The computer industry slump, sagging profits and concerns about future growth are forcing a painful internal examination of IBM's cherished "full-employment" no-layoffs policy, and raises serious questions about whether the world's biggest computer company is overstaffed, analysts said.
With more than 405,000 employes -- 242,000 of them in the United States -- International Business Machines is one of the world's largest employers. It is one of a handful of technology companies with a tradition of avoiding layoffs.
While other multibillion-dollar corporations with paternalistic practices, such as Eastman Kodak Co., Xerox Corp. and E. I. DuPont de Nemours, have dramatically cut their blue-collar and middle-management ranks in recent times, IBM "remains fully committed" to full employment, said IBM Chairman John F. Akers.
But at an analysts meeting in San Jose, Calif., last week, Akers aknowledged there would be a drop in the U.S. work force by the end of this year -- the first such year-to-year decline at the company in 11 years. An IBM spokeswoman said, "IBM's objective is to reduce IBM's U.S. employment."
"They're overmanned, which means they'll continue to be in an attrition mode," said J. Quinn Mills, a Harvard Business School professor and occasional consultant to IBM. "The most pessimistic case is that this computer recession will deepen and that they will not be able to 'attrit' people fast enough."
IBM has a hiring freeze in force -- new hires have dropped from a record 18,500 in 1984 to a projected 2,500 to 3,000, "mainly technical" hires for 1986 -- and is counting on attrition to trim IBM's U.S. employes.
However, generous compensation and what is described as an "enlightened" human resources policy has kept IBM's attrition rate between 2.5 percent and 3 percent a year -- less than half the industry average.
While layoffs would strike at the very heart and soul of IBM's employment practices, analysts and IBM watchers said the $50 billion-a-year computer giant might have to go beyond attrition to bring its labor and management costs into line. They said the company might have to take such measures as offering early retirement options, mandatory vacations, job transfers and bringing work from overseas into the United States.
The crux of the concern is whether the IBM and industry slump is the bottom of a business cycle or a structural change in the industry. Many analysts fear IBM will not be able to continue its historic rates of 16 percent to 18 percent growth and will be forced to settle for smaller increases.
"I don't think IBM can grow at the rates they've dreamed they'd grow," said Ulric Weil, of Weil & Associates. "I suspect they are still too optimistic."
Because of IBM's size, each 2- or 3-point drop in the growth rate represents billions of dollars in potential revenue. Thus, IBM might be staffed for business that never will materialize.
To compound the concern, IBM went on a hiring binge from the late-1960s to the mid-1970s that now gives it a middle- and upper-middle-management "bulge."
"That's the graying of IBM, if you will," says Weil, "and that's mainly at the headquarters sites. That's where all the gray-hairs reside; that's where the problem is."
IBM denies it has a surplus of middle management but said reorganizations are always under way. For example, the company recently eliminated an entire management level from its IBM World Trade group. While no managers were laid off, several were given limited options as to where they could transfer.
Indeed, said the Gartner Group's Stephen Coen, a former IBM employe who now analyzes the company, it is a common IBM practice in difficult times to consolidate divisions and transfer large numbers of people with the expectation that a certain percentage will not want to move, and will choose to leave the company.
Another technique to "create attrition," Coen said, is to "move people from staff jobs to line jobs, where their performance can be measured: That's no loss," because if the people perform well, the company is better off. If they don't, IBM can dismiss them, and it doesn't count as a layoff.
"IBM has a lot less flexibility than most companies because it manages its people as a fixed cost" of doing business, said Coen.
The company also might consider providing an early retirement option to longtime employes -- something IBM last did on a limited basis in 1984.
But the IBM spokeswoman said, "There are no plans for another early retirement program at this time."
Weil estimates IBM probably will want to increase its attrition rate from 3 percent to 5 or 6 percent to squeeze some of the fat out of the company and to prepare it for the possibility that real growth will take longer than expected.
Analysts at the San Jose meeting noted that Akers stressed that IBM planned to regain profit growth through revenue increases rather than cost-reduction efforts. Many of them said they wonder how realistic that plan is, and said they think the company has more to gain, at least in the short run, by cutting costs.
Wall Street "would view any IBM effort to cut employe costs favorably," said Coen.
Instead, the company is practicing what it calls "resource rebalancing" to allocate its personnel and to retrain people for jobs within IBM. Furthermore, the company emphasized that it continued to see significant growth opportunities at historic levels.
IBM alumni say the company has been through troubles before.
"They're not facing anything today that they didn't face in the recession of 1974-1976," said Dan Wilkie, an 18-year veteran of IBM who now runs Tandon Corp. in California. "I saw the expense and effort the company went through to maintain full employment; they did extraordinary things," Wilkie said.
Measures included bringing in-house work from IBM suppliers and transferring work loads from IBM's European operations to the United States.
If the bad economic times continue, Wilkie said IBM will go to the wall before it renounces its no-layoff policy. But, he said, maintaining a full-employment policy "is becoming more difficult rather than less difficult."