Coevolving Innovations

… in Business Organizations and Information Technologies

Currently Viewing Posts Tagged headcount

Sustainable scale of an organization: A case study at IBM?

How many employees can IBM sustain?  At Dec. 31, 2013, IBM reported 431,212 employees for the company and wholly-owned subsidiaries.  In February 2014, there were projections that 13,000 to 15,000 employees would be released within the year.  The estimate for 2015 of 26% further reductions calculates to leave about 300,000 IBMers worldwide.  This leads to three questions about the current situation (and potential other cases with similar circumstances).

  • 1. How many employees, worldwide, can a company sustainably afford?
  • 2. Where should global resources be geographically deployed?
  • 3. Can science guide us on sustainable ranges of scale for organizations?

The domain of business is a social science, so corporate decisions lead to paths where alternatives (i.e. the path not taken) can never be tested in reality.  Thus, much of the thinking below is speculative.

1. How many employees, worldwide, can a company sustainably afford?

Let’s look at history, published in annual reports.  IBM reported 412,113 employees at Dec. 31, 1989.  Under John Akers as CEO, the organization was trimmed down to 301,542 employees by the end of 1992.  Lou Gerstner joined as CEO in April 1993, and job actions were announced by July.

The employees to be cut, mostly from overseas operations, will be given incentives to leave, but just what the financial package will be has not been determined. The $8.9 billion charge includes funds to pay for 25,000 additional job cuts under an early retirement program announced this year that has drawn 50,000 participants — twice as many as expected — and for 35,000 job cuts over the next 18 months.  [….]

Of the $8.9 billion pretax charge for streamlining I.B.M., $2 billion is to pay for the additional 25,000 workers who took advantage of the company’s early-retirement program that began in 1993. Some $4 billion will go to pay for the 35,000 workers who will be trimmed over the next year to 18 months. The remaining $2.9 billion will go to retire surplus factories, equipment and office buildings [Lohr, 1993].

At the end of 1994, IBM reported a population of 219,839 employees.  With a successful recovery by March 2002 for the handover from Gerstner to Palmisano, IBM reported that its employee population had grown to 319,876.

Employees and revenue per
Figure 1: Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee (IBM and wholly-owned subsidiaries) [right axis], from IBM Annual Reports
From my experience in IBM Canada Plans & Controls in 1985-1987, I know that headcount in World Trade countries was justified on affordability.  The affordability was expressed as additional revenue per additional employee.  At the end of 1992, 301,542 employees were producing $214,077 per employee.  At the end of 2001, 319,876 employees were producing $245,095 per employee.  At the end of 2013, 431,213 employees were producing $226,803 per employee.  While this doesn’t necessarily look so bad, let’s recognize inflation, and adjust to constant dollars.

Revenue per employee, constant dollar
Figure 2:  Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee adjusted to U.S. CPI-U (1982-84=100).
The U.S. Bureau of Labor Statistics provides a Consumer Price Index based on 1982-84.  At the end of 1992 when Lou Gerstner was soon to become CEO, 301,542 employees were producing 152,584 1982-dollars per employee.  At the end of 2001 when Sam Palmisano was about to become CEO, 319,876 employees were producing 138,396 1982-dollars per employee.  At the end of 2013 following two years with Ginny Rometty as CEO, 431,213 employees were producing 97,735 1982-dollars per employee.  On a constant dollar basis, this could be interpreted as a 30% drop in productivity by employees between 2001 and 2013.  In order to maintain productivity per employee, either the revenue should have continue to rise, or else the number of employees should drop.

How many employees can IBM sustain?  At Dec. 31, 2013, IBM reported 431,212 employees for the company and wholly-owned subsidiaries.  In February 2014, there were projections that 13,000 to 15,000 employees would be released within the year.  The estimate for 2015 of 26% further reductions calculates to leave about 300,000 IBMers worldwide.  This leads to three questions about the current situation (and potential other cases with similar circumstances).

  • 1. How many employees, worldwide, can a company sustainably afford?
  • 2. Where should global resources be geographically deployed?
  • 3. Can science guide us on sustainable ranges of scale for organizations?

The domain of business is a social science, so corporate decisions lead to paths where alternatives (i.e. the path not taken) can never be tested in reality.  Thus, much of the thinking below is speculative.

1. How many employees, worldwide, can a company sustainably afford?

Let’s look at history, published in annual reports.  IBM reported 412,113 employees at Dec. 31, 1989.  Under John Akers as CEO, the organization was trimmed down to 301,542 employees by the end of 1992.  Lou Gerstner joined as CEO in April 1993, and job actions were announced by July.

The employees to be cut, mostly from overseas operations, will be given incentives to leave, but just what the financial package will be has not been determined. The $8.9 billion charge includes funds to pay for 25,000 additional job cuts under an early retirement program announced this year that has drawn 50,000 participants — twice as many as expected — and for 35,000 job cuts over the next 18 months.  [….]

