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    Highlights—April 16, 2005
  • Forbes: IBM May Restructure After Missing Outlook. Excerpts: International Business Machines Corp., the world's top provider of computer hardware, is weighing a "sizable restructuring" after it surprised investors Thursday with a first-quarter profit that missed Wall Street estimates by 5 cents a share. The company said results were hurt by difficulty closing transactions, increased pension expenses and a drop in sales in Western Europe and Japan. In after-hours trading, IBM shares fell $3.09, or 3.7, percent to $80.55 a share on heavy volume after being halted earlier in the after-hours session. The stock fell 93 cents to close at $83.64 Thursday on the New York Stock Exchange. "This quarter did not play out as we expected," said Mark Loughridge, the company's chief financial officer, who said the company has begun to address weaknesses in sales. "A couple of those actions may require some sizable restructuring activities, primarily designed to move decision making closer to the customer," he said. Details of the restructuring will come within the next three months, he said.
  • Forbes: IBM Posts 3 Percent Rise in 1Q Profit. Excerpts: Chairman and CEO Samuel J. Palmisano said, "After a strong start, we had difficulty closing transactions in the final weeks of the quarter, especially in countries with soft economic conditions, as well as with short-term Global Services signings. As a result, we did not achieve all of our goals for the quarter." [...] Total gross profit margin from continuing operations was 36 percent in the latest first quarter, which includes the effect of expensing equity compensation, compared with 35.6 percent a year ago. IBM said it ended the first quarter of 2005 with $8.7 billion of cash on hand.
  • CNN Money: Biting a Big Blue bullet. IBM is expensing options months before it has to but the stock has taken a hit. Now's a time to buy.
  • Yahoo! Message Board: "Poor Sam" by "brokersleaveyoubroke". Full excerpt: Lou already raided the pension plan, cut benefits to the core, sold anything that wasn't nailed down and then bailed out at just the right time. Sam's got no way to come up with some quick money to make his numbers. Plus he'll probably have to give back some of the money Lou took from older workers. Oh well, here come the layoffs, don't expect anything creative like trying to grow the company.
  • Business Week: Beyond Blue. Never mind computers and tech services. IBM's radical new focus is on revamping customers' operations -- and even running them. Excerpt: It was over a lunch in Cincinnati two years ago that IBM Chief Executive Samuel J. Palmisano got his first inkling of Big Blue's next act. Palmisano was talking business with A.G. Lafley, CEO of Procter & Gamble Co., one of IBM's big customers. At one point, Lafley asked Palmisano to estimate how many of P&G's 100,000 employees it truly needed to keep on its payroll. When Palmisano didn't venture a guess, Lafley stunned him by saying that P&G might be able to get by with only a quarter of its workforce. Specialized service companies might be able to handle everything else, from human resources to customer care. [...] Related items:
  • New York Times: Racing Its Rivals, I.B.M. Risks Tripping Itself Up. By Steve Lohr. Excerpts: he disappointing performance that I.B.M. reported late Thursday may be nothing more than a momentary stumble. But the earnings shortfall, which dragged down the market, also points to the risk in the company's strategy for its corporate services business - the main engine of I.B.M.'s growth and its hope for a prosperous future. I.B.M. is making an ambitious shift in its services business to move beyond helping corporate customers run their data centers to using information technology to make their business operations more efficient. It means putting I.B.M. researchers and software programmers to work for customers to redesign and automate business tasks like procurement, human resources management, accounting and customer service. Customers often hand these tasks over to I.B.M. [...] Company executives gave no guidance for the second quarter, but said that analysts' profit estimates for the second half of the year were still "reasonable." Mark Loughridge, chief financial officer of I.B.M., told analysts in the Thursday conference call, "We're driving to get there a different way, on lower revenue, and more cost and expense savings." I.B.M., analysts say, may well trim its payroll by 5,000 or 10,000 workers in its cost-cutting drive, especially in Europe, where business was particularly weak.
  • Yahoo! Message Board posting by "ibmoptioneer". Full excerpt: There is always a positive and a negative spin to every financial event. Like looking at a half full or half empty glass. The pension is a smokescreen. Failure of executives to execute properly is the keyword here. True, they could have known that things were bad so why not pile all the bad news at once. The only problem is that if retention becomes a problem net new options issued will have to be expensed in 3Q and 4Q. This will be (as it should) a permanent variable hit on earnings. This event can also be a way to hide other problems from shareholder view. As analysts focus on the announcement and its effects, the options expensing is another focus, but then something else could be hiding in the works for the AGM. The unusual moves will definitely trigger a look-see by the regulatory and investigatory government entities. This is always the risk in executing an unusual move. My take is that barring other bad news at the AGM, things will stay stagnant until the restructuring is announced and analyzed by the street. Debt and debt service is a looming problem. Ratios were bad and now worse as the valuation declines. The pension thing is a self-created problem that Lou screwed up. They are just taking a payback for the vapor profits of the 90's. Sam would do good if he personally took out several key high level executives. Take the industrial sector, for example. Someone ought to pay for the -1% performance there. Same thing for the poorest performing technology or product area. The troops on the trenches now have to see some executive blood flowing or Sam faces a potential employee insurrection if he just cuts troops on the ground.
