IBM 2010: Customers in Revolt
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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.
Nothing new about IBM cheating it’s customers. I was a Global Services employee in 1996 and we were regularly told to bill customers for overhead activities having nothing to do with the customer account, like department meetings and one on one’s with your manager.
The only reason IBM stays in business is that it’s customers, the people who make the decision to purchase IBM’s products, don’t actually use them themselves. It’s the poor employees of IBM’s corporate customers that get stuck trying to use this crap or get IBM’s service people to do their job.
The IBM outsourcing hurts all. Been part of it, the comments above are true, I
had to lie to get customers to buy into it. Its Really sad.
So Cisco seems to be chasing with the blade servers, but I’m really interested in
your thoughts on Sun/Oracle and having always feared Sun in the past, what
your thoughts are on them and their new Oracle side. They always had so
much innovation as well, in a way its sad to see them go as I had hoped to
go there.
NOT TRUE. I’ve been working on screwed up SO contracts for 12 years. The customers don’t revolt. The customer executives who sign the contracts won’t admit they made a big mistake, especially after paying big bucks for the transition and reducing their own IT expense (and getting bonuses for cost takeout). Instead they make IGS mid-managers’, who had nothing to do with the contract, lives a living hell with complaints–refusing to pay invoices, pressing for credits, and/or trying to leverage penalties against the contract. Or, the customer will try to save face by wiggling out of the contract by terminating services one by one and reducing baselines. The other scenario is that the customer’s CIO/IT executives get fired and then the replacements shove IGS out the door within 6-12 months. Many customers fizzle after six months to three years. I’ve heard no ten-year contract has ever gone the full duration without multiple renegotiations, with the customer reducing services year after year to get even. Customers even walk away from a contract as IGS doesn’t fight very hard against termination.
For IT Customers, One Way to Avoid Being Rip-Offed by any Outsourcing Company: ensure job skills and body count are defined in your contract and ensure these resources exist, specify no overseas labor in remote management and operations of your services. You can even insist resumes with real name be kept on file and up-to-date. You have to manage your side of the contract from day one and be proactive as soon as you notice things begin to slip.
Cringely, did you intentionally word the headline as you did to avoid the perhaps more descriptive, “IBM Customers Are Revolting”? The “nobody ever got fired for recommending IBM” needs to be stood on its head.
You know, there was a time when IBM had tons of dedicated resources for customers, and they are mostly local labor, and they were well paid. That was called the 80s and it led to the 90s where IBM almost went out of business, now, in this decade, everyone wants to be like IBM. Compaq buys Digital, HP buys Compaq, Oracle buys Sun, HP buys EDS, Dell buys Perot.
The customer demands lowered costs, but didn’t want to do the messy work of doing IT for cheaper, so they hire IBM (or any outsourcer) to do it for them, for less cost, and less risk. No one sees how this is fundamentally illogical? But, between C-level and sales people, they know exactly what they are doing, moving risk and pain to someone else that will do it for them.
And for what it’s worth, there are some people that get outsourced to these companies and actually like it. Now they have a real career path in a large tech company, rather than a marginal one in a medium sized widget company.
It’s messy, ugly, unfair and a lot like making sausage, but then that’s capitalism for you.
There isn’t much career mobility in IBM for Americans anymore. I’m not sure where you get the idea that a company that has been laying off ~100ppl/week for the last 5 or 6 years has any kind of career path.
Career success at IBM means “I’ve Benn Missed” when it comes to layoffs. You don’t move up unless there’s nobody left above.
In 2004 I looked at the career stats of SO “resources” brought in from outsourcing acquisitions and the average length of service after being brought into the Blue Pig was 19 months, if I recall correctly.
Meat for the IGS grinder is exactly that.
Bob, you’ve been saying this about IBM for years. I’m surprised they don’t sue you. If customers are being ripped off, they would sue for fraud and breach of contract. But they don’t. And apparently they don’t even cancel their services. So it must not be so bad.
Now I hate off shoring and mass layoffs as much as anyone, but the rest of your comments are unsupported and probably very off base.
Mkkby, I am a current employee of IBM, have been for all of my adult life (just lucky..or unlucky…so far). I have worked in the services group (what was IGS, now ITD) for the last 12 years, so let me tell you straight from the horses mouth…everything this Bob guys has said is 100% accurate. Absolutely, no question. Customer DO leave, constantly, and they due threaten to sue, constantly. IBM always, without hesitation, allows them out of their contract, and often pays THEM penalties for non-deliverance, just to make them quietly go away. The ones who stay do so for the exact reasons listed in the article…they pay almost nothing relatively speaking for the services they receive, and they beat IBM up constantly over it, to get even more, for even less money. So those companies that are interested only in “how much can we save this year”, as many are (including IBM) put up with what they get just because they are getting a tremendous deal financially, even if the quality of what they receive sux.
