Sink or swim By Richard Morga

Never count the Little Tramp out. In City Lights, the Chaplin character finally comes up with enough dough for his blind flower girl, while in The Kid, he and Jackie Coogan eventually

“You’ve got to remember,” says a member of the agency team that in 1982 resurrected the Chaplinesque character to front for IBM’s newly launched line of personal computers, “there were people with knives roaming the corridors of Armonk.” Those corridors were in the proud headquarters of International Business Machines Corp. And they were being roamed by even prouder corporate warriors, with metaphorical weapons drawn, hoping against hope for a chance encounter with the Little Tramp. Why? “Because they feared he was taking over their austere, proud logo,” the agency veteran continues. “They bemoaned the PC’s success because they thought people no longer saw IBM as IBM but as Charlie Chaplin’s computer company.”
Never mind that IBM’s first sales forecast for its PC200,000 units over the life of the machine–were eclipsed tenfold in the first full year. Or that Time picked the IBM PC for its “Man of the Year” in 1982. Both had the perverse effect of adding anxiety instead of conferring respectability. Nothing the PC or its Tramp of a spokesman did could sway corporate sensibilities. Even after contributing $4 billion to Big Blue coffers in its third full year, Armonk persisted in viewing the PC as a bothersome sideline. “The bigger it got,” says another member of the launch team, “the more I heard, ‘Yeah, great . . . but it’s still not part of the mainstream. It’s still less than 5% of the company.'”
IBM’s mainframe mentality was such that some contend Armonk undermined the PC division by turning a blind eye to obvious flaws in its PCjr offspring. A research study warning that the jr’s “Chiclet” keyboard would lead to disaster was allegedly buried, while no one outside Boca Raton seemed upset that delays in the PCjr’s 1984 release were fostering impossible expectations. As if that weren’t enough, IBM’s mainframers started infiltrating the facility. They were in control by the time the PS/2 started to roll in 1987, and before long the Little Tramp was out of the limelight and back on the streets.
Lord, Geller, Federico, Einstein, the agency behind the Tramp’s triumph, obliged the division’s changing sensibilities by reuniting the cast of M*A*S*H. The TV medics were hired to display the new line of PCs in what was deemed a more appropriate context–an office setting. “The imagery went from focusing on an individual to a group,” says a member of the ad team. “It wats a not so subtle indicator that IBM thought the machine should operate in a network environment.”
The M*A*S*H campaign wats killed before the contracts with its stars expired. But that didn’t matter as much as Big Blue’s willingness, at long last, to welcome the PC into the IBM family. The division’s mavericks (or “wild ducks”) either flocked to competitors or disappeared into the IBM firmament. No matter. The Big Blue banner flapped proudly again; the mainframe monolith reigned supreme. No one had a clue that, as the stock began its descent from an all-time high of $175 per share, IBM had just won the most costly victory in corporate history.
A lot has happened to the computer industry since the Tramp’s exit, and even more to Big Blue. It was inconceivable, six years ago, that IBM would place a two-page ad in major newspapers with the teaser headline, “And now for something completely different.” The series, which ran during months of tumultuous news and ended with the arrival of IBM’s new chief, became known in some circles as the mea culpa campaign. Its purpose wasn’t to boast but to reassure. Thus its copy was peppered with very unIBM-like admissions. “As recent headlines demonstrate,” another ad conceded, “leadership and change are not always achieved without pain and sacrifice. To be more competitive, we have had to close facilities and reduce staff throughout the company.”
IBM executives, suddenly accessible, have spoken just as candidly. As Jim Reilly, IBM’s general manager of communications services, explains: “You cannot look at IBM from a conventional point of view. The old metaphors simply do not apply.”
Reilly, more than anybody, should know. He has been point man for all domestic advertising, media relations, executive communications, direct marketing, trade shows, public relations and publications since 1988. Before that he helped craft the image of IBM’s PC from Boca Raton, and so he knows the change in attitude a little distance from headquarters can bring. He gets along well with agency people, who describe him, on the record and off, as a good, smart marketing pro.
Talk of Reilly’s departure percolated anew last summer after his top advertising lieutenant, Jim Garrity, jumped to a new marketing post at Compaq. But when asked about his continued fealty to the IBM logo, which is entrusted to his unit, the career IBMer merely shrugs and says, “I’m a loyalist, I guess. I have a sense of duty about seeing the IBM brand through this period of transition.” It’s obvious from his voice and body language that he means it, that he relishes the challenge ahead of him.
