IBM
9053 IBM5 - SALES SUPERMEN
Sales Orientation Sales Professionals Incentives Sales Training Business Knowledge
Dummy Calls Sales School Sales Strategy Perfect Marketing Sales Force Control
Branch Management Sales Plan Hundred Per Cent Club Recognition
Business Conduct Guidelines Anti-Trust Snow White Service to Customer
Having told the story of IBM's 'boom times', I will now - over the next three chapters - review the more idiosyncratic aspects of the former's approach to its functional operations, to give a context for some of the related lessons; and - especially - to compare it with Microsoft's different approach to modern business life. For the sake of convenience, I am bracketing each of these operational chapters with the historical period which was most influential in the development of the philosophies which drove them; in the case of this chapter that of Tom Watson Sr. whose peculiar genius was most evident in his approaches to sales management. Indeed, despite being developed in the first half of the 20th century, his approaches to selling and sales management are still ahead of those of the great majority of companies. The focus on functional aspects from time to time will also allow me the opportunity to deliver a greater insight into the processes involved. You should, however, recognise that in reality these 'functional' descriptions incorporate development which took place over all the periods up to the watershed in 1990s - when Lou Gerstner's ambition was to return IBM to being a much more conventional organisation. In particular - as a context for the related theoretical lessons (which, at this stage of the book, concentrate in particular on the positive aspects of IBM's performance) - they largely reflect IBM as it was at the peak of its power in the early 1980s. The IBM of the 1990s lost so much of its confidence that the 'optimistic' flavour of the many features of the following chapter will not always accord with the current practice. Would readers, therefore, please accept that it is a mix of some which may genuinely be current but mostly that of a decade or more ago - when IBM was at its peak - but that all aspects are deliberately designed to reflect the successes not the failures. The first part of this chapter is, though, unlike some of the others in that it has little to say about Microsoft. This not due to my neglect but because, unlike IBM, relatively little of Microsoft's marketing involves face-to-face selling. The reverse will be true of the latter part of the chapter on marketing strengths and weaknesses, where Microsoft is shown to have almost all the strengths and IBM the weaknesses!
Indeed, starting in the days of Thomas J Watson, but continuing up to the 1990s without interruption the sales‑force was at the focus of IBM's successful formula. As such IBM's salesmen were rated higher than almost any other individuals in the organisation - and higher than they were in other companies. But the factors responsible for their outstanding success were far removed from what most spectators might expect.
IBM's second belief, 'Customer Service', was the powerhouse of its sales activities. Its especial strength was that this philosophy was implemented not just by a few salesmen, but by all IBM'ers in all departments. IBM salesmen worked to the same philosophy; and it proved to be a uniquely strong guideline for developing the most powerful sales messages.
The Marketing Philosophy…despite its importance, most organisations happily consign marketing to a form of ghetto. As IBM showed, however, it can also be - much more powerfully - a philosophy which permeates the whole organisation and directs the activities of all staff. Management theory does, almost universally, stress the importance of the marketing function. Our research shows that, as a result, up to 90% of larger organisations recognise the philosophy of marketing. Unfortunately little else is successfully conveyed to practitioners, since few of these organisations manage to turn that philosophy into effective actions; indeed few ever really try!
Sales Professionals…IBM salesmen and support staff were selected to be, above all, highly intelligent; with sound experience of the real world of business. They were then trained intensively, for more than a year, by teams of high-powered managers; including myself for a period of time. The prime objective was not to teach them how to handle the punter's objections and close the business, the aim it seems of many other sales training courses, but to give them the best possible technical and business appreciation. Only then were they given the best possible sales training, which allowed each to develop his or her own special talents.
Yet, even at IBM's peak, they were often poor performers in terms of conventional sales techniques. But they were superb at establishing rapport with their customers, understanding their businesses and solving their problems; and as a result their customers, justifiably, believed that they were just about the best sales‑force in the world.
Sales Professionals…the IBM sales-force professionalism had nothing to do with the traditional skills of selling - which most sales trainers emphasise, and which business schools also tend to reiterate. But the IBM salesforce professionalism was a blend of practical knowledge of the worlds that their customers inhabited, mediated by their training (to post-graduate level) in IT theory and their own intelligence. The 'advice' they gave was typically better than the most highly paid consultants from the management consultancies. Their customers recognised the true added-value they gave by awarding them the business. Although Microsoft could have benefited from a similar approach to customer service, it does not seem to have worried too much about this - preferring perhaps to build its defence against customers on the back of the monopoly it holds! Although most of the marketing activity in the real world revolves around face-to-face selling, it is one of the blind spots of academic theory. Very few business schools include it in their curriculum, let alone give it the recognition it deserves. It is typically left to less capable trainers to cover the topic.