Of the $8.9 billion pretax charge for streamlining I.B.M., $2 billion is to pay for the additional 25,000 workers who took advantage of the company’s early-retirement program that began in 1993. Some $4 billion will go to pay for the 35,000 workers who will be trimmed over the next year to 18 months. The remaining $2.9 billion will go to retire surplus factories, equipment and office buildings [Lohr, 1993].

At the end of 1994, IBM reported a population of 219,839 employees.  With a successful recovery by March 2002 for the handover from Gerstner to Palmisano, IBM reported that its employee population had grown to 319,876.

Employees and revenue per
Figure 1: Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee (IBM and wholly-owned subsidiaries) [right axis], from IBM Annual Reports
From my experience in IBM Canada Plans & Controls in 1985-1987, I know that headcount in World Trade countries was justified on affordability.  The affordability was expressed as additional revenue per additional employee.  At the end of 1992, 301,542 employees were producing $214,077 per employee.  At the end of 2001, 319,876 employees were producing $245,095 per employee.  At the end of 2013, 431,213 employees were producing $226,803 per employee.  While this doesn’t necessarily look so bad, let’s recognize inflation, and adjust to constant dollars.

Revenue per employee, constant dollar
Figure 2:  Employees (IBM and wholly-owned subsidiaries) [left axis], and Total geographic revenue per Employee adjusted to U.S. CPI-U (1982-84=100).
The U.S. Bureau of Labor Statistics provides a Consumer Price Index based on 1982-84.  At the end of 1992 when Lou Gerstner was soon to become CEO, 301,542 employees were producing 152,584 1982-dollars per employee.  At the end of 2001 when Sam Palmisano was about to become CEO, 319,876 employees were producing 138,396 1982-dollars per employee.  At the end of 2013 following two years with Ginny Rometty as CEO, 431,213 employees were producing 97,735 1982-dollars per employee.  On a constant dollar basis, this could be interpreted as a 30% drop in productivity by employees between 2001 and 2013.  In order to maintain productivity per employee, either the revenue should have continue to rise, or else the number of employees should drop.

  • RSS qoto.org/@daviding (Mastodon)

    • New status by daviding October 9, 2019
      Declarations of sapiosexuality may describe individuals seeking partners for intellectual intercourse.> A self-described “sapiosexual," someone who is primarily attracted to intelligence over physical appearance, Van Dusen says she now screens her dates for post-secondary education. [.....]> Many sapiosexuals acknowledge the term can come off elitist, but in the often superficial world of online dating, they […]
    • New status by daviding August 19, 2019
      In the Canadian press, this is attributed to inverted yield curve, resulting from the trade war. > Anyone buying that bond is willingly buying an investment that's guaranteed to lose money, but investors are more than happy to buy it up - because the fear is that alternative investments will fare even worse. [....]> Those […]
    • New status by daviding August 19, 2019
      There's something seriously wrong in the global financial markets, when banks are offering mortgages at zero or negative rates. > Jyske Bank, Denmark's third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.> […]
    • New status by daviding August 18, 2019
      Web video of Systems Changes: Learning from the Christopher Alexander Legacy, extending #patternlanguage especially Eishin School and Multi-Service Centers methods-in-practice. For #SystemsThinking Ontario, up the learning curve on ongoing research. http://coevolving.com/blogs/index.php/archive/systems-changes-learning-from-the-christopher-alexander-legacy-st-on-2019-02-11/
    • New status by daviding August 16, 2019
      Web video of presentation of Evolving Pattern language towards an Affordance Language, 2018, on week visiting#RaphaelArar and #JimSpohrer at Almaden. Insider's history of science and prospects http://coevolving.com/blogs/index.php/archive/evolving-pattern-language-towards-an-affordance-language-almaden-2018-05-09/#systemsthinking #patternlanguage
  • RSS on IngBrief

  • Recent Posts

  • Archives

  • RSS on daviding.com

    • 2019/11 Moments November 2019
      Wrapped up paperwork on closing out family buildings in Gravenhurst, returned to classes and technical conferences in usual pattern of learning.
    • 2019/10 Moments October 2019
      Tightly scheduled weekdays at Ryerson Chang School, weekends in Gravenhurst clearing out family building as we're leaving the town permanently.
    • 2019/09 Moments September 2019
      Full month, winding down family business in Gravenhurst, starting Ryerson Chang certificate program in Big Data, with scheduled dinners with family and friends.
    • 2019/08 Moments August 2018
      Enjoyed summer with events in Toronto, followed by trips back my home town Gravenhurst, staying overnight for the first time in over 30 years.
    • 2019/07 Moments July 2019
      Busy month of living every day of the summer to the fullest, visiting family and friends, enjoying the local sights of the city.
    • 2019/06 Moments June 2019
      Summer arrived in Toronto, with the month ending in travel to BC and Oregon.
  • RSS on Media Queue

  • Meta

  • Creative Commons License
    This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License
    Theme modified from DevDmBootstrap4 by Danny Machal