Case of Ibm Restructuring Sales Force

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CASE
IBM : Restructuring The Sales Force

In 1993, IBM’s Board of Directors decided the time was right for dramatic action. The once proud company had seen its sales fall from almost $69 billion in 1990 to $64,5 billion in 1992. In the same period, profits plunged from $5,9 billion to a loss of $4,96 billion. In April 1993, the Board hired Louis V. Gerstner, Jr. to serve as its new Chairman and Chief Executive Officer and to turn the company around.

Just three months into the job, Gerstner announced his first major strategic decision. He identified IBM’s sales force as a key source of problems. Observes expected that he would restructure the sales force because it was too large, unwieldy and slow to meet changing customer needs. Gerstner surprised them by announcing that he would postpone his decision. He argued that immediate, radical reform would pose unacceptable risks to customer loyalty. Therefore, he would try to make IBM’s current sales and marketing systems work better.

GETTING INTO TROUBLE
In his introduction to the 1993 IBM Annual Report, Gerstner wrote that IBM’s problems resulted from the company’s failure to keep pace with rapid industry change. He also argued that IBM had been too bureaucratic and preoccupied with its own view of the world. He suggested that the company had been to slow to take new products to market and had missed the higher profit margins associated with introducing computers early in a product life cycle.

IBM’s customers and industry observers identified IBM’s self centered view of the world as the real problem. They argued that the company had stopped listening to customers. It peddled mainframe computers to customers who wanted midrange systems and personal computers. It pushed products when customers wanted solutions. Moreover, IBM’s sales compensation system rewarded mainframe system sales.

Salespeople often insisted that customers buy all their products from IBM and became indignant when a customer used other vendors. They also made “one size fits all” presentations using canned, off the shelf marketing programs.

“ONE FACE TO THE CUSTOMER”
Despite these problems, Gerstner’s initial decision not to make strategic changes to the 40,000 person sales force meant that he would continued to carry out changes that former CEO John Akers had begun. Beginning in 1991, Akers had restructured the sales force using a geographic focus. Senior managers acted as account executives for the top IBM client relationships, including understanding the customer’s company and industry and could call on a pool of regional product specialists and service representatives to satisfy customer needs. The account executives reported to branch managers who reported to “trading area” managers who ultimately reported to regional managers. In foreign countries, 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 many from each of IBM’s product and service areas. Gerstner’s reluctance to make changes probably arose after the company’s top 200 customers told him they did not want to be confused by 20 different IBM salespeople. However, it was also hard for any IBM salesperson to be familiar with the company’s wide range of products and services.

PURSUING THE IDEAL SALES FORCE
Nevertheless, Gerstner began to tinker with IBM’s sales approach. In response to increasing competition, declining sales and changing corporate buying habits, IBM develop “fighter pilots”, sales specialists who tried to push neglected products. Further, Akers had allowed some products lines, like the personal computer and printer divisions to develop their own sales forces.

Then in May 1994, IBM announces a new salesforce structure. The new plan would have account teams bypass the top branch managers, who previously held...
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