Incentives…IBM's sales personnel were motivated, and directed, by a particularly sophisticated Sales Plan, around which their (and their managers') commission system revolved; but above all they were inspired by the theatricality of the Hundred Per Cent Club, which around 80% of the sales‑force attended each year (for most IBM'ers had to be winners, even if by design). Microsoft's most powerful incentives were based on stock options!
Perhaps the best flavour of the IBM sales machine is contained in Buck Rodgers' book, 'The IBM Way' (Harper & Row, 1986). A great deal of its content matter may seem self‑evident, indeed to the extent of being dismissed by critics as 'motherhood', but careful reading will show the philosophies that made the IBM sales team truly great. Not the least of these is his statement "IBM is a sales oriented company. That's because at IBM everybody sells.......every employee has been trained to think that the customer comes first". If you have ever had any contact with Microsoft you will appreciate that this is not exactly true of its own marketing operations.
For at time, I was a manager of the UK 'Sales School'. Accordingly, I saw literally hundreds of IBM sales trainees and salesmen pass through the various programmes. Most of these were from the larger mainframes area, then DPD (Data Processing Division), but they also included a substantial number from GSD (General Systems Division). The great majority had no previous sales experience; or indeed any data processing experience. IBM for many years had adopted the philosophy of taking its sales trainees from industry.
The requirement was first that such recruits were highly intelligent; they must above all have passed the 'Data Processing Aptitude Test' (DPAT), which was in essence an intelligence test. The success of this simple filter was evident in the very high intellectual capacity of its sales-force. Microsoft applied a rather different set of criteria, but an equally rigorous one, to the recruitment of its software developers - its 'front-line' staff! The second IBM requirement was that they should have had extensive experience of industry. This enabled them to communicate with their customers on the basis of their own experience rather than theory; or worse, as most non‑IBM sales theory would emphasise, by sales techniques. Preference was given to those who had obtained such industry experience at a senior level; I, for example, had been a general manager with a multinational before entering IBM.
Sales ability, or even potential ability, was not therefore the prime measure of the recruits. As a result the stream of recruits entering the sales training school had more in common with that entering most companies boardrooms than their showrooms; and that was exactly as IBM wanted it. My personal observation was that, even at the end of their extensive sales training, they were just about as far removed from the conventional picture of the smooth sales operator as they could be; very few of them indeed would have lasted more than a few minutes selling from a stall in a town market.
How then did they achieve their enviable reputation…the answer was evident in the final product of the sales school. Their sales styles could be faulted, on almost every front, by theorists of sales technique. They were even more aware of their shortcomings; and accordingly overcompensated massively in other areas. The style may not have been of the best but the content was superb! They had researched the customer needs in great depth and understood his or her problems as well as, and maybe even better than, he or she did. Their proposed solutions were, therefore, rooted in that customer's own experiences. They talked the customer's language, rather than that of sales technique. The customer was, quite justifiably, dazzled by the content; and missed the accompanying flawed technique.
Salesmen of the Century…this approach to selling provides a framework within which relationship management is not just another new technique but flows naturally from the very philosophy of selling. IBM may have lost its place as a world leader in other fields, but sales managers everywhere should still look to these lessons if they want to improve the performance of their own organisations! In practice, sales skills are largely ignored by management theory - and are horribly mangled by many trainers!
IBM developed their sales skills over a very long training period. All those going into the 'sharp end' of the field force, both salesmen and systems engineers, faced a minimum of a year, and perhaps up to two years, of formal training. The length, content and level of this training was directly comparable with that of many post graduate courses; and indeed at one stage I used what was in effect the first year of the London Business School MBA course as an integral part of the training.
The great part of this training concentrated on the content rather than the style of the sales pitch. The trainees spent perhaps as much as six months of the time sitting in the classroom learning about data processing and its impacts on business.
Business Knowledge…for 3 years I myself ran the GSD 'Business School', through which passed nearly 200 of its trainees and field force. In two weeks of classroom teaching they learnt the fundamental theories of business management, based on material from first year of the London Business School MBA course, as mentioned earlier. For a further two weeks they attended a residential course actually at the London Business School, taught by its professors.
At that time it was recognised to be IBM's most successful 'sales' training course, because it taught the business management knowledge that would enable the salesmen to develop the necessary rapport with their customers. Buck Rodgers describes a very similar, but later follow-on based on it, the US 'Presidents Class' run by Harvard as "…requiring the marketing rep to role‑play an IBM customer". The professors of the Harvard Business School may feel that this is somewhat of an understatement of their world famous case study technique which they used on the course; as we also did earlier in London!
