The European technology industry is going through a period of introspection. What caused the high-tech recession? What can be done to turn things around?
Many blame the wider economic downturn for the buying drought; the bursting of the telecommunications bubble; the aftermath of September 11. But Charles Ward has another theory, one that might be harder for some executives to swallow: "If the IT industry had better sales people it could sell itself out of the recession."
He should know. As marketing director of the Computer Software and Services Association (CSSA), a UK trade group with 3,000 members, he is not only well-versed in IT sales and marketing issues but also has the ears of influential people in the industry. And in spring 2002 he worked on a major industry benchmarking survey with Julia Vale, software industry manager for management consultancy KPMG, that has triggered a fresh bout of soul searching among technology bosses.
Ward surveyed dozens of executives at software and services vendors during the first few weeks of 2002. What he found was an "overwhelming" sense of dissatisfaction with the sales process. "A disturbingly wide sales gap is developing between what clients want and what businesses are trying to give them," the report, Software and Services in Focus, concludes. "A paradigm shift is urgently needed if the sector is to sell itself out of the low growth rates. The industry could be a lot more successful if it were to market and sell itself better."
Ward is not the only one who thinks the technology industry needs to quit moaning and get selling. "Companies must, must sell themselves out of recession, cutting is not the solution," said Jim Kelly, CEO of customer relationship management software vendor Chordiant, at a recent conference on the sales recession.
But many of the current generation of salespeople, having enjoyed nearly a decade of escalating IT spending, just don't know how to win business in a hostile climate.
In the US, corporate investment in IT equipment and software doubled from $243 billion (€263bn) in 1995 to $510 billion (€551bn) in 1999. By 2000, companies were spending more than 5% of revenue on IT, double the amount of a few years earlier. Leading-edge organisations were spending even more – twice this amount, according to analyst Gartner: the equivalent of some $17,500 (€18,914) per employee. Now spending has almost skidded to a halt – and sales people suddenly have to work hard to sell again.
Hunger and aggression
In the 1970s and 1980s, technology companies actively sought out salespeople that were much more aggressive and forthright in their pursuit of business. For example, at computer supplier Wang, sales directors used to take prospective recruits to the pub and then 'accidentally' drop a five-pound note at their feet. If the salesman picked it up and gave it back, they didn't get the job. If he picked it up and bought a round of drinks, it also counted against him. If he picked it up and kept quiet, he was in.
Many of the most successful software companies have undoubtedly fostered an uncompromising approach to sales. For example, both Microsoft and Oracle came to dominate their respective industries through aggressive sales and marketing tactics, rather than through the superior functionality of their software.
For Larry Ellison, CEO of Oracle, that has always meant not only winning the most customers, but also killing off its rivals. Ellison, for example, is said to regularly cite the Genghis Khan line: "It is not enough that we win; all others must lose." One anonymous industry figure quoted in Time magazine says: "In every private conversation I've had with Larry over the past 15 or 20 years, the metaphors when he's speaking of competitors are always violent. He'll say: 'This is the quarter we put a knife in their chest', or, 'The life will be choked out of them.' The metaphors don't come from chess, and they don't come from the Bible. He sees this as personal combat."
In line with that ethos, Oracle salespeople have traditionally been set annual growth targets of 100%, earning extra bonuses for getting their software installed over named rivals'.
Few European companies have been able to engender the same level of fortitude. Industry veteran Jonathan Simnett, vice chairman of Brodeur Worldwide, a public relations agency whose clients include IBM and Cable & Wireless, says that part of the reason is that European technology businesses tend to be founded by engineers, rather than sales people. Too many are driven, he says, by a superior or even arrogant assumption that if you build it, they will come – the so-called Field of Dreams principle of selling.
Moreover, he says, European companies remain more interested in funding research and development than sales and marketing. That must change if companies are to win business in the current climate, say analysts. They need to be prepared to be much more ruthless than in recent years.
Revelling in ROI
No one is suggesting that brute force alone will be enough. Customers who, through ignorance, once implicitly trusted IT sales professionals are now more knowledgeable about technology and increasingly want business-led solutions that bring a true return on investment, says Ward. But, he argues: "Software and services companies have not adapted to this shift in demand."
