back to article IBM does what IBM does best: Raises the chopper again

With the wider ambition to base eight in 10 services personnel to lower-cost wage locations, IBM has commenced the latest job-cutting process in the UK and Ireland. Big Blue wrote to staff in the Global Technology Services division yesterday to warn of a 45-day consultation, indicating that at least 100 heads are going to roll …

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  1. ratfox
    Paris Hilton

    How is IBM making money these days?

    I'm kind of wondering. These days, you feel that anybody would get fired for choosing IBM.

    1. Anonymous Coward
      Anonymous Coward

      Re: How is IBM making money these days?

      How is IBM making money these days?

      Easy, they charge customers a huge amount more than it costs to provide the services they get. GTS margins have been fairly consistent around 40%, and GBS around 30%. IBM's problem is declining top line sales, but the margins they make continue to be handsome, even on largely commodity services operations. Mind you, those pale into insignificance when compared to the "Cognitive Solutions" segment that has gross margins approaching 80%. Why customers queue up to pay such fat margins particularly for the commodity services I can't say, but I suspect every single one doesn't have a clue either what margins IBM make overall, and in particular what they make on that customer's contract. My experience of procurement bods is that they quibble over the price of every widget, yet have no idea what the cost of the widget is to the vendor, no idea what the average margin of the vendor is, no idea what the actual business model of the vendor is, no idea what the overall out-turn cost of the contract needs to be for the vendor to make their average profit. So long as it looks like good value on paper, they're happy.

      I'm no fan of IBM's business model and offshoring, but the picture the Reg paints is very one sided. As a business, IBM still have sales of about $80bn a year, very healthy free cash flow, very generous profit margins on all segments, giving multi-billion dollar net profits. IBM may be losing top line sales, but a big chunk of that is likely to be walking away from low margin business, whilst their offshoring will drive margins higher. It does strike me that their SG&A is a major drag on their profitability - IBM spend three times as much on sales, general and administration expenses as they do on R&D. If instead of focusing on offshoring all delivery roles, they shaved a mere 10% off that SG&A bloat, they'd increase pre-tax profit by around 20%. But the business development side of IBM is immensely powerful, and they aren't going to shrink their empire just to improve shareholder returns.

      1. Anonymous Coward
        Anonymous Coward

        Re: How is IBM making money these days?

        Turnover is vanity, profit is sanity.

        1. Anonymous Coward
          Anonymous Coward

          Re: How is IBM making money these days?

          And cash is reality. IBM has used its cash to buy back quite a few shares the last time I looked. Profits been heading south for some time too.

          1. Anonymous Coward
            Anonymous Coward

            Re: How is IBM making money these days?

            They've spent over $150B buying back their shares or close to 6 x LinkedIn's ...

      2. Salestard

        Re: How is IBM making money these days?

        ex IBM sales.

        I can easily answer the above: Because fundamentally, people don't buy whatever productized daylight robbery IBM happen to be selling - they buy the dream, the brand, the association of having an IBM product.

        Even now, six years after leaving, I'm still bemused by the situations I found myself in where I was selling a worse service (GTS) for six or seven times the price, to provide the wrong solution at the wrong time, and despite all the blindingly obvious issues which would have stopped any other provider in its tracks, the customer board would just skip merrily straight into the jaws of a contract. It was like shooting fish in a barrel most days.

        It was the legacy of when IBM were truly great. They've kind of recaptured some of that magic with Watson, the cashflow coming from the mainframe-esque model of having an expensive entry point to ensure commitment, followed by even more expensive dev time to make it do whatever it was you thought it was going to do.

        However, the thing that really got me about IBM was how cult-like it was internally. No matter how mad, bad, and bullying the middle line was, no matter how many CR and VRs did the rounds, and no matter how many times people got shuffled from pillar to post at the whim of some cost reduction exercise, they still accepted it all as normal and put in maximum effort to get dumped on from a very great height.

        A bizarre period in my life, and retrospectively I think everyone should do a stint there, just to experience how dysfunctional a functional company can actually be.

      3. Anonymous Coward
        Anonymous Coward

        Re: How is IBM making money these days?

