The Few, The True, The Blue

You have to appreciate the symbolism. Duke Mitchell wants the world to know that the IBM sales force is serious about change. Gone is the arrogant, "have-it-our-way" attitude. Gone are layers of management. Gone are the trappings of the lush life. To prove it, Mitchell has closed five sales offices across his New York-New Jersey sales region--including space in the Madison Avenue tower that IBM recently agreed to sell--and moved 700 employees to a Cranford (N.J.) warehouse once owned by Universal Corrugated Box Machinery Co.

You can't get more humble. There are no private offices. There's just a sea of desks in the 100,000-square-foot building--400 of them spread out underneath exposed heating and air-conditioning ducts painted bright yellow. Off in one corner is Mitchell's desk--not the impressive mahogany job that graced his old private office, but a small metal model. Like all the furnishings, it has been salvaged from other IBM locations. Moving to Cranford cut Mitchell's office space by 75% and his real estate costs in half. But the most important change is the new attitude. Only 200 employees--mainly support and service personnel--have permanent desks. The rest are out calling on customers, working out of their homes and cars, and only checking in at Cranford for a day or two a month to pick up mail or prepare for customer presentations.

PRAGMATISM. Meet the New Blue sales team. A steady diet of downsizing, cost-cutting, and reengineering is remaking IBM's legendary sales force to meet the realities of today's market. The most obvious change is scale--company insiders say the worldwide head count in marketing and sales has dropped from a peak of 150,000 in 1990 to around 70,000 and will continue to fall. The goal, says Robert J. LaBant, senior vice-president in charge of North American sales and marketing, is to cut the cost of sales by a third by yearend (chart). Most of the salespeople who remain are expected not only to bring in more revenue and profit but to do it in new ways--mainly by acting as sophisticated consultants selling IBM and non-IBM technology to solve business problems.

The changes reflect both the pragmatism and ambition of CEO Louis V. Gerstner Jr.'s regime. With shrinking margins in hardware and software, IBM can't always afford to send a salesperson out to push the product. More and more of Big Blue's wares will be sold through dealers, "value-added resellers," or even mail order. Says CFO Jerome B. York: "We may just have to decide that anything with a [gross] profit margin below 20%--maybe even 25%--will have to go through [non-IBM] channels." The ambitious part is the idea that IBM salespeople can be upgraded to the status of consultants--instead of mere order-takers or product-pushers.

Reinventing the sales organization is at the heart of reinventing Big Blue. From its inception until the arrival of Gerstner, IBM has been dominated by salespeople. Part of founder Thomas J. Watson's business genius was in transforming the salesman from a shady character to a model citizen--professional, smart, polite, well-groomed, disciplined, sober, and aggressive. "Watson created an image exactly the opposite of what a salesman was in the '50s--a smile, a slap on the back, and a shoeshine," says John P. Imlay Jr., a longtime IBM competitor and chairman of Dun & Bradstreet Software. "He brought real credibility to the sales force."

That credibility was key to IBM's triumph in computers. Big Blue's clean-cut sales reps taught customers what computing was all about and how the new technology could be used in their organizations. Teams of IBMers would be dedicated to a company and take up residence there. Many forged strong ties to the top management of those companies. "I had access to all executives of all the companies that I dealt with. Part of my relationship with my customers was understanding their business problems and working with them to solve them," says John D. Loewenberg, senior vice-president for information technology services at Aetna Life Insurance & Casualty, who sold for IBM in the 1970s. "IBM represented integrity and quality--things that became part of the IBM culture that the whole world saw IBM as."

But by the 1980s, IBM's hold on Corporate America began to slip. Armonk began pushing hardware, rather than "solutions," and shifted its target from top management to the folks who ran computer operations. After a while, though, those customers grew more knowledgeable and less likely to blindly follow the buying plans laid out by their IBM sales teams. First with minicomputers and later with personal computers, "true Blue" shops became anything but. Hardware was becoming a commodity, and customers were getting too savvy to pay a premium for the IBM logo. As competitors swarmed, IBM saw $14 billion in hardware profits disappear. Worse, the company lost its position of trust with customers. "We were simply selling iron in a world that wanted help," says George Conrades, head of U.S. sales and marketing from 1988 to 1992, and now president of Bolt Beranek & Newman Inc.

Ask GTE Corp., one of IBM's top 10 customers. In 1990, when the phone company wanted to start moving from mainframes to networks of inexpensive computers, instead of helping, IBM reps tried to talk GTE out of the downsizing. "We had to move without them," says Don Hayes, GTE's vice-president of information technology. "We used Hewlett-Packard."

On his arrival in 1993, Gerstner canvassed IBM customers and heard similar horror stories. He concluded that the company was simply out of touch with the market, partly because of arrogance and partly because of a ponderous bureaucracy. Sales were being lost because ancient procedures or turf wars between different product divisions kept IBM from satisfying the customer. "What I view as my job is trying to get everything out of the way between that customer and that distribution method or salesperson or laboratory for technology," he told Wall Street analysts in March.

PICKING CHANNELS. ibm isn't the only corporate giant grappling with how to sell more effectively and efficiently. In industries ranging from telecommunications to pharmaceuticals to publishing, sales armies once regarded as machines of boundless growth and corporate pride are looking more like wheezing gas guzzlers--too costly and cumbersome to keep up with a world of shrinking margins, fast-changing markets, and short product cycles. Robert Atkins, a partner with Mercer Management Consulting Inc., gives Gerstner high marks for grappling with the problem. He says IBM is ahead of other big companies in finding a solution. "I don't know a lot of CEOs who are paying attention to sales channels as an issue," he says.

