On Tuesday, UBS analyst Steve Milunovich said these long-term projections are not worth doing in this era of tech realignment and that IBM needs to focus on long-term strategy instead of EPS goals. IBM’s trailing twelve month EPS is $14.85, so it has a tough row to hoe between now and the end of its fiscal 2015, which would be Dec. 31, 2016. ...
But things could be about to get a lot worse.
When I first started working on this piece I believed the problem the company faced was that it was aiming at the wrong customer set in the wrong way, and thus underperforming. Under Sam Palmisano and, now, Virginia Rometty, IBM has abandoned most consumer and small business markets in favor of serving large enterprises, where solutions are often customized and hard to replicate.
But if it's even failing in that niche it really has no place to go. ...
IBM has kept the stock where it is through financial engineering. IBM borrows money to buy back stock, which raises earnings per share. It costs it less to pay the interest on that debt than to buy the stock, thanks to low interest rates. If interest rates rise it's game over for that.
But veteran tech journalist Robert Cringely, in his new book, "The Decline and Fall of IBM", says the company is even failing within its niche.
"The company has probably been doomed since 2010," Cringely writes, "Customers no longer trust IBM to manage projects well, get the projects finished, or have the projects work as promised. IBM is now hard pressed to properly support what they sell."
Revenue has been in decline since the end of fiscal 2011, causing a steady decline in operating cash flow (shown below). Many of its biggest segments including "Global Tech Services" and "Global Business Services" saw declines of nearly 2% while its "Systems and Technology" segment has declined a striking 16.6% so far this year. Only its "Software" and "Financing" segments have seen growth this year of 1.3% and 3.5%, respectively. The lack of sales growth has not yet hurt profits because of IBM's disciplined cost cutting but this strategy cannot continue indefinitely. At some point IBM will have to stop cost cutting and increase (or at least stabilize) sales to maintain profits. Until IBM can accomplish that, investors will remain concerned about the future. ...
IBM's management has implemented some good policies in recent years which have increased profits but have failed thus far to successfully increase revenues. This has led to the continuation of policies which, when spread over the long term, can severely diminish a company. IBM has laid off tens of thousands over the last few years, cut overall R&D spending, sold off assets and has aggressively bought back stock.
Laying off employees is necessary from time to time, but IBM has managed to greatly increase profits over the last coupe of years yet has planned to lay off another 13,000 in 2014. This causes two problems. First, it ruins company morale and job security for many people who then may not perform as well or switch to other companies. Second, layoffs are expensive and IBM expects to spend another $1 billion this year alone.
Another part of the cost cutting is the decrease in R&D. With less R&D IBM will be less likely to innovate on the scale it has in the past. So far this has not taken place but if cuts of 7%-plus per year continue then it's only a matter of time. IBM has also decided to move away from low margin high volume business like its PC "ThinkPads" in the mid 2000s. Recently it sold its low-end server business to Lenovo. This was an area where IBM could have expanded and dominated but that it no longer is a part of.
Lastly, in order to increase per share results (especially EPS) IBM has been aggressively buying back stock for many years. The upside is that the stock has been bought at a relatively low price and has greatly improved share results. However, IBM has spent nearly $12 billion on stock buybacks this year alone. That is nearly twice as much as the first six months of last year. They have done so largely using debt and the chart below shows the rise in debt at IBM. This is not sustainable especially when sales are in continuous decline.
Pros: IBM still draws some of the best and brightest. The work can be quite interesting and challenging. And the company offers flexibility in terms of work times and locations (unless you're required to be at a client site).
Cons: There can be a strong feeling of disconnection. You may work with a team that's widely scattered or based elsewhere, and rarely if ever see them. You spend much of your time on conference calls, often at odd hours if you're dealing with colleagues in other parts of the world. Managers range from good to awful. Unfortunately, I encountered more of the "awful" than the good. And finally, career growth can be difficult to impossible. Even if you're a top performer, raises are small to non-existent. The company sets targets that never seem to be reached, at least as far as producing income for employees. The shareholders, on the other hand, almost always hear a much rosier story.
Advice to Senior Management: In my seven years at IBM, it was clear that a change had been made at the very highest reaches of the company. No longer was IBM to be an employer of choice, with better-than-average pay, benefits and management. The race to mediocrity was on. Combined with staff reductions in the U.S. and growth in low-wage venues, the future for Americans was not bright. I left because my career was going nowhere. I've done far better in the years since I left. I'd urge IBM management to strive to be a great employer again, not merely a mediocre one.
Advice to Senior Management: I have no problem with the blue pages managers (lowest tier), but the higher level management really did leave a gaping wound to morale here when cutting overtime and not giving raises proportional to the amount of income people lost. Raises only started to happen when people were leaving IBM left and right, and once the rest of us found how little those long awaited raises were, it was pretty much the last straw. Now, no one has any hope of wanting to make a long term career out of working for IBM. I personally am looking to get out.