[...] when Big Blue’s customers start getting tired of the crap they’ve been through, customer service-wise. Posted by Lastangelman at 3:22 am | View Comments | Links to this post [...]
Damn Bob … don’t sun yourself on a roof for a while … that buzzing you hear just might be IBM overhead.
This is true, check out the Dela Airlines Account.
Ha!
Delta Airlines. A great example! I was thinking more like Pathmark. I remember all those big meetings with all the execs at Glenridge. Do we still have those buildings? They were all empty except for the meeting rooms.
Any truth to the rumor that State of Georgia is blowing up? I had heard we got it because there wasn’t anyone left to bid after Northrop Grumman pulled out.
Touchee!
Mkkby says:Bob, you’ve been saying this about IBM for years. I’m surprised they don’t sue you. If customers are being ripped off, they would sue for fraud and breach of contract. But they don’t. And apparently they don’t even cancel their services. So it must not be so bad.
Now I hate off shoring and mass layoffs as much as anyone, but the rest of your comments are unsupported and probably very off base.
Your way off base on this Mkkby. It is definitely true.
Another chronic service disconnect comes from the niche tasks that have no corresponding IBM competency tower. Companies have armies of security types.. but what you’ll get from IBM is maybe 1/2 a head – no matter how many people were dedicated initially.
Sarbanes Oxley.. Payment Card Industry,,, just to name a couple.
Interesting reading!
[...] http://www.cringely.com/2010/01/ibm-2010-customers-in-revolt/ [...]
That is NOT true! I do not work at IBM, but we have had very good business with IBM, they are the best. They have saved tons of money for us and we are very pleased with them! I encourage everyone to try IBM and do some business with them. IBM are biggest in outsourcing so how can you not team up with IBM? There is a reason we are biggest and most successful.
Regarding this FUD article. I have always followed your blog and really loved it, I read it every day. But this is too much. This is the last time I will read your blog again. I suggest in the future you do not spread this kind of FUD about IBM anymore, or you will loose your readers. I promise that. Dont write more negative articles, please!
@ MIkael
“That is NOT true! I do not work at IBM, but we have had very good business with IBM, they are the best…”
and then:
“…IBM are biggest in outsourcing so how can you not team up with IBM? There is a reason WE are biggest and most successful…”
So I guess you do mean “we” as in IBM.
Of course I meant “they” not “we”. As I told you, I do not work at IBM. How many times must I repeat that? Are you deaf?! Why do you question that?!
Could be because your entire rant sounds like something some hysterical Marketing airhead at IBM would throw together in a haste to try to lessen the impact of the devastating criticism here?
I have to say, the first para says it all, ‘to win the business they make any quote’ because of they don’t the business is not won – the business in question is offshoring by proxy and its IBM’s clients who are as guilty as any in this charade
IBM does not hire. Increases in staff numbers are because of acquisitions. Standard practice is to use the approved corporate workforce solution, Artech Information Systems, LLC. Artech has recruiters that continually search the web for the desperate unemployed and sign them into year long contracts at half the typical wage. Benefits are minimal medical coverage (50/50 plan) with a high deductible ($1000) at contrator’s expense ($500/mo). There is no break room. The contractors pool their personal belongings make the work environment tolerable: an old microwave and coffee maker, a mini-fridge & coffee cups. They work in window-less rooms, sitting in folding chairs at long tables that have power strips taped down the center. After two months, overtime is no longer approved. Then, the hours are cut back, but not the workload. They stay because it is better than no income at all.
IBM has been able to obtain some very gifted and talented techs for pennies on the dollar, and they do the job, but their motivator is fear. IBM doesn’t have loyal team members striving together, making sacrifices, coming up with innovative ways to improve its products and services…it has slaves.
As a new software engineer, I did some internships and recently accepted an offer for full time. They are definitely hiring the right talent just out of university, and are paying me very well for it compared to a lot of other companies.
Seems like a lot of old-timers sound a bit jaded, but having this kind of opportunity to grow as an engineer from an amazing resource that is IBM is pretty amazing. I don’t plan on being a lifer – if things go sour, you leave. IBM is far from a war-mongering, customer-abusing corporation. They do what they have to do to remain afloat in a shark infested environment that is our economy.
Bob,
another outstanding article. You have got this down and I know all current IBMers really appreciate your getting the word out. I left IBM 2 years ago, and never would go back! It really is a shame, but thanks for looking out !
To Jason.
