IBM: Job cuts mean savings of $1 billion in 2006

IBM expects its restructuring to result in up to $500 million in savings this year and double that figure in 2006, the company said Thursday.

The computing giant on Wednesday announced plans to cut between 10,000 and 13,000 jobs--about 4 percent of its total work force--and to streamline its European management organization. It will take a charge of between $1.3 billion and $1.7 billion.

In a conference call Thursday, Chief Financial Officer Mark Loughridge detailed the plans, saying they will result in a "more competitive cost structure."

Loughridge said the majority of the job reductions will be in Europe, particularly in IBM's Global Services division.

The changes were expected following disappointing first-quarter financial results. France, Germany, Italy and the United Kingdom had been weak spots in the first quarter.

To lower costs, Big Blue will move some of its operations out of Western Europe to lower-cost regions. IBM will also seek to "standardize" job functions to reduce repetitive processes and lower the cost of its support services, Loughridge said.

IBM is planning to reduce the number of workers in Europe by voluntary departures but said there will be involuntary cuts in the United States. The company has begun negotiations with European labor organizations.

"Weak market conditions in some countries, notably in Western Europe, compounded with low levels of attrition have resulted in overcapacity and skills mismatch with market demand," he said

The job cuts are part of IBM's efforts to revamp its Global Services organization to pursue higher-margin services contracts. Global Services represents about half of IBM's $96 billion in revenue.

Loughridge also commented on a planned overhaul of IBM's European management structure. The company will strip out upper management layers to enable quicker decision making and reduce bureaucracy.

He said the company is not anticipating any disruptions in revenue from the reorganization because "customer-facing" sales employees will remain in place.

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No point in cutting costs if you also decrease value

>He said the company is not anticipating any disruptions in revenue
>from the reorganization because "customer-facing" sales employees
>will remain in place.

Perhaps there?s a clue here as to why IBM?s performance has tanked. They think that a glitzy sales team will compensate for lacklustre product support and clueslessness as to what businesses need.

And how are they going to resolve this?

They?re going to move yet more product support and design to areas which are known for poor quality product support and cluelessness as to how western businesses operate.

And so ad infinitum?.

Has IBM Europe been set up?

There are many who see IBM Corp's liquidation of its European division as a continuation of the vendetta that started back in 1993 when new CEO Lou Gerstner fired Hans-Olaf Henkel, the boss of IBM Europe for failing to support unreservedly Gerstner's plans for the company. (Gerstner hadn't, at that stage, heard of IBM's 'non-concur' management process, which he swiftly eliminated thereafter.)

The targeting of IBM Europe for re-structuring is partly punishment for poor results last year, and partly IBM's response to the realisation that Europe had once again become too big, relative to IBM US. The dividing of IBM Europe means that IBM US will once again be top dog in revenue terms.

One could also mention IBM's disappointment with revenues from its 'On Demand' program, to which the comapny is very heavily committed. When first launched, it seemed to be the vision that could unite every IBM division, including the newly acquired PricewaterhouseCoopers. Though the vision made a lot of sense internally, it was announced without the benefit of much market research. Subsequent analysis suggests the market peak is some five years away in the US, so who knows how long it will take to peak in Europe, which is always some time behind the US?

Underlying the whole strategy is the IT industry's romance with offshore delivery from India and China. Feedback from the East suggests not only is the price of labour much, much lower, but the quality of the output (particularly for programmers) is actually higher than in the West. Like most global corporations, IBM currently sees no real limit on the functions it can offshore. The only constraint on this movement is the speed which its HR commitments will allow the exodus of jobs from the West.

IBM Europe had a poor year last year in part because its employees were forced to use up their vacation reserves. (I've heard one insider say that IBM's productive capacity in 2004 was reduced by 6% by this move alone.) IBM Europe, or what remains of it, will have a poor year this year because of the uncertainty and distractions caused by this separation program.

Did IBM already have this 2005 separation program in mind when its European subsidiary declared the change in its vacation policy early in 2004? The move has certainly reduced the size in the pay-out needed for vacation not taken by employees let go.

This Move Looks Like Self-Preservation To Me!

From all perspectives it will appear that almost all business decisions are based on shareholder values as distinct from cases where decisions are made based on broader social and economic values to the community on the whole; that said, let one take a look at what was said in your comments; you said, "The targeting of IBM Europe for re-structuring is partly punishment for poor results last year, and partly IBM's response to the realisation that Europe had once again become too big, relative to IBM US. The dividing of IBM Europe means that IBM US will once again be top dog in revenue terms". Questions: How does this apparent lackluster performance compare to that of other companies (Intel, Microsoft et cetera) from a global standpoint and on the part of IBM Europe upon which the lackluster results seem to pointing. What could IBM Europe have done to bring about different results from a business standpoint that "Wall Street" will be happier about?

As one who is somewhat familiar with the concept of the IBM's On Demand' Strategies I think that your comments here may be a bit pre-mature as I feel that these "On Demand Strategies" by IBM have not yet really taken hold as a number of technologies implimentations (IBM Workplace Client Technology, Workplace Collaboration Services "Real-Time" et cetera) have not yet been fully rolled out. On the other hand one wonders why is it that given its apparent intelligent know-how and experience of Europe (America finished 17th in the recent international computer programming contest), with resources and a formidable Operating System Platform such as "IBM's OS/2 Warp" (the Enterprise Warp concept)... a so-called "dumb down" operating system (which continues to be enhanced Longhorn, Shorthorn...) with resources from Redmond is still able to please the stakeholders at Wall Street as well as users (many of the copies of the programs unlawfully obtained) in China and Russia. Question: What can IBM Europe do differently that would prevent the outsourcing of US and European jobs to places like India and China and still please the stakeholders on Wall Street and earn their place in an ever growing competitive international marketplace. Don't just blame IBM!