Evaluating Virginia Rometty's Sales Productivity
The Importance of Sales Productivity to IBM
Sales productivity is the long-term measurement of the increasing or decreasing ability of a corporation to optimize a sell.
Optimizing a sell requires streamlined, well-defined, interlocking, inter-corporate processes that capture and strengthen long-term customer relationships. In IBM’s case, these relationships are front-ended by salesmen. Individuals that downplay the importance of sales productivity have probably spent too long philosophizing on college campuses, pontificating at economic summits in the higher altitudes, or speculating in street stocks – not earning a living by selling.
Sales Productivity should always be considered an abbreviation for Corporate Sales Productivity because a sale cannot be optimized—made, retained, protected, extended and duplicated—without an entire ecosystem focused on the customer: demand generation, end-user design, competitive analysis, packaging, product management, product development, systems testing, integration testing, service, support and yes, sales, to name a few.
When a new deal is closed, it should be the start of a closed-loop, reiterative, customer sales process with the initial sell as the least optimal step in the cycle. It is after the first closed deal that the customer decides to buy more of the same or follow-on products. Each interaction that fortifies a customer’s faith in the benefits of doing business with a company increases the probability of the next sale and shortens follow-on sales cycles. All of this is measured by the term sales productivity.
A long-term drop in revenue productivity is symptomatic: products of too little initial value, non-competitive products, products that are hard to install, products that take too long to demonstrate first value, products that don’t demonstrate new customer benefits year-over-year, unstable products, and companies with poor support structures, inadequately trained people and inefficient processes. These problems reduce the ability of a sales force to do reference selling, sell more of the same, or upsell a complementary product.
At the first sign of a decline in sales productivity, a corporation should initiate thorough evaluations of its people, processes and products. The 20th Century IBM monitored its sales productivity closely. For sixty years following the Great Depression, IBM’s Corporate Sales Productivity never dropped for more than a single year. Watson Sr. after seeing a 30% decline in revenue productivity as World War II ended (and even though he knew the reason why – rehiring and reintegrating the returning servicemen into the business) called the employees’ attention to the matter asking them to correct the situation.
He told them later:
He told them later:
“When I spoke to you the last time, I referred to the fact that in changing from war activities to peacetime activities the man hours per machine in many cases increased. Today I am very happy to announce that you have been gradually reducing the man hours since my last talk and we feel that it will only be a short time now until all man hours per unit will be back to normal.”
Watson Sr., Sales branches and factories conference call, 1946
He was right. In 1947, sales productivity was up 21%. He was only wrong in his expectations of what was “normal” as sales productivity rose by 80% in the following five years.
If revenues fall because of a long-term decline in productivity, it isn’t the time for a chief financial officer to slam the sales organization—as IBM’s CFOs have been doing for decades. Sales productivity reaches way beyond the control of the individual salesman. If the salesman spends her days finding new customers without references, working customer complaints, fighting tooth-and-nail competitive battles, and apologizing for the corporation’s lack of support processes, it is management’s fault, not the salesman’s.
And if a salesman is transparent with a customer about the internal business problems she fights on their behalf, she may have cleared her conscience and padded her ego, but she has also laid the groundwork for longer sales cycles, more competitive evaluations and fewer deals. To a customer, a powerless salesman is indicative of a disorganized or disinterested corporation. In the words of George Ed. Smith, every step of the sales process should inspire a customer to think, “I like the integrity of this company and its salesmen.”
Dropping sales productivity is a terrible long-term trend for IBM because this is a corporation that sells thousands of interlocking products and services to a relatively small number of very large clients.
Virginia Rometty’s Sales Productivity Problem
Unfortunately, a thirteen-percent drop in sales productivity over the last six years indicates that IBM salesmen are working harder to find, retain, upsell and cross-sell their customers since Ginni Rometty took over. There was a miniscule uptick in revenue per employee in 2017, but IBM reduced its headcount by 4%: 414,400 to 397,800. Although revenue per employee may show a short-term rise with a reduction in headcount, if the resourced individuals are in critical positions of value supporting the sales organization (and thereby the customer) service eventually deteriorates taking sales down with it. In the long term, the sales productivity measurement reveals the effect of on-going, indiscriminate resource actions (layoffs).
Virginia M. Rometty’s sales productivity performance has been a me-too extension of a longer-term, revenue productivity problem at the corporation.
IBM’s 21st Century Sales Productivity Problem
This two-decade long chart, with its falling sales productivity, reveals that there is a major problem with IBM’s Corporate Sales Processes.
It isn’t the occasional upward productivity blip that is important but the overall downward trend: an ever-larger number of employees are delivering less and less revenue. If the executive team had just kept the revenue productivity of its employee’s in alignment with inflation, IBM should have produced $144 billion in revenue last year—instead of less than $80 billion (using Bureau of Labor Statistics CPI Inflation Calculator).
Since the divestiture of the x86-Server Division, sales productivity has dropped by fifteen percent. The executive team told analysts the organization wasn’t important to their profit model and released 51,000 employees or 11% of its workforce in 2014. But does the continued drop in sales productivity indicate that they sold an organization that was important to their sales organization’s ability to make, retain, protect, extend and duplicate—optimize—a sale?
Peter E. Greulich is an author, publisher and public speaker.
He has written three books on IBM and three essays on Thomas J. Watson Sr.’s leadership during the Great Depression. His latest book, Think Again!: IBM CAN Maximize Shareholder Value is a sweeping historical look at IBM and its nine chief executives. It puts a spotlight on IBM's current human resource practices in light of IBM’s time-tested, human-relationship achievements.
Think Again! is a different perspective from Louis V. Gerstner’s Who Says Elephants Can’t Dance. Pete's thoughts are always a view from beneath—the perspective of an IBM employee-owner. IBMers with stories to share can reach Pete at IBMers @ mbiconcepts.com.