Hewlett-Packard's Global Account Management

Hewlett-Packard, one of the Silicon Valley pioneers, was one of the first B2B companies to global account management structure for their major multinational cus- tomers. This case shows the pros and cons of such a structure, and demonstrates the kind of organizational ef- fort needed to create it.

In a November 1989 interview, John Young, president and chief executive officer, Hewlett-Packard, summa- rized the situation in the computer and electronics indus- try that was the mainstay of this $11.9 billion multinational corporation:

"Customers no longer want a box, they want solutions."

In Young's view, the industry was moving from an era in which the product defined the solution, to one in which the customer defined the solution. A pure techno-

logical focus was no longer appropriate as customers were demanding more standardization and support. In addition, industry growth was slowing in the United States, which represented just less than half of the global market for computers and electronics. Challenges were particularly evident in H-P's largest division, the com- puter systems organization (CSO).

One CSO executive, Greg Mihran, manager, industry marketing, and a 14-year H-P veteran, summarized H-P's position as follows:

"H-P has a long history of success with a product- oriented, country-based sales and support organization. While considerable progress had been made during the past two years toward an account focus, ongoing efforts to adjust the balance between account and geographic

strategies continued. It seemed evident, however, that the right answer was somewhere in between these two ex- tremes. Both strategies must coexist to ensure success and respond to the complex mix of country and global account priorities."

Company Background

H-P, incorporated in 1947 as successor to a partnership formed in 1939, designed, manufactured, and serviced electronic products and systems for measurements and computation. The company was committed to a set of core values: leadership in technology, quality and cus- tomer service, financial stability, and uncompromising in- tegrity in all business dealings. H-P sold nearly all of its products to businesses, research institutes, and educa- tional and health care institutions and was one of the United States' largest exporters. H-P's basic business pur- pose was to provide the capabilities and support needed to help customers worldwide improve their personal and business effectiveness. In 1990, the company employed over 92,000 people and operated product divisions in 53 cities and 19 countries, with over 600 sales and support offices in 110 countries, and generated revenues of $13.2 billion. In 1990, net revenue grew by 11 percent following a 21 percent increase in 1989. In 1990, H-P experienced a slower net revenue growth in most of its product areas and declines in operating profit and net earnings when com- pared to amounts reported in 1989. H-P maintained man- ufacturing plants, research and development facilities, warehouses, and administrative offices in the United States, Canada, West Germany, France, Spain, Italy, Switzerland, the Netherlands, Australia, Singapore, China, Japan, Hong Kong, Malaysia, Mexico, and Brazil. H-P had a strong market presence in Europe with net revenue for European operations equal to approximately 5 billion dollars. H-P's market participation was weaker in Latin America but strong in Asia. The geographic distrib- ution of H-P's orders was as follows: 46 percentUnited States; 35 percentEurope; and 19 percentAsia Pacific (includes Latin America).

Industry Trends

In 1990 the computer industry was moving away from a geographic focus to more of a customer focus with an emphasis on global strategy. As customers demanded more standardization, hardware producers were being driven into complex and occasionally secret alliances. For example, AT&T, creator and owner of the Unix op- erating system, teamed up with Sun Microsystems to promote its standard. On the other side of the fence, IBM, Digital Equipment, and a few others were trying to promote another version of Unix, possibly the one used by Steve Jobs, Apple Computer founder, in his new workstation. Thesetwogroupsthenbeganto discuss working together on a common version of the operating system.

In addition, customers also wanted to work with vendors that provided consistent service and support across geographic regions and industries. Multinational cus- tomers demanded that vendors be strategic partners who could demonstrate an understanding of specific interna- tional needs and deploy solutions to these needs on a global basis. H-P executives increasingly saw the need for "one platform common across vendors and across many industries." While competitors appeared to be in- terested in taking a more global approach to the busi- ness, one of H-P's senior executives indicated that "the industry looked at 'global' as a buzzword." Many at H-P saw the need to integrate the current geographic ap- proach with a global strategy.

