IBM's reorg-from-Hell launches next week

IBM’s big layoff-cum-reorganization called Project Chrome kicks-off next week when 26 percent of IBM employees will get calls from their managers followed by thick envelopes on their doorsteps. By the end of February all 26 percent will be gone. I’m told this has been in the planning for months and I first heard about it back in November. This biggest reorganization in IBM history is going to be a nightmare for everyone and at first I expected it to be a failure for IBM management, too. But then I thought further and I think I’ve figured it out…

I don’t think IBM management actually cares. More on this later.

IBM really does not know how to do reorganizations, which are mostly political realignments. It comes up with these ideas of how to group people. It makes a big deal about it. Then for years the new organization figures out what it’s actually supposed to be doing, how it’s supposed to be done, and it spends a lot of time fixing problems caused by the reorganization.

Here are some examples of what I mean. In the USA, mainframe and storage talent will see deep cuts. This is a bit stupid and typical for IBM. It just announced the new Z13 mainframe and hopes it will stimulate sales. Yet it will be cutting the very teams needed to help move customers from their old systems to the new Z13.

The storage cuts are likely to be short sighted too. Most cloud services use different storage technology than customers use in their data centers. This makes data replication and synchronization difficult. IBM’s cloud business needs to find a way to efficiently work well with storage systems found in customer data centers. Whacking the storage teams doesn’t help with this problem.

Meanwhile the new IBM security business has a tremendous number of open positions, are promising promotions and pay increases, etc. It is going after every security skill in the business. The collateral effect of this is most IBM services contracts will lose their security person and won’t be able to replace him/her. This will hurt a lot of contracts and put IBM in an even worse position with the customer.  Creating this new business unit will be destructive to other business units and alienate existing customers. The size of the new security business is impressive.  It will have to sign a lot of new business for it to break even and pay all those salaries. The giant assumption is there is that much business to be signed. In a year or two this business unit could be facing huge layoffs. This is the classic -- shoot, ready, aim.

In one of the new business units I’ve heard that everyone is going to be interviewed and will have to give a sales pitch. If you can’t sell, you’re out. Clearly IBM’s declining revenue problem is tempering the organization of this unit. This team will fix the problem by getting rid of the people who can’t sell. This is the classic treat the symptom and ignore the cause way of thinking. There are reasons why customers are buying less from IBM.  Working harder to sell won’t fix those problems. If anything it will probably increase IBM’s problems with its customers.

The new cloud business is particularly troubling. This business unit is based on the assumption that cloud is the universal solution, now tell me what you need.  What if my application won’t work in the cloud? There are common things used in many business systems that do not exist in cloud services, anyone’s cloud services (Amazon, Microsoft, IBM, anyone!). New IBM organizations are being built to push cloud business whether it works in a given situation or not.

IBM has a sales culture. This reorganization was designed with a sales mindset. IBM has decided what it wants to sell. It assumes its customers will want to buy it. It completely ignores the fact there are other factors involved in running a successful company.

Now to why I think there’s a good chance none of this actually matters to IBM management. Investors and analysts alike have to stop believing everything they hear from IBM. Big Blue is a master at controlling the discussion. It states or announces something, treating it as fact whether it exists or not. It builds a story around it. IBM uses this approach to control competitors, to manage customer expectations, and to conduct business on IBM’s terms.

So while IBM is supposedly transforming, it is also losing business and customers every quarter. What is it actually doing to fix this? Nothing. In saying the company is in a transition and is going to go through the biggest reorganization in its history, will this really fix a very obvious customer relationship problem? No, it won’t.

Transformation at IBM appears to me to be a smoke screen to protect management that doesn’t actually know what it is doing.

Here’s a similar view from one IBMer that came in just this morning. Notice how he/she refers to IBM in the third person:

…the only thing IBM is doing is playing its balance sheet… to show good profits and play with the amount of shares in the market… ergo manipulate EPS (earnings per share)

If you look at this you realize we have already lost the battle

IBM spent 2.5 times the amount of money on EPS manipulation than on CAPEX and overall it spends less than half of what competitors are spending on R&D

Where IBM competitors show double digit growth, IBM shows revenue decline….. so, IBM is outgunned and outsmarted… simple as that

So, only two scenarios… IBM is serious about a turn around and will try to find a new equilibrium and thereafter growth path… this means revenue will continue to decline as it changes the revenue mix before it can grow… or management does not care (or has no clue)… and will try to maximize bonus and get the hell out.

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