Pros: Lots of opportunities/challenges/stretch assignments to help you grow in your career. Access to world-class technology and solutions. Great network of very talented people around the globe for basically any subject you need, at a distance of a "ping". Job security (for talented and engaged employees who cares about the company). Competitive benefits package. Flexibility at work. Lots of options to work remote or adjust work schedule (dependent on the job role).
Cons: Compensation is a little bit low compared to similar job roles in the industry, specially if you grow rapidly in you career.
Advice to Senior Management: Bring the share value and EPS promises to shareholders back to reality—based on the value proposition the company can really create and deliver through its products and solutions, and not overly based on enterprise efficiencies (cost reduction). That will enable a more sustainable enterprise, with benefits and compensation also great and above market average, as it is for learning and growth opportunities, which in turn will attract and retain the best talent, which will result producing and delivering more and more value to clients, making clients truly satisfied and buying more, and then naturally bringing additional value to the shareholders.
Pros: Great people. High level access to major clients. Brand recognition. Excellent company to have in your resume.
Cons: HR driven by penny savers—heritage of being run by a CPA for 10 years. Palmisano looked after his own pocket focusing on EPS and artificially raising the stock price so he could cash in after a pre-determined 10 year term. He killed IBM's soul, mortgaged the company future and left a huge mess for Ginni to fix.
The 2015 roadmap is a ticking time bomb that will soon implode the foundation of this icon.
The company is currently bleeding talent and whoever is left is overworked, underpaid and under appreciated.
Advice to Senior Management: Stop focusing solely on controlling strained budgets and artificially created internal metrics, and start focusing on your talent. If IBM keeps treating employees as resources and numbers on a spreadsheet soon enough nobody will be left to turn off the lights.
Pros: People attitude is one of the best ever met. Everyone is keen on teaching and helping. I have had great managers who demonstrated to care about you as an individual. Secure job: difficult to get fired.
Cons: Lack of mobility within different company functions. So that if you want to have a career within IBM, you need to enter and remain in HQ. Consultants rarely have a salient role in company strategy. Salaries and salaries increase are very low and few.
Advice to Senior Management: Ask people if they like their job. Many consultants are fed of repeating and doing the same consulting activity since ages, but they cannot change because they are not given the chance. Too many difference between countries. Company attitude should become more uniform by allowing higher level of mobility within countries. Hiring managers need to do their job in a more efficient matter
Pros: Very nice people. Flexible environment. Amazing access to large brands.
Cons: SWG leadership has no vision. I was acquired in the Smarter Commerce investment in 2010. Investments lacked any coordination, leaving too many competing agendas and software products. IBMers of 25+ years were more worried about protecting their careers than developing a lasting business.
IBM removed cups, water coolers, and coffee. Then came the sweeping 401k change—moving the company contribution to the last paycheck of the year. They would not pay the contribution EVEN if they let you go during an RIF/ or in IBM speak Resource Action.
Terrible culture—eroding or non existent benefits which is either leading or following the brand to toilet.
Advice to Senior Management: Retire. Bring in fresh blood to reinvigorate the company. BTW—I used to not blame Ginni because this entire implosion is due to Palmisano's hand with the 2015 plan. That being said, she has shown no leadership to alter course and make the company hers.
Pros: You'd be working for a strong brand name that everyone recognises and respects. It's a global company that's interconnected, so there's many opportunities to work with people in other countries, and even pursue careers over there (if you play your cards right). There's the option to work from home, although that can sometimes pose a problem (see 'cons'). There's jobs for anyone of any background (Project Management, Sales, Accounting, Consulting, etc), but not everyone.
Cons: Unless you're in the project management space, there's no formal training/hand-over process in most areas I've worked, so you'd be at the mercy of existing team members if you're new. Hands-on training can be poor. It's also difficult to achieve a strong team environment with synergy, because often people choose to work from home, and you don't get to speak with them face-to-face. Sometimes it's like you have to formally book a meeting just to see a member of your own team. Managers are good at what they do (technically), but lack important people skills - They're often task-orientated, and when under pressure, they focus solely their own survival than on their workers well-being. To be blunt, most managers I've experienced see their subordinates as tools rather than actual people.
Advice to Senior Management: Make an effort to truly (and enthusiastically) understand your employees. Spend more time with them face-to-face, and take more interest in how their coping with workloads. If you can, discourage people from working from home unless they have a good reason, because people really should work together in the same office. Remember - Actions speak louder than words. You must DO. If you just offer lip service, then you can expect people to run off to the likes of HP, Accenture and Fuji Xerox.