  • Yahoo! Message Board: IBM South Africa outsources their pension fund, by Janet Krueger. Full excerpt: A friend of mine from South Africa just sent me a copy of a letter recently sent to IBM South Africa retirees. I posted it in the files area of this board at: http://tinyurl.com/a7m5k. Be aware, if you read this, that pension protection laws in South Africa are much different than they are here.
  • Business Week: HP's $58,000-a-Day Interim CEO. By Peter Burrows. Excerpts: In another show of generosity at the tech giant, CFO Robert Wayman is getting a $3 million bonus for his 52-day post-Fiorina stint Talk about a good 52 days work. According to an Apr. 5 government filing, Hewlett-Packard's board has agreed to pay Chief Financial Officer Robert Wayman a $3 million cash bonus for serving as interim CEO from Feb. 8, when it ousted Carly Fiorina, to Apr. 1, when former NCR Chief Executive Mark Hurd was hired.
  • New York Times: Pensions: Big Holes in the Net. By Mary Williams Walsh. Excerpts: James McDonald, a former New York longshoreman, worked for 23 years under a pension plan that greatly penalized people who took time off in midcareer. He himself had such a gap: he worked for 13 years, then took three years off for medical reasons before working another 10. When he retired in 1997, he began receiving a pension of $263 a month, an amount reflecting just his last 10 years of service. The plan said his first 13 years did not count. Such plan rules have been unlawful since 1976, but federal regulators police this provision desultorily, if at all. So Mr. McDonald found a lawyer, filed suit against the plan and began a long, slow slog through the legal system. Finally, last month, a judge confirmed that his pension plan was indeed illegal, ordered it changed and increased Mr. McDonald's benefit nearly fourfold, to $1,000 a month, retroactive to 1990 with interest. But by then, Mr. McDonald was no longer around to enjoy the victory. "He died in the meantime," said his lawyer, Edgar Pauk. [...]
    Each year in its annual report, the department's Office of Inspector General issues a list of its 10 greatest "management challenges," and the protection of pensions is always on the list. Other difficulties come and go, but year after year the pension challenge seems intractable.
    One example involves cash-balance pension plans - a relatively new type of pension that has generated conflict at many companies that introduced it. A cash balance plan combines some features of a traditional pension with those of a 401(k). For the last three years, the inspector general has cited evidence that some of these plans are miscalculating payouts to employees, shortchanging them if they leave before the normal retirement age.
    But the Labor Department has resisted the inspector general's calls for action. Problems concerning underpayments fall to the I.R.S., it said. In February 2002, the Labor Department asked the tax agency to determine whether any laws were being broken. It has duly followed up every three months since then. But so far, the I.R.S. has not answered. If link is broken, view Adobe Acrobat version [PDF--45KB].
  • New York Times: Ailing Health Care. By Paul Krugman. Excerpts: So what's the problem? Why not welcome medical progress, and consider its costs money well spent? There are three answers.
    • First, America's traditional private health insurance system, in which workers get coverage through their employers, is unraveling. The Kaiser Family Foundation estimates that in 2004 there were at least five million fewer jobs providing health insurance than in 2001. And health care costs have become a major burden on those businesses that continue to provide insurance coverage: General Motors now spends about $1,500 on health care for every car it produces.
    • Second, rising Medicare spending may be a sign of progress, but it still must be paid for - and right now few politicians are willing to talk about the tax increases that will be needed if the program is to make medical advances available to all older Americans.
    • Finally, the U.S. health care system is wildly inefficient. Americans tend to believe that we have the best health care system in the world. (I've encountered members of the journalistic elite who flatly refuse to believe that France ranks much better on most measures of health care quality than the United States.) But it isn't true. We spend far more per person on health care than any other country - 75 percent more than Canada or France - yet rank near the bottom among industrial countries in indicators from life expectancy to infant mortality. [...]
    To get effective reform, however, we'll need to shed some preconceptions - in particular, the ideologically driven belief that government is always the problem and market competition is always the solution. The fact is that in health care, the private sector is often bloated and bureaucratic, while some government agencies - notably the Veterans Administration system - are lean and efficient. In health care, competition and personal choice can and do lead to higher costs and lower quality. The United States has the most privatized, competitive health system in the advanced world; it also has by far the highest costs, and close to the worst results. If link is broken, view Adobe Acrobat version [PDF--32KB].