Consultant Sales Personnel…in complex sales, which these days apply in most Business-To-Business markets, the requirement for the sales personnel involved is - that in addition to intellectual ability - they should be able to provide the best possible consultancy advice; both in terms of the vendor's own products but also in the context of the customer's business. Their communications skills should be focused on passing on this advice rather than 'persuading' the customer to take an ill-advised decision. The same principle applies almost as strongly to sales-floor staff in the retail sector. As already stated, management theory has little to say here, but the sales trainers operating on the fringe of academia have their own - often dangerously ill-founded - perspective on the subject; which traditionally has focused on a very narrow range of techniques of 'persuasion', regardless of the customer's needs.
There was, of course, specific sales training as well. Partly this took place in the branch, by giving trainees on the ground experience through assisting salesmen; complemented by in‑branch training programmes. Its heart, though, was typically two or three dedicated 'communications' courses leading up to the final Sales School. There was a limited amount of classroom teaching of techniques - even including objection handling and closing; IBM trainers were as susceptible to the hype as any others.
Dummy Calls…unlike much of the conventional sales training in other companies, however, the students were taught not these as the 'correct' ways of selling, but simply as components that trainees might wish to incorporate into their own selling style. The real meat of all these courses was a series of 'calls', with an instructor playing the role of the customer or prospect. Typically run with a group of five or six trainees, each took a turn to make a 'call' on the instructor. The trainee had a written brief describing the outline of the call circumstances; and the instructor had a more detailed brief to allow him to play the role of the specific customer or prospect. These 'calls' were very realistic and lasted much the same length of time (30 minutes), and followed much the same course, as a real life call; the situations were in fact derived from real life experiences in the field.
Over the various courses the trainee experienced perhaps 20 or 30 such 'calls', progressively covering the range from opening the initial contact to, most difficult of all for salesmen, 'closing' the sale. At the same time they saw more than 100 'calls' made by their fellow trainees. At the end of each 'call' the instructor, together with the other trainees, reviewed the 'call', using what happened as the basis for a teaching session. The aim was to give the greatest possible range of sales experiences so that each could develop their own unique style; based on their own natural style and abilities. There was no attempt to teach any standard style; despite Buck Rodgers' emphasis in his book on the teaching of the 'structured' sales call.
Practicing Selling…the key to sales success, for an individual, is for them to craft it around their own unique attributes. As long as their early experiences do not cause them to lose confidence, this will come over time; as they learn from their successes and failures in the field. The IBM approach, giving them practice through dummy calls, simply places some of that learning process in the supportive environment of 'classroom' sales training; and removes the worst challenges to the individual's confidence and risks to valued customers' business. Sales trainers typically teach one-size-fits-all panaceas.
The belief in each developing his own style went back to IBM's earliest days. T J Watson, speaking in 1917 to a New York audience, said "When practising the art of selling use all your talents. Put everything you have into your efforts; above all put your personality into them. Never copy anybody. Be yourself".
This process reached its peak in the Sales School, which despite its title had nothing to do with learning, but was an extended exam. It was two weeks of evaluated calls and presentations on which the trainee had to obtain a satisfactory overall grade before he could pass‑out. Most trainees in fact passed. Those few who did fail, however, faced the ultimate ignominy of returning to the branch to try again.
The Systems Engineers (SE's), who supported the salesmen in the field, were not required to have the same degree of industry experience, and a number of them were recruited direct from university. They did, though, have to meet the same high intellectual standards. In general they followed exactly the same training path as sales trainees, with the addition of some technical courses. They did not attend Sales School, but instead had their own SE School; which, although more technically based, had an even more terrifying reputation than Sales School.
Perhaps only IBM, and only then in its peak years, could afford to take in such high calibre, and highly paid, staff and then spend up to 18 months simply training them. The cost even then was more than $100,000 per head. The end result, though, fully justified the expense and effort; and represented the great strength of IBM.
Investment In Training …what it more generally illustrates is the value of an organisation's investment in human resources; and, in particular, the rewards which accrue from extended training. This is, of course, the secret of the success of the Japanese corporations - copied from IBM; and the basis of Human Resource Strategies(HRS) which the West has more recently copied from them! It is true of human resources in any part of the organisation, but especially so of the key human resources (in IBM's case its field force and of the developers in the case of Microsoft). Even so, most Western organisations still concentrate on protecting the physical resources which appear on the balance sheet - while squandering the human ones which do not figure in the accounts! During the 1980s HRS became widely recognised by larger organisations, but was far less often acted upon - and, in the cost conscious 1990s, it almost disappeared. Yet the very clear evidence is that the staff of an organisation, and especially their intrinsic knowledge (the 'gold in their heads', as the Japanese say), has become the most valuable asset of any organisation.