I really hope it works well for you, but, please be aware that hundreds of thousands of others came before you and have seen good times and bad times. Also, please undstand that what any company wil pay you now fresh out of university is NOTHING compared to what you will deserve in five years. What you believe is good money is probably not. You will learn that they are likely billing 5 times what you take home for your work, and that is not wrong, but should help you understand what is going on.
Yes there are sour grapes, yes there is fear, but many of us have a healthy skepticism toward the decisions being made by the executives in IBM. We have seen stalwart corporations become very sick in the past years (anheuser-busch, AT&T, MCI, EDS, SUN). Some of us even believe that IBM has (on balance) been a good employer and a good corporate citizen, and many of us worked incredibly hard to make it that way, not for the pay, but because we believed in what we were doing. But we are fearful that the sheen of big blue as both an employer and as a corporation is clouding and quite possibly the core of the company has already rotted.
At one time, an employee of IBM was treated as a respected stakeholder and a partner in the company’s success, and worked extra hard because of it. Leaders were well-rewarded and loyal-but-average workers were rewarded better than in other places. Now any employee of IBM is a mule to be whipped ala eastern management methods. At one time a customer of IBM knew that IBM would rather lose money than fail to satisfy them, and the customers paid very well to know things would be handled. They became partners and trusted IBM. Now, many customers know that IBM is not afraid to disappoint then throw lawyers at the situation. They know that IBM will deliver the minimum available (the LEANest product) to meet a contract. It is this change from a flawed-but-good corporate citizen into a transparent maximum-short-term-profit-driven entity that many are lamenting, and hoping to see turn around.
It is almost as if Cringely has spies in IBM, because he did a perfect job of explaining most of the cancer within the company, and my opinion is that a strong look at the sales force’s compensation package and at executive leadership’s compensation packages would bear fruit. IBM can lead again, if they tie compensation to performance that benefits the bottom line. But until they do, as long as the sales force can take the money and run, and the execs can cut delivery capability and get a bonus, IBM will continue its downward spiral.
Another round of layoffs has begun…
We are a major customer of IBM. On Monday of this week they let go a huge share of valuable resources that were assigned to our account. These were largely resources that were caught up in the original outsourcing and made IBM employees at no choice of their own. Now we have lost years of institutional knowledge that cannot be replaced. Another in a series on increasingly “dirty” moves by IBM. To add insult IBM publicly explains the moves as “actions to benefit their customers”. Not only is that a lie, it is truly an insult to current and potential future customers. I only hope Mr. Cringely is correct……… let the revolt begin.
From 2004-2009, I worked in SO, supporting a contract outsourced by a major Telecom provider to IBM. The contract terms clearly stated that the outsourced labor could not be replaced with off-shore resources for the first 4 years of the contract. IBM was true to their commitment… they began aggressively replacing on-shore resources with resources from India, China and Brazil. In addition, the customer had a major lay-off of internal resources that coincided with the IBM actions… almost as if it was all planned. As a result, those of us in the April 2009 RA thought we might have opportunities to do the work for the customer after they ‘realized they cut too deep…’, but, instead, IBM drew from off-shore resources to fill the gaps the customer had created. So, IBM off-shored its resources and then even off-shored the customer roles that had opened up; @ 1/3 the fully burdened costs of US resources.
Just left the GDF in Dubuque 2 months ago..I can’t believe what is doing on there!
Impressive job on your blog. You have made alot of updates since I stopped by a couple of weeks ago.
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Iowa is staffed with the mentally challenged, the town is isolated, built in the early 1920′s, the dumb are bringing in the dumber, the qualifications matrix they used was beyond comprehension, beneath any set for success I’ve ever seen in decades of client facing experience judged by the results.
Felix Fiorita
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I would strongly suggest potential IBM customers to look what IBM is hiring to run your business at:
http://www-03.ibm.com/employment/us/jobs/columbia_mo.html
As an example the most experience Unix System Administrator, Jazz Level only requires 5 years of experience. The days of 20+ years of experience running your business critical systems are mostly over at IBM and so are the days of you not having to worry if IBM will deliver. Remember the saying ” You never get more than you pay, but often you get less”
IBM plays a continuous game of wack a mole moving the few 20+ experience employees around to the customers who are costing them the most in contract penalities. No penalities forget it.
Plan on off shoring with IBM. They sell contracts to move the support of your business critical infrastructure to places they do not have the skills or skill levels.
IBM has forgotten that what customers pay for is their employee’s expertise. They have made a decision that paying for expertise reduces their profits. I agree that it is only a matter of time that IBM customers will wake up and find out that a 5 year person is unable to deliver what the 20+ year person did. The customer may have saved money but at what cost?
If you get 1/2 a car for 1/2 the price, did you really save money?
How far will 1/2 a car take you?