IBM Reorganizes Itself to Reach Midmarket Customers

Analysis of News Events
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While IBM's latest management moves deserve kudos, there is something else that the company must do to revive its flagging systems sales.


If you have not heard from your favorite IBM representative lately, there's a good reason. Over the last several weeks, Big Blue has been putting itself and its employees through one of the biggest internal reorganizations in its long history. The new management structure will have far-reaching implications for how IBM works with small and midsize businesses (SMBs) in general and System i customers in particular.


In separate but closely related actions, IBM took apart two of its biggest organizations and reassembled them in dramatically different ways. The first shoe dropped on January 3 when Bill Zeitler, Senior VP for the Systems and Technology Group (STG), announced a top-to-bottom restructuring of his worldwide team. For years, STG has been organized into product groups such as the System i and System x Divisions. These groups operated in relative isolation from each other, with each division having its own sales specialists and support teams clear down to the territory level. This led to customers being called upon by multiple STG teams and IBM Business Partners, each with a proposal for its designated system. Such situations are frustrating for SMBs as most of them prefer integrated IT solutions to bewildering hardware options.


To address this problem, IBM has created four new STG divisions that focus on discrete customer segments instead of hardware products. The Enterprise Systems Division serves large companies. The Business Systems Division focuses on companies with less than 1,000 employees. The Industry Systems Division caters to the special needs of specific industries such as retail, healthcare, and life sciences. The Microelectronics Division works with IBM's OEM component customers. Each division has its own General Manager (GM) who reports to Zeitler. These GMs are responsible for satisfying the needs of their customer segment. They are also responsible for all marketing and sales campaigns in their segments as well as all sales goals.


While STG still has product-focused divisions and GMs, their names and roles have undergone significant change. The Mainframe Division now manages the System z while the Power Systems Division is in charge of System i, System p, and Linux systems running on POWER processors. The Modular Systems Division owns the System x and BladeCenter portfolios, leaving the Storage Division with disk and tape devices. The GMs of these "platform divisions" report to Zeitler just like their "client division" counterparts, but their responsibilities are different. The platform GMs are to focus on making their products competitive and ensuring that they are complete and integrated "solution stacks." They are also responsible for providing technical support to the sales teams that now report to the client divisions rather than to them.


Next Stop:  A Field Force Makeover

Speaking of the sales teams, big changes are taking place to them as well. Historically, each of IBM's roughly 300 sales territories has been staffed by sales and support employees who specialize in an STG product. While these specialists will remain in the field, they will now be dedicated to specific customer accounts and will report to the Enterprise, Business, or Industry Systems Divisions. They will also represent STG's entire product portfolio to their accounts, not just their area of specialization.


To push this client-centric concept further, IBM announced on January 8 that it is reorganizing its Small and Midsize Business Group, the division that manages the SMB sales force. The action splits the group into two teams. One team will focus on larger midsize companies that have the potential to become enterprise customers, while the other will focus on smaller "genuine" midmarket companies. By dedicating resources to this second set of companies, IBM is aiming to avoid the common situation where a big sales opportunity in a larger company soaks up most of the sales resources in a territory. This has led to many companies (including System i customers) being ignored by IBM.


To appeal to midsize businesses, IBM will also boost its marketing budget for reaching these firms to $100 million in 2008. That's a 25 percent increase over what the computer giant spent in 2007. Much of this money will fund demand-generation efforts while some will flow to IBM Business Partners in the form of sales incentives. IBM will also designate employees in each territory as "midmarket representatives" and give them sales quotas.


Another Management Shuffle...Should We Care?

To many people, reading about an IBM reorganization is as exciting as watching scrap metal rusting. Nevertheless, don't dismiss what's happening inside Big Blue as irrelevant. Here's a short list of how the reorganization could affect System i customers.

•·                    You may soon find that some of the IBMers you work with have been reassigned elsewhere or that new people are calling on you. That could change how you do business with IBM, especially if you rely on certain people for help.

•·                    Over time, you could find yourself working with a more stable team of IBMers. By dedicating specific staff to specific accounts, IBM is working to present a "single face" to its SMB customers. That could make it easier for smaller companies to do business with IBM.

•·                    You may find it easier to get IBM's attention when you have a need. This could especially be the case for smaller companies in sales territories that have traditionally been dominated by larger enterprises.

•·                    You should see more IBM marketing aimed at companies like yours. However, don't count on a System i ad blitz, because it isn't in the cards.

Importantly for System i customers, the reorganization reverses a decision that IBM made last July to split management of the System i between the POWER Systems and Business Systems Division (BSD). Effective immediately, all System i models are managed by the POWER Systems Division, which is managed by Ross Mauri. That said, BSD will still be responsible for packaging and selling STG products for the SMB market. Those packages will include all System i models as well as relevant products from the other platform divisions. As I mentioned in my last article, I expect BSD to make big announcements this year about cross-brand offerings for SMBs.


While the reorganization could improve how IBM communicates with SMBs, it does little to address another problem: the bureaucracy that has taken hold inside much of IBM. Indeed, the reorganization may fan the bureaucratic flames by increasing the number of divisions and GMs in STG. That could strengthen what has, in my opinion, become a "matrix management culture" in which too many managers avoid taking bold actions for fear that one of the multiple executives they report to will oppose them.


I shudder to think what will happen to the System i if timidity levels increase inside IBM in general and STG in particular. If there is one STG product that requires bold, independent action to thrive, it is the System i. Unlike IBM's other SMB servers, which often look like what everyone else is selling, the System i is a server that stands apart from the crowd. To sell it effectively, you need people with an unflinching belief that different is often better.


Sadly, such maverick spirits have become increasingly harder to find inside IBM. That is unfortunate because many of IBM's greatest product successes--the venerable System/360, the IBM PC, and the AS/400--were developed by freethinkers who took issue with their company's prevailing wisdom. While I hate to say it, today's IBM may have lost the courage to listen to the mavericks within its ranks. In my opinion, the latest reorganization will do little to change the situation.


In short, I applaud IBM's efforts to reorganize itself around the needs of its customers. I believe it will make it easier for the company to gain the attention of SMB organizations and improve how it communicates with them. However, unless IBM has something powerful, relevant, and different to say to those organizations, it will not hold their attention or win them over from competitors. If IBM wants to leverage its reorganization, it needs to do something even bigger and more disruptive. It needs to re-create a corporate culture that rewards bold, independent thinking...the kind of thinking that brought the AS/400 into being.


This year marks the 20th anniversary of the birth of the AS/400. What better occasion could there be for IBM to rediscover its inner maverick?

Lee Kroon
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology.


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