The Four Hundred

Probably about the only thing that is more difficult than hiring people is firing people. But the managers at IBM's Server Group, which is an umbrella organization covering Big Blue's four current server product lines as well as the forgotten NUMA-Q line, got the task of handing out 1,000 or more pink slips last week just before the Memorial Day holiday weekend got rolling. IBM has not made any official announcements, and all the reported layoffs are based on rumors and internal e-mails.

About 220 of the layoffs at Server Group were at IBM's Endicott, New York, facility, the original headquarters and manufacturing factories for IBM that date back to the 1920s. The rumor mill has it that the middle and upper managers in Server Group's Somers, New York, marketing headquarters have also been hit with layoffs, but the exact number was unknown at press time. IBM's Rochester, Minnesota, development labs and factories, where IBM's iSeries and pSeries Power-based servers are designed and manufactured, sustained about 150 layoffs, according to reports. Close to 500 people in IBM's storage operations in San Jose, California--the Storage Systems Division was absorbed into Server Group several years ago after James Vanderslice, the person who ran that unit, left IBM to become vice chairman of rival Dell--have reportedly lost their jobs. Rumors were also going around that up to 150 people in Software Group projects related to Server Group were cut, and that 250 positions were eliminated from the xSeries development and manufacturing labs in Research Triangle Park, North Carolina. Another 250 employees were reportedly fired from IBM's facilities in Beaverton, Oregon, the former home of the Sequent NUMA-Q server that IBM has quietly killed in the last year. All told, those numbers come to 1,500 layoffs, not the 1,000 layoffs widely reported in the press. We've even heard that IBM had sent out close to 2,000 pink slips last week, not 1,000.

In addition to job cuts, employees in Server Group are reportedly being told that they can relocate with their jobs as positions are shifted into IBM's facilities in Raleigh, North Carolina, Austin, Texas, or Poughkeepsie, New York. How many positions are open and how many people are trying to fill them remains unclear.

This piecemeal and behind-the-scenes layoff is having an adverse effect on morale at Big Blue, with employees in other IBM units expecting that the company will have to layoff at least 15,000 to 20,000 employees of its 320,000 payroll in order to make its profit goals for 2002. Perhaps even more IBMers will have to be shown the door for new CEO Sam Palmisano to deliver the numbers that Wall Street will want to see. But Palmisano should learn some lessons from John Akers, the IBM chairman and CEO who was ousted from the company in the early 1990s when IBM did such a botched job of scaling back the number of employees in IBM to match its declining revenues. Akers didn't make the cuts quick enough or boldly enough, and morale at IBM sunk to all-time lows. Employees that should have been retained by IBM because of their skills and experience left because IBM was offering generous retirement benefits, and those who should have been culled from the ranks because they were not as useful to IBM were allowed to hang on through one layoff after another.

Palmisano quipped at his meeting with Wall Street analysts two weeks ago that IBM sees 15,000 people or so leave from attrition alone each year, and he was trying to reassure Wall Street that IBM could make the cuts necessary to keep profits in line. But the minute he said that, the attrition rate at IBM probably went to nil. What person would willingly leave a job at Big Blue with great benefits to face the harsh task of trying to get a new job when most of the economies in the developed world are in recession? Only a few, is the answer. IBMers in 2002 will hang on as long as they can in this recession, demoralized or not, just as they did in the last one, in 1991 and 1992. Palmisano should make the cuts he thinks are necessary for the long haul, take whatever hits and writeoffs IBM needs to, and get down to the task of building a more streamlined, focused IBM team. If he lets these layoffs drag out--particularly if the global economy gets worse and the services business dries up--it will be his undoing.