Key to IBM's cost-cutting program is a growing reliance on small businesses to sell wares

Succeeding in small business

February 17, 1992|By Jane Applegate

With an eye on streamlining and cost-cutting, IBM is relying more and more on small businesses to sell its products.

And both Big Blue and the 5,000 smaller companies it contracts with to sell business computer sytems are benefiting from the change, according to Wirt Cook, assistant general manager for new business marketing at International Business Machines.

Cook and hundreds of "IBMers" recently spent four days in Anaheim, Calif., sharing ideas and information with 2,000 of the company's "business partners" who paid their own way to attend the meeting.

IBM's partners are systems experts, consultants and software developers who contract with the computer giant to represent IBM products and services in 1,200 territories around the nation.

Their growing importance to Big Blue is illustrated by how, in the last three years under Cook's guidance, IBM has reduced its direct sales force by 30 percent.

IBM has also eliminated about 9,500 management jobs in the last

five years as part of a major restructuring and move toward establishing separate, more entrepreneurial business units.

The role of IBM's own employees "is changing from a sales role to a marketing role," Cook said. "Our people ought to be working behind the scenes," in part to support the outside sales force.

The relationship between IBM and even its tiniest business partners benefits both sides.

Small businesses selected to sell IBM products are given an opportunity to cash in on IBM's stellar reputation and enormous marketing clout.

"IBM representatives actually sell our software," said Jennifer Beever, product manager for Woodland Hills, Calif.-based JB Systems Inc., an IBM business partner since 1988. In the past few months, Beever said, sales of JB Systems' Mainsaver software program have really picked up, as a result of IBM's increased efforts. The program keeps track of the proper maintenance schedules for systems and equipment.

But not all business partners are totally happy with their IBM relationship.

"I've got a love-hate relationship with the company," said Ray Bingham, a business partner from Boise, Idaho.

"They always set things up to their economic advantage," Bingham said.

Until a few years ago, IBM paid no sales commissions to Bingham. Policies changed, and today he averages a 15 percent commission on the IBM equipment he sells. Still, he chafes at the requirement that he sell only IBM equipment, because sometimes his clients prefer to buy other brands.

Curious about exactly who its partners were, IBM commissioned a survey conducted by the University of Pennsylvania's Wharton School. According to the survey released at the conference, IBM's average business partner has 38 employees, is service-oriented and highly leveraged. The chief executive earns about $101,000 a year, has been in business an average of 8.6 years and has had a relationship with IBM for about five years.

Inspired by the lean operations and creativity of its small-business partners, IBM is trying to take a more entrepreneurial approach to its own business, Cook said.

"We are trying to think more entrepreneurially," Cook said. "We've got a lot to learn from our business partners."

IBM, which lost $2.8 billion last year, is under pressure to slash personnel and overhead costs.

In 1991, IBM's business partners sold $1.8 billion worth of IBM midrange computers. Overall, IBM's 1991 sales were $65 billion, down from $69 billion in 1990.

Cook surprised more than a few partners by announcing that although IBM intends to work cooperatively with them to serve customers, if necessary, "we may look each other in the eye and compete."

His announcement that he was exploring the possibility of opening IBM franchises across the country -- perhaps making the computer giant's simple logo as familiar as McDonald's golden arches -- sent a nervous murmur through the crowd at the opening session in Anaheim.

"I'm encouraged that franchising could make the most sense," Cook said in an interview later. He emphasized that the franchising concept is still in the very formative stages.

IBM Senior Vice President Terry Lautenbach told the partners that he hopes IBM "is a lot less arrogant these days."

"Today we are playing a team sport," Lautenbach said. "By working with partners, we can enter new markets much faster."

Meanwhile, IBM plans to continue its aggressive sales program in the small-business community.

Last year, 77,000 different small-business owners or employees attended 14,000 free IBM "solution" seminars in the United States.

Those free seminars generated $900 million in follow-up sales of IBM products.

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