IBM to Reduce its Workforce by 299,000 in 7 Years? – Great News for On-Demand Office Providers

by Laurent Dhollande on May 6, 2010

Personnel Today and Computer Weekly reported that Tim Ringo, head of IBM Human Capital Management, said that IBM could reduce its workforce by 299,000 down to 100,000 by 2017.

IBM would then rehire the workers, on an as-needed basis, as contractors for specific projects and use “crowdsourcing” as a vehicle to decrease cost and increase corporate nimbleness and efficiency. IBM has since denied they had any definitive plan to do so.

The statement has launched a flurry of excitement, debates, and controversy, particularly in the worlds of Human Resources, Corporate Planning, and office building owners. Is the rumor unfounded? Or was IBM deliberately floating the idea to gauge reaction and prepare their PR machine? How will this impact the world of corporate real estate?

With 42% of its workforce housed in non-dedicated office space, IBM is a prime example of the trend amongst large corporates to transition to on-demand office space.

With 42% of it's workforce housed in non-dedicated office space, IBM is a prime example of the trend amongst large corporates transitioning to flexible office space models.

My sense is that the numbers are likely exaggerated. You don’t easily shed 75% of your workforce that fast, particularly when a company is healthy and growing. At the same time, everything we see in their organizational strategy points in that direction.

To IBM’s credit, the company has made bold moves in the past to shed cost and invent entirely new organizational models, and with great success. For example, 42% of their workforce does not have dedicated office space. Quite ironic when the majority of IBM’s workforce is composed of “office workers”! They now work from a combination of shared space, drop-in centers, touchdown space, or telecommute from home. In doing so, IBM has learned how to manage a huge workforce remotely under a distributed model. They have done this successfully, with significant cost savings, gains in productivity, and carbon footprint reduction, just to mention three of their main objectives.

These were the really hard changes, culturally and organizationally. The next logical step to outsource many of these jobs to an ecosystem of independent contractors should be relatively easy to implement.  It is in line with IBM’s goal of reducing cost and improving corporate agility.

It is indeed a lot simpler to increase or decrease the workload of a contractor than to RIF him when times are tight or rehire him when the economy is booming.  And a lot less expensive too.

IBM has considerably lowered occupancy costs by eliminating dedicated office space and by making its workforce mobile, but it is still supporting the cost of shared office space and it is still exposed to workplace-related liabilities, even when employees work from home.  The next logical step is to morph this distributed workforce into an “on-demand workforce” model and harvest considerable gains in flexibility and operating costs.

Should an office building owner be fearful of the writings on the wall? Yes, if he has IBM as a single-occupier tenant.  Expect IBM to shed a significant amount of office space in the next decade. That said, remember that at the same time that it reduces its workforce, IBM will increase its reliance on outside contractors. The bodies won’t go away. Contractors in the IBM ecosystem (let’s call them the IBM-exes) will still need to meet, work, and carry out similar functions as they did as IBMers. They will need to access workplaces that suit their needs. Probably close to home, but also in a cultural environment that fosters networking and cross-pollination that serves them well as IBM service providers.

Their workplace will include a combination of work from home and access to Plug & Play workplaces and meeting rooms to conduct business. Perhaps out of the very same type of touchdown space and drop-in center they were using, except IBM won’t provide them any longer. An outside service provider will. Someone like Pacific Business Centers under our GoODWORK(TM) program, for example. The IBM-exes will rely on on-demand workplaces, hosted by providers that will step in to replace that function IBM has provided its employees for decades.

The need for space won’t go away, it will just realign to the evolving needs of a more granular workforce. Who writes the check will change, and to some extent, the size of the check.

laurent

Laurent Dhollande
Chief Executive Officer, Pacific Business Centers

Pacific Business Centers, which Laurent co-founded in 2003, is a leading operator of Business Centers in California and a provider of on-demand office space with 300 locations in North America. Prior to that, Laurent held various executive and management positions with responsibility in Corporate Real Estate, Corporate Development, Finance, and Operations, at Sun Microsystems, Litchfield Advisors, and Hewlett-Packard. Connect To Laurent on Linked In

{ 3 comments }

Terri Reno May 12, 2010 at 1:14 pm

Thanks Laurent – as always you are on top of important trends in Commercial Real Estate! This trend is definately in keeping with changes in corporate models due to the recession. It seems that Landlords who can understand this will prosper while others may continue to struggle.

Keith May 12, 2010 at 11:56 pm

Laurent, I find it hard to believe that IBM would actually reduce their permanent workforce by 75%. How could that many workers stay “connected” and collaborate with coworkers without being in the same building? I could imagine 25%, but 75% or 299,000 seems exaggerated. Have you heard of other large corps with plans of this proportion?

Laurent dhollande May 13, 2010 at 9:50 am

I agree Keith. We can only speculate as to the IBM executive motivation. Was that a slip of the tongue? Was it deliberate to start gauge the PR impact? Or was it just one plan considered in a scenario planning strategic exercise designed to let IBM’s executive stretch their imagination and explore out-of-the-box thinking? The later would not surprise me. We know of several Fortune 500 that havee bbeen doing just that and are not afraid to explore the logic of such drastic plans to its full extent. That does not mean they will become the companies’ plans of record. Nevertheless, the intellectual exercise that drives dozens of senior executives to spend 2 fulll days offsite to exploree scenarios like these will leave long lasting imprints in their brain and will eventually help drive structural change of this type. When things make ssense they eventually happen. But you’re right: 25% would already be a huge accomplishment.

Previous post:

Next post: