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For the past 2-3 years I have been a pain to IBM, correctly pointing-out a number of policies and actions by the computer giant that have shown a pattern of disrespect to employees and customers alike. I can’t argue with IBM’s financial performance but I can argue that this performance has come at a cost that is too high for the people of IBM and even for IBM customers, which is why my 2010 prediction for Big Blue is Customers in Revolt.
Top management at IBM has nearly always come from the sales side of the business and it is that sales side that has been outdoing itself quarter after quarter helping IBM earnings to grow even in a recession. It doesn’t hurt, of course, that lots of IBM revenue comes from its international operations and has benefited from a weak dollar. But a fair amount of this success — at least on the services side — comes from very aggressively bidding for work.
But what happens if your bid is too low to actually make money for the company? At IBM, ironically, that’s not a problem for the sales people. It is a problem for the people charged with actually performing the services.
According to IBM customers I have spoken to, the company seems unable to create a solution and put a price to it that anyone would accept so the sales organization appears to sell almost anything at whatever price they can get. They collect their commission and move on to the next deal, leaving behind a mess for the service organization to deal with.
Dealing in this case means cutting costs to the point where the contract is profitable even if not truly fulfilled. Because there is such a big disconnect between the price of the contract and the cost needed to deliver it, crazy things are done, starting with offshoring on a massive scale.
While offshoring is not intrinsically bad, it leaves almost nobody working in the data centers, which are necessarily back in the U.S. When the server folks are thousands of miles from the equipment, how does the equipment get installed? Who does the hands-on work? If a machine breaks, how long does it take to get someone there to fix it? IBM customers are learning the rueful answers to these questions.
IBM is also building several new “global delivery centers.” One of these is in Dubuque, Iowa. Why Dubuque? It is my understanding that IBM hopes to reduce its labor costs and one way to do this is by choosing remote locations like Dubuque with few locals who could qualify to be IBM techs or engineers. Experienced IBMers being downsized in places like New York won’t move to Dubuque, so they can be replaced with cheaper (and younger) labor. Dubuque’s lack of native talent means IBM can staff the centers with mostly foreign H1-B personnel, again so they can pay them less and have no long-term benefits exposure.
I find it difficult to see how customers benefit from these global delivery centers.
But wait, there’s more! The offshoring, the spin off of network work to AT&T, the “global centers,” the new internal processes are not much compared to the latest IBM ploy I’ve heard about — the use of used equipment. To save money on its outsourcing contracts, I have been told that IBM is refurbishing old equipment and substituting it for new. The customer pays a service/lease rate for new, but in the IBM data center what’s actually in the rack is used hardware. Since IBM holds the title and lease and customers never visit the data centers anyway, the customers don’t know.
Only I guess now they do know.
If I was an IBM customer leasing hardware that was represented as new I’d darned well want to verify that’s the case. Send somebody to the data center and check serial numbers. What can it hurt? You might save some money on the contract or score some new equipment or both. It’s worth a shot.
Corporate America will tolerate a lot of this kind of behavior, but there are limits, especially when deadlines are consistently missed and deliverables fail to perform as promised. That’s why I predict troubles for IBM in 2010 with customer satisfaction.
Take a look at that contract, Mr. or Ms. CFO (not the CIO — he or she sometimes can’t be trusted in these things), verify the number of machines and bodies that are supposed to be involved. If IBM is using only half the promised labor or half the promised hardware (or both) then raise some Hell.
Remember, it’s your money.