When I was growing up in Ohio, ours was the only house in the neighborhood with a laboratory. In it the previous owner, Leonard Skeggs, had invented the automated blood analyzer, pretty much creating the present biomedical industry. Unwilling to let such a facility go to waste, I threw myself into research. It was 1961 and I was eight years old.
I was always drawn to user interface design and quickly settled, as Gene Roddenberry did in Star Trek half a decade later, on the idea of controlling computers with voice. Using all the cool crap my father (a natural scrounger) dragged home from who knows where, I decided to base my voice control work on the amplitude modulation optical sound track technology from 16mm film (we had a projector). If I could paint optical tracks to represent commands then all I’d need was some way of analyzing and characterizing those tracks to tell the computer what to do. But the one thing I didn’t have down in the lab in 1961 was a computer.
That’s what took me to IBM.
I wrote a letter to IBM CEO T.J. Watson, Jr., pecking it out on an old Underwood manual typewriter. My proposal was simple — a 50/50 partnership between IBM and me to develop and exploit advanced user interface technologies. In a few days I received a letter from IBM. I don’t know if it was from Watson, himself, because neither my parents nor I thought to keep it. The letter invited me to a local IBM research facility to discuss my plan.
I wore a suit, of course, on that fateful day. My Dad drove me, dropping me at the curb and telling me he’d be back in a couple of hours. It was a different era, remember. The car, a 1959 Chrysler, was blue with cigarette smoke.
Inside the IBM building I met with six engineers all dressed in dark suits with the skinny ties of that era, the tops of their socks showing when they sat down.
They took me very seriously. The meeting, after all, had been called by T.J. Watson, himself.
Nobody said, “Wait a minute, you’re eight.”
I made my pitch, which they absorbed in silence. Then they introduced me to their interface of choice, the punched card.
Uh-oh.
Thirty years later, long after he retired, I got to know Homer Sarasohn, IBM’s chief engineer at that time. When I told him the story of my experience with IBM he almost fell off his chair laughing. My ideas were good, Homer said, they were just 40 years too early. In other words they were still 10 years in the future when Homer and I were talking a decade ago.
The message that came over clearly from those IBMers back in 1961, by the way, was that they were a little embarrassed by their own lack of progress. Terminals weren’t even common at this point but they were coming. If I could have offered them a more practical magic bullet, I think they might have grabbed it.
So when I write these columns about IBM and you wonder why and where I am coming from, it’s from that boyhood experience of a huge company that took me seriously for a morning, possibly changing my life in the process.
Alas, that IBM no longer exists.
My recent IBM columns have stirred up a lot of interest everywhere except in the press. One reporter called from Dubuque, Iowa, but that’s all. This is distressing because the story I’m telling has not been contradicted by anyone. Nobody, inside or outside IBM, has told me I have it wrong. In fact they tend to tell me things are even worse than I have portrayed.
As a reporter I know there are always more stories than I have time or space to write, but this silence from the U.S. business press is deafening. Here is a huge news story that is being completely ignored. It’s not that it has gone unseen. I know who subscribes to the RSS feed for this column and it includes every major news organization in America and most of them in the world.
It’s one thing to be unheard and another to be ignored. This strikes me as an editorial decision based on not pissing-off an advertiser, which should make us all sad.
But back to IBM. A curious paradox has emerged in this story. There have been apparently at least two versions of the so-called Pike’s Peak presentation laying out IBM’s personnel plans to meet its 2015 financial goals. Both versions date from last summer with one saying US head count will be cut 78 percent by the end of 2015 and the other saying head count for the USA and Canada will be cut by 85 percent in that time.
If both presentations are legit, what does this mean for IBM Canada?
It suggests to me that IBM intends to withdraw from Canada entirely, possibly serving Canadian customers remotely from the USA or maybe direct from India. I haven’t been told this. All I am doing is a calculation on the back of an envelope, but that’s the way the numbers look to me.
Maybe the Globe and Mail should pay attention.
IBM is at a tipping point. This week I’ve been told job offers from IBM are half of what they were last week as new policies start to take effect. IBMer after IBMer has reported to me draconian cuts that will make it very difficult (maybe impossible) for Big Blue to fulfill its contactual obligations in the event of a regional (multi-customer) crisis like an earthquake or hurricane.
Contradicting my first column in this series, even IBM workers on federal contracts including defense and national security accounts are being affected.
What the heck is going on here?
I have a theory, of course.
I think huge parts of IBM (especially Global Services) are being readied for sale. Fixating solely on the bottom line, IBM appears to be cutting every expense it can in order to goose earnings and make those divisions being put on the block look more valuable.
Are buyers really that stupid?
They probably are. All it takes is an auction environment with one snowed bidder to force the eventual buyer to knowingly pay more than the assets are worth.
It’s a clever tactic but if a disaster happens before such a sale can close, it will have been an experiment with terrible consequences for IBM customers.
Any company no matter what size would be foolish to buy any chunk of this monolithic, archaic, antiquated dinosaur known as IBM. What will they get? Millions of lines of code that don’t work?
IBM is in their own pipe-dream – & it’s hot smoke at that!
Wow! 2 first comments in 1 week!!!! Hey Cringe – is that a record??? 🙂
If you are looking for buyers, look to China, Brazil and Russia, maybe India.