As challenges go, it’s hard to imagine one more ironic and more paradoxical. Reilly’s job, bigger than his title suggests, is to lead what many call “a strategic retreat” from IBM’s monolithic image. In specific terms, it is to lead IBM’s new units to marketing autonomy, to get them to establish their own image and at the same time protect the image of corporate IBM. It is to wean new IBM units off the old IBM 1ogo. It is to encourage, in other words, what the old PC division–arm in arm with the Little Tramp–did so well. It is to expedite what the old corporate crowd, fearful its 1ogo was being trampled, abhorred beyond reason. That’s the irony.
The paradox is that the more Reilly succeeds, the less power he wields. “But it’s not about power at all,” he protests. “What we’re really talking about is brand management. (The) vitality of any brand, no matter how strong its roots, will eventually founder on the shoals of neglect. The same is true for the IBM brand, now more than ever a vital asset of the corporation. It will not grow stronger if it is too deeply rooted in the soil of nostalgia, nor can it be sustained by divine right. What we are looking for is the balance point between protecting it while allowing it to grow in strength and stature.”
Here, clearly, is a man who’s as comfortable relinquishing authority as he is exercising it. Even his looks speak to the paradox of his job, not to mention the inherent conflict of an IBM in transition. His bullet head is Big Blue, imposing enough to instill fear, whereas the smile is Baby Blue, innocent and fresh, the sort that lights up his eyes as well as the room. And though partial to IBM-speak, Reilly is not afraid to interrupt himself by saying, ‘Why don’t I shut up for a while.”
Today, though, no one is asking for silence. Today Reilly is explaining IBM’s marketing plan. The plan itself is simple: Big Blue is breaking up into three conceptual groups. Think of them as Big Blue, Big Red and Big Green. And think of the colors as a continuum from IBM dependence to IBM indifference. Those units remaining Blue will see little change. They’ll continue to be owned by IBM, dominated by its logo and marketed only through IBM channels. These include traditional IBM products and services, such as Enterprise Systems, Networking Systems, Application Business Systems, Programming Systems–in other words, the guts of bigbusiness and networked computing. Also staying Blue are such proprietary interests as Personal Systems, Personal Software Products, Advanced Workstations and Technology Products. Because the destinies of these “brands” are so closely bound to that of corporate IBM, their marketing and advertising, when not carried by the corporate brand, will be in tune with the corporate program.
Not so the Red units. Historically known as the Baby Blues, these units were empowered by IBM’s decision in late 1991 to break up into 13 autonomous divisions. The Reds are the ones being weaned, to one degree or another, from the IBM logo. Some may spin off entirely; they’ll all qualify in the eyes of the SEC once they establish three years of auditable books. Until then the trick is to perform what Reilly calls a “push-pull” exercise that begins with the exploitation of the IBM brand and ends with the flowering of a unit’s own identity. In practice, Reilly insists “there are few day-to-day constraints on anyone in this category,” but he and his staff remain diligent about such “mandatories” as worldwide design standards. “We don’t want to be logo cops,” he explains, “but at the same time we don’t want to see the IBM logo showing up in neon orange just because some unit thinks it looks good that way.”
It is here–in the Red zone–that agencies stand to benefit most from the new IBM. Pennant Systems is furthest along, even though it was barely a month ago that it chose an agency for its $5-million account. The IBM Personal Computer Co. quickly followed, assuming control of its advertising though keeping its account at Lintas. (The agency, which handles all IBM products, won the PC business in 1988, after the principals of LGFE left to set up a new shop.) Not all Red units will get an agency, as not all will need one. “Some may simply decide to go to Wells (Rich Greene BDDP) or Lintas for a one-off,” Reilly says. But all can make a case for one. And Reilly hints at least a few of them will. ISSC (Integrated Systems Solutions Corp., information and consulting services): “They’re on such a remarkable run, we’re in the middle of determining just what the communications requirements should be.” Skill Dynamics (instruction and training): “May or may not advertise.” AdStar (maker of storage devices and disk drives): “Could well decide it needs its own agency.”
The Red zone also is where IBM hopes to rekindle entrepreneurial fire. This hope has yet to be acknowledged by the investing public, but a new research report from the Gartner Group suggests such an oversight may prove as foolish in the future as staying on the Big Blue bandwagon too long was in the past. The report assesses Pennant Systems, IBM’s bellwether Red company, which in December 1991 absorbed IBM’s printer product line (excluding the low end, which was sold to Lexmark, a Green company).