It is to IBM's great credit that it did not - until recently - waste this reservoir of trained talent. The field force was given its head, with the very maximum of delegated responsibility. The salesman, once he or she had been given their set of accounts, was totally in charge. They alone co-ordinated all the IBM resources necessary to support existing, and win new, business. Typically the sales campaigns were extended, often taking many months. In this time they, and the SE's who supported them, got to know the customer's business in great depth; sometimes perhaps in greater depth than anyone on the customer's own staff. Again it was this knowledge, rather than any sales technique, that was the strength of the sales campaign. Under the different title, of relationship management, this has become the goal which the leading marketing organisations aspire to - but few ever approach, and none get as close to it as IBM already did decades ago!
I joined IBM with a traditional FMCG marketing background. For more than 3 months I was amazed at IBM's lack of understanding of marketing as I saw it - a lack of understanding which really did cost it dear a decade and a half later, when it too entered mass markets. In the context of IBM's mainframe business in the 1970s, however, I came to realise that IBM practised what was just about the most perfect form of marketing yet achieved.
Thus, in its (frequently achieved) ideal form, a team of IBM personnel (sales and SEs) spent many months surveying a large customer - to determine exactly what were the needs of that organisation and of all its constituent parts. IBM then went away and produced a solution which, again, exactly matched this specification.
This comment is important for two reasons. In the first, it demonstrates how broad may be the definition of what is marketing. In the second, it clearly shows that - much against the traditional view - face to face selling has a greater chance of attaining near perfection in marketing than mass marketing, which, until the one-to-one marketing supposedly promised by e-commerce becomes a widespread reality, can only deal with customers as 'averages'. This offers a challenge to those, such as Microsoft, who might be expected to benefit from the growing penetration of ecommerce.
Perfect Marketing…face to face selling, along with ecommerce, offers the potential to be the optimal form of marketing; though only the former has so far delivered on this promise. The interaction between supplier and customer can, potentially, result in a perfect match between the offering of the former and the needs of the latter. Such perfection, however, requires a great deal of skilled communication - on both sides. It is paradoxical that management academics tend to relegate selling to a peripheral activity, which is seen as anything but perfect! On the other hand, they are now happily chasing after one-to-one marketing which obeys much the same set of rules; without the historical track record to build upon.
The investment paid off, because IBM in those days won the largest share of new business, and virtually all of that from its own customer base. The individual amounts could reach into the millions. At the lowest end it was an Armonk/EHQ directive that even new business salesmen should not be allowed to waste time on accounts worth less than $50,000. Accordingly, it was clear - to me, though unfortunately not to IBM - exactly why IBM was so unsuccessful in persuading its (third party) agents to cover the 1980s/1990s mainframe business below this level.
The sales-personnel might have been autonomous in running their accounts, but they were very clearly accountable to their Marketing Manager (IBM's then rather misleading title for a first level sales manager) and then to their Branch Manager. They had, at least once a year, to provide an account plan for each of their accounts. Then at monthly reporting sessions they had to provide their 30 day, 60 day and 90 day forecasts; and subsequently meet them! It was these forecasts, grossed up at each level to national (and beyond), that drove IBM in the short term. They were awaited each month just as eagerly by the general manager as by the branch manager.
Every manager knows that he or she should delegate. What is less widely understood is how this should happen. IBM sales responsibilities were clearly defined and its salesmen were allowed to operate within these responsibilities without interference, but on the basis of very measurable results.
Effective Delegation…delegation has become almost a cliché; though its application in practice is anything but universal. To be most effective, however, it has to become a natural part of the management process - there has to be an obvious logic to it. Delegation has been a central part of management theory for decades, especially in the form of MBO (Management By Objectives), in the 1960s/1970s. The actual delegation by managers has, however, been very patchy, and much of the 'practice' can now be rather cynical in nature.
Branch Management…it was reckoned by the cognoscenti that the Branch Manager was then just about the best job in IBM. Each had his own 'small' business; well hardly small, because its turnover probably exceeded $100 million per annum. The Branch Manager ran this as his (or occasionally her) personal fiefdom, with the absolute minimum of intervention from above; just so long as he continued to meet his targets. He managed between 50 and 100 of the most intellectually stimulating individuals you are ever likely to meet. It was a very nice life indeed for the few that reach it.
The Branch was the building block of IBM (after the individual salesman). It was, in the very legitimate analogy of the army, the 'line' unit (and 'line' management is indeed the descriptive term used within IBM). Even the head office support departments tended to follow the army model; including the rotation of management between line and staff.
