Ginni the Eagle: IBM’s corporate 'transformation'

I promised a follow-up to my post from last week about IBM’s massive layoffs and here it is. My goal is first to give a few more details of the layoff primarily gleaned from many copies of their separation documents sent to me by laid-off IBMers, but mainly I’m here to explain the literal impossibility of Big Blue’s self-described "transformation" that’s currently in process. My point is not that transformations can’t happen, but that IBM didn’t transform the parts it should and now it’s probably too late.

First let’s take a look at the separation docs. Whether you give a damn about IBM or not, if you work for a big company this is worth reading because it may well become an archetype for getting rid of employees. What follows is my summary based on having the actual docs reviewed by several lawyers.

IBM employees waive the right to sue the company. The company retains the right indefinitely to sue the employee. IBM employees waive the right to any additional settlement. Even if IBM is found at fault, in violation of EEOC rules, etc., employees will not get any more money. The agreement is written in a way that dictates how matters like this will be determined in arbitration.

There is no mention of unemployment claims. Eligibility for unemployment compensation is determined and managed by each state. Each state has rules on who is qualified, the terms and conditions, etc.. Some companies in some states have been known to report terminations in a way that disqualifies workers, thus saving the company money on unemployment insurance premiums. Some states have appeal processes. In others you may have to appeal the response with your former employer, which is of course the same bunch who just denied you (good luck with that).

IBM is being very opaque here about their process. Maybe it is hoping former IBMers won’t even think to apply for unemployment benefits. But if IBM takes a hardline position, the arbitration process and legal measures required would probably discourage many former employees from even trying. The question left unanswered then is how many of these folks will be able to receive their full 99 weeks of benefits?

The only way for employees to get more money or a better settlement is for their state or the federal government to sue IBM. In a settlement with a government, IBM could be made to pay its RA’d employees more.

There’s a final point that is being handled in different ways depending on the IBM manager doing the firing. It appears managers are being strongly urged to have their laid-off employees take their accrued vacation time prior to their separation date. Some managers are saying this is mandatory and some are not. From a legal standpoint it’s a bit vague, too.

Are they legally allowed to MAKE employees use their vacation time before separation? According to the lawyers I consulted, that depends on each person’s situation. If they have no work to do, then they may be required to use their vacation. If they are busy with work, then IBM can’t make them eat it. The distinction is important because IBM has been so busy in the past denying employees their vacation time that what’s accrued is in many cases more time than the puny 30 day severance.

To put this vacation pay issue in context, say you are a recently RA’d IBMer given three months' notice, a month’s severance pay, and you have four weeks of accrued vacation time. If you are forced to take that vacation during the three months before your separation date, well that’s four weeks less total pay. If the current layoff is around 20,000 people as I imagine, that could be 20,000 months, 1,667 man-years and close to $200 million in savings for IBM based on average employee compensation.

I wonder who got a bonus for thinking-up that one?

What if laid-off IBMers don’t sign, what happens then? They retain the right to sue, but lose their jobs without any of the separation benefits.

Another question that arises from my contact with IBMers who have been laid-off is whether there is age discrimination in effect here. Of the laid-off (not retiring -- this is key) IBMers who have contacted me so far, 80 percent are over 60 and 90 percent are over 55. Now that could say more about my readers than about IBM’s employees, but if the demographics of the current IBM layoff differ greatly from the company’s overall labor profile that could suggest age discrimination.

I’m thinking of doing an online survey to help find out. Is that something you, as readers, think I should do?

Now what’s the impact of all this on the company? There’s anger of course and that extends to almost every office of every business unit since the layoffs are so broad and deep. Employees are so angry and demoralized that some are supposedly doing a sloppy job. I have no way of knowing whether this is true, but do you want one of those zombie employees (ones being fired in 90 days) writing code for your mission-critical IBM applications?

But wait, there’s more! At least the workers being laid-off have some closure. Some of the ones not picked this time are even more demoralized and angry because they have to stay and probably become part of some subsequent firing that will offer zero weeks severance, not four weeks. One reader’s manager actually told them that they were fortunate to be picked this time for exactly that reason.

All this turmoil hasn’t gone down without an effect on IBM managers, either, many of whom see their own heads on some future chopping block. I have been told there are many managers trying to justify their existence by bombarding their remaining employees with email newsletters and emails with links to "read more on my blog".

Readers report being swamped with so many of these it’s hurting productivity. Not to mention they are being asked to violate the company security policy by clicking on the email link -- an offense that could lead to termination. Remember this is all happening in the name of IBM’s "transformation".

What about that transformation, how is that going and -- for that matter -- what does it even mean?