        Customers are very much aware of IBMs margins. That's why they are not making new sales.

        Previously customers were prepared to pay over the odds to continue a long term relationship with an ethical long term partner, and, because of the level of expertise IBM could bring.

        The long term commitment to the customer has been replaced by a commitment to the current quarters revenue.

        The experts have been handed pinks slips, P45s, or got plain fed up and left for greener pastures to be replaced by inexperienced third world graduates.

        IBMs shareholders should be seriously considering firing the entire board, and all the senior management who presided over or promoted this disasterous decline.

        1. Anonymous Coward
          Anonymous Coward

          Re: How is IBM making money these days?

          The problem is most IBM shareholders want to see an increase in their value in the short term so they can sell them and never return.

          1. Anonymous Coward
            Anonymous Coward

            Re: How is IBM making money these days?

            My dividends are still coming in, their yield is still higher than I can get from a bank or building society.

            I agree this is hard on staff, but the title tells you everything you need to know.

            IBM is International, it is a Business and it is a Machine. If a company is not for making money then what is it for?

            My sympathies to those staff that haven't worked this out yet. Technology is great to work with, but it must make money to justify your wages. There is a lot of talk here of promises being broken though in my time at IBM I was never made a promise that wasn't kept including the redundancy payment I volunteered for.

            Good luck all and Merry Christmas.

    2. Anonymous Coward
      Anonymous Coward

      Re: How is IBM making money these days?

      You only get fired for choosing to work for IBM.

    3. macjules

      Re: How is IBM making money these days?

      Both management and the wider workforce will sit around the table, IBM added in the missive, and discuss “proposals for the organisation to meet its business objectives”.

      BigBadWolfCo: We would like to hold a roundtable discussion to finalise our plans for architectural expansion into the wood and straw porcine housing market.

      PigletHousing: We welcome the interest of IBM BigBadWolfCo in our new low-cost housing plans.

    4. Anonymous Coward
      Anonymous Coward

      Re: How is IBM making money these days?

      When I was working for IBM nearly 10 years ago it was widely understood that they were "making money" by buying back shares. This somehow kept the share price high (I never really understood how that worked) but obviously this cannot go on indefinitely and I believe that the end happened some time ago.

      Now they are "making money" by laying off staff. Again, I don't see this as a long term solution.

    5. Stevie

      Re: How is IBM making money these days?

      Well, I'm sitting in a place where people are alternately ruing the day and chewing out whoever IBM sends to be shouted at this time.

      The guys wot perpetrated the offenses moved on during the tuning-up for Prelude To An Axe Opus 1 and are out of everyone's reach.

  2. Dominion

    LLoyds Bank

    Is that the Lloyds Bank staff that have just TUPE'd across that are on their way out so their jobs can be sent offshore?

    1. Anonymous Coward
      Anonymous Coward

      Re: LLoyds Bank

      Nope - they will be protected for the moment. But IBM has to balance the books so they get rid of established staff to offset the Lloyds team. Don't worry, as soon as their protection expires you can guarantee we'll have another round though!

      1. Anonymous Coward
        Anonymous Coward

        Re: LLoyds Bank

        They're nearing the end of the first three months of protection so they probably have a good idea of who they want to get rid of.

        By the time they go through consultations and handover to a remote team, it'll be six months.

        They will be "protected" in that they are asked if they want to leave. If they don't want to go, handing over all their tasks to a cheaper team in another country so they can take up one of the new, exciting opportunities in "cloud" or some other BS team will soon make it clear...

      2. TheBorg

        Re: LLoyds Bank

        Much like the Deutsche Bank / HPE outsource deal, the staff were 'ring fenced' the first year to eighteen months. After that the gloves were off and people could move. As it turned out, many had left by then or gone back into the bank by then.

        The jobs are still being sent to 'best shore' as they call it :)

  3. deadlockvictim

    Calls from the Indian Subcontinent

    Hello sir,

    I'm calling you from IBM in India.

    Our monitors tell me that you have something wrong with your server.

    ...

    All that is needed is a list of IBM customers and some knowledge of IBM systems.

    That shouldn't be too surprising, what with all of the disgruntled ex-employees out there.