  • New York Times: The Medical Money Pit. By Paul Krugman. Excerpts: But in any case, Britain isn't the country we want to look at, because its health care system is run on the cheap, with total spending per person only 40 percent as high as ours. The countries that have something to teach us are the nations that don't pinch pennies to the same extent - like France, Germany or Canada - but still spend far less than we do. (Yes, Canada also has waiting lists, but they're much shorter than Britain's - and Canadians overwhelmingly prefer their system to ours. France and Germany don't have a waiting list problem.)
    Let me rattle off some numbers. In 2002, the latest year for which comparable data are available, the United States spent $5,267 on health care for each man, woman and child in the population. Of this, $2,364, or 45 percent, was government spending, mainly on Medicare and Medicaid. Canada spent $2,931 per person, of which $2,048 came from the government. France spent $2,736 per person, of which $2,080 was government spending. Amazing, isn't it? U.S. health care is so expensive that our government spends more on health care than the governments of other advanced countries, even though the private sector pays a far higher share of the bills than anywhere else. [...]
    The authors concluded that Americans spend far more on health care than their counterparts abroad - but they don't actually receive more care. The title of their article? "It's the Prices, Stupid." Why is the price of U.S. health care so high? One answer is doctors' salaries: although average wages in France and the United States are similar, American doctors are paid much more than their French counterparts. Another answer is that America's health care system drives a poor bargain with the pharmaceutical industry. Above all, a large part of America's health care spending goes into paperwork. A 2003 study in The New England Journal of Medicine estimated that administrative costs took 31 cents out of every dollar the United States spent on health care, compared with only 17 cents in Canada. If link is broken, view Adobe Acrobat version [PDF--32KB].
  • USA Today: Drug prices outstrip inflation. By William M. Welch. Excerpt: Wholesale prices for popular brand-name prescription drugs rose an average 7.1% in 2004, more than twice the general inflation rate, a new study commissioned by the nation's largest seniors lobby says. The increase is the biggest in the five years that AARP, with 35 million members, has sponsored the study. It's just slightly higher than the 7% price rise in 2003. The group, which has pushed for lower drug prices, is set to release its report today. The findings come from an examination of prices charged by manufacturers on 195 brand-name prescription drugs widely used by Americans 50 and older. The study's authors said such increases are routinely passed on to consumers in retail prices. Bill Novelli, the group's CEO, called the increases disappointing, particularly in the year after President Bush signed a sweeping overhaul of Medicare. The new law will provide seniors with a prescription-drug benefit next year. But it prohibits the government from negotiating drug prices on behalf of consumers.
  • Orange County Register: Private plans haven't delivered the cure. Excerpts: Bruce Bodaken, CEO of Blue Shield of California, warns that, unless we reduce health-care costs and provide coverage for the uninsured, we will likely turn to a government-run single-payer system. That raises two questions. Why hasn’t Bodaken’s own industry been able to solve the problems during the past half-century that it has had control of health care spending? And what is there about a single-payer system that would cause policy-makers to turn to that option?
    Private health plans should be providing us with higher quality at lower cost. But by most measures, we are receiving relatively mediocre care that is rife with error and wasteful excesses, while many are not receiving even the most basic essential services. And over 90 percent of Americans agree that health care costs are out of control. Since private plans are failing us on cost and quality issues, are there any other reasons to keep them in charge? Do private plans avoid the inherent waste of government bureaucracies?Unfortunately, private plans actually consume a far greater percentage of health care dollars in administrative costs than do public programs such as Medicare. And worse, our fragmented system of funding care places a tremendous,wasteful administrative burden on the providers of health care.
  • Peoria Journal-Star: Caterpillar retirees discuss lawsuit. Workers claim company promised lifetime benefits. Excerpts: Retired Caterpillar workers met Saturday to talk about pursuing a lawsuit against their former employer to try to regain company-paid health-care benefits. "It was wrong from the start because they promised me in '88 that when I retired . . . that I would never pay," said Chauncey Redfield, who retired in 1996. "I gave them 33 years of faithful service for them to rip me apart when (I) retire." More than 300 retirees met Saturday morning at the Veterans of Foreign Wars hall in Creve Coeur to discuss the possibility of a lawsuit to seek to restore company-paid health benefits that were stripped from the 3,200-plus United Auto Workers who retired after 1992. The retirees claim the company previously had promised to pay for lifelong benefits.
  • Hartford Courant: The Gilded Age Is Back In Vogue. By Warren Goldstein. Excerpts: OK class, it's time for a history quiz. Don't worry. It won't affect your grade, just the future of your country. Say you were living in an era of American history marked by a growing gap between rich and poor, increasing insecurity for the middle and working classes, wholesale political corruption, daring corporate chicanery and an executive branch dedicated to helping the rich get richer. When were you living?
