Big Blue thinks small

11 Mar 2004

Chain-smoking Italian Massimo Bonciani (pictured) is the IBM veteran given the task of ensuring it aggressively wins the European market share in the small to medium-sized enterprise (SME) sector. Not a particularly hard task for the company that invented the Intel-based PC, the linchpin of any SME technology infrastructure, or so you would think.

But selling to small businesses is no longer just a case of dropping off some boxes and picking up a cheque. Even if it was, IBM lost US$200m on ‘box shifting’ in Europe last year. The opportunity for Big Blue is in providing what the IT industry calls solutions — an integrated bundle of hardware, software, services and finance that give SMEs the kind of information and capabilities that larger organisations have had for years.

During an exclusive interview at IBM’s PartnerWorld event in Las Vegas last week Bonciani’s enthusiasm for the challenge in Europe was obvious.

IBM executives have referred to the company’s drive into the low end of the market as a “must-win battle”. It faces competition from an army of other enterprise technology players attracted by the fact that spending by small businesses is growing 1pc faster than big business.

Firms with fewer than 100 employees — the majority of Irish businesses – are increasing spending even faster. Bonciani describes Ireland as “one of the top performers in Europe last year” with double-digit growth in SME sales across the company’s entire portfolio of products and services.

The potential for further growth is also huge. “In EMEA we are talking about 19 million companies — it is more or less half of the marketplace in terms of gross domestic product and IT spending,” says Bonciani. “Plus it is an interesting part of the marketplace because it is looking for solutions. Most of these companies are very small and they cannot afford to have an IT staff to buy the pieces and build the solutions on their own. They need to buy an end-to-end solution.”

Given the breadth of hardware, software, consulting and financial services the company offers it has the capability to offer these solutions directly. But IBM’s strategy is that SME business will be put through its channel of business partners.

“It is a business that is very local. They want to buy from companies that are close to them and that they can trust,” says Bonciani. “You have to have an ecosystem around them made up of system integrators, local software vendors, resellers, value-added resellers, consultancy groups — and the real challenge is how to put all these players together and to be able to deliver to the customer what they are looking for.”

To tackle that co-ordination problem IBM reorganised its SME sales model in Europe two years ago into 80 territories with a single person taking responsibility for IBM’s own sales force, relationships with the channel and control of the marketing spend. Ireland is broken into two territories — north and south. It is also ensuring that the different types of partners — software developers, hardware distributors and systems integrators — are able to come together as required for different projects, an initiative Bonciani calls ValueNet.

Despite its invention of the PC back in the Eighties, IBM has ceded volume sales in that market to upstarts such as Dell and its credibility with SMEs has to be questioned. It’s something Bonciani acknowledges. “Part of the job is to deliver the message that we are for them as well,” he says. “We have a solution for them, we have a product for them, we are competitive and we are not too expensive.”

In 2002, IBM addressed this by introducing Express versions of its products that are designed to be easy to install and operate by small businesses with appropriate pricing. Bonciani claims this is a first for the IT industry as prior to this everything was either designed for the large enterprise or consumers with nothing in between.

The business model is also being restructured to ensure partners see the value in focusing on SMEs. “There is a tendency for partners to move up to the high end,” says Bonciani. “If you do a deal of US$10m, even if you get 5pc, it’s 5pc of US$10m. If you get 5pc of US$100,000 it’s not the same. This was preventing many partners from investing in SME. We are giving much more money to the partner doing SME business so that they can get the right level of profitability so that they can continue to invest.”

With the largest consultancy division of any IT vendor in the form of IBM Global Services, Bonciani is keen to ensure the SME campaign produces services revenues. “Services is the biggest opportunity in SME,” explains Bonciani. “None of us — us or the partners — has leveraged this opportunity in the right way so far. We need to find the right business model to work with partners in such a way that we are not competing with them. So that we are doing our services and they are doing theirs, and at the end of the day the customer gets what he wants. It is easy to say but difficult to do.”

By John Collins