As the engineers point out here, IBM is in poor shape, but it has a great corporate image and good PR. Along comes a foreign buyer wanting those things in the US market, announce a merger of equals and the deal makers walk away with a lot of money.
Plus when things start to collapse, the fall-back position will be that the foreigners wrecked it.
This is the elephant in the room for the business press. Probably most of the Fortune 500 is in this boat to some degree or another. And the press knows it. But for them to say this is pretty radical in the current political climate. You’re getting into Occupy Wall Street and Michael Moore territory now. If this turned out to be true how many other leftist critiques might also be accurate? Somewhere along the line a political climate tipping point will eventually be reached and people will seriously ask how the CEO of a money losing company can be worth $20M/year. And wonder how we went on so long not questioning all this . . .
The greatest generation knew wackos when they saw them. You didn’t see anyone taking the John Birch Society seriously.
The John Birch Society was founded by Fred Koch, father of Charles and David Koch.
Koch Industries is the second largest privately held company in the US.
David Koch is the second richest man in New York City(just behind Mayor Bloomberg).
Charles,
I was hopeful that you would give credit where credit is due. What ever happened to Robert Henry Winborne Welch Jr. (December 1, 1899 – January 6, 1985)?
Maybe if the media hadn’t put out a hit job on the John Birch society, and they HAD been taken more seriously, we wouldn’t be in the kind of predicament we are in today. A lot of the things that Birchers were predicting would happen 50 years ago, have happened.
Another point. It is a stereotype that “lefties” are against corporate power. Its more accurate to say that “lefties” are typically against free enterprise, and what they are FOR is forced redistribution of wealth. They oppose corporate power only insofar as it represents what they perceive as “the ultimate consequence of the unfettered free market”.
That’s absurd, of course. People who are more in touch with reality understand that there is nothing “free” about our marketplace today. Corporations have hijacked the economy by hijacking the courts, the legal system, and the politicians– in that exact order– and turned what was once a free market into a grotesquely tilted playing field. Read Ted Nace’s brilliant analysis, “Gangs of America” to understand this process which began shortly after the War Between the States– yes they’ve been undermining our society for 150 years now! This is critical to understand. You can buy Nace’s book at amazon,or download it from the author for free (!) here: http://gangsofamerica.com/read.html
Once you understand how the corporate legal and business system has so badly undermined our entire society and economy, it becomes EASY to understand why the corporate-owned-and-operated media won’t touch the IBM story with a 50-foot barge pole. The executives who run the corporations will have none of it, and the people who work for the corporations are too afraid, or embarrassed, or demoralized, or brainwashed, to try to fight for this story to get heard.
It took 150 years to get to this point, and we’ve been accelerating downhill at great speed over the last 30 of them. That’s too much history to overcome. Nope, the only place this story is going to appear is right here.
Not to worry–the Nazi UFOs will be here to save you any day now. They’ve got a photo of one orbiting the sun.
Just because you are an ideologue of one stripe, doesn’t mean that the person who has a different point of view is an ideologue of an opposing stripe.
There are such things as devotees to Communist ideology and Socialist ideology, (not the same things, are they?), and certainly those people would be of an ideology of a different stripe than your own. But most people live their lives practicing common sense. Another word for this is “pragmatism” (in the ordinary meaning of the word).
A pragmatist is not someone who disagrees with you on every point. He is a person who agrees with you where applications of your ideology makes sense, and disaggrees with you when they don’t make sense.
Because they don’t agree with you all the time, you declare them to be liberals or of some other ideology you don’t agree with. Most of them are not: they are pragmatist.
All ideologies, of all stripes, in the end, lead to the same ends: nihilism. It means, at some point, if you don’t abandon your ideology for a turn of common sense (pragmatism), at some point, you will be like Slim Pickens, riding on a nuclear bomb yelling “yee-ha!”, other wise known as nihilism.
Your 2007 article was correct and had some effect.
I’m afraid this series of articles will not have a similar effect.
Things change — sometimes a whole lot more than we want.
The whole outlook of American business has changed — almost as much as Americans themselves have changed.
I’ve worked a long time in IBM and with many IBMers. If I had to put a line in the sand between the good and bad, the demarcation would be at the VP level.
Directors and below have absolutely no voice. Twice this week, I’ve heard horror stories about two VPs (in GBS). They run their orgs like little dictators and with an iron fist (with absolutely no regard for employees). I’m getting a gut feeling that VPs and above are getting a completely different message than the rest of us (and I don’t mean being privy to layoffs, etc).
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What a cool story and an amazing experience for an 8 year old kid. IBM was great in it’s day. I worked there for 15 years, and it was a great place to work. They took care of their people, and the work was fascinating. I got laid off in 1994 and it was a huge sense of loss for me, almost like a death. Not just the death of a job, but the death of a great company.
Brian, sadly, you wouldn’t recognize the company.
I bet Oracle buys them. I am sure Mark Hurd is eager to go head to head with HP.
it’s going to be another Kodak… nobody buys.
why? (1) cost too high. (2) there’s no special sauce there, it’s the same business school product filtered through any number of seminars that everybody else has. (3) said product is, “make numbers this quarter. screw the future, make this quarter. get on the newsletter with a briliant idea, and transfer up or laterally in 10 months so the results won’t follow you on your annual review.” (4) many miracles to happen here that won’t. (5) profit sharing, sell stock options, jump ship.
You are dead on target on your point “there is no special sauce”….exactly. Their big engine of global business systems is the same crap being slung by a dozen competitors. It is a business that is nearly impossible to differentiate and is in a “race to the bottom” of margin compression.
That’s assuming that Marc Hurd isn’t tossed out of Oracle by then. The scuttlebutt internally to Oracle is that he’s doing his Chainsaw Al Dunlap impression once more, making just as many enemies as at HP.
Yawn….
Cringely writes:
– As a reporter I know there are always more stories than I have time or space to write, but this silence from the U.S. business press is deafening. Here is a huge news story that is being completely ignored –
I think you answered your own question; it’s probably that there are more stories than time to chase them down. How much time have you spent chasing this story, and how much time do you think Bloomberg or Fortune would spend chasing it?
Searching for ‘IBM’ on bloomberg, I get stories about the dividend. On BusinessWeek, I get three on dividend, then it’s stuff from 2009. Fortune doesn’t show much, and WSJ shows dividend news.
I don’t think this will be a story until after the fact, similar to what happened to GM and Chrysler; more ‘historic dinosaur doesn’t keep up with the times’ copy than breaking news.
Now, if you had something on Apple, well, THAT’S when you’d have folks chasing you down the driveway for a quote when you went to pick up the morning paper…
Readied for a sale? Although I’m a former IBMer now (by choice, not by decree) my colleagues and I frequently said that the internal actions by the company only made sense if one looked at it through the lens of a divestiture.
Not only does that make sense in the abstract, it makes sense in the here-and-now. IBM hardware is a commodity, as are most of the services that clients and customers want to buy. The truly “value-added” services needed to make Smarter Planet solutions actually work are interesting but not in great demand.
Plan 2015 is about doubling earnings, not revenue. Because it is mainly labor, services will never have the gross margins of software, which can be up to 70% or more. Software doesn’t call in sick, can be downloaded , and can be sold again and again.
Therefore, software is increasingly where IBM is placing its chips (so to speak). IBM is becoming a software company; nothing less, and not much more.
I think this is right. We buy a lot of software at high costs and then are bound to long-term contracts at blinding rates for ongoing licensing and support. That’s a pretty sweet model if you can manage to establish a product just right. The development costs to IBM are negligible, and once a large company settles on zSeries or DB2 or WebSphere or even Notes it takes a lot to justify the effort and money and disruption a change would take. If you view IBM as a financial holding operation, then services is a low-margin product being rapidly marginalized by low-cost international competitors while enterprise software has a very high cost for competitors to enter the market and a serious lock-in inertia for customers.
Except for the pesky little fact that IBM really doesn’t make software anymore either.
I wonder what I spend my days doing then? Oh wait, writing software…!
Not true. IBM is now one of the world’s largest providers of software. The WebSphere, Tivoli, and Lotus brands have grown through acquisition of many previously independent companies, large and small. Their buying has been around infrastructure management in all its forms. For instance, when IBM acquired MRO.com a few years ago, they did it to get the Maximo product (now a part of the Tivoli suite) which had one of the largest installed bases for the management of physical assets. It now forms part of the basis for the Smarter Planet strategy.
Ludicrous.
Look, I know IBM still writes some software. Obviously I was being hyperbolic.
But compare to the 1980s – when IBM was writing software like OS/2 (which I worked on at IBM myself), AIX, and to say nothing of armies of people maintaining their mainframe software.
Today’s efforts are puny in comparison – and I can tell you that it has been ten years since I came across anything written by IBM in my job – at 3 or 4 different places by then – so whatever software they are still writing is not remotely relevant. The only thing I hear any more are about debacles from the Global Services arm (like the Texas welfare case).
Wow, I’m not sure what to say. They still sell AIX. They are still updating and selling WebSphere. They are still selling tons of DB2 and data tools. There were 11,000 people at the IOD data products conference last fall. They have been cranking out Linux and related software in great volume. What are you looking at, perl and web stuff? Go back to the Fortune 500 and IBM is all over the place. It’s not necessarily sexy or forward-facing, but there’s a lot of business there that isn’t going away.
Don’t know what to say? How about – in the businesses I’ve been in, you would have come across IBM products in the 1980s and 1990s, but you don’t any more – because they’ve retreated from software that’s relevant to most businesses – even most big businesses.
These days we do our business with VMWare, Oracle, and (shudder) Microsoft. IBM’s not even there in the webapp platform game for us – and they’re certainly not around for linux stuff. Were I not still in possession of a few friends working there, I’d not have been aware they work on Eclipse, which we admittedly still use quite a bit.
Or, you know, blame the messenger. That’ll work, for some.
Bob,
What does this huge contraction of IBM in US and Canada mean for the tech sector in north America? How much difference will it make do you think? A lot? Almost none? Or something in between? Do you think other companies will follow suit and cut ~80% of their US workforce? Which companies would see IBM’s plan as a plausible model to follow? Will IBM’s actions just create more opportunity for IBM’s competitors? Other effects?
Thanks, Steven
Haven’t you heard about the great shortage of tech workers in the US?
it’s the great shortage of tech workers with 7 years of experience in Perl (what, been around 3?) 5 or more in SAAS (the cloud has only been around 3,) and senior project level for 10 years. oh, and we are really looking for new graduates that will work for peanuts and stock. but they have to relocate to Swamp Miasma, Vietnam.