Pros: Good benefits, great place to start a career, opportunities to work for and impact Fortune 500 companies through consulting services if you can build up a reputation where managers are willing to bring you on multiple projects. Great resume builder. If you can land the right project/client you will work with nice colleagues and maintain a manageable balance/travel schedule.
High burn-out rate, very limited training on solutions or methodologies for which you are labeled as experienced or experts in for your clients, limited opportunities for advancement without getting the right type of project experience and exposure with partners. Big Blue can replace you with a new grad in an instant. Long-term retention and grooming isn't the goal in the consulting arm. But that's consulting for you.
Many times your ability to get promoted is based on how well your manager can vouch for you in the annual reviews in addition to your utilization. It may be rare that you've ever met, worked with, or seen your manager.
Work life/balance depends entirely on the management of your individual projects. I worked on projects that required 12 hour days on client site and weekend hours/conference calls. Some of my projects were in the realm of extremely unhealthy—no balance whatsoever.
I found trouble projects to be common due to poorly written contracts and our delivery on our promises. IBM had to throw consultants at troubled projects, at any expense to their employees well-being. I've also been placed on some of the most successfully run, long term projects and it's a different world. It's the luck of the draw and it depends entirely on factors you can't really control. A good network can help you navigate.
Advice to Senior Management: Utilization isn't everything, even if it's what puts money in your pocket. Do something about the skimpy raise and bonuses.
Cash balance plans have had a rocky history, particularly when large companies such as IBM turned to them to replace their traditional DB plans a decade or so ago. Since then, however, greater regulatory clarity on the use of such plans appears to have made them more acceptable, particularly among small employers.
“You can’t sugarcoat this,” said Paul B. Ginsburg, a professor of the practice of health policy and management at the University of Southern California’s Sol Price School of Public Policy. “This is a more challenging situation for consumers and it’s a reflection of how difficult it is to afford health care.”
Just as employers replaced pensions with retirement savings plans, more large companies appear to be in a similar cost-sharing shift with health plans. Besides making workers responsible for more of their care, employers hope these plans will motivate employees to comparison-shop for medical services — an admirable goal but one that some say is hard to achieve. ...
Castlight — working with more than 130 large employers — provides consumers with tools that offer personalized pricing and quality information for services within their insurer’s network. But even the most diligent shoppers can run into problems.
“They may have done everything right,” said Dr. Dena Bravata, Castlight’s chief medical officer. “They may have picked an in-network gastroenterologist for a colonoscopy. But then you don’t know if you need to have a biopsy, which then goes to a lab or pathologist who is out of network.”
And using the tools can simply be impractical in certain circumstances. “Most health care costs are incurred by very sick patients, such as those with heart attacks, strokes, cancer, mental illness, injuries — often under emergency conditions,” said Sara Collins, vice president for health care coverage and access at the Commonwealth Fund.
Another concern is that some people will be ill prepared to handle large bills, and will forgo care as a result. “If you go to the pharmacy and there is a $1,000 deductible on your drug benefit, they aren’t going to write you a five-year loan,” said Karen Pollitz, a senior fellow at Kaiser. ...
Many workers may not have a choice — a high-deductible plan may be their only option. “If the deductible is very high, all of a sudden the financial protection part of insurance, you are losing that,” Professor Ginsburg said. “You still have protection against very high claims, but you have people who may have to pay $5,000 during one year toward the cost of their care or more. And a lot of people don’t have that kind of savings.”
America has the most billionaires in the world, but not a single U.S. city ranks among the world’s most livable cities. Not a single U.S. airport is among the top 100 airports in the world. Our bridges, road and rail are falling apart, and our middle class is being guttered out thanks to three decades of stagnant wages, while the top 1 percent enjoys 95 percent of all economic gains.
And if you're counting on a full-time job offer in the future, your prospects may be dimming.
That's the future that many U.S. executives envision.
A survey of Harvard Business School alumni released Monday reveals a series of trends that are widening income disparities and may be weakening the ability of the U.S. economy to grow in the long term.
More than 40 percent of the respondents foresee lower pay and benefits for workers. Roughly half favor outsourcing work over hiring staffers. A growing share prefer part-time employees. Nearly half would rather invest in new technology than hire or retain workers. ...
The survey found that many companies are reluctant to add jobs if other alternatives exist. Only 25 percent said they preferred investing in employees, compared with 46 percent who would rather spend on technology. Forty-nine percent favored outsourcing work over hiring.
This site is designed to allow IBM Employees to communicate and share methods of protecting their rights through the establishment of an IBM Employees Labor Union. Section 8(a)(1) of the National Labor Relations Act states it is a violation for Employers to spy on union gatherings, or pretend to spy. For the purpose of the National Labor Relations Act, notice is given that this site and all of its content, messages, communications, or other content is considered to be a union gathering.