Having read all the IBM press releases about the current transformation, listened to all the IBM earnings conference calls about it, and talked about it to hundreds of IBMers, it appears to me that this is not a corporate transformation at all, but a product transformation.

Every announcement is about a shift in what IBM is going to be selling. Whole divisions are being sold, product lines condensed and renamed, but it’s all in the name of sales. That is not corporate transformation. Maybe the belief is that IBM as a corporation doesn’t need to be transformed, that it’s a well-oiled money machine that just needs a better product mix to regain its mojo. Alas, that is not the case.

Last week I presented, but then didn’t refer to an illustration of the generally-accepted corporate life cycle. Here it is again:

And here’s a slightly different illustration covering the same process:

It’s the rebirth section I’d like you to think about because this is what Ginni Rometty’s IBM is trying to do. They want to create that ski jump from new technologies and use it to take the company to new heights. Ginni the Eagle. Our challenge here is to decide whether that’s possible.

If we accept that this second chart is the ideal course for a mature business, when is the best stage for building the ski jump and where does IBM fit today on that curve? It’s not at all obvious that the best place to jump from is the start of decline as presented.

Many business pundits suggest that the place to start is early in the maturity phase (Prime in the earlier chart), before the company has peaked. IBM certainly missed that one, so let’s accept that early decline (between Stability and Aristocracy) is okay. But is IBM in early decline or late decline, are they in Aristocracy, Recrimination or even Bureaucracy? I’d argue the latter.

IBM today has 13 layers of management, four layers of which were added by Ginni Rometty’s predecessor, Sam Palmisano. I don’t want to be too hardcore, but 13 layers is too many for any successful company. That alone tags IBM as being in late bureaucracy, rather like the Ottoman Empire around 1911. So by this measure IBM is probably too far along in its dotage to avoid dying or being acquired.

It’s important to note that despite a very large number of executive retirements (a different/better pension plan?) none of the IBM transformation news has so far involved simplifying the corporate structure. No eliminating whole management levels or, for that matter, reducing management at all.

This is not to say IBM can’t learn from its mistakes, it’s just it doesn’t always learn as much as it should or sometimes even learn the wrong lessons. We’ve seen some of this before. In the late 80’s and early 90’s when John Akers was CEO IBM’s business was changing, sales were dropping, and the leadership at the time was slow to cut costs.

Instead they increased prices, which further hurt sales and accelerated the loss of business. It was a death spiral that eventually led to desperate times, Akers’ demise, and the arrival of IBM’s first outsider CEO, Lou Gerstner from American Express. The lesson IBM learned from that was to put through massive cost cuts AHEAD of the business decline. Which of course today is again accelerating their loss of business.

In both the early 1990s and today IBM has shown it really doesn’t understand the value of its people. Before Gerstner people = billable hours = lots of revenue. Little or no effort was expended to improve efficiency, productivity, to automate, etc. The more labor-intensive it was to do something, the better.

This changed somewhat with Sam Palmisano, who refined the calculation to people = cost = something expendable that can be cut. In most companies with efficient and effective processes they can withstand serious cuts and continue to operate well. IBM’s processes are not efficient and the staff cuts are debilitating.

In both cases IBM needed to transform its business -- an area where IBM’s skills are quite poor. It takes IBM a ridiculous amount of time to make a decision and act on it. While most of today’s CAMSS is a sound plan for future products and services, IBM is at least five-10 years late bringing them to market. While most of the world has learned to develop new products and services and bring them to market faster (Internet time), IBM still moves at its historic glacial pace.

This slow pace of management is not just because there are so many layers, but also because there is so much secrecy. IBM does not let most employees -- even managers -- manage or even see their own budget. IBM does not let them see the real business plan, either. Most business decisions are made at the senior level where the decision makers can’t help but be out of touch with both the market and their employees. How can anyone get anything done when senior executives must approve everything?

So if you can’t make quick decisions about much of anything, how do you transform your product lines? Well at IBM you either acquire products (that’s an investment, remember, rather than an expense and therefore not chargeable against earnings) or you take your old products and simply rename them.

IBM is a SALES company run by salespeople. It takes brains and effort to improve a product or create a new one. However if you can take an old product, rename it, and sell it as something new then no brains or effort are needed.

IBM products change names every few years. A few years ago several product lines became Pure. One of these Pure products was a family of Intel servers with some useful extra stuff. When it sold the X-Series business what happened to the Pure products? Nobody appears to know. Pure was just a word and no one was really managing the brand. It was up to each business unit to figure out what to do with its Pure products. Could IBM sell Pure servers? Did it even still make Pure servers? I still don’t know.