There's no easy answer. Even as it competes as a low-cost supplier of hardware such as PCs and workstations, IBM needs to satisfy customers who want to deploy all this technology in complex and sophisticated information systems. They demand low prices, but they also want a high degree of service and an intimate knowledge of their business. "The trick is to come up with a sales model that deals with both," says IDC Services Inc. analyst Frank Gens.

IBM's plan? LaBant says the basic idea is to simply let customers choose how they want to deal with IBM. For some, that means that for a price they can tap IBM business consultants, product specialists, or systems integrators to tie products--including competitors'--into corporate information systems. Or they can choose never to see an IBM salesperson. Or they can switch back and forth, depending on their needs. In Detroit, for example, 40,000 of the company's 45,000 customers in that region are covered by sales reps that work over the telephone. "I don't think of us as a sales organization," says LaBant. "We are creating and building a solutions-and-services business. And we are creating more efficient distribution business as well." Think of it as McKinsey & Co. meets Home Depot Inc.

To beef up the McKinseyesque side of the business, IBM has been adding hundreds of management consultants. And in early May, Gerstner announced a major overhaul of the sales organization to emphasize industry-specific expertise. By the end of the first quarter of 1995, IBM plans to have 80% of its customers reached by the direct sales force covered by one of 14 sales teams dedicated to such areas as financial services, travel, health care, utilities, and insurance. "The more you do to provide services on an industry basis, the more you learn, and you design in the customer's office," says LaBant. "And they will tell you what they are willing to pay for."

DRAMATIC CHANGES. The moves to vertical-market selling and consulting have been underway in the U.S. since 1992, and initial results have been encouraging. U.S. sales rose 9% in the fourth quarter of 1993 and 6% in this year's first quarter. GTE's Hayes says that he has noticed a change in IBM's attitude--reps now are listening better--but IBM is not likely to displace Hewlett-Packard Co. at the phone company any time soon. And WMX Technologies Inc. in Oak Brook, Ill., recently selected IBM over Andersen Consulting for a project to create an order-entry and fulfillment system. Bert Young, the company's vice-president of information systems, says that in the past he rarely considered IBM for consulting work, but he's seeing dramatic changes in the company and in his local sales rep. "They have a real business orientation. I rarely talk about products."

For the IBM sales reps who have survived, the change is invigorating. Dean Jones, who has handled the WMX account for six years, used to spend a lot of time managing the 17 IBMers assigned full-time to the account. Now there are just two reps at WMX. Yet Jones finds his work more satisfying. He's learning about the client's operations, even traveling to trade shows with WMX. "People like myself," says Jones, "have the mission to understand the customer's business."

They also have both the motivation and the latitude to do whatever is needed to help the customer. The motivation comes through changes in sales compensation. Starting this year, instead of paying straight commissions, IBM will reward salespeople on the basis of customer satisfaction as measured in customer surveys. To make sure they don't go overboard, salespeople will also be measured on how profitable their sales are. As much as 60% of a rep's commission will be tied to the profitability of a deal--regardless of whether it is products or consulting services. "In previous years, people were told what to sell," says George Samenuk, a general manager for product marketing in the Great Lakes region. "For the first time, we have a pricing tool that enables us to pick and choose different hardware and software." Equally important, Gerstner is starting to cut through some of the underbrush that has slowed IBM's responses to customer demands. Ron Hovsepian, a sales executive in the Boston area, says the steps to consolidate product groups under one senior executive have been a "godsend." In the past, if a customer had a problem that cut across two such groups--say minicomputers and mainframes--internal bickering could delay a sale for weeks. Now, he says, the message is: "Don't worry about the individual product pieces, just focus on fixing the customer's problem."

The big challenge will be making this system work around the world. One of IBM's greatest potential strengths is its global reach. But friction between Big Blue's overseas units--and between overseas and domestic units--has made it difficult for multinationals to deal with the giant as a single entity. "It's very easy to do business with IBM in a country like Portugal," says Raymond Perry, chief information officer of Avon Products Inc. in New York. "But if I wanted to do business with IBM from here and have them tell Portugal how I want to operate, it's very difficult."

GLOBAL APPROACH. Ned C. Lautenbach, senior vice-president for international sales, is taking the new IBM sales approach around the world. "Everybody is measured and motivated on customer satisfaction," he says. And everybody will be dealing with simpler rules. In the past, each country subsidiary set its own prices and wrote its own contracts. Now, one contract--and discount--covers customers wherever they buy IBM products or services. Already, barriers to cooperation among IBM's overseas units are falling, says Lucio Stanca, chairman of IBM Southern Europe, Middle East, and Africa: "The incentive program pushes you to work together."

Whether they're in Portugal or in a warehouse in New Jersey, IBM's sales troops have their marching orders. Can they bring back the glory days--when Tom Watson's well-scrubbed legions were invincible? Probably not. But they just might bring IBM out of its lengthy slump.

THE REMAKING OF BIG BLUE'S REPS

THE MAN IN THE WHITE SHIRT

In recent years, IBM's army of well-paid generalists has sold hundreds of different products--a losing battle against specialized competitors. At the same time, IBM lost its knack for addressing customer problems.

THINNING THE RANKS

Starting in 1991, IBM began drastically downsizing its sales organization. It also organized reps into product specialists and client representatives in an effort to stay closer to customers and confront competitors' specialized sales organizations. Sales were stepped up through other distribution channels, such as mail order.

THE NEW LOOK

Now sales compensation is tied to profits and customer satisfaction. In May, IBM reorganized sales in 14 industry-specific teams. Product specialists now focus on fewer products.