Motivation…the document that controlled the IBM sales professional, and the field force in general, was the Sales Plan. At the beginning of every year its publication was avidly awaited, because it spelled out exactly how the they would earn their living during the year. They might earn as little as 50% of their income from the base salary, though more likely it would be 60% to 70%; and in any case there could be guaranties that ensured they could rely on at least 70%. As there was a 10% uplift for moving from a steady staff income to the commission based sales income, the actual maximum shortfall was often be less than 20%. The last time I went on 'quota', the IBM term for the commission system, I struck a deal whereby I was on a 90% base salary and I still obtained the 10% uplift. As a result, all my commission was pure profit. That was, though, an unusually generous deal, even for IBM!
This commission was paid on performance against 'quota'. This 'quota' was a set of targets usually measured in 'points', an artificial measure applied world-wide (without distortions caused by currency fluctuations); originally one point equalled $1 rental income per month. The exact way the various targets were built up, to 'incent' the sales- professionals to undertake the various actions that the country management, and ultimately Armonk, want was a true work of art. It took many man months of effort to produce the plan which in its simplest form ran into tens of pages. It is understandable, therefore, that the advice given to new salesmen by the 'old hands' was to take it home and spend at least a week working out the most profitable use of their time over the next year.
The real motivator, though, was the HPC (Hundred Per Cent) qualification. The targets for this might have been different to those driving the quota system; but it was still the HPC which really drove the sales. It was worth surprisingly little, 3 days in a European resort for example, but the loss of face involved in not attending the 'Club' was unthinkable. Back at the branch those failing drowned their sorrows in their own (IBM unrecognised) 99% Club.
Once more, the HPC was a matter of sales pride since T J Watson brought it with him from NCR. For the best part of a century, therefore, it was a matter of honour that each individual, and each Branch, should 'make the club'. It was also a matter of honour that each Branch Manager should get the maximum number of his sales team into the club; and this resulted in a brisk, but illicit, trading of points within the Branch at year end. Indeed this was a key aspect of IBM's policy, for around three quarters of the sales‑force was expected to achieve at least 100% performance (meaning that the 'average' performance level was actually around 115%). Other companies setting 'realistic' targets are likely to see (by definition) only around half their salesmen achieving that magic 100%. The result is that while up to three quarters of IBM's salesmen were winners, in most other companies no more than half are; and in those (not infrequent) companies where the 100% target is unduly optimistic perhaps more than two thirds of the sales force are losers. The use of such unrealistically high targets may allow the company to appear to offer very high 'on‑target' earnings, but this all too soon becomes obvious to the recipient, and the potential impact on morale and motivation (as well as losses of good salesmen) is obvious.
Incenting…if you are determined to 'incent' your management and/or staff, you should understand exactly what motivates them. Money is just one factor, and often a lesser one, in the equation. But management theory, and especially economic theory, tends to assume that all the important aspects of motivation relate to money.
The Club…at the end of the day the lucky many, for usually at least three quarters qualify, attend the Club. In Europe this is the 'Convention'. It is held in a suitable resort, Cannes is the favourite of most European IBM'ers (but it can range from Rhodes to Berlin), while the US favor San Francisco. The key requirement, which is difficult for most resorts to meet, is the ability to house more than 1,000 IBM'ers in bedrooms and the convention centre. This means that it is a rule that all non‑managers have to share bedrooms. You are accordingly very fortunate if your roommate shares your lifestyle. My first club was in Berlin, where returning in the small hours, in the company of my roommate, we were disconcerted to hear an unholy racket emerging from vicinity of our bedroom in the Kempinski hotel; evidently a party was under way, and our sleep was destined to be disturbed. This proved to be even more true than we expected, for the party was in our room! It was only closed down when the management objected to its participants roller skating nude up and down the corridors of the hotel!
Indeed it seems to be almost a matter of honour at European clubs that salesmen, particularly those most recently qualified, should break as many of IBM's Business Conduct Guidelines in as short a space of time as possible. My most enduring memory of the Berlin club is of the Kurfurstendam (the red light district) in the small hours of the morning filled with unsteadily weaving figures accosting every 'lady' in sight; but to a man dressed in dark suits and white shirts!
The theory of the convention is rather different. It is intended to be an uplifting business meeting; at least that is what the tax authorities are encouraged to believe. Two half days are, therefore, given over to business sessions with elaborate audio‑visual presentations; often costing hundreds of thousands of dollars. As a result IBM represents the pinnacle of the multi‑media presentation, complete with orchestra, dancers and all the trimmings; though the one that had on‑stage fireworks which burnt the set down - causing a major emergency - is particularly well regarded in the folklore! It brings in major outside speakers, for a number of years time Peter Ustinov was a favourite, to leaven the glowing descriptions of past achievements, and triumphs yet to come, by senior IBM executives. It was a very slick, professional event that could cost millions of pound in total to mount and took the efforts of most of the Communications Department (numbering some tens of IBM staff) for three months each year. It was mainly an excuse for a beano, and a very enjoyable one at that; with lavish formal meals, crowned by the gala night which featured at least one international star specially flown in for the occasion.
