IBM’s Cuts Bolster Small Firms’ Profits

Tough times for Big Blue have translated into boom times for small contractors that do business with the world’s largest computer maker.

Hard-hit by the recession and competition, International Business Machines Corp. is trying to shed fat and reach a fighting weight that the company hasn’t seen in years.

Meanwhile, such cost-cutting plans are boosting revenue for many small companies that have established relationships with IBM through the company’s “Business Partners” program. And in these recessionary times, small contractors are only too happy to handle the spillover.

“IBM is a $69-billion company, so when they start throwing off little pieces, the pieces are very small to them, but they’re very big to the small guys standing there catching them,” said William E. Regan Jr., president of Data Networks Inc., a Baltimore-based company that specializes in providing complete computer systems to schools.

Some computer companies with ties to IBM report that revenue has increased as much as 60% during the past year, much of it because of spillover from IBM’s belt-tightening.

And that is just fine by IBM, which sees its future directly linked to the financial health of the many smaller companies with which it does business, said Camberley Rollings, manager of the IBM’s Business Partners program in Baltimore.

“There is no longer this issue of ‘It has to be made here,’ ” Rollings said. “There is a recognition that IBM needs other people in order to do business.”

But in 1992, Rollings said, IBM will shrink its business partner program to concentrate on the companies that have the most potential to bring new customers and profits.

Last month, IBM announced a series of streamlining measures--drastic by its standards--aimed at stemming defections by customers and breathing new life into the company’s anemic profits.

Those measures include breaking the monolithic IBM into smaller, autonomous companies--for advanced computer printers, data storage products and mid-size computers. Under the new, decentralized structure, IBM’s headquarters in Armonk, N.Y., will act as a holding company, buying companies in fast-growing areas and shedding units that are not performing well.

To cut costs, IBM plans to cut 20,000 more jobs--on top of the 20,000 cut in 1991--by attrition and buyouts this year. John Akers, IBM’s chairman, has hinted publicly that IBM’s longstanding “no layoff” policy might be revised if the company does not get lean and mean fast.

IBM’s plan also calls for alliances with small, independent contractors. Some contractors are being given expanded sales and marketing duties, giving Big Blue a way to replace the in-house expertise it is losing as a result of its downsizing.

Participants in IBM’s Business Partnership program have been among the first to benefit from the restructuring.

Established in 1983, the national program is aimed at fostering working relationships between IBM and smaller computer contractors. IBM has about 3,000 business partners nationwide that sell IBM as well as their own, customized products and services. Partners act as authorized agents for IBM products and services.

As part of the program, IBM pays its partners up to 6% based on sales of IBM products and services, or offers discounts on equipment. IBM also markets the products and services of its partners, giving small companies a window of opportunity and a marketing platform for sales that they couldn’t possibly get on their own.

Ulrich Weil, founder of Weil & Associates in Washington, a computer consultancy, said the partnership program has not been all that successful in the past, mostly because IBM could not seem to make up its mind how successful it really wanted its contractors to be. But tough times at IBM have changed all that, he said.

The boom times may roll for IBM’s business partners so long as Big Blue is hunkering down to reclaim its stake in the computer industry.

But what happens once IBM gets back on its feet--as most industry observers predict--and the boom suddenly goes bust for companies such as Maryland’s Gateway Technical Services?

Most companies are fortifying their basic IBM business with other business.

“If we rely on IBM for a substantial part of our income, then we are at risk if IBM changes its mind--and IBM does change its mind,” said Mark Ritter, president of Gateway, a privately held technical and consulting firm.

“I don’t think they’ll ever change again,” he said.