    Right! The Gilded Age, that late-19th-century period dominated by robber barons and forgettable presidents, an era boasting astonishing, historically unprecedented wealth alongside the ugliest poverty and abuse of power. For a quarter-century, the U.S. government acted as an unabashed, breathtakingly shameless agent of the wealthiest Americans. Forget what you learned in high school about laissez-faire; the truth is that the federal government intervened repeatedly in the economy - nearly always on the side of the rich. [...]
    This president has offered more blatant class legislation than we've seen since the 1890s. Tax cuts for the richest Americans have done double duty, lining their pockets while starving the state and federal budgets that provide services for the poor and middle class. Public transportation? Why bother when the rich don't use it? The president's current budget cuts 150 social programs. How many of those were directed toward rich people? You guessed it. [...]
    The recent Class-Action Fairness Act provided even more class action and less fairness, protecting irresponsible corporations from jury (read, regular people) awards. The Bankruptcy Abuse Prevention and Consumer Protection Act stands up bravely for credit card companies (including No. 1 GOP contributor MBNA) and sticks it to ordinary consumers who've run up credit card debt, even if they had succumbed to predatory lenders or serious medical problems. All the while, student mailboxes overflow with slick credit card come-ons; health insurance premiums are skyrocketing; and employers are slashing health benefits. If this were a TV commercial, we'd call it "priceless." What about the "bankruptcy abuse" perpetrated by Enron, Tyco and WorldCom, which got protection from their creditors by declaring bankruptcy and whose officials looted thousands of pensions? It may be a while before you see the Corporate Bankruptcy Abuse Prevention and CEO Responsibility Act.
  • Los Angeles Times: Wages Lagging Behind Prices. Excerpts: For the first time in 14 years, the American workforce has in effect gotten an across-the-board pay cut. The growth in wages in 2004 and the first two months of this year trailed inflation, compounding the squeeze from higher housing, energy and other costs. [...] The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average. Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down. Some see climbing profits and stagnant wages as not only unfair but also ultimately unsustainable. "Those that are baking the larger pie ought to see their slices expanding," said Jared Bernstein, an economist with the liberal Economic Policy Institute in Washington.
  • New York Times: Falling Fortunes of Wage Earners. By Steven Greenhouse. Excerpts: Beginning in the mid-1990's, pay increases for most workers slowly but steadily outpaced the rate of inflation, improving the living standards for nearly all Americans. But an unexpected reversal last year in those gains has set off a vigorous debate among economists over whether the decline is just a temporary dip or portends a deeper shift that may cause the pay of average Americans to lag for years to come. [...] Whatever the explanation for Sprint's action, many economists, liberal and conservative, are perplexed by two unusual trends. Wage growth has trailed far behind productivity growth over the last four years, and the share of national income going to employee compensation is low by historic standards. [...]
    "These factors aren't going to go away," he said. "The competitive pressures for companies to hold the line on labor costs are intense, and the alternatives they have - technological substitution and offshoring labor - are growing." The overall wage figures hide a split, with an elite group getting relatively large gains. In a study of census data, the Economic Policy Institute, a liberal research group, found that for the bottom 95 percent of workers, after-inflation wages were flat or down in 2004, but for the top 5 percent, wages rose by an average of 1 percent, with some gaining much more. The upper-income group enjoyed strong pay increases largely because of bonuses, stock options and other inducements and because of robust demand in certain fields, like law and investment banking.
    • Carl Lackey comments on this article. Full excerpt: QUOTE: "Pay increases are not rebounding, even though the factors normally associated with higher pay have rebounded," said Peter LeBlanc of Sibson Consulting, a division of Segal, a human resources consulting firm. UNQUOTE. No mention is made of the flooded high-skill people-market because of job cuts related to outsourcing their jobs to overseas locations. Wouldn't that be a key reason for compensation being suppressed? ...and the related reduction in government tax and ss collections? ...and related erosion of nest eggs? If I am making a correct assumption, it suggests that historical trends are no longer valid predictors because the conditions are different.
    • "chz_whiz" comments. Full excerpt: You're correct in your assumptions. Although the number of jobs is up, salary levels are being held down because of a changing mix in the labor market. Higher paid folks (especially non-execs) are leaving industry due to retirement and lay-offs. Younger folks are filling lower paying jobs, such as all the new Wal-Marts, Targets and Home Depots. Off-shoring is trading high paying US jobs for low paying Asian jobs. Result, as the article points out, is that wages have not kept up with inflation.