*golf clap*
Well, Perl has been around closer to 20 years, but otherwise yeah.
/golf clap
We don’t have a tech shortage in the U.S., not after the bloodletting from the dot com bubble bursting.
What we have a shortage of in the U.S. are tech workers for a cheap price, like $35k a year.
It’s not purely about salary–regulation and taxation also affect labor costs. Why pay sub-market wages, when you can get out of being a responsible corporate citizen entirely?
Ah, the “Responsible Corporate Citizen”… talked about frequently but can you show me a picture? I’ve never seen one. However I have it on good authority that they can generally be found in the company of Griffons, Unicorns, and Centaurs.
Happy hunting!
Semi-off-topic…I entered Drexel University in the Fall of 1984, and was part of the second class of students who were required to buy a Mac. The freshman in the prior class were still using punchcards for their computer programming classes. My class got to use MacPascal. Of course, a 128k Mac was barely able to run MacPascal, but still, all of my sophmore friends were jealous…
i graduated Drexel in 1978, and was the 3rd person, ever, to receive a CS degree from there. we only dreamed to have something besides punchcards. my coop job at the pentagon used lots of CRTs, but the university didn’t have any for student use.
I graduated from the University of Akron in 1979. We had a choice of punch cards or APL on IBM Selectronic terminals. I loved APL! Those were the days.
Hey – it’s a Drexel Class Reunion! I too started Drexel in the Fall of ’84 – but my recollection was that we were the FIRST class to buy the ever infamous Mac 128 emblazoned with the Drexel “D”. I still have it in my basement – should be worth big bucks some day. Drexel’s Co-op program was innovative and one of the best ideas in how to succeed after college.
When my comp-sci friends graduated and took jobs with IBM, I laughed at them – with their stuffy Blue shirts and look-a-like ties. IBM was a cult – and I wanted nothing to do with it. 11 years later, I get outsourced to Big Blue – and now actually find myself looking for ways to stay gainfully employed here for 12 more years till my planned early retirement date.
IBM is not all that bad – if you have the right job, right frame of mind, are sought after by multiple clients for your expertise and are well respected within your group. Yes, I see the maelstrom all around me – and most all the stories RXC relays about IBM are true (though I don’t agree with his conclusions about the future). But it’s a job – and for me a darn good one – one that puts lots of food on the table and gives me satisfaction in what I contribute to my clients (vs. what I contribute to the devil that many times is IBM).
Bob –
Again, great series and sharing your personal experience is an added plus. I think no one is picking this up because no one cares about IBM. They are a back office business (unlike Apple) that has dropped off the map for typical consumers and even business people. I hope they do sell off parts of their business or even split them off so they can recover. IBM is choking their existing businesses.
I’ve been following this series, and now that you’ve mentioned Canada, it is coincidental that “IBM is investing $175 million” along with smaller government funding and “will build a new datacentre in Barrie, ON”. The University of Toronto gains a “new high performance IBM BlueGene/Q supercomputer” (although I’m unclear if it’s part of the investment). It comes with a promise of 145 new jobs.
news.utoronto.ca/u-t-ibm-western-university-lead-research-partnership
Also, “IBM Canada is giving $65 million in software and computers to Western” University in London, Ontario. This appears to be in addition to the joint government investment.
m.lfpress.com/news/london/19648921
“Investment” implies “return.” What was their incentive? Or do you believe this is an act of largesse?
I work for an IBM customer. Recently, I was introduced to our new Service Delivery Manager out of Argentina. A few weeks ago he replaced our US based SDM that we had for years. Our contract is up for renewal soon and just now IBM seems to be trying to improve customer service. They always say the right things when you talk to them face to face but that is lost when you go back to your office and look at the 21 step process to get anything done. I hope they can improve but when their own CE’s can’t call Argentina or Poland with the company provided cell phones, how is this off shoring going to work?
An old, but good, article on leadership.
https://www.opi-inc.com/malden.htm
Bob, I’ve worked at IBM-Boulder, and I’ve seen firsthand the terrible and indifferent cruelty their management is capable of. And this – cutting support to the bone to improve the bottom line for an existing support contract – is behavior that they have perpetrated on customers before. By this point, anyone still using IBM for enterprise support deserves what they get. Because they should know better.
The dumb bastards at HP, Oracle, Accenture, etc. won’t understand. One of them will buy this steaming turd. Or maybe the clowns at WiPro, Tata, etc…
Dodo bird, wooly mammoth, Kodak, IBM. MySpace swirling the drain. I would pay good money to know that Facebook will suffer the same fate, but I wouldn’t bet on the failure.
Then you have companies like Amazon (simply awesome, although not perfect) and Apple (definitely not perfect) and Google (nice when the free stuff works, but support is zero. Google drive 5GB free? I don’t get out of bed in the morning for anything less than 25GB free.)
Since users are prevented from uploading anything over 2GB in size, Microsoft’s generous-seeming quota is mainly a marketing gimmick. It precludes video, photos from most new cameras, and so on–virtually anything except MP3 files and your own work product. Box’s frequent promotional offer of 50GB is a complete joke, unless you have 50GB of ASCII files sitting around.
2GB is 2,000 MB. That’s 200 10 MB photos per individual upload. I expect it’s not meant to be used as a complete PC backup solution, but as a place to save your most valuable stuff. It can become a complete backup of the valuable stuff over time. I agree it’s not ideal to have limits and with competition those limits will increase, as will security and privacy. Check out the latest Security Now! podcast (#350) for many more alternatives.
IBM has been exiting entire lines of business for years, so a sale of yet another division should not be a surprise to anyone. I agree with a previous commenter that IBM is becoming a software company (on its face, anyway). That was, in fact, a stated goal of Sam Palmisano before he left.
For the observer, it might be helpful to understand what IBM is, and what it isn’t.
In the long run, IBM is a holding company. Individual divisions (mainframes, servers, software, services) are bought and sold depending on their ROI and how it affects IBM stock. This is no different from any other large corporation. If a division costs too much for what it brings in, it will be restructured and/or sold outright.
IBM is a company that seeks “low-hanging fruit” within each division. There are obvious opportunities in hardware, software and services. IBM has proven itself to be pretty good at identifying these opportunities and monetizing them. They can bring in revenue and boost patent holdings.
IBM is NOT a company that will take significant risks — not any more. I think they’ve been burned by past episodes (e.g. OS/2 vs Windows NT), and they’re gun-shy about risk-taking as a result. I’m going out on a limb here, but I think those who are expecting another System 360 or another DB2 will be disappointed. A commenter on another Cringely article questioned IBM’s ability to produce another operating system. I agree — I’m not sure that IBM could do it at this point.
IBM is a company that looks to reduce cost. They’ve been this way for decades. People are the most visible cost, but IBM has also been reducing investments in hardware resources, real estate, lab space, etc. Cost cutting is generally a good thing, but IMHO the management has taken it to excess.
IBM is a company that looks to get “something for nothing”. Whether it’s open source software (that IBM uses in its products and service engagements), employee-produced patents (for which the employee gets a pittance) or crowdsourcing (eliminate full-time dedicated programmers), IBM loves the “something for nothing” trend. The management will embrace any such trend when it comes along.
IBM is NOT a social agency. A lot of people are upset because they got fired, or because their pensions got cut, or because IBM has lousy insurance, etc. I can understand the sentiment (I was RA’ed in 2010 after 17 years), but at the same time I have no illusions about why I was fired. In the end, IBM decided that I cost too much. Unfortunate, but that’s business.
How will this affect IBM? Only the future knows for sure.
Not taking risks ultimately will lead any company to the point of uselessness.
It would be nice if these upper management folks had the guts to read Seth Godin’s blog (http://sethgodin.typepad.com/), even once in a while, and take his comments to heart. Imagine the different legacy they would leave?
Bob –
The media won’t touch the story because they fear backlash from IBM in the form of lost advertising revenue. Analysts won’t either because they fear the cold shoulder of IBM.
Given the war on US employees the company wages, one wonders if the executives running the company are that clueless or are that evil.
I don’t have anything good to say about the “new IBM”. It has gone from being one of the best companies to work for, to what I believe is one of the worst.
It has become a very evil and sadistic company. Full of really good, honest, competent people, living in fear of the next layoff, painfully aware of the devastation IBM has wreaked upon their former coworkers, yet attempting to trudge on as best able by burying their feelings.
It’s like working in a gulag – without the barbed wire fence. One lie after another from the thugs that run the place.
Look at stock price from past five years – after the mid year market correction in 2007, IBM stock has been on a climb not unlike Tensing Norgay’s and Edmund Hilary’s conquest of the Himalayas. Yep, here’s on last chance to pump up the value of the company even further, before the implosion occurs. I will be very surprised if there is an IBM around in 2022.(unless it sells off everything to focus on car batteries and smart cars) https://www.ibm.com/smarterplanet/us/en/smart_grid/article/electric_cars.html
With all those companies going bankrupt, what makes you think IBM would do any better in the field?
Maybe the press doesn’t care because what IBM is doing makes sense.
You pointed out their service is no different from what Amazon or others could offer, and therefore a commodity. When you have a commodity you compete on price.
Some people say, “wait you are losing quality by offshoring”, maybe so – initially – but the Indians are on a learning curve and they will come up to scratch. To believe otherwise is simply wishful thinking at best, bigotry at worse.
The other commodity suppliers will have to follow suit, but in the meantime, IBM , as first mover, will clean their clocks.
Your proposed solution of random audits to fix IBM in a 3 weeks is naive.
What’s IBM to do? Stand in the road and get run over by the bus? Or get behind the wheel of the bus and run over Amazon and the others, in the process making a great profit for their shareholders, as they in fact have a management obligation to do?
Two points:
You are correct that the business press sees nothing wrong with this behavior. Bland stock price success story = no story these days.
But you are not at all correct in assuming that this is working for anyone other than shareholders. We can agree that it is successful on that front, but you can’t say that the lower costs are driving new business, or improving quality, or adding new capabilities. It’s the same old sales pitch of the same old support. The savings are not passed through, and they are not winning much business on a strictly price basis. If I were looking for that I’d just call Wipro or Tata directly in India and be done with it. They are still trying to cash in (and charge for) the quality implied by the IBM name. The “no one gets fired for buying IBM” and “we wrote the book” reputation is really what sets them apart. The one group of people completely ignored in this analysis are the customers and they’re pretty important in determining if it will continue to work.