“In little more than a year,” the report notes, “IBM’s Pennant Systems has been turned around from a listless and slowly dying organization to a solid model for the prototypical independent IBM operating group . . . . Pennant has built a refocused, re-energized organization that can compete at a much higher level. It regularly competes aggressively in ways the old IBM never could.”
Green zone units are, in practical terms, already so independent as to be beyond IBM’s reach. They’re all joint ventures, or, like Lexmark, only partly owned by IBM. Because Lexmark’s path likely will be followed by some of the more independent units, it’s worth noting that as an experiment Lexmark has exceeded expectations. IBM sold 90% of the low-end printer company in 1991 in a leveraged buyout to an investment firm, which passed 15% ownership on to Lexmark management and employees. The $1.15 billion in debt assumed for the LBO already has been reduced to $700 million, the number of new products in development has doubled, and the new-product cycle has been cut in half. Also cut in half is the number of layers between the chief executive and the assembly line worker: from eight under IBM to four at Lexmark.
Bill Whalley, Lexmark’s director of communications, consolidated the company’s $20-million global advertising budget, which had been at a handful of agencies around the world, at Lintas. The single-agency approach was meant, in large part, to ensure a consistent look to the Lexmark name. The task is sensitive in that Lexmark has access to the IBM 1ogo only through 1995. Whalley already has a four-stage process in place for phasing in the Lexmark 1ogo and for phasing out all references to Big Blue. He’s into stage two now and expects to reach stage three by the end of the year. When asked to account for Lexmark’s success, Whalley thinks a beat and says, “Our approach is to get on with it.”
The success of Pennant Systems and Lexmark speaks to the soundness of the Baby Blue strategy. Each pupil has, without qualification, outstripped the teacher. Then, too, each has had the luxury/of getting on with it. Not so the rest of IBM. The public still sees it, for the most part, as the monolithic Goliath that sent the Little Tramp packing. It considers IBM’s 1992 loss of $4.97 billion–the largest ever by a corporation–as testimony to Big Blue cockiness. The massive job cutbacks (more than 100,000, including the first layoffs in half a century) reinforce the perception of callousness. The $70-billion drop in the market value of IBM stock inspires some sympathy, but only from those who own it.
The media, knowing how seductive a “how far they’ve fallen” story can be, have yet to let up. IBM’s change of leadership, which brought RJR Nabisco chairman Louis Gerstner Jr. to the helm on April Fool’s Day, remains a matter of public debate. So, too, the role assigned to departing ceo John Akers. He was compared to Mikhail Gorbachev, another leader who started moving his crumbling empire in the right direction but then, once the course was set, failed to keep pace. Akers brought a lot of the criticism on himself by pronouncing seven major restructurings-one for each year of his tenure– that only seemed to remove billions from IBM’s previously invincible bottom line. It was the last shakeup that sealed the comparison to the USSR’s Gorby, for that’s when Akers split Big Blue into a “federation” of 13 independent businesses.
Pundits have been attacking IBM’s belated breakup from both sides. How dare IBM abandon its mainframe thrust, its so-called MIS approach to computing? Wasn’t that what made IBM the greatest institution of any industry in the first place? To walk away would signify complete defeat, one no less resounding than that of the former Soviet Union. Interestingly, one mainframe advocate has been Bill Gates, the Microsoft chairman who, more than any other person, is credited with toppling Big Blue. “If there is one core business, it’s maintaining the data centers,” Gates told The New York Times about the advice he gave IBM. “As the computer industry evolves, the data center is going to be of even greater importance in the future.”
Gates’ advice seems self-serving. The richest man in America got that way by developing operating systems for personal computers and software for individuals. He got rich precisely because he left to the likes of Big Blue the business of servicing the data centers of the Fortune 500. But his advice is no more self-serving than that coming from the other camp. Wall Street sees a chance to redeem itself with IBM shareholders (and, in the process, pocket millions in service fees). Since the “federations” are already defined, spin them off, set them free. Some could go private, others public. Wall Street’s argument is that autonomy is like pregnancy–there’s no such thing as a little bit. Its unanswered prayer? That Henry Kravis, the leveraged buyout king himself, would have gotten the job that went to Getsmet. Its great white hope? That Gerstner, who took his orders from Kravis while at R JR Nabisco, will reveal himself to be a Kravis clone.
Managerial consultants and high-tech experts are in the act, too. A whole literature has sprung up to deconstruct IBM’s fall. There’s the hardware/software explanation, the mainframe/microcomputer argument and the vertical/horizontal school. In all three, of course, IBM chose wrong. But the theorists tend to lose sight of the reality that IBM, for all of its faults, is still a $65-billion company that still dominates a $300-billion industry. The acronym IBM remains without peer, and the brand IBM continues to rank among the best known anywhere. From a brand-awareness perspective, anyway, it’s foolish to write off any company with such an edge–even more so in an industry as chaotic as computers.