The solution? "A new sales strategy, supported by well-trained staff, is definitely overdue. However this need for multi-skilled, business-focused sales teams comes at a time when there are fewer well-trained sales people on the market." (See What the KPMG/CSSA report said for a fuller analysis of the report's findings.)
Today, IT sales professionals receive a mere seven days' training each year, according to the KPMG/CSSA report. That compares very poorly with the standards of the 1970s and 1980s. Then, sales professionals came through the system of so-called 'sales universities' run by the big mainframe vendors such as IBM, Amdahl, Bull, ICL and Unisys. New employees spent the equivalent of three months out of every year learning sales techniques and swapping contacts and experiences with colleagues.
The upshot, says Ken Olisa, chairman and CEO of venture marketing company Interregnum, is that too many sales people today try to sell products for their features and functionality, rather than for their business benefits – a sales technique dubbed 'feature puke' by its detractors.
"European IT companies need to take their marketing more seriously and not get too excited by what the technology can actually do," he says. "Sales efforts [in Europe] are generally feature-puke led rather than business-process led."
Instead, sales and marketing executives should use compelling business reasons to persuade cash-strapped chief information officers to invest in their products. Sales representatives should be more versed in return on investment and total cost of ownership, and less in the actual content of the software code.
That also requires greater analysis of the buying and selling process, say experts. According to the KPMG/CSSA survey, just 5% of technology companies' marketing budgets goes on market research, but without proper market research they risk wasting their time by targeting the wrong customers. According to a study by Solution Selling, which offers IT sales courses in California, on average only 20% of companies that hear presentations from software sales representatives are looking to buy something; the remaining 80% are window-shopping.
The female factor
One way to boost sales is to employ more women in customer-facing roles. Fewer than one-in-four IT sales people are female, according to KPMG. Yet advocates of recruiting women to IT insist there is considerable anecdotal evidence suggesting that women make more effective sales people than men.
Some vendors, particularly in the US, seem to understand this better than others. A page-one New York Times article in 2001, which catalogued a series of allegations about Computer Associates (CA), the controversial systems management software giant, contained claims from one source that CA would habitually send its youngest, most attractive sales women to meet existing clients, hoping to 'charm' them into signing up for software upgrades and extended maintenance contracts. CA, however, denies that it ever had such a policy.
Recruiting the right people is not only a gender issue. Brodeur's Simnett says that the image problem of the profession in general, combined with misconceptions about the role of IT sales people, is turning away the brightest minds.
He has taken to speaking at several UK universities, explaining to Britain's young and gifted how IT sales and marketing is not only a worthy profession but also does not demand technically minded applicants. "The best brains do not go into marketing in the technology industry," he sighs. "Many students, particularly those taking arts degrees, turn their noses up at IT sales jobs. They believe that to work in the technology business you have to be able to program a computer. That is ridiculous. It assumes that all sales and marketing people in the car industry know how to build an engine."
The salaries on offer may help his case. The average salary in the UK for IT sales staff is £84,000 (€137,130), according to KPMG, as opposed to £38,700 (€63,177) for IT technical staff.
The answers may be self-evident, but the consensus of opinion is that if IT companies want to sell more, the industry needs to increase its investment in training, implement modern IT sales techniques and use more market research. "The IT industry has enjoyed a long period of strong demand for its products," says the CSSA's Ward, "and this has made life easier for sales people than in other sectors." But it is a seller's market no more.
There is an added problem. The huge technology oversell of recent years means that many companies simply do not have the capacity to absorb more technology. According to figures from the US Federal Reserve Board, technology utilisation in the US was above 90% at the start of the 1970s. In the mid 1970s and again in the early 1980s, utilisation fell to below 75%. This resulted in tech industry recessions.
Today technology utilisation is down around the 60% mark, its lowest point ever. That is why, as John Chambers, CEO of Cisco argues, a lot of companies have "gone on strike", refusing to add to their technology arsenal.
Technology providers in both the US and Europe are reporting that customers have almost completely lost interest in sales stories based on increasing revenues and market opportunity. Ultimately, only those companies that have a compelling sales story and whose products offer genuine return on investment can expect to prosper.