Recognition…the US HPCs I attended were rather different. They were true recognition events, and follows that format strictly. The business sessions eschewed visiting raconteurs and concentrated instead on the process of recognition. Thus for three hours at a stretch in the 'main tent' (in fond memory of the 1940's heydays of the club in 'tent city' at Endicott) salesmen were personally 'recognised' for every conceivable virtue and achievement. It started with the 'election' of the committee (by management) leading to that of the Club President. At my first US Club this latter part of the action was signalled by the President elect being accompanied to the rostrum by a complete high school marching band. Thereafter, as participants were 'recognised', they ran to the front, to the wild cheering of the members of their branch. Then the assembled masses sang the IBM songs, without any trace of embarrassment, and with great gusto.
To some of the few other Europeans who attended with me, this was embarrassing in the extreme. But I didn't find it so. It was quite simply the public celebration of the US dream of salesmanship; and who would deny that hard won pleasure. I actually preferred the US Clubs to their European counterparts; mainly because there was not the same frantic need for 'enjoyment'. Indeed the US Club is a much more sober event. The main drama at the first gala dinner I attended was the serving of the wine; it was the first time it had ever been served at a Club (and even then was strictly limited in quantity). Perhaps my preference is just due to the fact that I can recall fond memories without the accompanying memories of the king‑size hangovers which accompanied European HPCs!
The Club apart, the daily life of the field-force used to be ruled by 'Business Conduct Guidelines'. This was a document which all IBM'ers in the field, and key personnel in staff, had to read at least once a year (and to sign to that effect). It laid down the philosophies that guided all the activities of IBM in the field. The even more detailed policies, to cover all eventualities from contact with competitors (don't) to receiving gifts from customers (don't), were spelled out in one of the sections of the multi‑volume Sales Manual; the 'General Information Section', which in printed form came to more than 100 large pages of small print. The one formal reprimand I received while in IBM was for dispensing wine too liberally, above the carefully documented limit (which my assistant had not noticed), at one recognition event I ran!
It is said that even now these guidelines are still issued to IBMers. The important difference is that they are no longer as rigorously enforced. IBM managers now complain that staff not merely ignore them, but happily flirt with activities which may even be illegal! They have, thus now become the unproductive, irksome restriction which other organisations have found such bureaucratic rules to be, without any longer controlling the excesses or encapsulating the ethics (and hence the culture) which was previously their function. At Microsoft, Bill Gates got round the problem by not having any at all; which served him badly when questions were asked - in his anti-Trust trial - about company practices!
It might be though that imposition of a code of behaviour on a sales-force might be unproductive; and indeed impossible to police. Yet the IBM experience showed that it was a powerful sales tool. Traditional sales cowboys might not like what such a code says, but customers do! It was a powerful device for persuading sales personnel to do what customers really wanted.
Anti-Trust…for many years IBM was kept in line by the on-going anti-trust action, and 'business conduct guidelines' were accordingly enforced with rigour. When the case was eventually abandoned it was forecast that an IBM removed from such 'regulation' would quickly destroy its competitors and become a dominant monopoly. It is true that some of IBM's cowboys did want to go out and celebrate by breaking as many guidelines as they could. In fact, at first, few did so, though the blatant disregard seen a decade or more later - in the 1990s when IBM was at its lowest ebb - tells its own story. The interesting outcome is that IBM actually went downhill after the regulatory pressure was removed. Other factors are, of course, involved; but the removal of the guidelines in no way led to the massive advantages expected.
On the contrary, I believe that - precisely because the code of conduct was exactly what customers wanted to see - the guidelines were a major strength of IBM's sales activities. For a number of decades the US government gave IBM the moral backbone that created its business success; and IBM, eventually with some relish, abandoned its moral strength for the lure of the business red-light district! Of course, Microsoft has used every device at its command to avoid any imposition of Anti-Trust control; and, with the 'business friendly' Bush Jr. administration, has avoided these. But this may not truly offer the victory Bill Gates thinks it is.
Anti-Trust…despite the widespread belief that it might undermine competitive advantages, meeting anti-trust requirements may not be the major problem that Microsoft, as the most obvious example, fears. Theory would assume that, whilst - in the context of ethics - there might be some social justification, businesses are inevitably - and unprofitably - restricted by the threat of anti-trust actions.
