IBM axe chops IT staff

IBM customers in Australia could be affected by the company's plans to cut more than 15,600 jobs worldwide, with a local union claiming the axe is aimed at frontline IT staff.

Community Public Service Union (CPSU) secretary Stephen Jones said up to 400 IBM GSA staff face the chopping block locally. He said IBM has shrouded the redundancies in secrecy.

An IBM Australia spokeswoman was unwilling to elaborate on the company's plans, which were outlined in its second-quarter earnings with the US Securities and Exchange Commission.

Australian Services Union (ASU) assistant secretary Sally McManus said she was aware of five former IBM Global Services Australia (GSA) staff that worked in IT project management and software development positions who were made redundant within weeks of IBM announcing its restructure plans earlier this year.

She said the former employees were also involved in outsourcing engagements with some of IBM GSA's biggest clients, including Qantas and the Department of Veterans' Affairs.

IBM US spokeswoman Carol Makovich said 57 per cent of those working in the Global Services division had already left, with the rest slated to finish in September.

IBM said it would cut 14,213 jobs, mostly in its Global Services business, which had 150,000 employees as of the end of last year. In Australia, the division employs about 10,000 people. IBM overall had 320,000 employees at the end of 2001. Another 1,400 cuts will come from its microelectronics unit, the company said.

A technical consultant at CSC Australia said it was a well-established trend in the current climate to cull IT personnel, and called IBM GSA's reorganisation a smart move.

"One of the quickest ways to reduce costs is to get people off your books and make no new hires. This makes your profitability look better, and also helps in some key performance measures such as revenue per employee," he said.

Commenting on the stability of IBM's existing outsourcing contracts, the CSC source said service levels should remain satisfactory provided smaller IT teams could meet agreed service levels.

"Depending on your contract, most outsourcing agreements have standard level of service metrics in them; so contracts are less at risk."

One IBM GSA customer, Australian food manufacturer Goodman Fielder, which has a five year $28.5 million outsourcing contract for infrastructure support services, said it was not concerned about the impact of IT staff cuts. "We have a contract and believe they can uphold the agreement," a company spokesman said.

The Department of Veterans' Affairs extended its outsourcing contract by three years only last week. The department uses IBM for IT infrastructure support to consolidate its processing systems. A spokesman said the reorganisation plans would have little impact. He said the department had "no concerns" over IBM's ability to continue to meet SLAs.

"All SLAs are contractual and we expect IBM to adhere to that," he said.

Meeting SLAs

IDC Australia's director for software and services consulting, Andrew Milroy, said a vendor that meets SLAs over a sustained period typically requires "progressively fewer staff for specific outsourcing contracts, as new technologies can often help them to meet SLAs".

If fewer contracts are being won, fewer staff will be needed, he said. He expects IBM GSA can meet its SLAs with fewer staff, and believes IBM would only suffer if there were a sudden change in economic conditions.

Commenting on IBM's efficiency drive, he was not surprised by the restructuring plan. He said big services players were facing tougher times now the mega outsourcing deals of the 1990s are long gone. "Companies do not have the luxury of spending vast amounts on outsourcing," he said.

"Most organisations are now buying services in smaller chunks because across most industries, IT budgets remain constrained."

Also, because organisations are not making the huge technology investments seen a few years ago, that is creating downward price pressures on services companies, he said.

According to IDC, most enterprises want to use services to consolidate as well as leverage their existing investments. "Therefore, they are increasingly interested in services centred on high availability, integration of existing investments and security," Milroy said.

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