|
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
MAY 5, 2005
By Steve Hamm IBM: More than Emergency Surgery Big Blue isn't just cutting its workforce and costs to appease investors -- it's also trying to adjust to long-term global realities On Apr. 14, IBM (IBM ) stunned Wall Street by announcing disappointing revenue and profit growth for the first quarter. Revenues from continuing operations inched up only 3%, to $22.9 billion, well short of the $23.2 billion to $24.1 billion that analysts had been expecting. Shares of Big Blue skidded 8% the next day, to $76.70. But the tech behemoth is moving quickly to address its shareholders' concerns. On May 4, it revealed a huge restructuring, including a workforce reduction of between 10,000 and 13,000 jobs and a pretax write-off of between $1.3 billion and $1.7 billion. The staff cuts will affect 3% to 4% of its 330,000 employees worldwide. More than half of the eliminated jobs are in Europe, where IBM has been seeing particularly soft demand. The moves could help Big Blue's struggling stock. "What this is about at the bottom line is reducing costs, mostly in Europe," says analyst Bob Djurdjevic of Annex Research, a tech-industry consultancy. "Seen from that vantage point, this is indeed a good move from an IBM shareholder viewpoint." LOWER-COST LOCALES. Shares had traded as high as $98 in January, but have idled in the mid-$70s since the downbeat first-quarter report. In after-hours trading on May 4, IBM moved up about 1%, to $78. But the cutbacks are more than simply a reaction to a lousy first quarter. IBM is revamping the way it does business. Starting early in the year, it had begun a series of shifts in the way it organizes its workforce. This included dismantling its European headquarters in Paris, putting more authority in the hands of country-specific marketing groups, and creating a series of what it calls "centers of excellence." Those outfits centrally manage operations such as regional procurement and services for specific industries. It also means employing people in lower-cost countries such as Eastern Europe and South Asia. The idea is to change the way IBM approaches markets as it tries to deliver higher-value, higher-margin services. DOUBLE-EDGED SWORD. "This isn't a short-term thing. It's part of the strategy for our business. We're lowering the center of gravity and globalizing our delivery," says IBM Senior Vice-President Bob Moffat. He acknowledges, however, that, "the first-quarter miss might have accelerated things." Moffat is the guy in charge of executing the "gravity" strategy. He spent the last three years wringing waste out of IBM's supply chain. Mostly, this was done by centrally managing procurement, logistics, and manufacturing planning. Now IBM's definition of supply chain has expanded to include people. That's small comfort to the workers who are no longer needed. But as a globalization strategy, such thinking may make sense. Markets, suppliers, and productive brainpower are ever more widely distributed to IBM's customers. And Big Blue has to figure out how to respond to and take advantage of brutal global competitive pressures. The alternative isn't pretty: More quarters like the first one this year -- and more irate investors.  Hamm is a senior writer for BusinessWeek in New York
BW MALL
SPONSORED LINKS
Buy a link now!Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