Snow White…the behaviour of the IBM field force was, therefore, constrained by a set of principles which justifiably earned IBM one of its many nicknames; Snow White. Many of IBM's recruits expected this emphasis on ethical conduct to cramp their style. As indicated above, the reality was usually the opposite. Competitor's salesmen spent a great deal of their time trying to overcome their prospects', usually fully justified, fear that they were being fed nothing more than a sales pitch. IBM sales-professionals, and in particular SE's (who I always held were IBM's most effective marketing force; simply because their customers trusted and respected them), started from the basis that their integrity was 'guaranteed' by IBM's reputation. Quite simply this allowed the sales force to spend all their time investigating their prospect's needs; the real hard selling. The recent loss of integrity has (surprisingly to those who see ruthless competition as the most successful policy) resulted in a comparable loss of productivity.
The 'ethical' position was summed up by Frank Cary's reminiscence of his time as an IBM salesman, "What I liked was selling a product with high intellectual content. It was not a pitchman operation. It was very professional".
The pay‑off for the customer, which they fully recognised (in the oft reported quote intended to be derogatory, but actually rather flattering to IBM; 'nobody ever got fired for choosing IBM'), was that they could rely on the integrity of IBM and of its staff. They might still have had problems, there are 'cowboys' in every company and IBM is no exception. The difference was that the customer could appeal over their heads, and senior management would ultimately live up to IBM's high principles. I was a number of times involved in situations where such management moaned and groaned, and blustered (for they ideally would have wished to walk away from the problem), but after all the noise everybody involved knew that IBM's principles would triumph in the end. To all intents and purposes IBM was Snow White.
Ethics of Selling - despite the popular view that selling is a form of confidence trick (and hence the trainers' emphasis on handling objections and closing), sales personnel who follow an ethical code of conduct are respected by their customers - and are much more effective as a result! Even more productively, the sales personnel are motivated to provide the best customer service. Being the nice guy really does pay dividends. Amongst the sales trainers, who provide most of the theory in the field of selling, ethics is a concept which is rarely considered; and then often only as a psychological barrier which must be overcome!
Indeed the real strength of IBM's sales operation, underneath all the superficialities, was an attitude of mind, a philosophy. Up until Louis Gerstner brought in his (MBA) production-oriented objectives, it was still (at least in theory - but no longer believed by customers) enshrined in its second belief of 'Service to the Customer '. At its peak, in the UK 1984 Annual Review (provided to all employees) it was explained as follows;
" In many offices in IBM you can see the slogan 'remember the customer pays your salary'. This is a constant reminder to everyone that their job is to meet the needs of the customer. Customer service is not only the responsibility of the salesman and customer engineer. It is also the job of the development engineer, the assembly line technician and the administrator".
It was summarised by Tom Watson Jr, in 'A Business and its Beliefs' as "We want to give the best customer service of any company in the world".
This was a philosophy embraced from the first day T J Watson arrived; hence the positioning of this functional chapter so early in the book. His motto was 'we sell and deliver service' and he believed that when a sale is made both sides come out ahead. It was a belief bolstered, until recently, by IBM's method of doing business. Frank Cary stated more specifically "If I was to select one single business practice that was most important to our success in the early days, it would be that we only leased equipment. This put a discipline on the business that was excellent. It motivated IBM people and it built a great relationship of trust between the customer and the company. the customer knew he had leverage". Microsoft, of course, still largely makes its sales as outright purchases of relatively small value packages; and has almost no contact with the vast majority of its customers, nor does it seem to want any such contact!
Rentals…in the days, up to the 1980s, of IBM's deliberate dependence on its rental base the worst failure was the loss of an existing customer. Winners of new business were lionised. But the essence of the company was the growth of existing customer business. A loss of an existing customer had an immediate negative impact on sales (the rental was lost); hence the important measure, still applied, was 'net sales revenue increase'. Worse it lost the growth potential of that customer. Worse still it was a slur on IBM's competence, which would be gleefully seized upon by the winning competitor for his publicity. It is obvious why salesmen did not look forward to loss review meetings!
The impact was that the whole thrust of IBM's sales effort was to generate satisfied customers; the sale itself was only the first step. With such a philosophy any company will eventually win its customers trust, and their business.
Rental Contact…anything which helps to maintain the focus on providing the best service to existing customers - as IBM's rental base did - is a valuable addition to the marketing armory. Despite the work of the Scandinavian marketing academic Christian Grönroos, who stresses the long-term investment aspect of marketing activities, most of management theory focuses on the single sales transaction - and by default new account sales!
IBM had marketing strategies for every situation. As we will see later, its marketing plan in the UK ran to more than a hundred pages - and was still disregarded by all levels of management just as in any other organisation.
