Big Blue rolls out the central consolidator

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The Independent Online
IBM'S SURPRISE decision last week to dismiss the 40 agencies that handle its advertising and move its entire dollars 400m ( pounds 272m) account to Ogilvy & Mather was of more than passing interest here. The Independent in New York has as its landlord one of the principals of Merkley Newman Harty, the firm that only last year took over responsibility for promoting IBM's booming PC division. Would upheaval on Madison Avenue also mean our rent was going to rise?

When Merkley Newman won the dollars 50m account last October, IBM was under new management, having replaced its chief executive, John Akers, with Louis Gerstner, a one- time consultant who was expected to accelerate the devolution of the lumbering computer behemoth into 13 autonomous companies. IBM's notorious central bureaucracy had stifled its entrepreneurial drive, the argument went. Management gurus seized on its plight to proclaim that all Big Companies everywhere were doomed.

The parallel theme in the advertising world at the time was the eclipse of global brands and the decline of international marketing. Indeed, within days of Mr Gerstner's selection in April last year, the world's biggest consumer-products companies were confronted with 'Marlboro Friday', when Philip Morris announced that it was cutting the price of its best-selling cigarette brand in the face of irresistible competition from discounters. Well known brands with global presence could no longer command big premiums, it was decided; trying to use the same strategy to sell them to different cultures was similarly doomed.

Both conclusions were very wrong, says Jane Newman, executive vice-president of Merkley Newman, who argues, ironically enough, that Mr Gerstner's bold move last week was the right one for Big Blue. For one thing, she says, further decentralisation of IBM was never on the cards.

'It was never his intention to break IBM up into separate companies,' she says. Mr Gerstner realised that IBM's strength is the range of its operations and their potential to feed one another business and technology.

And IBM, like Coke or McDonald's, is a coveted international brand name that can help the computer maker to prosper in an ever more competitive and fragmented global marketplace. 'It's one world,' the British-born Ms Newman argues. 'The 12- year-old kid in New York who plays on a PS/1 (multi-media computer) and the kid in Japan are interested in the same thing.

'Gerstner's problem now is that he doesn't have a global company to distribute that brand, IBM having been balkanised into geographic and product fiefdoms.' Centralising its advertising with one worldwide agency is a 'great symbol' for Mr Gerstner's recently announced intentions for IBM's sales force, she says.

For its part, Merkley Newman - despite losing more than half its billings in Mr Gerstner's consolidation - can only benefit from its association with IBM, advertising analysts say. 'Merkley Newman was an innocent bystander in this affair, and there has never been any suggestion the PC company was unhappy with their work,' one New York computer consultant says.

The agency is in fact a likely contender for two rival accounts that Ogilvy was obliged to resign, Microsoft and Compaq Computer's European account, worth more than dollars 100m between them.

In the meantime, Ms Newman says she has no plans to make redundant any of the agency's 80 employees, half of whom were hired to service the IBM account. Nor does she have any plans to raise our rent.