    • Linda Guyer comments. Full excerpt: I would not say historical trends are no longer valid predictors ...you have to go back further in time in US history to see similarities to the vast income disparities of today ...think back to the late 19th and early 20th centuries and the days of JP Morgan, Vanderbilt and Rockefeller, the mega millionaires of their day.
    • Carl Lackey comments. Full excerpt: Yes, you are so right. My forecast for today's middle class wage earners is that they are being returned to the historic levels of approximately pre-union, and Pre-WW II. That would suggest that the government's main tax burden will have to be supported by those still earning reasonable wages and up. ...and that tax burden will increase even more because of the social programs and increased crime rates triggered by more and more desperation.
  • Washington Post: House Passes Permanent Estate Tax Repeal. By Jonathan Weisman. Excerpts: The House vote pitted repeal proponents, who held that a tax on inheritances is fundamentally unfair, against Democrats, who questioned how Congress could support a tax cut largely for the affluent that would cost $290 billion over 10 years, in the face of record budget deficits. "This is reverse Robin Hood," said House Minority Leader Nancy Pelosi (D-Calif.). "We're taking money from the middle class and giving it to the super-rich." [...] By a 194 to 238 vote, the House rejected a Democratic counteroffer, which would have shielded $3.5 million of an estate's value from taxation, enough to exempt 99.7 percent of estates from the inheritance tax, according to the Urban Institute-Brookings Institution Tax Policy Center. Members then approved the measure, strongly backed by the White House, that would make a full repeal permanent. The repeal is scheduled to take effect in 2010, then disappear in 2011.
  • New York Times: Long Live the Estate Tax. Excerpts: For the fourth time in four years, the House of Representatives has passed a bill calling for the permanent repeal of the federal estate tax. The Senate should put a stop to this silliness. The only thing driving the push for repealing the estate tax is ideology. It sure isn't sound tax policy. The House proposal would cost the federal government a whopping $290 billion through 2015, according to estimates by Congress's own budget agency. And that's just the start; the costs after that would be explosive. And for what? Repeal would shield the estates of the very wealthiest Americans from the tax. That's the same group that already benefits the most from Mr. Bush's tax breaks for dividends and capital gains. Repeal of the estate tax was deemed too expensive in 2001, when the government was still enjoying the Clinton-era budget surplus. So it stands to reason that it's out of the question today, as America's enormous deficits weaken the domestic economy and the country's international economic leadership. But to its proponents, estate-tax repeal is the holy grail of the Republican anti-tax crusade.
  • Jim Hightower: Flim-Flamming CEOs Walk Free. Excerpts: There's a word for people who take money from others under false pretenses. The word is: Criminal. But this word does not apply to corporate CEOs, even if they are guilty of the kind of flimflam that would send common hucksters to prison. Instead of bilking people in Ponzi schemes, some CEOs fleece investors by claiming to have achieved enormous profits in the previous year, when the company actually made much less or even suffered a loss. These executives cook the books to make the corporation's performance (and theirs) look far better than it is, thus artificially jacking up the company's stock price and duping investors into putting more money into the scam. The executives, who get rewarded based on meeting profit goals, walk away with millions.
  • Business Insurance: Bill would publish firms shirking health benefits. By Joanne Wojcik. Excerpts: Colorado would publish a list of employers that provide little or no health insurance to their employees if a bill introduced last week in the state Legislature becomes law. Under H.B. 1245, the state would reveal how much any uncompensated care provided to employed individuals is costing the state's Medicaid program.
  • AFL-CIO Executive Pay Watch. Excerpt: In 2004, S J. Palmisano raked in $21,565,586 in total compensation including stock option grants from International Bus. Machines. From previous years' stock option grants, the International Bus. Machines executive cashed out $2,808,941 in stock option exercises. And S J. Palmisano has another $34,904,077 in unexercised stock options from previous years. Show me how I compare...

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • Washington Post: As Government Cap on Work Visas Rises, So Does Confusion. By S. Mitra Kalita. Excerpt: The two engineers have been ready for months. One waits in Colombia, the other in Argentina. They are experts in wind technology, a fast-growing segment of the electricity industry. Their employer, Tampa-based Granite Services Inc., says projects have been delayed as it awaits their arrival -- and their visas. So the company's human resources manager keeps an Internet browser open to the Federal Register, clicking its refresh button every few minutes. How many visas remain? Should applicants hold a master's or PhD? Will a bachelor's do? The agency in charge is also looking for answers. Last month, U.S. Citizenship and Immigration Services, an arm of the Department of Homeland Security, said it would issue an additional 20,000 visas for highly skilled foreign workers because this year's cap had already been met. All 65,000 of the H-1B visas for this year were filled by U.S. businesses on Oct. 1, the first day of the government's fiscal year. In response to complaints from businesses, Congress in November passed legislation approving the additional visas, saying they should go to graduates of U.S. institutions with an advanced degree. But last month, the immigration agency said the visas could go to anyone with a bachelor's degree, confusing businesses and immigration lawyers.