    1. Anonymous Coward
      Anonymous Coward

      Re: Calls from the Indian Subcontinent

      http://www.businessinsider.com/britain-must-accept-immigration-post-brexit-trade-deals-india-liam-fox-2017-11?IR=T

      1. Anonymous Coward
        Anonymous Coward

        Re: Calls from the Indian Subcontinent

        Yes, for fear of the EU, Britain will become a colony of India... it will be fun to watch Doctor Who, Bollywood style...

      2. Anonymous Coward
        Anonymous Coward

        Lack of control over immigration and it's impact on housing was a primary reason for Brexit, so there's no incentive for uncontrolled immigration with India!

        Why is there a rush to strike trade deals post Brexit, besides equivalent arrangements to those we have under the EU? A trade deal has to offer something of mutual benefit, it can't be one sided. Would free trade with countries that already undercut our workers by a significant margin be of much benefit to the UK, given their exports are already affordable? As a nation we struggle to balance our trade deficit, and I'm not convinced more free trade will help.

        1. Anonymous Coward
          Anonymous Coward

          >Lack of control over immigration and it's impact on housing was a primary reason for Brexit, so there's no incentive for uncontrolled immigration with India!

          No no no. That's why lots of people voted for it but it's not what we're going to get. Now we're not appealing to Europeans those low-paid jobs will have to be done by those who will still come here because it's better than what they have.

          Ironically the brexiteers will end up with more of those brown people they don't like.

          1. Anonymous Coward
            Anonymous Coward

            Where would we be without the British Empire and Commonwealth?

            Brexit seems to have been built on the basis that it was alright when we had an empire. I blame the education system.

  4. Lysenko

    More evidence (as if any were needed) that MBA stands for Management Brain Atrophy. How can they possibly imagine that offshoring support staff is going to help to reverse contracting sales? If your sales are contracting then that means people aren't buying your products which in turn means that either the market is contracting (patently false in the IT realm) or you need to immediately increase costs by investing in new product development and higher customer satisfaction ratings.

    No-one ever bought from IBM because they were price sensitive and looking for bargain basement solutions. They would have decamped to WiPro or some other subcontinent outsourcer a decade ago if they wanted/accepted support functions based in Bangalore.

    1. Anonymous Coward
      Anonymous Coward

      No-one ever bought from IBM because they were price sensitive and looking for bargain basement solutions.

      True, but IBM aren't offering their services at low cost. All the weight of marketing is pushing the intellectual strength and vitality of IBM, the added value, the Big Blue dependability, the clear country mile between them and commodity outsourcers. The cost cutting isn't passed on to customers, it is fattening up IBM margins, such that despite a tiny decline in the past year or so, they're still making far better margins than they made from 1995 to 2005.

      They would have decamped to WiPro or some other subcontinent outsourcer a decade ago if they wanted/accepted support functions based in Bangalore.

      The people who make these decisions are barely affected by the consequences, because they rarely use a computer themselves. They neither know nor care about the quality of service the proles are subject to, or the difficulty and cost in getting anything done. The execs won't even know or care about the out-turn cost of the contract. The only thing that would attract their attention would be the sort of loss of availability of business critical systems for a day or more (eg BA, RBS and others). So long as IBM manage to keep those key systems up, they can provide whatever other standard of service that suits them, and charge whatever they like (through the pricey variation clauses in the contract and SLA).

      For large companies who have the money, volume and skill, the only reason to outsource is because you don't care how well or badly the job is done, and you don't care how much it costs - you just think you've released yourself from the difficulty of managing and operating all that pesky IT and business processes. The vendors know this, and behave accordingly.

      1. Lysenko

        Regrettably, I believe everything you say. I Bribed Management didn't get that name for no reason.

        When I exited the public sector nearly two decades ago (because getting TUPE'd over to Crapita is constructive dismissal in my book) I imagined I would be moving to a realm where greed fueled capitalism would drive sustainable common sense. Then I started working with Banks. Oh.

      2. Anonymous Coward
        Anonymous Coward

        Annocdotal evidence. IE. Chats by the chai stand with Indian colleagues , is that Indians consider IBM a very poor employer. Infosys sucks up the best and brightest graduates the rest try for Tata or WiPro. IBM is seen as a last resort before applying for a government job.