I also take issue with the idea that everyone will get better at this and things will just get better. The problem isn’t that we’re all racists who think Indians can’t learn. (Here’s a hint: any time your argument rests on calling large numbers of people racist you probably need to take another look.) The real issue is that IBM wants to spend a lot less on work that’s really hard. Writing software is hard, and writing it for someone else is harder since sometimes what eventually turns out they want isn’t what they paid for. Supporting IT is hard, but supporting it for someone else is harder since you have to do the same tasks while staying coordinated with the customer. Outsourcing anything is hard because in addition to doing the work you have to manage any changes or questions through the lens of a contract.
Companies I’ve worked at have sent out work to everything from huge Indian outfits to giant American consulting firms to local shops and down to independent individuals. It’s always harder than doing it in-house, and sometimes it doesn’t work at all. A few years ago we outsourced a bunch of work to a small shop in Idaho, of all places. No language barrier, a one hour time zone gap, little turnover, and yet it was still difficult to coordinate things. The heavy reliance on the statement of work means that if you can’t articulate exactly what you want done you almost certainly won’t get it. It’s an expensive lesson to learn just how hard it can be to get that type of language right.
IBM in hardly a first-mover in this space. There are lots of large shops working this model very successfully. (Amazon isn’t one of them, by the way. Cloud services are a tiny part of what’s being discussed at IBM.) What makes this story noteworthy is that IBM used to charge white linen rates for good service, but now they’re trying to make the leap to take-out or drive-thru and hoping the food stays good enough. It’s a very big deal for customers because those who were seated are having Jimmy Johns bags dropped on their tables at the same rates, and anyone with money who wanted a nice meal has one less alternative (or worse yet, orders before they learn of the change.)
1. By lowering costs they can either lower price and be more competitive, or they can charge with the market will pay for the IBM name or because of the camaraderie on the IBM golf course. Of course IBM will do the latter, but if they have to, they can lower price (just like Apple BTW).
2. When you say there can be problems outsourcing services, you are correct. But that is not because the workers are in India. As you point out, making my case for me, that happens when the services are being delivered right in the USA. Smart management knows what to hold and what to outsource. But it’s all becoming a commodity. What used require custom work doesn’t any more, maybe because all the custom work is being done oversees and only the management, administrative, legal, and sales functions are being retained here. If off the shelf will do, why pay more and take on risk for custom work?
Major error – you assume management is “smart”
The problem is that they haven’t been lowering the rates for customers… They are just pocketing the difference.
As for the assertion that if an argument rests on calling a large number of people racist it must be wrong . . . well I guess you should have told that to Abe Lincon, or Mandela. Sometimes when it looks like a duck, walks like a duck and quacks like a duck, it’s not a ducky simulator, it’s really just a duck.
As for the assertion that if an argument rests on calling a large number of people racist it must be wrong . . . well I guess you should have told that to Abe Lincoln, or Mandela. Sometimes when it looks like a duck, walks like a duck and quacks like a duck, it’s not a ducky simulator, it’s really just a duck.
Rascism?? Really??
Lighten up, Francis.
Abe Lincoln was not fighting a war on racists; he was uniting a divided group of states in order to preserve the Union. I don’t think one can even use the term “racism” until after the slaves were freed. Use the lens of their time, not the lens of the future.
The problem with their great belief that India & other 3rd-world countries being their salvation is that when there are no longer ny jobs in the USA, no one will be able to buy their products. So who will they sell to, those 3rd-world countries? Well, *THEY* won’t be able to afford the products either, since they are getting paid at slave wages. So they’ll go to near-zero customer base.
And if they manage to survive that, eventually those “cheap” countries will develop into places where the workers demand better wages, and the cost savings will dissappear.
From what I understand about IBM in India & such, they are the lowest-paying employer around. People go to work at IBM merely to get the training. Once they’ve built up that experience, they *leave* IBM and get better paying jobs elsewhere. So in the end IBM’s technical capability is always going to be lower than any other company.
I’m pretty sure their customers are large companies and governments, not workers.
Ah Francis again? So please answer just one tiny little question – and one you avoid like the black death. Explain WHY IBM lost AstraZeneca. No personal insults, etc. You once commented that perhaps you were missing something? I wonder what that one, single word is?
Look how easy it is to get tech workers the world over fighting among themselves. Whom, I wonder, does this situation benefit? If I were Indian, I would take a lesson from this. IBM will not hesitate even a quarter as long when it’s time to throw them under the bus. How long until Cambodia or Vietnam or Inner Mongolia emerges as a cheaper option? You don’t have to be a Marxist to see that Marx wasn’t wrong about everything.
But wait a minute you say ! IBM should be a responsible societal stakeholder – bull. They are a for profit company. If they wanted to help society they would stop charging for their patents and simply release them to the public domain. Since they have so many, and good solid ones too, that would do more to clear then logjam in high tech innovation that anything else, including another Manhattan Project to find the next new, new, big, big thing.
But alas, IBM management does not have a mandate to run a socialist enterprise “to each according to need”. They have a mandate to make profit and will continue to charge others to license their patents, and prosecute those who infringe.
You know what? There’s lots of ways to make a profit. One is by taking risks, investing in your employees, and delivering products or services that underpromise and overdeliver.
Another way is to loot a company and run it into the ground. The mafia calls it a “bust-out.”
Both ways can make profits in the short- or even medium-term. But one of those ways ultimately leaves the shareholders, customers, and employees holding an empty bag.