  • CNET News.com: Indian police make arrests in outsourcing fraud. By Dinesh C. Sharma. Excerpt: Police have arrested former employees of an Indian call center that handles U.S. customer accounts for allegedly stealing consumers' funds. The suspected gang members arrested by police in Pune included three ex-workers of Mphasis BPO. Police said the employees allegedly stole customers' personal account information and transferred around $350,000 to fake accounts in Pune. Sanjay Jadhav, the assistant commissioner of police, said about $23,000 (1 million Indian rupees) of the fraud money has already been recovered. The call center workers left their jobs last December.
  • Computerworld: China, India can lead global IT, says Chinese premier. Wen Jiabao talked of 'the coming of the Asian century of the IT industry'. Excerpt: A combination of Indian software skills and Chinese hardware expertise can take both China and India to a leadership position worldwide in IT, Chinese premier Wen Jiabao said yesterday in Bangalore, India. "When that particular day comes, it will signify the coming of the Asian century of the IT industry," he said.
  • Computerworld: Costco Aims to Avoid Offshore Dependency. By Patrick Thibodeau. Excerpts: Retailer Costco Wholesale Corp. uses offshore development but is still hiring lots of programmers internally. Don Burdick, senior vice president of information systems at Costco, said last week that he has about 60 vacancies for developers with RPG, .Net and Java skills on his programming staff, out of a total of 250 positions. The underlying philosophy at Issaquah, Wash.-based Costco, which had revenue of about $48 billion last year, is "that our own employees do it better," Burdick said at the Gartner outsourcing conference. He added that Costco typically promotes from within when higher-level IT jobs open up, because it wants to retain the business knowledge that workers have accumulated. "We're actually able to give people good career paths inside our own IT organization, and we believe that encourages them to get in and really learn the business," Burdick said. "That's a huge competitive advantage."
  • New York Times: Bush Disarms, Unilaterally. By Thomas L. Friedman. Excerpts: One of the things that I can't figure out about the Bush team is why an administration that is so focused on projecting U.S. military strength abroad has taken such little interest in America's economic competitiveness at home - the underlying engine of our strength. At a time when the global economic playing field is being flattened - enabling young Indians and Chinese to collaborate and compete with Americans more than ever before - this administration is off on an ideological jag. It is trying to take apart the New Deal by privatizing Social Security, when what we really need most today is a New New Deal to make more Americans employable in 21st-century jobs. [...]
    Thomas Bleha, a former U.S. Foreign Service officer in Japan, has a fascinating piece in the May-June issue of Foreign Affairs that begins like this: "In the first three years of the Bush administration, the United States dropped from 4th to 13th place in global rankings of broadband Internet usage. Today, most U.S. homes can access only 'basic' broadband, among the slowest, most expensive and least reliable in the developed world, and the United States has fallen even further behind in mobile-phone-based Internet access. The lag is arguably the result of the Bush administration's failure to make a priority of developing these networks. In fact, the United States is the only industrialized state without an explicit national policy for promoting broadband." [...]
    Since it took over in 2001, the Bush team has made it clear that its priorities are tax cuts, missile defense and the war on terrorism - not keeping the U.S. at the forefront of Internet innovation. In the administration's first three years, President Bush barely uttered the word "broadband," Mr. Bleha notes, but when America "dropped the Internet leadership baton, Japan picked it up. In 2001, Japan was well behind the United States in the broadband race. But thanks to top-level political leadership and ambitious goals, it soon began to move ahead. "By May 2003, a higher percentage of homes in Japan than the United States had broadband.
  • Los Angeles Times: Scapegoat, Made in China. Excerpts: Global trade isn't all that complicated. Just think of the world as a mall, the United States as its most indefatigable shopper and China as the anchor department store that graciously keeps raising our credit limit so that our buying spree can go on. The U.S. trade deficit rose to a record $61 billion in February, in large measure because of rising oil prices and those escalating credit card bills from China. Sluggish growth elsewhere has tempered demand for U.S. exports despite a weaker dollar. Although trade deficits are usually portrayed as bad news, they tend to widen when the U.S. economy is expanding. It's also true that the notorious deficit with China — $14 billion in February — is overstated in an important sense. The bulk of this comes from all-American transactions: the shipment back to the U.S. of goods made in China by U.S. companies. You can debate the pros and cons of American companies boosting their profits and giving consumers lower prices by outsourcing manufacturing to China (now mostly from nations such as Mexico instead of the U.S.). But let's not pretend that the United States is being taken by wily foreigners who don't play by the rules, as too many wily politicians in Washington are doing.

