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    IBM’s System X and the Power of Marketing

    I’ll be looking first at why IBM is having a problem selling its X86 based servers even though, competitively, they appear to be the best solution. I’m starting with the problem portion of this first because it is common for an engineering company to underfund marketing and the result can often be a loss of voice, which is at the core of IBM’s issues. IBM doesn’t have an inferior product—quite the contrary—the company has lost the ability to effectively control opinion about its brand and this is a common problem/mistake for firms in its class.

    Louis Gerstner’s Brilliance

    In my opinion, Louis Gerstner unfairly got most of the credit for the IBM turnaround because, actually, Jerry York, the CFO selected before he was hired, did most of the heavy lifting. One thing Gerstner does deserve credit for, though, is restoring IBM’s brand and market power. He was hired from outside the industry and came in with a unique perspective on marketing and its importance in a turnaround. He realized that perception was more powerful than fact and that he could more quickly change the perception of IBM than anyone could actually fix the company. In fact, IBM looked fixed long before it was fixed.

    To get there, Gerstner created the strongest marketing organization that IBM has ever had and iconic campaigns on broad media that made IBM almost a household word again. Over the time of his leadership, he restored the IBM brand from one that people avoided—it actually had negative value—to one of the most powerful brands in the world.

    At its peak, this organization made IBM the leader in ecommerce, years before the company had a truly viable solution—something that truly upset other engineering companies, like HP, that actually had better solutions. Like Steve Jobs, who was even more expert at the management of perceptions, Gerstner understood that if you could control how people perceived you, you could win in areas where you were outmatched. That was Louis Gerstner’s brilliance.

    Sam Palmisano’s Mistake

    Gerstner’s successor was Sam Palmisano, a very capable but more traditional IBM. Palmisano had clearly never learned the lesson that was taught to marketing people of his (and my) age. This story is iconic and is one of the first lessons I ever learned. It supposedly occurred between the CEO of Wrigley Gum, the leading confectionary company in the late 1800s, and a new college graduate. The graduate asked why Wrigley spent so much money on marketing given his firm was the market leader, and Wrigley responded with a question. He asked the graduate how fast the train they were both sitting in was going. The student answered “around 50 MPH.” Wrigley asked if the student thought that was fast enough. And the student said “Yes.” Wrigley then asked, “Why do they continue to shovel coal into the engine?” His point was that marketing is what enabled the company to stay in the lead.

    This is somewhat ironic, given that Wrigley, largely after a massive reduction in marketing, is mostly not remembered today.

    Palmisano dismantled IBM’s massive marketing program, and the unique power that Gerstner created was largely eliminated during the process. As a result, IBM doesn’t have the ability to fully defend its image, which is why it is being pummeled in the market for a non-event.

    The rumor of the Lenovo sale didn’t prove to be true, and no changes to IBM’s ability to execute occurred, yet it is clearly taking a beating in the market regardless of how good its solution is.

    Also read: The Struggle to Manage the Complexity of Modern IT

    The Recurring Mistake

    Engineering-driven firms often don’t get the importance of marketing, and that can be an incredibly costly mistake. I want to take special notice of this, because it is also a common mistake. Microsoft lost control of its image in the years after Windows 95 as a result of dismantling the marketing team that launched that very successful product. After that, Apple ate the company alive. Apple apparently lost much of this same skill as people departed after Steve Jobs’ death, and Samsung continues to take it apart as a result—with Microsoft’s unrelated help. (It is interesting to note that Microsoft hired Kathleen Hall to create a capability similar to what Gerstner did, and she has been impressively effective).

    European Commission Requirements

    The European Commission is the organization that monitors the behavior of companies like IBM and helps ensure competitiveness in the EU. This means their choices are closely watched and, particularly in this case, verified prior to the bid being accepted to make sure that the claims that have been made on reliability, scalability, RAS and expansion are accurate. After hearing IBM had won this deal, I did some research on just what the bid review contained and was impressed with the thoroughness of the approach.

    The analysis split 50 percent on price and 50 percent on performance, and it included a functional, in-depth review of the ecological, environmental, ergonomic and conservation aspects of the offering. This included recycling, package and power consumption. On the performance review, they looked at general and specific performance benchmarks and many of the tests were made on premise.

    The financial analysis looked at total system cost (including service, maintenance and the cost for the required Service Level Agreements). They reviewed the historic quality of the services and the final TCO estimate included all of these plus power-consumption estimates at scale based on the testing and known loading for the solution.

    It is interesting to note that IBM was ranked number one in all of the criteria, which supports my assumption that it was the best solution and the best value by a significant margin. Generally, these two conclusions tend to be mutually exclusive; the best solution from a performance standpoint isn’t usually the best value because of a high relative cost. In this case, IBM had the best performance and the best value solution. For the most part, these were high-end X5 flex systems.

    Importance

    While advocacy is always important to any vendor, a government regulatory body tends to use the most rigorous of testing methodology, largely because a problem with bidding is far more embarrassing for an organization that is set up to catch vendors who misbehave. Any selection of a vendor that was challenged—and bids like this are commonly challenged—where the challenge was won, would cost some people their jobs and certainly their stature in the government community. This is why solutions like this are tested rigorously.

    A bid won in this category is considered a much higher win, because it is less likely that the vendor gamed the system or bought the account, because it would be too vulnerable to audit, not to mention it would be a government-career suicide. The European Commission’s choice, whatever it is, is more indicative of product quality than a similar bid won in the private sector. And after seeing the Affordable Care Act debacle, it’s likely better than the U.S. methodology, too.

    IT Advantages

    This creates a rather unique opportunity for IT in that IBM appears to have one of the best solutions, based on this bid win. And the company is being hit hard competitively, so it is also likely aggressively bidding against the major players. This means that if you manage your bid process well, you could get a top-notch solution for an incredible price for both the initial solution and the maintenance—if you play your cards right.

    The European Commission bid win also showcases the benefit of a strong, well-funded marketing department in that we can know the cost of IBM not having one. IBM will have to buy the business it should have been able to win on merit alone, and while that is a huge benefit to you, it is clearly not cost optimal for IBM. A strong, well-funded, marketing organization is important and having the best product alone doesn’t guarantee success. In this case, it can, however, get your IT department one hell of a deal.

    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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