“What we’re really talking about here is brand management,” Reilly says. The words are barely out of his mouth, however, before he admits IBM’s experience in this area has been limited. “Technological leadership and personal interaction with our customers–that’s the magic we’ve had over the years. That has kept us, for the most part, in the business-to-business environment. Now, with all the changes, we find ourselves closer to the consumer. We’re not quite with the packaged-goods boys, but we’re a lot closer than we were before.”
The admission is testimony to IBM’s new-found candor. More than a few IBM vendors have joked about the company’s historic denial. “They’ve always pretended to be a marketing organization,” one longtime IBM watcher contends, “when in fact they’ve always been the world’s finest sales organization. But even as a sales organization their focus was very narrow–on their 500 largest customers, essentially. It worked, and worked well. It worked so well that, until recently, they never had to listen to the marketplace. The outside world didn’t matter. It could never intrude.”
The numbers bear this out. In the late ’70s, just before then-ceo Frank Cary sent his “wild ducks” to Florida and charged them with coming up with an IBM PC, the company would spend perhaps $2 million a year in measured media. (According to one insider, IBM probably spent more on brochures and other slick “leave behinds” than it did on advertising.) To get an advertisingto-sales ratio at all back then required a calculator that carried at least four digits to the right of the decimal point. Even then, the ratio would be misleading. That’s because what little was spent on media was, more often than not, in support of a tightly targeted new product launch rather than anything resembling an image campaign. Big Blue’s entry into personal computers resuscitated the advertising-to-sales ratio, but not all that much. Its ad spending of about $200 million last year, on sales of $65 billion, translates into an anemic 0.3%. Compared to Apple and others, Big Blue, for all its name recognition, is barely out of the swamp.
Reilly doesn’t apologize for being on a learning curve. In fact, Reilly himself has cut media spending during his tenure, primarily by consolidating 21 divisional campaigns running at the time of his arrival and by organizing them into three distinct tiers: (1) image, for corporate advertising, handled by Wells Rich Greene; (2) brand image, to address all sorts of customer issues while keeping a family look to the campaign, also handled by WRG; and (3) product, often for the trade, handled by Lintas.
Besides, IBM has something better than a media-bought image; it has substance. Or, in Reilly’s words, “We have the intellectual assets, the tribal wisdom that comes from working with the world’s greatest customers and the majesty of our technological base. Now that’s a pretty good deal.” The good news for agencies is that the company must now, as never before, leverage that “deal”–with and without its logo–in paid media. IBM already shored up its free media image as a company adrift with the so-called mea culpa campaign, which not only received high marks from advertising professionals but ran as long as Big Blue dared. “An institution can say ‘Listen to me’ only so much,” Reilly explains, “and certainly we reached that point. We are now moving into the ‘Show me’ phase.”
The theme introduced in the campaign–“There’s never been a better time to do business with IBM”–will reappear at the end of May. It will drive a new national campaign, already being tested by WRG, that relies on testimonials from satisfied customers. Reilly likes the theme for its “activist” posture: “It says, ‘Come on down and let us prove it to you.'” The testimonial approach is hardly new. (“Ah, the old reference sell,” a veteran IBM ad man sighs. “They pull that out every time they’re in a pinch.”) But Reilly contends it’s especially relevant. “A lot of big-name corporations are relying on IBM to get them to market and to make them competitive,” he says. “That’s a very important statement for us to make fight now.”
Even more relevant is IBM’s commitment to fragmenting its authority, its commitment not only to nurturing its Baby Blues but allowing them to assume freewheeling personalities. If nothing else, IBM has shown its commitment to change by going outside–for the first time in its 79 years–for leadership. Asked about the specific choice made by IBM’s beseiged board, Reilly, who at press time had yet to meet his new boss, volunteers: “Inspired. That just might be the right term.”
Reilly’s not the only image handler to think that way. While the 51-year-old Gerstner most recently is known for jerking RJR’s cigarette brands around (first by staying too long with a premium image, and then by beating too deep a retreat into discount territory), his il-year run at American Express is more telling. There he proved his mettle by cloning the Green Card, which was as sacrosanct to that institution as the mainframe was to IBM. “People around here said that if we pushed another card it would only denigrate the Green Card,” Gerstner told ADWEEK in 1986. But there was little choice, he went on, given his basic philosophy: “I don’t believe in shrinking markets.”
