IBM Cuts Thousands in Employee Restructuring: What It Means for the Channel

Questions are swirling in the channel and beyond as IBM moves to ax potentially thousands from its payroll.

Unknown now are exactly how many positions Big Blue is looking to eliminate or precisely why. A report from The Register estimates the reductions could total 14,000 employees worldwide, possibly as a result of a loss generated by a recent tax hit sustained in Japan.

If rumors of the layoffs are true, potentially thousands of IBM employees in North America as well as globally could be nixed by the end of the quarter.

On Thursday, investment research firm Bernstein sent a note to customers and the media detailing IBM’s efforts to counteract a recent $1 billion Japanese tax gain as a potential reason for the layoffs. Bernstein Senior Research Analyst Toni Sacconaghi estimated that 14,000 jobs could be in jeopardy, considering the historical cost to eliminate an IBM employee has averaged around $70,000.

The Register already noted that 1,352 jobs within IBM’s UK-based Global Technology Services wing are at risk. The company’s UK Labs division will also see an estimated 123 jobs cut out of a total of 900 employees, equaling a 7.3 percent personnel decrease.

Some of these positions could be replaced by lower-paid workers in India and other countries, according to The Register’s sources. Bernstein estimated that IBM has saved more nearly 7 billion dollars in the past decade from its practice of workforce rebalancing, which if accurate would represent nearly 97,000 jobs cut.

Despite Bernstein’s claim that IBM’s recent tax problems could be to blame for the most recent round of layoffs, the specific business objectives the company hopes to achieve with the cuts remains unclear.

Fast Facts

While it isn’t completely apparent how these changes could affect IBM’s thousands of global channel partners, there are several possible implications that could come with a massive shift in IBM’s personnel away from North America and Western Europe.

Watching IBM, which is run by Lee Conrad, a former IBM employee, has served as a hub for many employees who received word of layoffs in the past week as well as employees upset by recent severance package cuts. IBM’s long-standing policy of paying two weeks severance for every year of service was eliminated in January, leaving many victims of the layoff with drastically reduced compensation.

Phillip Tsen, a former offshoring executive at IBM and the author of The PM Executioner, said the company’s practice of offshoring employees to countries in cheaper markets is indicative of a systemic problem among American companies. By cananabalizing American jobs to save money overseas, Tsen said, these companies are effectively crippling our nation’s ability to create a thriving IT industry. While offshoring efforts may have been necessary to eliminate company debt in the wake of the Dot Com bubble burst, Tsen said, that practice has shifted dramatically recent years.

“In the past ten years, that has changed because [executives] they are cutting the jobs and moving jobs offshore for the purpose of meeting Wall Street numbers and also [because] CEOs and CIOs are taking bonuses home,” he said, in an interview with The VAR Guy.

One of the big questions a layoff of this magnitude brings to bear is whether or not channel partners will see a change in the level of field support offered by IBM. With such a large number of consultants, engineers and sales specialists being eliminated, there is a possibility that at least some indirect sales relationships could be negatively impacted by shifting positions.

A layoff of this size could also indicate a potential slowdown in demand for consultants and professional service personnel, possibly due to the overarching market shift away from hardware and toward cloud services. Whether or not this potential shift in demand is isolated to IBM or indicative of any industry-wide trends is unknown at this time. However, a mass firing of engineers and other service professionals could create a flood of individuals in the market looking for work or starting their own small businesses. This could translate into new competition for channel partners, or a new source of talent to fill open positions.

The VAR Guy reached out to several IBM executives but did not receive a response before publishing.

It is entirely possible that this round of layoffs is just another example of a massive corporation such as IBM working to rapidly adjust its skill sets to meet changing market demands. Let’s remember that IBM currently has somewhere in the range of 375,000 employees worldwide, so 14,000 layoffs, while certainty a significant number, is still small when compared to the entirety of the company’s staff.

What is more, other tech stalwarts have similarly reduced their payrolls in recent years. This includes HP, Cisco and Microsoft.

Despite the wealth of information flying about on the web, how IBM’s job cuts will affect the market as a whole, especially in regard to channel partners, is unknown.

The VAR Guy will continue to follow the story as it develops.