Vault Message Board Posts
Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC. Some of this week's posts follow.
  • "H1s and Labor and the New Scam" by "CandorSense". Excerpts: This is not about the Free Movement of labor. This discussion is about the FLAWED movement of labor due to inept US govt workers and policies. The H1 visa system has been used for years by hundreds of thousands of Indians (lets be honest folks....it is in the stats and the prime scammers are Indians) to scam the system. Yes scam the system because the intention of the H1 program was NOT to accommodate employment dumping, the intent was to fill jobs that could not be filled with citizens. And if you think we need several hundred thousands Indians here in the USA doing basic coding then you are nuttier than a fruit cake.
    But listen up... The new scam is the "L" visa. This one allows a company to bring a worker here and claim that it is, an, Intercompany Transfer. The ranks of Wipro, Infosys etc in the USA are filled with these new scammers. Wipro will bid a contract and undercut IBM and others, and then, if they win, they simply hire people in India, tell them to claim they have been employed by the firm for at least 3 years, and then Intercompany transfer them. In FY 2005 the number of L visas is expected to exceed the number of H visas... And if you think these jobs cant be filled locally, or that India represents 90% of the high tech employment pool and thus rightly should be 90% of the H or L visa applicants..... I have a bridge to sell you.
  • "PWC Ceiling" by "CandorSense". Full excerpt: I am reasonably certain some PWC heritage employees might suspect there is a glass ceiling but their suspicions would be wrong. IBM more than most companies values "results". Unfortunately, PWC's culture was one of hierarchical hazing, performance/results subterfuge, and no diversity. Look at the numbers people. On acquisition, it should be clear that PWC was a money losing operation, big time. The PWC business model could no longer support the outrageous compensation levels of partners who couldn't sell and the fall over deals from the tax/audit side were coming to an end. IBM saved PWC's bacon and in the process, acquired some adept resources below the partner/associate partner level. IBM also acquired a large slug of partners/associate partners who have been a huge drag on profitability ever since. If some of these partner/associate partner slugs feel there is a glass ceiling, they could do everyone a favor by taking their assets elsewhere.
  • "Look again" by "Dose of reality". Excerpts: Regarding my objectivity, my legacy of posts here leaves no doubt as to my evaluation of the "leadership" of PwC prior to the acquisition. The seeds of the business challenges were planted well before the sellout to IBM. Partner compensation was ratcheted up exponentially during the boom years, and the trickle down to the workhorses was fractional. While it was better than they could get in industry, it just barely covered the costs of worklife imbalance, unless you factored in the expected value of making partner. That left a delicate equilibrium in employee relations that had to be actively managed.
    However, when the bubble burst, the partner class scrambled to maintain bloated compensation levels, and used compensation levels of staff as a lever without even considering the impact on staff motivation. The problem was that the leaders that were elevated in PwCC were the integration revenue kings, not the professional managers,and the chain of command was so weak that it eventually turned into a resource grab free-for-all.
    Now, enter IBM. They structured a deal with golden handcuffs for the partner class who would ultimately end up to be redundant and obsolete anyway, and accelerated the screwing of the worker class through “compensation normalization”. That is the brain drain that destroyed the franchise – it was in the middle and upper-middle of the pyramid. If the deal could have been structured in a way to allow financial resources to be applied to the real long term resource investments, we would not be in the position we are in right now. However, a deal that gave IBM carte blanche with partner dismissal would never be accepted by the sellers (can you say "conflict of interest"?), at least those in the consulting side of PwC. Mind you that this is coming from someone who benefited from this bad decision, so again – don’t ever question my objectivity.
    It was the structure of the deal and the integration strategy that destroyed the intrinsic value of the assets, but it was there for the taking for any company that understood resource management in the consulting industry.
  • "More ways" (to cut costs) by "deep_eye". Excerpts:
    • Client sites will frequently have going-away parties, baby showers, retirements, etc., BCS staff should just swing by and avail themselves of these consumable cornucopias.
    • Many US metro centers are within close proximity of rail lines. Instead of taking those boring and stressful flights, why not just skip on down to the local rail yard and jump aboard the next open box-car? Careful though! IBM will NOT reimburse for lost limbs, should you slip while boarding. Just think! Within days you will be deposited within walking distance of the client site. And! Don't discount the engaging and interesting "rides" you will share your very own sleeper-suite car with!! Many of whom are between jobs or just "moving on" following those judicial misunderstandings. What special fun for you.
    • If you find you must eat the occasional meal out, here is a workable strategy to trim those pesky costs. When the check arrives, excuse yourself and head to the bathroom - see that window? Can you squeeze through into the alley? There you go, half way to savings already.
