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The Conference Board Review® Article
Friend? Foe? Both?
The confusing world of corporate alliances.
By Howard Muson
Dancing With Multiple Partners
Bob Timpson is on his feet, in the war room at IBM's software center in Somers, N.Y., explaining the hierarchy of the company's global business partnerships. Projected on the wall is a pyramid sliced into segments showing three levels of relationship with IBM: member (58,000), advanced (1,000), and, at the top, premier (100).
The pyramid and the maps, charts, and bulleted lists displayed around the room represent IBM's grand strategy for stepping up sales through alliances with independent software vendors (ISVs). Timpson, 55, an ebullient Manhattan native who formerly headed IBM's business in Asia, is leading the charge as general manager for developer relations.
The software industry is known for its many "fruit-fly alliances" with evanescent lifespans. Timpson admits that many of IBM's thousands of relationships with ISVs in the past were simply agreements to "work together as best we can." Most of these companies are still partners, but lower down on the pyramid, entitled to lesser degrees of IBM attention.
In 1999, IBM announced it would no longer try to develop and market its own software solutions for various business sectors from airlines and banking to financial services and pharmaceuticals. By attempting to establish strong applications in various business sectors, Big Blue had succeeded in irritating the vast majority of software developers, who saw it as a competitor.
Instead, Big Blue decided to ally itself with a select group of fast-growing, "premier" companies that are in a position to influence business customers to run their software with IBM mainframe and middleware platforms and call on IBM services.
Since 1999, IBM has formed 70 strategic alliances with software market leaders like SAP, PeopleSoft, Siebel, Retek, and EFA. Counting another 70 "alliance lites," with smaller developers in specific country and regional markets, it now has a total of 140 premier alliances -exceeding the projected 100 atop Bob Timpson's pyramid chart. Together these alliances have generated over $1 billion in new revenue for IBM.
The premier partners pledge to "lead" with IBM, that is, in selling to customers to tout the advantages of running their software with IBM servers, its Db2 database, and e-commerce enablers such as WebSphere. Under tough three-year contracts, partners are committed to increasing the share of their sales running on a list of IBM products and using IBM global services each year.
IBM representatives all over the world go into sales calls arm-in-arm with alliance partners. The partners also benefit from joint marketing campaigns, technical support, and access to vast IBM stores of information about markets, customers, and technological developments.
How does Timpson know if strategic partners are, in fact, "leading with IBM?" By the numbers.
The results from IBM's first-and one of its biggest-alliance show the potential impact of the contractual incentives. Siebel Systems is the world's largest provider of CRM systems for keeping track of a company's customer relationships. Two years ago, before its deal with IBM was signed, Siebel led with Oracle, Sun, and BEA Systems. For every 100 licenses sold by Siebel, 97 of them ran on something other than IBM. As of last December, Timpson says, IBM's share of Siebel sales was 47 percent and climbing.
IBM's new strategic partners are chosen systematically, according to a 40-step process that sometimes takes months. Nominations bubble up from IBM business groups worldwide, who then must take charge of the alliances they propose. Timpson has 20 or so people who broker the deals and line up support personnel around the company. At any one time, no fewer than 30 IBMers may be working at Siebel headquarters in San Mateo, Calif. Almost 5,000 IBM representatives worldwide have received training in Siebel software. Timpson's group also tracks the progress of alliances exhaustively, making sure IBMers and their partners are marching in step.
The new approach to alliances is part of an ongoing transformation of the IBM corporate culture, in which it designs its products to work on standard systems as well as its own and avoids throwing its weight around. Timpson says the company doesn't insist that allies partner exclusively with IBM, which he says "would be unrealistic in today's world." He'll settle for less than 100 percent share of joint sales vis-à-vis IBM rivals. What Timpson does expect is that strategic partners will "tilt" to IBM, and influence customers to buy IBM.
To prevent leaks during negotiations, Timpson recommends closing deals quickly, so there isn't a lot of infighting and intrigue within each organization. IBM worries less about divulging its own secrets to partners who may one day become competitors than about protecting its partners' secrets.
When you have many alliances, says Timpson, a critical question becomes: How do you keep a "Chinese wall" between IBM teams working with partners who may be competitors? "For example, members of the IBM-Siebel team are very close. There's likely to be more friction-and need for Chinese walls-between the IBM person working with Siebel and the IBM person working with a Siebel competitor."
A partnering world requires "a different set of skills, a different mentality," Timpson says. "Dancing with multiple partners is part of the alliance skill set. It's one of the things you have to manage."
Comments? Write a letter to the editor.
Return to the March/April 2002 The Conference Board Review® issue.
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