Chapter 2: IBM Offers Training (and Pay Cuts) to Employees to Learn New Technolo
ID: 426332 • Letter: C
Question
Chapter 2: IBM Offers Training (and Pay Cuts) to Employees to Learn New Technologies
See Chapter 2, page 108 for case study details.
Read, analyze, and evaluate the case, and then answer the following questions:
What are the relevant facts in the case? (Be clear as to the facts) (10 points)
Is this program strategic? (Based on the facts of the case and the readings for this week, support your argument of why or why not you believe that this program is strategic) (25 points)
Should employees’ salaries be reduced for the time they attend training programs? Provide a rationale for your answer. (15 points)
What is one alternative approach that IBM could have done to convince the affected employees to update and gain new skills? (Make your argument on what dimension/elements this alternative would be better than the approach taken) (25 points)
Explanation / Answer
As technology becomes increasingly complex, many companies struggle to keep pace. Even technological giants like IBM are not exempt. In September 2014, IBM announced it would be cutting the pay of some employees and offering special training to just some members of its workforce. The IBM training initiative has prompted criticism from internal and external sources, leading industry experts to speculate about the company's motives and future goals.
The new IBM training program was announced by email to a select group of employees in September 2014. The email informed recipients that because they had not developed the technological skills that would allow them to meet customer demands, they are required to participate in training. For one day each week, targeted employees are to leave their job assignments to receive training that gets them up to speed on the latest technology.
The most surprising part of the IBM training initiative is the mandated pay cut. For the duration of the program, employees earn just 90 percent of their salaries. The program is scheduled to begin in November 2014 and end in April of 2015, at which time each employee's salary will be restored to its full value. According to company representatives, the pay cut associated with the IBM training program is a form of co-investing among the employer and employees. The participating employees spend approximately 20 percent fewer hours on their typical work responsibilities with a 10 percent pay cut, and the company kicks in the extra 10 percent. Like Starbucks and other companies that have invested in employee retraining, IBM is hoping to boost its service standard.
The number of people affected by the IBM training program is small. According to some sources, it affects less than 10 percent of employees. The workers come from the unit of IBM that manages long-term technology operations contracts. Though co-investing is nothing new, the IBM program is unique in that the employees have no choice but to participate. In the days since the story about this mandatory training was made public, industry experts have speculated that the forced nature of the program may negatively impact corporate morale. After all, if the company surprised employees with pay cuts and mandatory training once, they have the potential to do it again.
An anonymous employee within IBM was quoted by CNBC as saying that the new training program is simply a way to "force employees to quit." After all, if workers quit in protest, IBM won't be required to dispense severance pay. Company representatives have disagreed, stating that the training is a way to help employees keep their jobs without sacrificing the standard of quality that IBM customers expect. The company has not yet disclosed the specific content of the training program, which increases the uncertainty surrounding the initiative.
Whether the new IBM training program creates a more skilled workforce or forces unskilled employees to quit, managers from all industries plan to follow the program's progress. If it succeeds, co-investing may become the standard for retraining employees who fail to keep up with new technological developments.
IBM is cutting the pay of some employees in its services business by 10 percent for six months while they spend up to one day a week in training programs.
The move is unusual, according to work-force experts, but could become a trend in retraining programs as both corporations and workers struggle to stay competitive in a fast-changing economy. Some disgruntled IBM employees say the step is a cost-cutting tactic disguised as a training program. IBM says the program is limited to a small number of employees and is meant to avoid laying them off.
Last Friday, some workers in the company’s outsourcing business received emails informing them of the program. It stated that “a recent assessment” had identified workers who “have not kept pace with acquiring the skills and expertise needed to address changing client needs, technology and market requirements.” The email then added, “You have been identified as one of these employees,” according to a copy sent to The New York Times by an IBM worker.
The training is intended to take about a day a week, up to a total of 23 days. During that time, the email stated, “you will receive 90 percent of your current base salary.”
Employees receiving the offer are given little choice, other than to look elsewhere in the company “for opportunities for which your skills may be a better match.”
The IBM program was reported on Monday by Computerworld.
A spokeswoman for IBM, Trink Guarino, emphasized that the salary cut-and-retraining program was by no means standard practice across the company. A few hundred people in the technology services outsourcing business in the United States, she said, were affected. “This involves a very small number of people,” Ms. Guarino said, “and we’re working to preserve their jobs.”
The technology marketplace is shifting quickly, Ms. Guarino noted, as corporate customers move to adopt cloud and mobile computing, and advanced data analysis. The training programs will focus on those areas, she said.
The workers are in the IBM business unit that manages technology operations for other companies, in long-term outsourcing contracts that typically extend for five or more years. The IBM workers log billable hours, and if they spend a day a week on training, that amounts to 20 percent fewer billable hours. IBM regards the 10 percent salary cuts as a form of “co-investment” with the cost shared by workers and the company.
Some IBM workers don’t see it that way. One person who has worked for IBM for more than 20 years said that the skills assessment referred to in the email was not tailored to individuals. All the workers in his group, he said, were being assigned the same training program. He noted that the Indian workers who were part of the same team doing similar work for the same client were not involved.
“It seems like a cost-cutting exercise that is being presented as a training program,” said the IBM worker, who asked not to be identified because he feared consequences for criticizing the company.
A crucial issue, according to Peter Cappelli, a professor at the Wharton School of Business at the University of Pennsylvania, is the nature of the training in the IBM program. “If the skills they are learning are useful outside of IBM, it may be a pretty good deal for the workers,” he said. “If not, it just looks like cost cutting.”
Mr. Cappelli, director of Wharton’s Center for Human Resources, said that the concept of co-investing, with the costs shared by workers and companies, is “where we are going to end up going in retraining.” Already, employees and companies routinely split the tuition costs for workers who choose to take college courses to improve their skills.
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