Incentives Matter
Bob Cringley is reporting that IBM is planning up to 150,000 U.S. layoffs this year as part of its "LEAN" initiative. Personally, I know two people left at IBM Global Services, and both of them currently have their paper on the street. I’ve not spoken with either about the below, but it certainly seems like a credible rumor based on my (admittedly very limited) information. From the article:
The IBM project I am writing about is called LEAN and the first manifestation of LEAN was this week’s 1,300 layoffs at Global Services, which generated almost no press. Thirteen hundred layoffs from a company with more than 350,000 workers is nothing, so the yawning press reaction is not unexpected. 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, each dribbled out until some reporter (that would be me) notices the growing trend, then dumped en masse when the jig is up, but no later than the end of this year.
LEAN began last week with a 10-city planning meeting for Global Services, which wasn’t, by the way, to decide who gets the boot: those decisions were apparently made weeks ago, though senior managers have been under orders to keep the news from their affected employees…
…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. 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.
All this is supposed to happen by the end of 2007, by the way, at which point IBM will also freeze its U.S. pension plan.
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. This is exactly the kind of story Wall Street loves to hear. Palmisano and his lieutenants will retire rich. And not long after that IBM’s business will crash for reasons I explain below.
I’ve trimmed this post because I decided I should wait to talk to my friends before opining further. I will update the blog when I have additional info, and will re-add the editorial at that time as well. If you’d like to be updated when that happens, grab the Reluctant Blogger Tech-News-Only RSS Feed.
(H/T for the story to Techmeme. More coverage at Sandagopan)