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Next Week's Bloodbath At IBM Won't Fix The Real Problem

This article is more than 9 years old.

[Updated on Jan. 27 with comment from IBM after fifth paragraph and on Jan. 26 at bottom of post. Click here to read a follow-up post.]

I’ve been hearing since before Christmas about Project Chrome, the code name for what has been touted to me as the biggest reorganization in IBM history. Well, Project Chrome is finally upon us, triggered I suppose by this week’s announcement of an 11th consecutive quarter of declining revenue for IBM. Project Chrome is bad news, not good. Customers and employees alike should expect the worst.

To fix its business problems and speed up its “transformation," next week about 26 percent of IBM's employees will be getting phone calls from their managers. A few hours later a package will appear on their doorsteps with all the paperwork. Project Chrome will hit many of the worldwide services operations. The USA will be hit hard, but so will other locations. IBM's contractors can expect regular furloughs in 2015. One in four IBMers reading this column will probably start looking for a new job next week. Those employees will all be gone by the end of February.

In the USA mainframe and storage talent will see deep cuts. This is a bit short-sighted and typical for IBM. They just announced the new Z13 mainframe and hope it will stimulate sales. Yet they 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 won't help with this problem.

Project Chrome appears to be a pure accounting resource action — driven by the executive suite and designed to make IBM's financials look better for the next few quarters. Global Technology Services, the outsourcing part of IBM, is continuing to lose customers. That rate of loss — one Lufthansa-size customer every six weeks — seems to be holding. The size of Project Chrome cuts suggest IBM is trying to get three or four quarters ahead of the expected business losses. At this point IBM's business losses have become a self-fulfilling process with deep cuts followed by increasingly bad service, increasingly madder customers, and more lost business.

When reached, IBM sent the following response: "We do not comment on rumors, even ridiculous or baseless ones. If anyone had checked information readily available from our public earnings statements, or had simply asked us, they would know that IBM has already announced the company has just taken a $600 million charge for workforce rebalancing. This equates to several thousand people, a mere fraction of what's been reported. Last year, IBM hired 45,000 people, and the company currently has about 15,000 job openings around the world for new skills in growth areas such as cloud, analytics, security, and social and mobile technologies. This is evidence that IBM continues to remix its skills to match where we see the best opportunities in the marketplace."

The biggest reorganization in IBM's history will not really begin until the Project Chrome resource actions are done. People let go will be excluded from consideration for the new business units. In a few months those new business units will start to work calling on IBM customers to sell them on the new CAMSS (Cloud, Analytics, Mobile, Social and Security) stuff. They will walk into a hornet's nest.

Some reorganizations are well thought-out and absolutely essential but Project Chrome won’t be one of those. It will traumatize the corporation and put most accounts into immediate crisis. While survivors dig out from the devastation IBM will change their managers and their job descriptions. With fewer people and changing roles, things IBM has contractual obligations to do for its customers will start to be overlooked. If you are an IBM customer you should probably should start working on plans to keep your projects moving forward and your systems running.

If you are an investor or Wall Street analyst it’s time to take a closer look at IBM’s messaging. Stop believing everything you hear from IBM. Big Blue is a master at controlling the discussion. They state or announce something, treating it as fact whether it exists or not. They build 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, they are also losing business and customers every quarter. What are they 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.

Response from IBM (via its Hong Kong office's blog):

IBM does not comment on rumors or speculation. However, we’ll make an exception when the speculation is stupid. That’s the case here, where an industry gadfly is trying to make noise about how IBM is about to lay off 26 percent of its workforce. That’s over 100,000 people, which is totally ludicrous.

The fact is that IBM already announced, after 3Q earnings report, that the company would take a $600 million charge for restructuring. That’s several thousand people. Not 10,000, or 100,000. Moreover, IBM currently has job postings for more than 10,000 professionals worldwide, with more than half of them in growth areas such as cloud, analytics, security and mobile technologies. IBM’s new cloud leader, Senior Vice President Robert LeBlanc, told Fortune this week that IBM has plans to hire 1,000 cloud professionals.

A little perspective on IBM’s earnings is in order. The company still makes huge profit… $21 billion in operating pre-tax profit last year. And IBM’s “strategic imperatives” represent 27% ( and growing ) of the company’s total revenue… $25 billion in revenues, up 16 percent. We have high growth in a substantial portion of the portfolio, and those areas (CAMSS) have better-than-normal margins in areas that matter most to clients today — that’s the heart of the IBM transformation.