IBM clears the way for its new world order: A sales force organised by client industries, not countries, is taking shape, writes Larry Black
Tuesday 13 September 1994
In late March, a year after he was recruited to replace John Akers as IBM chief executive, Mr Gerstner articulated the broad outlines of his plan to securities analysts in New York. In May, he announced the most sweeping reorganisation of IBM's 70,000-member sales force in decades, reassigning them to 'vertical marketing' groups catering to the industry of their clients. Last week, he overcame what many analysts saw as the biggest obstacle to his 'global solutions' approach, securing the resignation of Hans-Olaf Henkel, 54, the Paris-based chairman and president of IBM-Europe.
With the nomination last Wednesday of Lucio Stanca, 52, as his successor, 'there's now a consensus commitment at IBM to industry marketing', says Robert Djurdjevic, a US industry consultant and long-time IBM critic. 'There's a feeling throughout the company of 'Let's get on with it'.'
How much pushing Mr Henkel, a 34-year veteran at IBM, needed is unclear. Whether he clashed openly with Mr Gerstner over the plan - an assertion he and company spokesmen deny - or simply 'burned out', as one colleague concluded, is almost immaterial. The marketing realignment clearly diminishes the authority of Europe's country managers, who reported via Mr Henkel to headquarters in Armonk, New York; Mr Henkel, who had built one of IBM's strongest country organisations in IBM- Germany before taking the top job last year, resisted a pan-European sales structure, let alone a worldwide one, US analysts say.
Mr Gerstner's plan superimposes a sales force organised by the industry of IBM clients on the firm's traditional geographic and product hierarchy. Instead of selling, say, mainframes in Spain, reps are now assigned to 14 global teams - one for banking clients, one for the travel industry, one for multinational oil companies, etc - each providing customers with information-processing systems tailored to their industry.
The account teams, whose pay is based on customer satisfaction, bypass country managers, reporting to 14 industry managers who could be located anywhere in the world. But for tax, employment and cultural reasons, IBM will continue to handle operations like manufacturing, maintenance and repairs locally.
Competitors such as Digital Equipment, Unisys and Bull have tried similar structures with mixed results, and at a company the size of IBM, the potential for turf wars and customer confusion is obvious. But the arguments for 'matrix management' are also compelling.
Multinational clients who cheered Mr Gerstner's decision not to break the company up into separate units complained that it was still impossible to deal with IBM as a single entity; each country subsidiary set its own prices and wrote its own contracts, and salesmen for different IBM products and services failed to provide coherent systems solutions.
Nor were customers getting the benefits of IBM's global reach. 'The kind of clients we have don't necessarily care about your geography,' says Robert Timpson, head of the marketing and product development team devoted to banking and securities firms. 'They want to talk to somebody who had lunch with Sumitomo Bank in Tokyo the day before.'
The industry teams, which include thousands of newly recruited business consultants, are also better positioned - between the customer and the technology - to influence the design of new systems. IBM has always produced wonderful new inventions, but many languished for years waiting for the bureaucracy in Armonk to find commercial applications for them.
Overcoming these hierarchical barriers has been Mr Gerstner's most difficult challenge in the US - 'a market with only one country manager', jokes David Moschella, vice-president of worldwide research with International Data Group in Massachusetts. Tackling them in Europe, with its long tradition of strong country managers, posed even greater problems, he says.
Although IBM Europe is in many respects ahead of the rest of the company in modernising - two sectors, telecommunications and manufacturing, have had pan- European bosses since January - its country managers had accrued considerable strength over the past decade as IBM has repeatedly redrawn their responsibilities, culminating in Mr Akers's plan to liquidate the firm.
Reorganising along client lines has also been more difficult in Europe, in part because the existing divisions are run by nationals. Clients too found it easier to wring special discounts and service packages from local IBM sales people.
'IBM in a sense is trying to do commercially in Europe what Brussels is trying to do politically, and there has been a tremendous amount of resistance in both cases,' says Esther Dyson, the editor of an influential industry newsletter based in New York.
A significant aspect of Mr Henkel's resignation is Mr Gerstner's decision to replace him with Mr Stanca, a company insider - and a country manager at that, says Sam Albert, now a consultant.
'What's newsworthy here is that Lou Gerstner, given the option of going outside the company to assemble the best possible team, chose an internal person and the obvious heir-apparent.'
Many European managers were worried that Mr Gerstner would go outside. But to implement such radical changes, Mr Gerstner wanted people he knew: Mr Stanca, Nick Temple, his new UK chief executive and head of European finance sales, and other like-minded managers, Mr Djurdjevic says.
After seeing turnover decline 13 per cent to dollars 22.85bn and losing almost dollars 1.7bn last year, business had already begun to pick up this year under Mr Henkel. IBM is again profitable in Europe, although most of the earnings growth, as in North America, is the result of cost-cutting: the company is shedding another 10,000 of its 87,000 European employees this year.
To date, reducing IBM's head count has been Mr Gerstner's main achievement. Analysts still want him to articulate a sharper strategic vision for the firm, says IDG's Mr Moschella. 'But at least now we see the outlines of a happy medium between an IBM that is both entrepreneurially autonomous and highly synergistic.'
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