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IBM Revamps Server Sales Force
In Effort to Wake Up the Division
By SCOTT EDEN
Dow Jones Newswires
In a further attempt to put some life into its moribund server business, International Business Machines Corp. has quietly revamped the division's sales force, assigning representatives to customers based on account size rather than product offering.
The move is seen by analysts as an effort by IBM, of Armonk, N.Y., to end the product overlap and sales-team infighting that has hindered the company's ability to compete with fast-moving rivals such as Sun Microsystems Inc.
Company Profile: International Business Machines
"That's always been the IBM problem," said Buckingham Research Group analyst Jay Stevens of those intra-company rivalries. With salespeople allying themselves with specific product lines, predatory "fiefdoms" developed, he added.
But under the new arrangement -- which involves no job cuts -- IBM will divide the server group's sales ranks into three platoons, each peddling machines across all the company's product lines. The most important team, which IBM calls its "high-end group," will target the company's largest corporate accounts, which number between 1,500 and 2,000 customers. A second team will sell to middle-sized companies, while the third will focus on hawking Web servers to Internet firms.
Pushing 'Big Iron'
Prior to the change, salespeople in the server division were responsible for only one of the company's five server products, which include IBM's bread-and-butter "big iron" mainframes, the AS/400 minicomputer, the mid-range Unix-based RS/6000, the smaller Windows-based Netfinity, and the NUMA-Q, a line of machines running on Intel Corp. microprocessors and acquired with IBM's purchase of Sequent Computer Systems Inc. in September.
IBM first disclosed the changes on Jan. 24 during one of its "IBM Business Partners" conferences, a gathering of IBM resellers. It began to realign the sales force at about the same time.
In a memo to senior IBM management, Samuel Palmisano, the executive brought in last fall to revitalize the server group, wrote that "the reality is our customers operate in a heterogeneous IT world, consisting of numerous operating systems. With the continuing maturation of e-business, there is simply no one server architecture to meet their increasingly complex computing requirements.
"Until now, we've forced our customers to talk to different parts of IBM to put together a solution. The competition took advantage of this and gained market share at our expense. And, more importantly, they got momentum. Our job now is to take it back," wrote Mr. Palmisano, who is widely seen as heir apparent to IBM's current chairman and chief executive, Louis V. Gerstner.
Analysts agree that the sales-force revision was needed. "IBM in the past has had issues with products competing with each other," said Thomas Bittman, an analyst for Gartner Group, a Stamford, Conn., research firm. "The way they were organized drove that competition. They would really go out and get each other."
Said Buckingham's Mr. Stevens: "They've never done it this way before. Change is opportunity, and IBM needs to change things at the server group in order to make it grow."
Unlocking Potential
For investors and company executives alike, IBM's inability to remedy the group's ailments has proved somewhat maddening, if only because of the business' profit potential. Although hardware has ceased to be Big Blue's growth engine -- replaced by computer services -- it still enjoys profit margins wider than the companywide IBM average.
The server division, officially known as the Enterprise Systems Group, has endured years of sluggish growth and missed opportunities. Competitors, for instance, have outpaced IBM into the fast-growing market for servers that run Internet sites. While Sun reported fourth quarter revenue growth of 27%, due mostly to the blistering sales of its servers to Web companies, IBM in the same period saw server sales tumble 33%, with pretax profit from servers alone declining 73%. IBM blamed the decline on corporate clients delaying purchases ahead of the year 2000 for fear of the millennium bug.
But clearly, analysts say, the company hasn't been able to keep pace with the hard-charging, Web-savvy Sun.
Ever since Mr. Palmisano assumed the stewardship of the server group in November, changes to address that problem have been afoot. The company expanded substantially its use and marketing of Linux, the open-source operating system that appeals to the proliferating number of speedily growing Internet companies. And, in early January, IBM sold three server factories to Celestica Inc., then contracted out that manufacturing capacity, an "outsourcing" model thought to be more cost effective.
But everyone -- both analysts and the company, which has called its server group a "work in progress" -- agrees that much more work needs to be accomplished.
"It's going to take time," Mr. Bittman said. "They have to make some hard decisions." Above all, he said, IBM must now determine how and where to allocate its investment dollars. Because the company's various servers are capable of performing many of the same functions -- the RS/6000, for instance, can do some of the same jobs as the AS/400 -- IBM must figure out which systems to emphasize in certain areas and which to push aside.
Uncertainty Ahead
Meanwhile, the hardware business might not be getting any brighter for IBM. According to a recent survey of corporate buyers at 50 U.S. and 20 European companies conducted by Merrill Lynch analyst Steven Milunovich, sales of IBM servers remain weak, so much so that until its problems are brought under control, the analyst thinks the company's stock will languish.
"More respondents said their spending on IBM hardware will decline than said it would increase," Mr. Milunovich wrote in his Friday report. "Although the product set appears to be improving, we think lack of focus is a problem. We're a bit concerned about 2Q hardware growth."
IBM will update analysts and investors on its server group progress during a Webcasted conference call on March 8. But an IBM spokesman, who played down the significance of the reorganization, calling it "just internal plumbing and not a big deal," said the moves were merely the latest in a series of modifications by Mr. Palmisano designed to refurbish the division.
Already, the spokesman noted, IBM has begun to retrench and attack the business of its rivals. Of particular note, he said, is IBM's freshly inked contract with DaimlerChrysler AG, which Big Blue beat out Sun to win. Under the deal, worth $40 million, IBM will upgrade all the servers -- including some RS/6000 machines with IBM's newest copper-chip technology -- used by the auto maker's North American dealerships. |