Philosophies…IBM did, though, have one overall, and immensely powerful, strategy - which was enshrined in its philosophy of 'Customer Service'. This was the real strategy which drove IBM's marketing (until it lost its meaning in the 1990s). There was never any need to consult any annual plan, all any member of IBM had to do was to ask whether what was proposed offered the customer 'service'. In any case, customer service is - in the event of no more specific philosophy emerging - a good starting point. It reminds all staff of what the organisation's survival depends upon - and it is simple enough to be believable! Too much academic time is given over to formulating complex strategies, and too little to embracing simple philosophies - though persuading all staff to follow these in practice is not simple, and is even more time consuming.
As the 1970s and 1980s progressed, the relationship with the customer became to be seen, by a range of leading organisations, very much as a partnership. This was true (albeit later) of marketing theory in general (then often described as 'relationship marketing'), but in IBM's case it was the practice (which in fact led to the marketing theory - which typically quoted IBM as the supreme example) that mattered. This had long been true of the relationship with its larger customers. IBM had quite large offices, with tens of staff, actually inside its major customers. These IBMers became almost part of the staff of those organisations, and were often seen as another of the internal departments of those organisations! The relationship, therefore, developed almost symbiotically. It was the very opposite of the 'zero-sum', combative relationship which had traditionally been the basis for sales activities of other organisations. This was very much a partnership, with both equal partners sharing in planning their joint futures.
Account Planning…this was most evident in the IBM process of 'Account Planning', which focused on an individual customer (albeit only from the top few accounts which each branch held - even IBM could not afford the process for all its customers) and planned what was needed over the year head (in much the same way that any 'corporate' plan is formulated). The emphasis IBM placed on this is demonstrated by the example of account planning described by Buck Rogers (who would have been regularly involved in this type of activity at the highest level within IBM):
"What IBM calls account planning sessions are conducted annually. Here, both line and customer-support personnel spend from three days to a week reviewing the entire status of an account. With a major customer like General Motors or Citibank, as many as fifty IBM people could be involved. In the case of a small account, the session might include a handful of IBMers...The customer has a well documented action plan which covers the upcoming year as well as the years to come."
Frequently, this process was shared with the customer, so that its personnel took part in the sessions; and became part of the team (and in the process just as committed to the plan!). As such it made a major contribution to the peer-to-peer relationship and to relationship marketing (as it has now become known.
Account Planning in Partnership…the most potent relationship with customers is that of partnership. This is most effectively stimulated by joint 'account planning' of shared activities. Relationship, or partnership, marketing is now widely recognised in marketing theory. Even in actual practice, our research shows, up to two thirds of larger organisations are committed to this type of sales strategy. It is not clear to what extent on the ground implementation matches theory, but 'account planning' - which is often the most effective starting point - is still not widely described in the literature.
Honorary IBMers…it was only some time after I had left IBM that I realised that the process of 'partnership' was actually taken much further - for all IBM's customers - than I, or anyone in IBM (and certainly not those academics who debate the theory of relationship marketing) might have imagined. The process of becoming an IBM customer, before its later troubles, was almost a discrete 'rite of passage' of being accepted into the IBM tribe (and certainly into its culture). The IBM sales professional's first (unwritten) job, once the new customer had signed the order, was to explain the language, and rituals, of IBM. Thus, the new customer was trained directly in the way that he or she should communicate with IBM - not incidentally the other way round, which might have been expected of such a sophisticated sales-force! At the same time he or she was subtly introduced to the IBM culture; so subtly, in fact, that even the IBMers doing it didn't realise - as I have said, I myself did not recognise what was happening until several years later. The process was almost the same as indoctrination into a secret society. In much the same way, the novitiates (the new customers) were immensely flattered by their new status and gladly accepted the culture. The result was that IBM 'grew' its own personnel in the key jobs in its customers - and, in reverse, they grew to have an inside influence on IBM. It was a very powerful, if totally undocumented (and indeed unrecognised) marketing device - which went far beyond customer partnership!
Pseudo Mergers…this process has now been taken up by other organisations, but only by the back door - through the mechanisms of shared ERP (Business-To-Business, B2B, purchasing activities shared between the purchaser - and indeed groups of purchasers - and vendors). As such the computer systems have been integrated, but rarely as yet the people! On the other hand, despite its power, this idea has not even been discussed as part of any serious academic marketing debate.
As we will see in towards the end of this book, IBM has in practice moved a long way from this philosophy. Until then I will leave you with a prophetic paragraph from a previous book, written by me a decade and a half ago years ago, only a year or so after IBM recorded its peak earnings:
"It may be significant that IBM has experienced its first major problems just as it diluted its commitment to 'Customer Service' in order to pursue the goal of 'Lowest Cost Producer'. Its problems with its dealers, where 'Customer Service' is a joke (or at least dealer personnel think it is), illustrate even more graphically the dangers of abandoning this basic philosophy."
IBM can't say that I didn't warn them; and I know they read the book! The problem was that they didn't understand it! As result, the situation rapidly deteriorated.
hits