Alternative sales channels such as dealers, two-tier suppliers, systems integrators, or resellers had become prevalent throughout the industry. Thus, companies in the industry needed to identify strategies to maximize these alternative channels and the opportunities presented by them. In H-P's case, the organization needed to couple industry/customer focus with an all-channel strategy as well as develop ways to measure and develop alternative channels.

Account Management Program

In 1990, H-P's account and sales management program was product focused, organized on geographic lines, and supported approximately one thousand accounts world- wide. Under this structure, sales responsibility did not extend beyond geographic boundaries and according to one executive, the amount of business tended to shift up and down from year to year.

The organization structure consisted of four levels. First, there were field operations managers for each of the three worldwide sectors: Europe, Asia Pacific, and the Americas. Second, each sector was divided by countries and/or regions, and managers were identified for each country or region. The number of country/region man- agers was a function of country size and business. For ex- ample, the United States was divided into four regions: the West, South, Midwest, and East. Each country or re- gion manager reported to the field operations manager. Third, the regions or countries, depending on size, were further divided into areas. Area sales managers reported to the country or region managers. Fourth, district sales and account managers reported to the area sales managers. Just as area sales manager responsibility did not extend beyond the area geographic lines, district manager responsibility did not extend beyond district lines. District managers were designated as the major account managers for the largest accounts in their districts but were also responsible for the entire geographic area. In addition, there were approximately eight sales representatives per district

manager. Distinct geographic boundaries existed within this framework such that sales activity did not cross boundaries. Minimal interaction occurred between regions and districts and there were no mechanisms in the system to encourage interaction across areas, districts, or regions. In addition to the field operations sales and account structure, headquarters account managers were located at corporate headquarters. Headquarters account managers reported to the product divisions while the rest of the sales staff reported to the geographic operations. Account managers utilized these contacts to gather information and determine if H-P had sufficient resources to support their customers. One of the executives interviewed indi- cated that since the headquarters account managers re- ported directly to the different product divisions they did not always act in the interests of the district or region managers. As a result, many of the geographic account managers were not sure if they could trust or would ben- efit from the use of a headquarters account manager.

Performance Measures

Under the geographic structure, performance measures were based on product quotas. Managers focused on meeting product line targets within their designated re- gion, area, or district. For many years H-P had set sales quotas and tracked performance by product lines solely within geographies. This was an important metric to quantify product performance but lacked clear differenti- ation of account quotas and expenses. Expenses and ac- count quotas were reported and managed together within all other product quotas and costs in each country and re- gion. As a result, within the product focus structure, it was difficult to differentiate individual account perfor- mance at any level and there was a lack of a complete measure of global account performance. In 1990, when H-P began to shift more to a customer focus, one senior executive indicated that it was very difficult to get the sales team to shift to an account focus while they still were required to satisfy product line targets.

The organization structure and the performance mea-

sures did not facilitate the development of new accounts outside regional boundaries. Area and district managers had no incentive to provide information to other district or area sales managers regarding new account develop- ment, as their primary focus was meeting product quotas in their own designated region or district. In many ways, different regions, areas, and districts competed with each other. Ken Fairbanks, district sales manager, indicated that if managers wanted to help develop business for a customer in another region, the manager was forced to use a "tin cup approach." For example, if an account manager for the Northwest region of the United States needed to coordinate activities for his customer in an- other region in the United States, he or she had to provide an incentive to the account manager in the other region if they wanted any assistance. Mr. Fairbanks indicated that he had to approach managers in other regions with a "tin cup" or "beg" for support. Managers often spent consid- erable amounts of time trying to convince managers in other regions of the benefits that would result from their support. Managers in different regions had no incentive to coordinate activities of major customers across regions because their performance was measured only on prod- uct quotas for their region and was not differentiated for particular major accounts. Under this system new ac- count development was lacking and product sales fluctu- ated from year to year.

