So it came as quite a shock to find out that Big Blue was going to sell them off earlier this year, creating an independent private company called Lexmark International through a leveraged buyout. The owners of the new company would be the buyout firm, New York-based Clayton & Dubilier, as well as Lexmark’s executives. IBM, the new company’s biggest customer, would retain a 10 percent stake and let Lexmark use the valuable logo on its products. Such a move had been rumored for months, but many employees refused to believe that the company that had pioneered its “no layoffs” policy during the Great Depression would actually cut the cord. Some workers could transfer to other IBM plants, but 1,200, not welcome at either company, would be heavily encouraged to leave. An undisclosed number of employees with “critical skills” would be compelled to move over to the new 3,000-worker company-like, some felt, so many pieces of custom furniture. At one of the first meetings to discuss these wrenching changes, one “Beemer” asked, “I would like to know what IBM meant when they said, ‘As long as you do your job, you’ll have a job’?”
The question went to the heart of the pact between employees and IBM-and every other old-line protective company. Like so many other companies, IBM has little choice but to change. Brutal price competition in computers has taken its toll, and IBM was slow to enter hot markets like laptop computers and powerful workstations. Worse, Big Blue made itself too big, stepping up hiring to meet a late-1980s boom that never happened. In recent years IBM has reduced its work force by more than 50,000. It wasn’t enough. The business environment “continues to be difficult and highly uncertain, and the industry remains highly competitive,” CEO John Akers said, announcing 20,000 additional cuts for 1992.
Going beyond mercy cutting, IBM is attempting to reshape itself fundamentally. Last week the computer giant gave more details of a recently announced plan to transform itself into a confederation of leaner, more competitive companies. It is creating new wholly owned subsidiaries in such areas as data storage. So far, reception of the plan has been fairly positive–most analysts agree that change was overdue. “The huge structure holds them back,” admits Richard Shaffer, publisher of the Computer Letter. But like many who study IBM, Shaffer wonders whether the changes will truly liberate the high-quality operations, or simply “change the sign on the driveway … if you’re quasi-independent, you’re still on a leash.”
The plan marks another turning point: the end of IBM’s history as one of the most secure, paternalistic employers in AmeriAmerica. Job security was once a recruiter’s trump card, and IBM also set itself apart with cradle-to-grave services like referral for child care and elder care, work-at-home programs and liberal personal leave. Now that the paternalistic attitude is crumbling, the implications for the rest of corporate America and its workers are ominous. If IBM can’t afford paternalism anymore, no one can.
Worker response to the changes is mixed. Many say the company’s woes are not their fault–and argue that while they’re getting pink slips, the top five executives got 33 percent pay hikes last year. (IBM has said that the awards in part reflected a 16 percent rise in per-share earnings in 1990.) The lifers who frequently relocated for the company traditionally joke that the world-famous initials stand for I’ve Been Moved; today the disgruntled ones grimly joke that it means “I’ve Been Misled.” Others recognize the economic pressures that have made change necessary. And while IBM earned praise for the compassionate shutdown of its Greencastle, Ind., plant in 1987, at Lexmark many workers say Big Blue handled things clumsily.
A look at Lexmark shows how the changes can cut both ways: some employees were hurt, but the new company stands to succeed in ways it might never have under IBM’s umbrella. Understandably, many of the workers who left are angry. Ray Lillie heads a group of more than 170 retirees who claim the company mishandled early-retirement buyouts and pension packages, depriving them of money and benefits. “I changed my paperwork at their request and got conned into doing it,” Lillie says. IBM would not comment in detail, but spokesman John Boudreaux said, “IBM has a tradition of fairness in all employee matters and we respect our employees as individuals.” Other retirees simply didn’t want to go, and feel their loyalty has gone unrewarded. T. P. Johnson worked 25 years for IBM, most recently in the marketing division, before being pressed to take an early-retirement package. At 45, finding a job is tough. “I never felt so bad about a company that I thought was the greatest one on earth,” he says.
Of course, many IBMers took the Lexmark deal as an opportunity to follow their dreams. Rick Kallop, a second-generation Lexington IBMer, spent 18 years at the company before applying for voluntary retirement earlier this year. Though he says he still loves the company, Kallop felt a growing entrepreneurial urge-and the constant travel his job required was taking its toll. “I woke up one morning and my son was 11 years old and I said, where has the time gone?” He now runs a Lexington sporting-equipment store and plans to open another next year. He says the only time he puts on his trademark IBM blue suit is when he goes to church.
Of the workers who went over to Lexmark, many are of two minds. Raw feelings are common among workers with “critical skills” who were forced to go to Lexmark: “I bled blue blood,” says one employee who was denied a chance to transfer to another IBM plant. He says he likes the new company, but still isn’t quite over his feeling of having been abandoned: “What did I want out of this whole deal? Gee–a thank you would have been nice.” Still, he and many of his co-workers have come to like the new company. Those who are happy there report that they feel like bigger fish in the smaller Lexmark pond, with better access to top executives and more career advancement. And many of them breathe a sigh of relief that they are out of IBM, which still faces a rough road.
As IBM prepares to spin off more and more of its operations, it would do well to take a long look at what has happened at Lexmark. There’s reason for optimism in Lexington: the new company could be a model of the kind of lean and nimble satellite that IBM is creating elsewhere. Under the usual IBM system, projects are often inefficiently spread out across facilities nationwide. When Lexmark created a zippy new laser printer this year, however, executives from marketing, development and manufacturing worked elbow to elbow. The machine appeared in record time, and gets high marks. Joseph Rice of Clayton & Dubilier predicts, “They’re going to conclude that while IBM was great, we’re going to be great also.” Management says the company is ahead of early projections.
There’s a clear warning in Lexmark, too, for IBM and all of corporate America: walking away from paternalism has its risks. Without the good will that such policies build, the best employees might seek opportunity elsewhere, and ousted workers might revolt. That could turn out to be very expensive in the long run, says Dan Lacey, publisher of Workplace Trends. “People think they’re going to be cut, and they experience fear. After they’ve been cut and they find out there’s nothing else out there, that fear turns into hate. And that hate turns into a wrongful-discharge suit”–potentially on a massive scale. Ultimately, however, workers might realize what many of the people of Lexmark already know: that companies like IBM are doing what they have to do to stay strong. That’s no solace for folks on the unemployment line. But for those who survive the waves of cutbacks, simply having a job with a healthy company might be the company benefit that matters the most.
Even companies long known for their protective treatment of employees are turning to staff cuts or benefits reductions to stay competitive. Some of the best-known:
While retaining its practice of avoiding layoffs, IBM is cutting thousands of jobs through incentives and attrition.
Once paid the premiums for retirees’ health insurance; now only 30-year workers over 60 years old will qualify.
Eliminating direct subsidy for future retiree health care; instead matching employee savings in a stock plan.
Recently extended benefits to gay couples, but just announced the first major layoff s-10 percent of the work force.