Bringing up patents is a non sequitur in this context.
It was mentioned as an example of one way companies choose to remain profitalble instead of “giving stuff away”. Paying more than necessary for labor could be considered a “give away” while simultaneously being the “ethical” thing to do. That’s why this issue is so complex.
I don’t know where u get your information Bob, but the stuff about Dubuque is simply not correct. I talked to someone very intimately involved in the project, with great relationships with major stakeholders and non of what you say is true.
He gets his info from people that know the truth. For every one like you with rose colored glasses, there are thousands of us that see the truth clearly.
I’ve had confirmation from IBM workers in Dubuque as recently as yesterday. Your “stakeholders” may be into denial or damage control.
Bob, I’ve been suffering an IBM outsourcing contract for the last seven years and I can confirm each and every one of your insights. During those years I’ve watched always the same pattern: IBM over promising and under delivering.
Ironically for a technology company, IBM is now simply void of any but the basic technical capabilities, and even those are supplied by a set of deincentivized and low skilled workers from overseas that don’t care about their employer or their customers because they are essentially looking to add another acronym to their CV before moving to somewhere else.
What is even more ironic is that all those things are mostly hidden from their customers leadership: much in the same way as big auto executives having their company car being kept into good shape by dedicated mechanics, the CIOs and CTOs at IBM customers have their own dedicated VIP help desk numbers so that they don’t have to suffer what they are shoving into their own companies throats.
IBM current core skill set focus around a single area: legal. They have become superb at negotiating contracts and ensuring that they can get away without penalties when they do not meet their end of the contract. Plus, there is the patent business too, which is essentially legal also.
A sad state of affairs from what was once a company with exemplar customer service and technology lead. A dim future for IBM customers. And a bad future for IBM workers, both overseas and in Europe and USA. Or does the Bangalore IBM staff think that they will still be employed by IBM after all the IBM European and American customers run away? They are the ones paying top dollar for substandard service, and IBM is not likely to be able to replace that income with similar customers from emerging economies. Those have already learned the lesson. and run their IT differently.
Bob-
Once again you hit the nail on the head- the only thing I have to contradict you on is the IBM scenario of you as an 8 year old in the board room- you mention seeing their socks when they sit down- but as each of my computer classes in the past 10 years has learned from “Triumph of The Nerds”-all IBM’ers had to wear garters. Its a classic scene ith you and the IBM exec driving to Mecca and singing songs of The IBM.
Keep up the good work.
…and don’t forget the white shirts and “sincere” ties..
If as not picked up on by the collective media especaily bussiness news media then for IBM the best strategy is IGNORE and hope time wipes the story away.
This is where a low admin office tech will become Antigone and bring the issue forward to the local decision on why not go with IBM.
Bob, is anyone at ProPublica among your RSS feed consumers? They seem to be more objective than the average bear in terms of dealing with sensitive journalism topics.
I don’t think the major news organizations will touch this until after this election year. No matter who’s fault it is, this terrible news would hurt the current administration.
Bob, I have an eight year old boy in whom I see the seeds of brilliance. He’s adopted so I can claim no credit for giving him his intelligence. What I would like to be able to claim is credit for having developed his potential. Standing where we are in 2012, how would you guide a child who seems to be technologically gifted?
For my own 6yr old daughter, I’ve decided to forbid her to go into the computer field. She should learn from her dad and not make the same mistakes. Perhaps she could go into music or art; she may not make any money (not that *I* do), but at least she gets to have fun and gets to keep her soul.
Lots of talk about over-promising and under-deliverying. How about overcharging? Multi-million$ per year in mainframe licensing costs, barely usable software costing 5-10x of other vendors, and $250/hr consultants that do … well I’m not sure exactly what they do. I think IBM’s most valuable asset is its sales team; they must be spectaluarly good to allow IBM to continue doing what they do.
That’s “multi-million$ per year” to keep using 20-30 year old mainframes much less powerful than a desktop PC.
The sales teams are indeed good. Many customers do pay multi-millions per year. But no one in their right mind would ever run 20-30 year old hardware. Current mainframes are much more powerful than the largest desktop. But the money spent isn’t for the hardware.
Software costs much more than hardware. Much of the mainframe software does indeed have code that was created 20-30 years ago, but it has been enhanced as the underlying technology has. Today’s software tends to think memory and processing are cheap and plentiful. Most of the Mainframe software optimizes the hardware.
No interest from the press, because, really, who cares? Some company cutting costs, normal business life. And if they cannot provide with underskilled workers, customer should just move to other partners. Nothing to see here. IBM suicidal movement is no more interesting than Quizo Development fireing all their programmers.
I read all the columns and many comments. Indeed IBM HR policy is terrible and eventually lead them in trouble, but this is still the company – champion of patents each year. Although some of you will say “they have many lawyers”, thay actually still have a lot of R&D.
IBM is cold and pragmatical, but they are making the boldest decision in the industry. Remember they sold PC division 6 or more years ago, and now HP/Dell are in trouble. Just recently they sold RSS division to Toshiba TEC and this is in the light of many new investments of DELL/HP in this industry.
IBM is the smartest IT corporation nowadays. It is not nice to be their customer or partner or employee but at the end they hold most of the key cards in this business.
If they are planning to sell IGS I am sure they will sell only the commodity part. The part with a tiny margin. And they will search and invest in new cash cow. Some of the comments are that IBM will turn entirely into SW company. This crap. The most profitable business are SERVICES and they will keep all the enterprise product lines which require SERVICES. So IGS is going nowhere. It will remain the most important part of IBM for another decade.
There’s a lot more to management smarts than being the first one out the door of a burning building. That’s a pretty low bar.
No, the really smart managers are the ones making the new buildings, where there were none before. Bet-the-company type decisions like the System/360, or the Apple Macintosh, or the iPhone.
Can you point to some examples of how IBM management is doing this?
Another possibility is that you’re wrong. 🙂
I posted a comment before, asking for your proof about this massive RIF underpinning your entire series: https://www.cringely.com/2012/04/not-your-fathers-IBM/#comment-207284 I saw no response. Do you read all your comments? I understand not being able to reply to all, or even a group, but leaving what seems to be the only direct challenge you’ve received to just sit out there seems strange to me.
I read as many as I can, Rich. I’m reading this one. If you had read them all I don’t think you’d have any doubts about the truth. If you need proof I can only say “Trust me,” because providing proof would cost even more jobs at IBM.
I was correct in 2007 and I am correct now. Just watch.
Bob, I think you are missing one important aspect to this story.
There will be no uproar or customer revolt because the customers are the ones who have chosen to ‘strategically source’ from IBM and the like. Just like IBM is driven by sales people and not engineers, these companies have MBA types as leaders who only care about the bottom line.
I have first hand experience with at least 3 companies that laid off their own and hired IBM after a bidding war with others. These ‘customers’ are not stupid – they know that no company would be able to deliver quality at that price. If the price is cheap and service is ‘good enough’ they will happily sign the dotted line. IBM is just the dealer, it’s the customers with transient leadership that is making the decisions.
You should also mention that Walt Disney cancelled the IBM contract moved it to HCL America, which is an indian company. I can only assume it’s because Disney wanted an even better deal, so they just cut out the middle man and went straight offshore. As long as we keep handing out L1 and H1B visas for folks to come over to take the knowledge back, this will continue. The american middle class professional is screwed and no one cares.
I mentioned in one of the columns this move to cut out the middlemen, but Disney’s move away from IBM was based more on performance than cost, I’m told. And remember the top IT guy at Disney CAME from IBM…
Bob – this is our best article of the series to me. The point that struck me loudly today is that IBM today is in a commodity business in GBS and that causes a “race to the bottom” fight on being the low cost competitor. Not exactly a desirable business to work in or invest in. They are becoming just like every other Indian outsourcing company…yawn!
One thing that struck me is that a revolutionary/evolutionary product like the iPhone and iPad could never come out of IBM anymore. They don’t have people thinking about the future, future products, etc. Isn’t it amazing how Apple is doing compared to IBM? Apple has a 50% larger market cap than IBM does!
You are quite correct about disasters, they happen. I know from direct, personal experience having had my servers crash. Only 103 floors to the ground. On September 11, 2001, south tower. I am a survivor. I know that DR plans became very well sponsored following that event. You cannot rebuild a data center or redistribute 1,200 systems from a phone desk in Bangalore. IBM seems to be willing to sell service and be done with it, having racked up magnificent successes (hardly) at AstraZeneca, Texas and Disney. Many others have also left. Circuit City entrusted their inventory management to IBM if memory serves. INVENTORY!! A business basic and even IBM could not do that one right. OH, they had it right in MAPICS/DB on the old AS/400 years ago. A very good solution indeed. Texas particularly angers me as it was a DATA CENTER, and if IBM cannot manage THAT part of their world, then they are truly doomed. Which may be why the idea of dumping services looks like such a good thing. I also see that are hammering the sales force on commissions, something old Watson would NEVER HAVE DONE even though that IBM is long gone. You never cheat the salesman. IBM is doing so. Sales is seeing departures for other companies that reward effort.
In 1991 a business partner I worked for found an IBM warehouse in Harriman NY that desperately needed inventory control with a 100% compliance contract signed with Big Blue. Not 99% but everything. We proposed an AS/400 with a few MAPICS modules and bar code scanners for ONSITE control. Beautiful and it would have worked EXCEPT that IBM came in and said they had mainframe systems ACROSS THE RIVER in Westchester that could do the same thing, so THANK YOU and do not let the door hit you on the way out.
Anyone remember PRODIGY?
My uneducated, preteen view of computer companies was guys in short sleeve shirts and ties, smoking and writing programs with fighter pilot-like swagger. Microsoft succeeded through the 20 years on ubiquity; Apple on innovation. IBM also grew to epic proportions, but I guess they stopped being good – or at least effective – at what made their name what it became.
Don’t cry for them; they’re already dead.
[…] Cringely winds up his series on IBM with some interesting reflections on where Big Blue is headed. Here he reflects on reactions to his posts and IBM’s exit strategy […]
8 years old and IBM didn’t soak in the future — you were 10 years too young to go it alone like the Steves’ and you had no nerd to do the dirty work (Woz) — A pity that you did not keep that dream alive!
One thing IBM is VERY, VERY good at it is killing bad news.
IBM supplied IT to the Nazis? People know but is Israel outraged?
IBM internally allows criticism, but these posts are filtered from the the IBM network. As far as I can see that means there is a case to answer and IBM doesn’t want to