        So management would be very much advised to deal direct with an Indian supplier if they plan to offshore. At the very least you can justify a nice expenses paid trip to Mumbai or Chenai.

    2. Anonymous Coward
      Anonymous Coward

      "you need to immediately increase costs by investing in new product"

      But that won't let you reach the yearly bonuses, and increase your stock options value immediately. It would be a long-term investment which actually could reduce your executive income for several months.

      So, of course, you take the path you learned - reduce the number of skilled, experienced but more expensive employees, and move jobs to low-skill, low-wages countries.

      It will impact your business in the long term as product quality drops and customers discontent increase - but you plan to reap the short-term benefits of simple and crude cost-cutting, and then open your golden parachute in time, let someone else ask for chapter 11....

      One of the issue is that most executives in most companies are no longer interested in the company long-term business sustainability - they are only interested in their own short term gains before retiring or going to another company to repeat the game.

  5. Anonymous Coward
    Anonymous Coward

    To all employees: Merry Christmas...

    ...now fuck off, we don't want you, it's all your fault that we've missed the quarterly target for 22 months. Don't try and blame the almighty Ginny - she's doing everything humanly possible to turn this round, and you unwashed piles of shite are just getting in the way.

    Love, hugs n kisses

    The Management Team.

    P.S Trebles all round?

    1. Anonymous Coward
      Anonymous Coward

      Re: To all employees: Merry Christmas...

      I see they got HR to 'smooth' the message slightly :)

      Don't want the peons getting all 'Uppity' before the axe hits .... do we ???

      When all the staff are based in sunnier & cheaper climes, who do you blame next and how do you save costs next time when you are all but employing people on 'Zero Hour Contracts' ..... there's an idea !!! :)

      Next idea .... pay on a per call basis with a banded set of rates based on volume. (For the Telephone based staff)

      Strange how these 'readjustments' in staff numbers are always around Chrismas time !!!

      Ho ho ho Merry Christmas ...... One and all.

    2. Anonymous Coward
      Anonymous Coward

      Re: To all employees: Merry Christmas...

      Dear Management, please report yourself to HR immediately. "Christmas" is offensive to some of our employees and needs to be stamped out immediately. Please amend your memos to "Happy Holidays" - you know - the ones we force you to take around the 25th December, for some totally unrelated reason to folks celebration of a pagan ritual.

    3. earl grey
      Mushroom

      Re: To all employees: Merry Christmas...

      P.S Trebles all round?

      I think you mean Tribbles. They're going to be stuffing them up your fanny so best be prepared.

  6. The Power

    Got the skills and experience needed... If so **** ***

    So they are at it again. Long ago they got rid of the fat, paid them off much better than the higher rated employees it now comes to cull. When I was still there it was statutory minimum, just as if they were about to go under, and it would have been less if they could have got away with it. Not only was it the payoff but the attitude from management and wordings of the dismissal of the staff as if they had been caught with their hands in the till or been taking the company for a ride, that got my blood boiling.

    Fortunately something else better came my way I got out. I feel for all the good people I left behind. As usual lovely timing. IBM have no direction, no plan, and when they are not making enough profit. out comes the axe. The bean counters making the decisions no the cost of people and not their value, clueless spreadsheet warriors. Staff loyal through years of zero pay rises, seeing the value of their wages drop to less than 75% of what they were worth then the final insult of being thrown out with the rubbish.

    Getting rid of experience will not save the company, but culling the management and bringing in an innovator letting the skilled workers develop a business for the future might, however that would not give enough dividend and bonus to those at the top, so the axe it is. Happy Christmas All, you've had your notice so **** ***

  7. Anonymous Coward
    Anonymous Coward

    IBM

    India Bangladesh Manila

    1. Anonymous Coward
      Anonymous Coward

      Re: IBM

      Sounds more modern than International Business Machines . Im sure they started out doing cash registers or something.

