cringely, '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.' Fat Headquarters in Armonk, New York, USA and having offices over 300 offices in 170 countries, Global Services has revenue of $47.4 billion (2005). The Global Services group, says Timothy Prickett Morgan (Software, Unix and Mainframe Servers Boost IBM's Profits in Q3), which drove more than half of Big Blue's sales in the quarter, posted revenues of $12 billion, up 3 percent. Global Services has been a problem for IBM for more than a year, as companies are doing fewer big, long-term contracts and smaller, short-term contracts. Mean Whatever may be the problems confronting Global Services, a division of the IT juggernaut IBM (total revenues of $91.424 billion 2006), the impending plan to axe nearly 1,50,000 of the workforce has evoked sharp criticism from corporate insiders. Critics of IBM's chop-chop strategy point out that Global Services is not hemorrhaging in profits to warrant such a drastic payroll cut. Moreover, the critics allege bitterly that Sam Palmisano and his corporate honchos '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.'1 Before the shock waves of the drastic restructuring subsided, the employees of IBM registered another shock wave high on the Richter scale. A terrible realization soon dawned upon them that the pension plan freeze announced by IBM last year would not offer them any benefits by way of IBM providing retired workers with monthly cheques. The pension freeze would come into effect

from 2008. 'Companies have been freezing or terminating pensions, says Stephanie Armour, USA TODAY, 'including businesses such as IBM that are financially healthy.' A spokesperson for IBM admitted that the pension freeze along with changes in retirement plan would save IBM worldwide to the tune of $2.5 billion to $3 billion for 2006 through 2010. "This is one more corporate rollback happening around the country," says Lee Conrad of Endicott, N.Y., a former IBM employee, a unionizing and advocacy group. "A lot of people, especially senior employees, are in a bit of a shock. They feel like the rug's been pulled out from under them." The Job Spam The future for many of its workforce is nearly sealed with a fortunate few being retained as contractors at fraction of their wage. For the technical workers there is the spectre of cheap educated workers from India haunting them and the pressure of lowering their wages in the employment market remains a credible threat. Even the jobs posted for recruitment in IBM have incurred the ire of job seekers as Spam. Says one embittered job seeker on Dice.com, 'They have a large number of jobs posted and have been for months, many of which are marked "entry level" although they are asking for midlevel+ skills and/or education. I know a lot of people, myself included have applied for some of these positions and never so much as gotten an acknowledgement even though we were reasonably solid matches to the job descriptions.' Another job applicant blamed globalization and short term profits with the words, ' We have to blame globalization and shareholder greed. Unfortunately it is not the same technology company it used to be, its future is driven by what's happening in Wall Street.' The New Downsizing The winnowing measures of Plan Lean by IBM are a part of a larger problem confronting Corporate America. By the early 90's, downsizing became a mantra for efficiency experts in management. Corporations were becoming 'lean and mean' with corporations cutting out their managerial staff. 'After years of layoffs,' reported Business Week (1992), 'the spectre of downward mobility is haunting legions of once secure managers and professionals... As corporate stalwarts such as General Motors, United Technologies, and IBM join in a long list of downsizing companies, the economic trajectories of thousands of white collar workers plunging.' Another warning came from the American Management Association: 'There is consensus that middle managers and technical professionals - the exempt employees who fill the boxes on the organization charts between line management and officers- are among the hardest hit in this leaner, meaner business climate.' For the excised victims of downsizing a new term came to be employed - dumpies - downwardly mobile professionals. Technology had a role in displacing the workforce. Throughout the 80's corporations used high tech machines to displace well-paid skilled workers. The sophisticated knowledge required to run machines was concentrated in the hands of a highly educated elite while the rest of the workforce was reduced to the level of keypunchers. The de-skilling of the workforce was no accident as it served corporate interests to hire non-English speaking non-skilled workers at cheap wages. With quality mangers, engineers and designers available at low cost in Third World countries the corporate axe fell on middle and upper middle levels of management. Bloated CEO Compensation The main driver to payroll cost cutting is the handsome compensation packages given to CEO's and to shore up shares of the company. In a study of 229 firms that laid off employees at least once between 1993 and 1999, Craig Rennie-Professor of Business/Financial Markets in the Walton College found that specifically, for the year after a layoff occurred, CEOs of these firms received 22.8 percent more in total pay than CEOs of firms that did not have layoffs. The attractiveness of layoffs was not far to seek. "Our results were consistent with the view that layoffs

create shareholder value," Rennie said. "Layoffs are followed by an increase in operating income and a decrease in expenses. In addition to reducing direct labor costs and related overhead costs, layoffs also appear to increase future operating efficiency." The buzzwords "shareholder value" and "bloated CEO compensation" were red rags to the thousands of downsized workers who complained that corporations owed a duty of care to the community at large. In an article titled Den of Thieves (Salon News, 2000), Merrill Goozner bristled with anger, 'If size is your thing, just flip through the proxy statements of publicly traded companies that will be arriving in mailboxes over the next month or so. The releases provide shareholders with a fleeting glimpse into the surreal world of executive compensation where company boards never let tanking stock prices, paltry earnings or massive worker layoffs get in the way of hefty raises and bonuses. CEO paychecks are swelling like never before.' Eye of a perfect Storm The IBM layoff plan is in the eye of a perfect storm for these reasons. Its CFO, Loughridge in 2005 announced about 10,000 to 13,000 workers were to be axed to pave way for "more competitive cost structure." This meant $500 million in savings that year. The threatened 1,00,000 plus layoff this year is a more serious matter as apart from gutting the workers in IBM, the plan may create huge communications and logistical problems, worsen customer relations to the detriment of the company' operations. More controversial is the proposed dumping of customers without notice who are perceived as unprofitable. The gigantic restructuring of IBM Global services would perhaps, in the words of Cringely, 'eliminate much of the company's traditional wisdom and corporate memory' and push the business to a death spiral. For the beleaguered workers whose heads are on the chopping block the words of David Gordon, author of Fat and Mean, should offer some courage: 'US corporations are fat and mean. We bear the costs of their commitment to the low road. We cannot expect those corporations to change their ways either easily or willingly. We need to change the environment in which they operate and to push and pull them, no matter how deeply they dig in their heels, in order to overcome the wage squeeze and corporate bloat. It will take time and it will take power.' And it must begin. C R Sridhar