In Friday's news digest, I included an item about IBM's generally disappointing performance and its 16 quarters in a row of reporting lower revenue than the previous year. As noted by Julie Bort of Business Insider
, all of IBM's segments "showed lower revenue than last year, with the worst drop coming in the systems (hardware and operating systems) group, which dropped almost 22% from last year to $1.7 billion."
IBM is regularly slammed for a lack of creative business vision. Despite the turnaround orchestrated by the legendary Lou Gerstner, IBM finds itself back in a corner. Gerstner accurately perceived that IBM's problems were more about pricing than about products. In 1993, when Gerstner took the helm of Big Blue, its corporate customers still needed mainframes. Everyone knew that mainframes were expensive, and previous leaders at IBM had seen no reason to adjust prices downward.
One of Gerstner's main accomplishments was making IBM more competitive on pricing. Gerstner's insight proved correct, and he is justly credited with saving the company. Today, however, IBM is again struggling to find practical solutions to the many challenges facing its business segments.
One solution is labor arbitrage. According to several reports, IBM is apparently shifting labor from regions of the world where higher wages are the norm to regions where lower wages are more common. If that's the case, I can't fault the basic business calculation. But I do question the timing and long-term strategic impact of such moves.
In an IEEE Spectrum
post titled, "IBM Layoff Epidemic Spreads Worldwide," Tekla S. Perry writes that IBM workers in the U.S., Canada, Belgium, Denmark, France, Germany, Sweden and Switzerland have been adversely affected by the company's workforce rebalancing strategy.
No matter who is elected President of the United States in November, jobs will be a priority. Moving jobs from North America and Europe to less developed regions of the world seems guaranteed to raise the hackles of politicians from all parties and irritate voters from every segment of the socioeconomic spectrum.
Does it really make sense for IBM to court that kind of controversy at this particular moment? I know we're living in a global economy, but where is it carved in stone that companies must always seek the lowest-cost labor? Surely, there are better ways to compete effectively. What's your opinion?