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Saturday, May 27, 2006
Robert X. Cringely continues his discussion on IBM which I covered earlier. As he sees it,IBM has entered a death spiral of under-bidding and then under-delivering. The attraction of services to IBM was based on the inherently high profit margins of that sort of activity. Claiming that DOING things turns out to be a lot more profitable than MAKING things, and a LOT more profitable than inventing things, he points out IBM's gross profit margin is around 36 percent, which means in the very simplest terms that for every three dollars the company takes in, one dollar in profits are generated. (Those complaining of higher margin for offshore providers – please note and traditional definition of offshore providers looks anachronistic, given the scale up reported by US headquartered majors!!) Inventing things makes IBM a lot less money than that. For IBM inventing things - while still seen as vital to the identity of the corporation - was actually a drag on earnings. Quoting insiders,he writes that IBM is no longer providing training to their consultants, expecting consultants to pick things up on one’s own, which leads to a much lower quality of work on projects. Adding that many people are quitting IBM, and IBM is now in a hiring crunch because it can't fill projects. The result is that they're stuffing anyone available onto projects (regardless of skill level), again lowering the quality of our deliverables. So IBM is sacrificing the long-term health of IBM Global Services, to keep up the quarter-to-quarter results. Delivery quality is down, employees aren't getting trained in newer technologies because of the crunch to get more billable hours, and people are leaving IBM because of the impact on pay and overall low morale. (I have to definitely concede that in most large consulting & service organizations, a similar culture may be prevailing as well, going by insider information).
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