The man whom Wall Street hopes is a Kravis-like wheelerdealer is equally comfortable on Madison Avenue. Gerstner not only used image to sell the American Express card (innovative at the time, considering the category’s convenience thrust), but insisted the image be upscale in every way. “If an ad isn’t the best that can be created,” ADWEEK reported in its Marketer of the Year story, “he doesn’t want it. (He) is convinced that even one bad ad can damage a company’s image.” Gerstner’s sensibilities, combined with IBM’s technological prowess, already has the enthusiasm of David Sklaver, WRG’s executive vp on the account. “IBM needs to know what its customers want, not what its engineers want,” he says. “That’s Gerstner’s orientation. Even at R JR, he preferred building brands to dismantling franchises.”
Still, corporate cultures die hard, and, historically, IBM’s has been the most corporate of all. To date, the Pennant Systems review is the only real evidence of just how far the new IBM is willing to let go. Run by advertising and promotion director Clare Thain, who succeeded Garrity, the review got high marks for thoroughness and efficiency. A list of 60 shops was quickly pared to 12 and then, after credentials presentations, to four. Once they were comfortable with the finalists, Thain and Reilly stepped aside. Pennant management picked its first agency on its own, without any input from corporate. “The trick was to avoid any paternalistic tendencies,” Thain says, which, to an unprecedented degree, the review managed to do.
The night before any final presentation is tense, but for Allen Kay, the chairman of Korey, Kay & Partners, having two key presenters out with 102-degree temperatures made it even more so. No matter. Kay, who corounded Korey, Kay a decade ago as the agency for entrepreneurs, is no stranger to playing the entrepreneur himself. By next morning, in chairs originally meant for the absent presenters, there sat cardboard cutouts of the sick pair’s likeness. On the table in front of each lay a box of tissues. As a finishing touch, the tissues were quintessentially Korey, Kay: relevant and disarming, a little hokey but, for that very reason, incredibly brave. “That’s who we are,” Kay says, when asked if the setup wasn’t a bit contrived. “That’s the kind of thing we do.”
It probably helped that, in one of the review’s preceding three rounds, Kay explained his philosophy of “warm calling.” It’s the opposite of cold calling, and it’s the burden, Kay believes, of the advertising behind any launch. “Until your customers experience your product or your service,” he says, “your advertising is your product or your service. Your advertising is your company. Our Job is to let your sales people make warm calls.”
Kay also recalls having confided to his prospect that his agency, which ended 1992 with billings of $63 million, was “as deep as a puddle.” He not only confided but boasted as much. “We’re horizontal,” Kay swears he said to the three-member review team that concluded the pitch. “If we get new business, we go out and clone another unit to serve it instead of adding a vertical layer. We also avoid politics and dismiss as a diversion anything unrelated to our clients’ business.”
Many agencies profess to be as focused, but few impart it with the conviction of Kay. The 47-year-old chairman can be as winsome as Brother Dominic, the Xerox character Kay created while at Needham, Harper & Steers in the 1970s. Or, as he likes to put it, “I’m the father of the Brother.” At other times he’s as temperamental as a cold-garret artist. Colleagues describe Kay as a raw nerve whose compassion is tempered by a native’s gift for shtick. When Kay connects, he connects all the way. The review team obviously liked his cardboard cutouts gag, for they signed up the agency within a few days. Even more telling was the client’s admission, while still a prospect, that the world viewed it as a big, beached whale. “We, on the other hand,” a member of the review team explained, “see ourselves breaking up into a school of sharks.”
It’s a glorious metaphor, Kay says, for any number of reasons. It came from an institution you’d never associate with the agency that created cross-dressing Tracey Ullman ads for Virgin Atlantic Airways and used a bathroom-exiled salesman for a regional Honda campaign. Then, too, it came from a team that has been bit hard by the entrepreneurial bug. “I can tell, because I’ve been bitten by the same critter,” says Kay. Most glorious of all, though, is that it came from IBM’s Pennant Systems, the printer division that’s being touted as the ablest Baby Blue.
“How do I know they’re going to be a great client?” Kay asks. “When was I sure IBM’s a whole different company? When they told us we won, they didn’t say, ‘Here are your clearance badges. Wear them on your next visit.’ They didn’t say, ‘We’ll have security buzz you in when you see us later today.’ They said the best thing any new client can say. They said, ‘Welcome to the family.'”
The Little Tramp, had he been allowed to hang around, would have smiled.
Copyright Adweek L.P. (1993)