    • Why pay those ridiculous costs for a hotel/motel room? Have you ever noticed how many stores in US cities have semi-enclosed vestibules? What could be more charming, appealing or thrifty? When the BCS consulting team arrives in the client city, break up into groups to scrounge for cardboard, rags, papers, etc., In no time, you will have transformed that storefront into a BCS habitat that would make the Ritz look like a homeless shelter. And think of the savings!
    • Hey - speaking of homeless, they know all the best soup lines. When you get to the client site, you can buddy-up with these fascinating wayfarers and get the lowdown on the best eats and budget lodgings in town!
    • Don't like paying that insane cab fare from the airport to your hotel? No problem. Once you are in the cab, grab your chest and scream - "I think this is the big one, I'm fading fast." When you arrive at the emergency room, say, I think it's a miracle!! I'm saved, jump out and run away (note to BCS newbies - DO NOT pull this if your bags are in the trunk).
  • "More Cost Savings Ideas" by "howard stern". Excerpts: 1) Select cheapest flight using an unlimited number of stop overs and layovers. 2) Tents - who needs a hotel room...build communes in public parks. One porto potty per hundred. 3) Get arrested in client cities - Jails are housing...with work release this could work well. 4) Do a John Belushi from animal house and eat food while in checkout lines. 5) Squeegee time after hours.
  • "Two serious ideas..." by "F***IBM". Full excerpt: They should make bonuses miniscule and delay the tiny annual raises from January until later in the year. What -- they've already done this? Oh ....sorry. Never mind.
  • "The spin" (referring to IBM's latest earnings announcement) by "Dose of reality". Full excerpt: "We are not organized to serve our markets effectively...closer to the customer...." So we move major functions to Eastern Europe??! Sam...Listen to me... You are sitting on a disjointed, siloed, set of businesses, run by career political game players that look at business life as an internal zero sum game, and have a strategy that the market hasn't been interested in for years. So let's just continue to cut costs, squeeze the next highest layer of real talent out of the organization and live to die another day! Who do you report to anyway?!

Coverage on Social Security Privatization
  • Center for American Progress: Open Letter to Progressive Policymakers. On Clear Lines on Progressive Savings Accounts. By Gene Sperling. Excerpt: As one who believes progressives must support responsible and fair efforts to enhance Social Security's solvency and as a strong supporter of progressive savings options outside of Social Security such as a Universal 401K, I believe it is crucial that progressives be crystal clear about what would constitute an acceptable effort to increase pension and personal savings outside of Social Security, and what constitutes harmful regressive or partial privatization proposals. While the language and design of varying Social Security and savings account options can be complex and murky, the principles that define what progressives should stand for and what they should reject are straightforward. When it comes to new individual accounts or savings options, they should meet three clear principles:
  • Los Angeles Times: Bush Points to a Retirement System With Mixed Results. By Peter G. Gosselin and Edwin Chen. Excerpts: President Bush came to Ohio on Friday to highlight a state retirement savings system that he said showed that Americans would be better off handling their own old-age investments through personal accounts than relying on traditional Social Security. But that state's version of personal accounts has attracted few takers among the people eligible — Ohio's 750,000 public employees. And records show that the most widely chosen version of the state-offered accounts has racked up a five-year earning record of 1.86%, about the same return that the president says Social Security produces. [...] Part of any Social Security fix, the president told his audience, should be "to trust people with their own money, to devise a system that would work similar to the state of Ohio, that would say, 'We're going to let you earn a better rate of return for your money.' " But in the biggest of Ohio's several state retirement programs, the popularity of the private accounts and the returns they produce are relatively low.

New on the Alliance@IBM Site:
  • Burlington Free Press: IBM executive launches attack on health plan. Excerpts: Earl Mongeon of Westford, a 26-year manufacturing employee at IBM's Essex plant, had heard enough. The occasion was one of the internal "All Hands" meetings that the local plant's top man, John Ditoro, stages periodically to update the facility's 6,000 employees on how things are going at IBM in general and Essex in particular. DiToro has been using the current round of "All Hands" meetings to persuade workers to strongly critique a single-payer universal health care plan being put together by a legislative panel. DiToro told the meetings that the plan will require $1 billion in new taxes and he strongly encouraged employees to "let your legislators know what you think," according to an internal newsletter, which was provided to the Free Press by Sandy Anderson, a retired IBM employee.
  • Job cut alert! Alliance@IBM is receiving information that a resource action is about to happen in IGS. Please send any information to endicottalliance@stny.rr.com.
  • View the Think Twice show [Video, approximately 1 hour, requires RealMedia Player] Editors' note: We highly recommend this video. In it you'll meet leading activists at the Alliance@IBM, hear about the history of the Alliance, get updates on Alliance activities around the country, and hear about the shareholder proposals of interest to IBM employees.

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