It's not going too far to say that 2009 has been a watershed year for IBM hardware partners. More than a few of them have seen a significant drop in their sales and profits and have actively sought out IBM competitors. Not surprising given the 21 percent sales decline in IBM's Systems &Technology Group sales in the first nine months of this year to $11 billion compared with $13.8 billion in the year ago period.
The decision to embrace a competing vendor used to be viewed as heresy in the IBM partner community. Not anymore. That has been a tough pill to swallow for those once-proud partners, who bled IBM Blue, that decided to make that move. But they felt they had no choice given the state of the IBM channel. Call it the Season of the Witch.
That is the stormy channel environment that Rod Adkins, a highly respected 28-year IBM veteran, is stepping into as he takes over as Senior Vice President of IBM's $19 billion Systems & Technology Group.
Adkins' appointment came after IBM informed employees on Friday October 30 in a missive on its corporate intranet that Robert Moffat Jr., who had headed up the IBM hardware business before he was arrested in the largest alleged hedge fund insider trading case in high tech history, is no longer an employee of the company. Adkins had been named on October 19 as a temporary replacement for Moffat.
Now, to the cheers of IBM partners, Adkins, viewed as a channel advocate, is officially in the hardware driver's seat. IBM solution provider partners say they are hopeful that Adkins will address channel shortcomings that marked Moffat's 14 month tenure.
The biggest issue is what some IBM partners call a change in IBM's complex direct sales channel compensation focused on profit that effectively incented IBM's direct sales force to take some deals direct.
But there is more than that. At the heart of that direct sales profit compensation change is what one top IBM partner calls a shift that views the hardware channel as a cost center that needs to be cut rather than a sales ally that is on equal footing with the IBM direct sales force. Moffat, a one-time close confidant of IBM Chairman Sam Palmisano, was viewed as Palmisano's go-to guy in tough cost-cutting situations. Remember it was Moffat, who sold off IBM's PC business and IBM's printer business and reengineered the IBM supply chain to save the company billions of dollars.
There was certainly a lot of fear, uncertainty and doubt in the hardware partner community with regard to what direction Moffat would take IBM's hardware partners. More than once, Moffat was forced to deny that IBM would exit the hardware business. Moffat did cut Synnex as a distributor of IBM hardware and software. "Frankly, channel participation rates declined under Moffat," said one IBM solution provider partner, who is considering bringing on a competing vendor. "A lot of people thought he was brought in to do cost-cutting in TSG."
Part of the issue for IBM's hardware partners is the service giant's refusal to talk hardware for fear that it will drive down IBM's stock price. "You might want to position yourself on Wall Street as a software and services company, but the reality is operating systems are still a big, big piece of the software number, and all that is hardware driven," said one IBM partner. "And a large portion of services is typically based on integrating hardware and managing hardware."
To his credit, partners say that Adkins has already reached out to them. "That's a good sign of commitment," said Rick Hamada, chief operating officer for Avnet Inc., an IBM hardware distributor based in Tempe, Arizona, who is looking forward to a mid-November sit-down with Adkins. "I am very happy about Avnet and IBM getting together to talk about how we can succeed for 2010."
That optimistic view is shared by a number of IBM partners who are hopeful that Adkins will make some much needed channel changes for 2010. The danger, of course, is that Adkins might not take on those tough IBM hardware channel issues and things could get worse.
"IBM is losing mind share as [IBM partners] bring on other manufacturers' products," said one IBM partner. "They need to fix this."
I think Steve Burke raises some very interesting issues in his posting on Rod Adkins succeeding Bob Moffat. There are issues about Moffat's strategy and style in leading STG vs. what Rod's will be. Partners will need an understanding of that during a period in which IBM has made gains at the very high end of the server business but not necessarily in the sweet spot of the market which was a discussion point at XChange back in August.
Rod has a long history in the channel working with partners selling midrange servers but a great deal has changed since he last engaged deeply with partners and there is some uncertainity right now. Since this is a blog and commentary area the issue is for IBM to put Rod out in front of partners, the press like CRN, and others so he can start to clarify his message and understand the big issues at work here.
IBM is not doubt reeling from the Moffat involvement in the insider trading scandal and understandably so but this is an issue about taking leadership in the partner community and clearly communicating. Most recently Moffat appeared at our XChange conference to walk partners through IBM's hardware strategy and help them understand why they are an important part of that strategy at a time when software and services are playing a much more important role.He did so to look partners in the eye and gain their trust. It was a smart move and should not be forgotten because he is accused of breaking insider trading laws.
Few companies, including IBM, have ever been in a situation like this before and there are no doubt all sorts of legal and bureaucratic issues to deal with. So this is a test of how IBM responds and deals with partners and the uncertainity that change brings. Within IBM's hardware organization rests IBM's Global Partnerworld organization so this is an important management change for partners to understand and cope with. Moffat was certainly a powerful leader committed to the channel and focused on supply chain efficiencies and growing IBM's share vs. the competitive set. Most recently the hardware group changed partner incentives to increase cash flow.
Adkins is thrown into a difficult situation but one in which external and internal communication are of paramount concern Partners need to know he is up to the challenge. If Adkins navigates this successfully he will be remembered as one of the most powerful executives of the past decade.