  8. GruntyMcPugh Silver badge

    Former colleague told me about this yesterday, and it would appear yes, there's a 45 day consultation period so it's 99+ heads on the block. No word on the snappy project name yet, I left under 'Chrome', there was 'Baccarat' and 'Ruby' earlier this year, overlapping, think there was another in the middle somewhere in the UK as well.

    Severance packages weren't as generous last round either, statutory minimum, so that sucks.

    1. Anonymous Coward
      Anonymous Coward

      I left under project "free 6-month holiday". But that was when they actually provided a decent package.

      What amazes me most is I meet IBM customers who still think their products are good. Fair enough, some of them actually are, but most have been under-invested in for years.

      I did have to contact IBM support recently, on behalf of a customer (I said I'd deal with it). When I phoned up I was told the team in question were all at lunch and would phone me back. They did. An entire week later. They were based somewhere in Europe though, which was a surprise.

      1. GruntyMcPugh Silver badge

        I can't think what products anyone might buy from IBM now,.... what with PCs and servers going to Lenovo, there's just the big boxes left, and there can't be many customers for those. Saw one when I did a contract for a bank a couple of years ago, but they also had a lot of Intel and Sun, cubes and cubes of that, but just the one Z-System (well, two, mirrored DCs).

        Checking out the IBM web site, there's nothing there I can think we'd want,.... certainly not 'Verse', I've done two migrations _away_ from Notes during my IT career, both to Exchange,

        1. Aitor 1

          Margin and profit

          It doesnt matter that much how many boxes you sell.

          The important thing is how much money you make, and how much your competitors make.

          As a brilliant example, look at apple: they take most of the profit!

          IBM is doing the same: less sales, same or more profit.

          The problem with this is, of course, that at some point you are irrelevant and your sales dont drop, they plummet.

  9. trevorde Silver badge

    Beatings will continue...

    ... until morale improves :-(

  10. Chairman of the Bored

    You keep using that word. I do not think it means what you think it means

    "...the permanent employee population"

  11. Anonymous Coward
    Anonymous Coward

    International Beheading Machines

  12. WatAWorld

    We should stop patronizing a company that doesn't patronize us

    If IBM isn't interested in buying US, Canadian, and EU products and services, why should US, Canadians and EU product and service providers issue purchase orders for IBM products and services?

    Why shop at a company that is intent on destroying the UK and US IT industries?

    1. Teiwaz

      Re: We should stop patronizing a company that doesn't patronize us

      Why shop at a company that is intent on destroying the UK and US IT industries?

      Join a commune or drop out to some other alternative lifestyle, as all companies seem intent on exploiting any resource they can get their mandibles round.

      US, Canadian and EU companies will happily continue to do business with the offshoring service companies, desperately trying to keep the sans pokerface hidden as they drool over the perceived IT savings, only to realise after a year or two their IT is degrading or systems knowledge is draining away like water from a leaky barrel. Bring IT back, rebuild, five or six years later repeat.

  13. Anonymous Coward
    Anonymous Coward

    As per Schlock Mercenary

    IBM= Internal Bowel Movement

    1. Captain DaFt

      Re: As per Schlock Mercenary

      Or as Australia could say: I've Been Mugged

  14. Anonymous Coward
    Anonymous Coward

    I have a friend who works for IBM. The cognitive dissonance between 'this is the greatest company with the greatest people' and 'this is acutely dysfunctional, we are treated awfully and any decent perks were eroded years ago' is amazing.

    1. GruntyMcPugh Silver badge

      Perks,.....

      .... a payrise inline with inflation would have been decent, but all payrises were discretionary and performance based, and PBC bonus not always honoured for grade 2 as previous years. Quite simply it's an abusive relationship, I recall after TUPE ended, our on call payments got reduced, and the phrase was 'If you won't do it for the money, we'll find people who will.' performance related everything meant sucking up the BS or else.

      1. Anonymous Coward
        Anonymous Coward

        Re: Perks,.....

        @Grunty, your experiences are similar to mine at a major systems integrator, exactly the same happened there, and similar payoffs. Still, by that time I was glad to take the money and run. So it's not just IBM if it makes you feel any better.

  15. Joseph Haig

    IBMers have until this Friday, 1 December, to nominate colleagues to represent them.

    ... and may the odds be ever in your favour.

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