IBM Restructures the Sales Force

IBM Restructures the Sales Force

IN EARLY 1993, IBM's BOARD of directors decided that the time was right for dramatic action. The once­proud company had seen its sales fall from almost ­S69 billion in 1990 to $64 billion in 1992. In the same period, profits had plunged from $5.9 billion to a loss of S4.96 billion. In April, the board hired Louis V. Gerstner, Jr, a former McKinsey Company consultant and R.J. Reynolds CEO, to serve as its new chairman and chief executive officer and

to turn the company round. In July 1993, Gerstner announced his first major strategic decision. He identified the IBM sales force as a key source of the company's problems. Many observers had expected that he would restructure the sales force.

844 Chapter 20 Personal Selling and 6'afc,s Managem&nt

which was too large and unwieldy, and had become too slow to change to meet customers' needs. However, Gerstner surprised everyone by announcing that he would postpone the decision as to what to do about

IBM's sales force. In an internal memo to his 1.3 top managers, he concluded that the company's current marketing organization does not always permit them to serve their customers in the most efficient and effective way. However, he noted: 'I don't want to undertake a major reorganization of IBM at this time', arguing that radical reform would pose unacceptable risks to

customer loyalty. Rather he would try to make IBM's current sales and marketing systems work better.

How did IBM, one of the world's largest and most successful companies, get into such a fix? In the 1994 IBM Annual Report, Gerstner wrote that IBM's problems resulted from the company's failure to keep pace with rapid

industry change. IBM had been too bureaucratic arid too preoccupied with its own view of the world. The company was too slow to take new products to market and missed the higher profit margins that are typical of the

computer industry early in its product life cycle.

Although bureaucracy and slowness were significant problems, IBM's customers and industry observers identified IBM's preoccupation with its

own view of the world as che real problem. They argued that the company had stopped listening to its customers. It peddled mainframe computers to

customers who wanted midrange systems and personal computers. It pushed products when its customers wanted solutions. One former sales­

person noted that 'We were so well trained, we could sell anything, good or bad. Under quota pressures, we sold systems that our customers didn't need,

didn't want and couldn't afford.'

IBM had designed its sales compensation system to encourage and reward selling mainframe systems. 'You could sell a PC and get a pat on the back. Sell a midrange system and get a lot of dollars. Rut when you sold a mainframe, you would walk on water. You were a hero,' observed another former salesperson. The salespeople always insisted that the customers buy all of their products from IBM and became indignant when a customer used another vendor. Salespeople were also inflexible, making 'one­size­fits­all' presentations using canned, 'off­the­shelf marketing programmes. One customer added, "They wouldn't tailor their programmes to what you needed. It was "This is our canned package. We know this works, Trust us."'

Despite the problems, Gersrner's decision not to make strategic changes to the 40,000­person sales force meant that he would continue to implement changes that former CEO John Akers had begun. Beginning in 1.991, Akers restructured the sales force using a geographic focus. Senior managers acted as account executives for the top IBM clients in their regions, managing the full breadth of client relationships, including understanding the customer's company and its industry. The account executives could call on a pool of

regional product specialists and service representatives to satisfy customer needs. They reported to branch managers, who reported to 'trading area

managers', who ultimately reported to regional managers. In foreign coun­ tries, a country manager had full control over that country's sales force.

Akers' approach continued IBM's traditional focus on presenting 'one face to the customer'. The account executive structure allowed the customer to deal with one IBM interface rather than dealing with sales­

people from each of IBM's product and services areas. Gerstner's reluctance to make sweeping changes probably resulted from a meeting where the

firm's top 200 customers told him that they did not want to be confused by

20 different IBM salespeople calling" on them. However, it was also hard for

Introduction • S45

any IBM salesperson to be familiar with the wide range of products and services that the company offered.

Nevertheless, IBM had already begun to tinker with its sales approach. In response to increasing competition, declining sales and changing corpo­ rate buying habits, the company had already developed 'fighter pilots'.

These were 'specialist' salespeople who tried to increase sales by pushing negleeted products. Some product lines, such as the personal computers and printer divisions, were also allowed to develop their own sales forces. Akcr also allowed some experimentation with salespeople who specialized in certain industries.

As for the sales force compensation plan, which was adjusted each January, the company had modified the plan to promote sales of certain products or increase market share in targeted areas. !t was not unusual for a

branch manager to have 240 separate measurements because different product groups would set quotas to encourage salespeople to sell their offer­

ings. Until 1993, only 6 per cent of a salesperson's salary above the basie salary (the hulk of a person's pay) reflected the profitability of his or her sales. In 1993 the company increased the portion based on profitability to

20 per cent. Why did Gerstner decide to forgo any major sales force changes? One consultant noted that Gerstner wanted to wait until the dust settled from cutbacks that had reduced IBM's employment from 344,000 to 256.000 between 1991 and 1993. Many industry observers argued that the decision reflected his desire to continue to study the problem. Microsoft chairman Bill Gates suggested that, although IBM was known for its unified sales force, 'I think it's inevitable that they'll get rid of it.' 1

The question was: What sales force strategy should IBM use to revive sagging sales and profits while satisfying customer and employee requirements?