Occam's Razor

IBM
UBM
We all BM
For IBM

HARLIE (the computer), from When HARLIE was One, by David Gerrold

I grew up in an IBM town. IBM pretty much owned Endicott, New York when I lived in the area. The exception was the Endicott-Johnson shoe factories, which were in serious decline in the 1960s. In fact, IBM was founded in Endicott, New York in 1911.

Big IBM-white boxy concrete buildings line McKinley Avenue and other Endicott streets. If you didn’t work for IBM, you prospered from mooching off of IBM. IBM guys were cool if white guys in white shirts, black pants, narrow ties and short hair could be cool in the 1960s. In any event they lived well, worked hard and gave their all to the company Thomas J. Watson founded. It sure looked like a cool company to me back then. Not only did they rake in all these billions in revenue, but also their employees were happy with terrific pensions, great salaries (because IBM hired top talent only) and had pretty much a guarantee of lifetime employment. Management actually listened to their employees and encouraged them to be creative and innovative. The guys (and they were almost all guys, except in the clerical or punch card pool) wore THINK buttons on their suits and shirts. It was embedded in their logo — so much so that it was hard not to associate IBM with THINK (in capital letters).

That was then, but it bears no resemblance to the IBM of today. At least that’s my conclusion having finished Robert X. Cringley’s eBook on IBM, The Decline and Fall of IBM: End of an American Icon? Cringley has been a tech journalist since the 1980s, and made a name for himself (under a pseudonym I am pretty sure) writing for InfoWorld, the tech publication that focuses on information technology in the enterprise. I credit InfoWorld for much of my career success, since it was always topical and ahead of current trends, plus it told me stuff I needed to know to succeed in the workplace of the moment.

InfoWorld is still around, but its print publication is long gone. So, in fact, is Robert X. Cringely. Well, not quite. You see, there are two Robert X. Cringleys. There’s the guy that wrote the original columns over many years, and then there’s the trademark “Robert X. Cringley”, which InfoWorld claims to own. So there is still a reputed tech spy named Cringley on infoworld.com, but not the real Cringley, the tech guy that amused us with likely fictitious anecdotes about his relationship with “Pammy”, a curvy younger woman that ran hot/cold. Reading his column was half neat behind the scenes tech news, and half soap opera. It was fun and addictive. Anyhow, the first and legitimate Cringley, now 60+, is still one of the few people doing honest information technology journalism, and can be read on his website. And I assume the model in the picture is “Pammy”.

Cringley has been studying IBM for a long time, having grown up in an IBM town like me. He believes the company is ready to implode. This is because, very sadly, the company has morphed into the Dilbert of companies. It is overrun by pointy-haired bosses that are busy working their employees into early graves, if they are not being summarily fired to hire greatly discounted and frequently incompetent employees from India who largely have no idea what they are doing, or who have mastered the idioms of American English.

From the perspective of Wall Street, IBM is doing great. The managers are doing a great job of increasing their earnings per share quarter after quarter. It’s a metric they are focused on like a laser beam. You know what the problem is when you focus: it distracts you from the rest of the world. As Cringley’s analysis points out, the things that should matter about IBM are simply being ignored. It’s crazy what its managers are doing to its core assets, not to mention its employees. They are burning the seed corn, to use an analogy from the Civil War. For many years they have been relentlessly firing their best employees, mainly because they cost too much. They cut pensions and eventually did away with them altogether. They outsourced a lot of their work overseas, adding huge communications barriers and dispensable employees, who were often just cheap contractors, to handle technical interactions with their global services customers. These are very profitable customers that need a long-term relationship with a tech firm to manage their complex systems. To do this right, it requires a deep understanding of their technical needs, their business and a rigorous, engineered approach to managing their complex technical infrastructure. Done right these are hugely profitable customers for life. They used to do this right, and now it’s hard to find an example of a company that does it worse, or charges more for the privilege.

Sadly, the more you read of this relatively short eBook, the more appalling the whole thing becomes. (It’s a quick read and at $3.99, this self-published book that no publisher would otherwise touch is also a bargain. About half of it is an appendix of comments he has received over the years.) It doesn’t take much reading though to discover what the real problem is: managers come exclusively from the sales ranks, not the technical ranks. Consequently overall they have little clue what their customers want, and lack the creativity to direct their employees to give them what they want, or even bother to ask them. Moreover, it has more bureaucracy than the federal government, so many incredible layers of hierarchical management, despite implementing a flawed version of the Lean efficiency program.

Managers and employees often widely geographically separated, causing stilted communication that adds cost and delay. Not that employees have the time to give feedback. They are kept working like slaves: sixty or more hours a week, for now below par industry wages and they are massively overcommitted, with the grim reaper of outsourcing always at their heels. Their customers are being pick pocketed too: they pay highly inflated prices for crappy services, made worse by contracts based on billable hours that are often inflated. The smarter customers have moved on, which is fine with IBM. They then lay off more employees, which helps increase earnings per share, and Wall Street applauds because they equate this with good management.

Cringley has solutions but IBM’s leadership has proven both tone deaf and hostile to creating growth again in the company. As for listening to their employees, they simply can’t be bothered. Which means that IBM is a shadow of its former self. And this has been going on for a decade or so. I know people who have been laid off from IBM. As I read Cringley, I wonder why they didn’t bail long ago. In many cases, it’s because they are in their late 40s and 50s, and it’s hard to find a job that pays as well or even at all.

IBM is also buying back tons of its own stock, often with borrowed money, simply to prop up its earnings per share. No one seems to be looking at its sales and how they have been dropping, and how many of their largest customers have gone elsewhere. No one, least of all its management, is looking at the quality, innovativeness, or value of its product lines. Management simply isn’t interested.

What is IBM management good at? It’s good at creating Potemkin Villages: shells that look good to outsiders, but with hollow or non-existent insides. Its major advantage is a huge legacy of accumulated cash from its glory years that lets it hide its inefficiencies and which they apparently won’t invest in innovative products and services. Touring Endicott, New York, where only a couple hundred of the thousands that it employed in its glory days remain, easily demonstrates its hollowness as a corporation.

Cringley’s analysis, and it’s voluminous as well as filled with insider dope, is unfortunately right. I don’t invest in individual stocks, but if the price of increasing earnings per share is to piss off its customers and stop creating products that lead the market or offer greatest value, then it’s only a matter of time before its house of cards collapses. From the looks of things, it shouldn’t be too much longer. It won’t matter to its managers. Much of their pay is based on IBM’s earnings per share so their prosperity is already assured, so in some sense they are betting on failure. By tying pay to earnings per share, IBM embraced a false Wall Street value. Real growth and real value comes from companies that innovate, like Apple Computers. IBM is proving to be the stodgiest and most tone deaf of companies. The Davids of the corporate world have already hit this Goliath with a rock on the forehead. Goliath simply hasn’t figured out that he is falling to the ground.

At the start of the book, Cringley relates a real story. As a child in the 1950s he had a great idea that he took to IBM. Thomas J. Watson himself read and forwarded his letter. He actually got an interview with a group of IBM engineers. To say the least those days are long gone. Watson should be rolling in his grave. Most likely though IBM executives will remain clueless until Wall Street finally notices, and the company collapses into a bunch of sub-prime parts that get sold off by ticked off stockholders. Pretty much any company out there could do a better job of managing these parts than IBM.

I hope you will read Cringley’s book. It doesn’t take long and should make you cry, particularly if you knew the IBM that used to be. It should also make you very angry.