Remember On-Demand and Smarter-Planet? Marketing brain farts. New products do not magically appear with each new campaign. It is mostly rebranding of existing products and services.

IBM is now renaming its middleware software stack, for example. Everything has Connect in it now, but it’s lipstick on a pig. They are about to do a major sales push on this stuff to unwitting customers:

• API Connect -- really the V5 version of the hastily built, feature-lacking, bug-laden API Management product, except with Strongloop stuff crammed in for the build and deploy aspects -- bolted-on stuff that isn’t really integrated.
• App Connect -- SaaS bundling of Cast Iron and DataWorks I believe, relabeled, crammed together.
• App Integration Suite -- On-premises (no cloud?) bundling of IBM Integration Bus (formerly WebSphere Message Broker, formerly other names) with API Connect and one or two other things.
• WebSphere Connect -- WebSphere Application Server with a new name.
• Z/OS Connect -- Who knows?

They took the mobile product stack out of the cloud area and put it back in middleware, so that’s getting crammed into other stuff too, probably some of the above. Sales reps are being threatened with firing if they don’t meet their quotas this quarter or next so they will be pushing customers hard. None of this new software is well-tested of course.

CAMSS isn’t really new, either, according to one departing IBMer: "Most of the IBM CAMSS products have become a hodge-podge of bolted on code from acquisitions, and we all know how that goes. The products are unstable, bug-laden, feature multiple different administrative UIs (from the bolted-on stuff), don’t scale well if at all, are hard to administer, etc. The SaaS apps that have been shoe-horned into the cloud are badly broken and stripped of major features just to say they are 'there in the cloud'".

IBM may be hiring a lot of people for its new CAMSS lines of business. But in a few years when the services death spiral is complete IBM will be mainly dependent on CAMSS to make money. If CAMSS can not pick up the slack the same people = cost = something expendable that can be cut mindset will kick in. Many of those hired to build CAMSS will be cut and those businesses will begin to founder, too.

IBM’s weakness is obvious to competitors who are swooping in. Microsoft, for example, is porting SQL Server to Linux. The functionality is comparable to Oracle or DB2 and cost savings is significant. This is a brilliant and bold move by Satya Nadella that would never have even occurred to Steve Ballmer or Bill Gates.

For one thing it will force Oracle to become more competitive, lower their prices, and lighten up on their licensing. When Oracle cuts prices, IBM cuts prices. It could be a death blow to DB2 and cause collateral damage to many IBM software products.

Even IBM Analytics aren’t what they seem. In many ways IBM’s analytics business is very much like the early days of computing. You buy the hardware, software, and tools or get them from a cloud service. Many parts are commercial, licensed products so they’re going to cost you some money.

You hire an IBM expert to adapt it to your business and write the code needed to get it to solve your problems. IBM makes money on hardware, software, and billable hours. IBM is not breaking a lot of new ground in this field (don’t get me started on Watson -- it’s even worse). Google, Yahoo, and Facebook pioneered the current generation of big data technology. Many startups have developed tools that can process the data managed by these technologies.

Analytics is a field where academia and open source are competing with commercial efforts. IBM has many very smart data scientists working in the analytics business and they’re doing many interesting things. But then so has the rest of the world. Two leading commercial statistical analysis packages are SAS and SPSS. Both have been on the market since the 1970’s. Both are very good, mature, and cost money to use. SPSS was purchased by IBM a few years ago.

Academia is historically cash tight and finds creative ways to do things without spending lots of money. One of the products of that effort is R, an Open Source statistical analysis tool that competes with both SAS and SPSS. Microsoft recently bought one of the companies that productized R. Can you see where this is going?

What’s left for IBM? Patents. IBM is becoming a patent troll with an army of people dreaming up technology ideas and patenting them not to develop products, but to demand royalties from other companies developing products. Mobile and Social could be mostly a patent troll, designed primarily for IBM to profit off of the work of others.

Its patent portfolio may be the only thing of enduring value in IBM. Just a few days ago IBM went after Groupon. IBM will be jumping on more and more companies in the USA who are trying to develop new products. Innovation could end up going to countries beyond the reach of the IBM legal department. Now there’s an unexpected side-effect.

The lesson in all this -- a lesson certainly lost on Ginni Rometty and on Sam Palmisano before her -- is that companies exist for customers, not Wall Street. The customer buys products and services, not Wall Street. Customers produce revenue, profit, dividends, etc., not Wall Street. IBM has alienated its customers and the earnings statements are showing it. Sam turned IBM against its customers and employees, and started catering instead to Wall Street, which narcissistically loved the idea. Ginni inherited a mess and hasn’t figured out what is happening, why, or how to fix it.

Not an eagle after all.