IBM had been a leader in the computer industry for most of the 20th century, accounting for a staggering 70% of the computer market during the 70s. As the computer market and the information technology was on the rise during the 80s, IBM continued to grow as a company, expanding its overseas activities and increasing its revenue. However, starting with this period, IBM had also become "more bureaucratic and slow-moving." The company began to lose its market share and the profit margins began to drop as well. It was clear that there was a problem.
Studying the table in Exhibit 1, I noticed that IBM's revenues had continuously increased between 1985 and 1990, by as much as 10% (1989 to 1990) and only in the two last years had the company experienced a slight decrease in revenues. This proved that the company was still selling its products, it was still competitive, however, its profit margins were continuously slipping. The explanation had to be found elsewhere. If we consider the profit as a difference between what you make and what you spend, the diminishing profit margins could be explained by the increasing expenses that the company was accounting for.
Examining the case study, it was clear that the problem that IBM was facing was how to diminish expenses. Indeed, John Frank's testimony about the office in Indiana is edifying: the company had rented a beautiful building that was seldom used, because the company's business was always dynamic, employees had to work closely with their customers on the premises and spent less and less time in the office. This was a clear sign of inefficient and useless spending: you rented an entire building, spending millions of dollars annually for it, but you seldom used it. To the actual real estate cost involving rent, one also had to count the occupancy costs that such a building implied: utilities, taxes, support- for a large building, all these increase exponentially. Indeed, the estimated savings accounted for $2-3 million in the first year and $3-4 million a year from then on.
The increasing expenses that IBM was facing in the late 80s were thought to be dealt with through massive lay-offs, however, it had become quite obvious that this solution was not an adequate one. To deal with a problem, IBM had chosen the simplest way: firing people and had not considered that these employees were usually highly skilled workers, who were providing an increasing added-value to the company and that their dismissals would rather increase than decrease the company's spending (because the company would lose some of its productivity and efficiency in the firing process).
The two alternative solutions to the problem I have talked about in the lines above are firing personnel or finding some other ways of reducing costs. As I have explained, the firing solution is to be deemed inadequate because it would mean a downfall in the company's net added-value.
The solution that the Indiana branch came up with was telecommuting. This would mean that the employees who spend only 30 to 40% (or less) of their time in the office would relocate at home. This would have meant that only those who spent most of their hours in the Indiana office would not be relocated and the company could thus save up on office space and office facilities.
We need to examine this solution further, with its advantages and disadvantages. The idea of this solution was that much of the unused office space would be left through relocating the staff in their homes. As we have seen in the case study, it was obvious that the beautiful building that IBM was not using had a rather high inefficiency ratio, because it was not really used. The office environment provided at home would include the IBM machine that the employee was using in his office, two telephone lines provided my IBM with voice and data facilities, a data modem, conference facilities, a printer, etc. All was done to ensure that the benefices of working in the office building would not diminish, with an important emphasis on communication between the employees and their customers. Indeed, for such a system to work, this was vital.
The telecommuting solution presented several advantages. The most important one was obviously cost reduction. As I have said before, relocating and telecommuting would mean saving a lot on the unnecessary expenses that came with the unused office space.
The reported savings were $3.2 million in 1993 and the estimates for 1994 and onwards were of $5 million a year. All these expense cuts were made (and this is very important) with having to fire a single employee during the year and they all came from evaluating what could be reduced and how to adapt to the new situation.
A second advantage that this solution provided was the fact that many of the employees reported an increase in their work productivity after the change. The fact that you could work at home meant that you could simply step in the office even in the evening to complete an extra task or to check your emails and perhaps provide customer support. The friendly environment provided by the warmth of your own home meant that you could get more pleasure form your work and it became less of the going to work each day burden. Related to the reported increase in efficiency and productivity, one should mention that many time taking activities had diminished, such as driving the 80 miles to the office, driving back, not to mention all the important documents you would remember leaving at home. As such, all was concentrated in one place, at home and all these time taking activities were removed.
Apart from this, it seems that the office space environment had represented a cause for diminished productivity in many cases. Some of the employees have admitted that working in the office was for some a waste of time and money. I am emphasizing here the actual subjective environment that an office provides: you feel that the boss and his authority determines you to work and not working efficiently is sometimes the response to this authority. Not having the boss shouting over your shoulder was another advantage of the telecommuting process. Overall, working at home meant more time spent at home with your family and a more pleasant working environment.
I have mentioned two of the most important positive elements of telecommuting: cost saving and an increased efficiency and productivity. Let's have a look at some of the disadvantages that the move produced.
The most important issue of all was, in my opinion, the communication problem. In order for the telecommuting measure to work, this problem had to be solved. The telephone system set in place at home meant that all calls were forwarded to the home office and that, if the employee happened to be elsewhere, such as in the IBM office, he would not be able to receive his calls. Most of the answered calls were dumped in the phone mail, but this certainly impacted the employee's efficiency, as many of them had stated, because it meant they were not being reached by the customer in time and were not able to attend to the customer's problems. They were rather unreachable.
There were also some technological problems that came with relocating. The example with the printer is edifying, but I would add here the lack of immediate technological services. Indeed, in the office, if the printer breaks down, you would simply call maintenance and have it fixed. At home, you would still call maintenance, but it would take several hours before you could be reached and this would mean a day's work lost. The IBM internal 18 systems were difficult…