IBM Hardware Boss Speeds Up Payments To Partners

IBM's hardware chief has implemented a sweeping overhaul aimed at simplifying partner compensation and account engagement.

Robert Moffat Jr., who took the helm of the $18 billion systems and technology group nearly six months ago, said at the top of the list for changes that take hold effective Jan. 1 is a partner incentive structure that is "radically simplified."

Moffat, who made his mark in IBM overhauling the $90 billion computer giant's arcane supply chain to the tune of billions of dollars in savings, said his aim in simplifying partner compensation and account engagement was to make sure IBM partners can invest in growing their business in 2009, particularly in a difficult IT spending climate.

To that end, Moffat said partners will start earning what were backend rebates or incentives at "dollar one" rather than typically having to hit a 70 percent sales quota clip before getting a pay out. "We're moving a significant amount of money to the front end," he said. In some cases, that means partners who were not seeing pay outs until nine months out will see them at the outset of the year.

"This is the most substantial change we have ever made [to simplify partner compensation]," said Moffat. "It isn't words. It is concrete action. It is very specific things we have done and [partners] will see that clearly."

The changes will allow IBM partners to "invest" in growing sales with the certainty of a return, said Moffat. "That has never existed with the channel," said the 30-year IBM veteran. "Not in my history." Not even IBM's direct sales reps have that kind of sales plan, said Moffat. "My sales force would love to be on an absolute plan," he said. "They are not." In fact, IBM's sales reps will not see significant incentive changes in 2009, he said.

Moffat said IBM's systems and technology group also plans to make an additional $100 million investment in new 2009 global go-to-market strategies.

What's more, IBM is also for the first time publishing a list of 500 direct global accounts so there is no confusion over where IBM will take the lead and where partners will take the lead, said Moffat. Ironically, Moffat could not find a direct account list where IBM was taking the lead when he took the top hardware job. "There was no list," he said.

In addition, Moffat is publishing new principles of engagement that clearly spell out that the channel is the go-to-market lead in the midmarket and what IBM calls SMB (small to midsize business). Finally, Moffat is republishing and reaffirming the business partner charter.

IBM business partners said the changes, particularly the compensation changes, could have a dramatic impact on their ability to navigate a treacherous IT market in 2009.

"What IBM is doing is providing a level of comfort and security to the business partner that those dollars will be there even if 2009 proves to be a difficult year," said Joe Mertens, the president of Sirius Computer Solutions, IBM's largest business partner at $725 million, with headquarters in San Antonio, Texas. "IBM is showing a significant commitment to the channel to help ensure business partner economic models even if next year proves to be difficult."

"Many of the former programs were all or nothing," added Mertens. "This provides a level of consistency and security to the business partner." Sirius itself is planning for a flat sales year next year vs. 2008.

"This is probably one of the biggest set of changes I have seen since the early 1990s when IBM moved from being a predominately direct sales-focused company to starting to embrace partners on a broad-based basis," Mertens said. He predicted the changes will set the stage for a resurgence given that vendors sometimes cut back on channel commitment in an uncertain economy. "IBM realizes the manufacturer that invests in the channel during the downturn is going to gain share throughout the downturn and once the economic situation improves they are really going to gain share at a much more rapid level because the channel will be focused on their product set."

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Rick Kearney, president and CEO of Mainline Infromation Systems, Tallahassee, Fla., which does more than $500 million in annual sales, said IBM's partner advisory council has been asking for an improved compensation structure for years. "This is one of the biggest strides IBM has made in years," he said. "In our industry the difference between mediocrity and success is four or five gross margin points so anything IBM can do to make those gross margin points more predictable and average up to a higher number makes the relationship with IBM much more desirable and increases our willingness to invest."

Kearney said IBM business partners as a group took some "pretty hard hits in 2008." That said, he is confident about 2009 sales prospects. In fact, Mainline is planning to grow sales by 10 percent in 2009 with a strong focus on X Series virtualization sales.

Kearney said he is also excited about IBM's decision to clearly draw the lines as to where partners will play and where IBM direct sales will play. "We have always told IBM: Just tell us where you need us so we don't waste our time investing in accounts whether they be in SMB, midmarket," he said.

In the past, he said, Mainline would sometimes make an investment in account engagement only to see one of IBM's many units or another business partner moving into the account. "That ekes into margins and diminishes the appetite to invest in growth," he said. "By putting forth the principles of engagement and refocusing on the business partner charter that (former IBM CEO Lou) Gerstner set out in the early 1990s it gives us clarity as to where IBM wants us to deploy our resources and where we will see the maximum return on our investment."

Robert Verola, president of Vicom Computer Services, a $118 million IBM premier partner headquartered in Farmingdale, N.Y., said the IBM compensation changes should significantly improve partner cash flow.

"IBM has taken what was complicated and made it the simplest I have seen it in my 20 years of being an IBM partner," Verola said. "This is going to help partners like myself take administrative costs out of running the business. This is something that has been needed for a while and Bob (Moffat) is doing it. He is looking to simplify the way both organizations work together so it is more profitable for both IBM and the partner.

"By reinvesting early in the year and going after new opportunities and new business along with IBM we should be able to at least, if not grow our business, then not shrink," he said. "That's a huge plus in this market."

All of the changes that Moffat is pushing through will give business partners the ability to go after new business in "white space" areas where IBM has not played aggressively in the past, said Verola. That means IBM partners will be able to go after accounts that have been owned by comepttiors like HP, EMC and Sun, said Verola. He said he has never been more optimistic about his future as an IBM business partner.

Moffat is driving "inefficiencies out of the system which in turn should equate to smart execution and more money in business partner's pockets as well as IBM's," said Verola.

Moffat, for his part, said the changes would have been made with or without the economic downturn because of the partner feedback he received once he took the top hardware job. Indeed, IBM's partner compensation structure has been a perennial cause for partner angst. The computer giant has repeatedly made promises to fix compensation issues in the past. But a stern Moffat said this time is different. "We've been the best at saying things, not the best at doing things," he said.

"People will see a different IBM," he promised.

Kearney said the biggest obstacle to growing sales in 2009 will likely be ailing solution provider competitors that are "willing to work for free just to save their ship."

"We have to do a better job articulating the strength of our value proposition and the strength of IBM serves customers better than a low-priced, once-in-a-lifetime offer," said Kearney. He said the worst is yet to come in terms of tight credit.

"Those solution providers that have not saved for a rainy day are going to find it very difficult to get credit lines, ship products, have flexibility or even to make payroll."

Jennifer Hagendorf Follett contributed to this article