Global Account Management

In January 1991, Franz Nawratil, vice president and man- ager, worldwide marketing and sales, computer systems organization (CSO), Hewlett-Packard, received approval to implement a pilot program based on a proposal for global account management. At this time, Mr. Nawratil asked Alan Nonnenberg, director of sales, Asia-Pacific, to help head the pilot program and appointed Greg Mihran as the new director of sales, global account man- agement, CSO.

The program proposal envisioned a critical role for the global account manager (GAM). Accordingly, the pilot program focused on providing the GAM with the author- ity, power, and tools to manage the global account. GAMs were responsible for defining the global account sales and support needs and budget, developing an ac- count plan, and identifying the goals and objectives for the account and the strategies and resources necessary to achieve those goals and objectives.

Trying to define the GAM requirements more com- pletely, Mr. Nawratil asked Greg Mihran to draft a typical position description for a GAM. After some discussions a prototype position description was developed:

GAM Desired Skills: Five years hardware and software sales experience minimum. Experience selling one of the following required: FPM, ERP, CRM, SCN, Security, Inte- gration/Middleware, Business Intelligence, Data Analysis Applications, Database Systems, and/or data warehousing and mining solutions. Background in accounting, finance, and corporate finance solutions required.

The Pilot Program

The first step of the pilot program involved selection of the global accounts based on various criteria. Good exec- utive relationships between the customer and H-P were required to exist and H-P had to hold a strong defensible position in the account. The global customer needed to be interested in developing a global account program and to also be demanding more global consistency and sup- port than were other customers. From a financial per- spective, global accounts were required to havegreater

than $10 million in current annual sales and support. The first six major global accounts identified were four American companiesAT&T, Ford, General Motors, and General Electric; one Canadian companyNorthern Telecom; and one European companyUnilever. Within five of the six accounts, 5-10 percent of each customer's total spending on information technology was allocated to H-P. In the sixth account, H-P was heavily installed with 70 percent of that customer's business.

The dual structure defined in the proposal empowered the GAM to manage his or her sales team to meet the global needs of the customer. The GAM jointly reported to the country manager of the customer's HQ country and to the field operations manager, but was empowered to make decisions independent of geography. In addition, the GAMs were evaluated on worldwide performance of a single account while a country manager was evaluated on sales performance in a single geography.

To facilitate visibility of the program, a quarterly re- port, the Global Account Profile, documented by the headquarters account managers (HAMs), summarized the status of the global accounts. This report diffused in- formation about the global accounts throughout the en- tire organization and worked as an internal awareness document. The Global Accounts Profile was not a prob- lem-solving tool but informed executives of the opportu- nities and strategic issues related to each global account. It provided the GAMs with a vehicle to communicate the status of the account to the rest of the organization. In ad- dition, GAMs held quarterly meetings to bring district sales managers together to share best practices.

The Ham Program

The headquarters account management (HAM) program was redefined during the first year of the pilot program and provided a point of contact at H-P headquarters for the customer. The HAMs represented the global account at headquarters, assumed global responsibility and own- ership, and were the link between account-assigned exec- utives and the global account. In this role, HAMs were seen as an investment by the global sales team to maxi- mize success of the account. HAMs were selected during the development of the pilot program and two were iden- tified by the end of fiscal 1991. Mr. Mihran, Mr. Nawratil, and Mr. Nonnenberg all agreed that sales and field experience was a requirement for all HAMs.

The HAMs worked closely with the GAMs to address

technical, pricing, and strategy issues and basically to do whatever was necessary to support the customer. While the HAMs' role was to provide a point of contact at headquarters, they also traveled to customer locations about 30-50 percent of the time depending on the ac- count. Mr. Mihran indicated that initially they did not re- alize how important it was to keep the HAMs together. ButhesoonfoundthatlocatingtheHAMsat H-P's

headquarters facilitated the sharing of knowledge as well as the development of an important network of re- sources across industries.

While representing the GAM at H-P headquarters, HAMs also supported business development opportunities presented by the global account and shared H-P best prac- tices with the global account. One headquarters account manager, Teresa Clock, emphasized that the program pro- vided business development opportunities that otherwise might have been missed. For example, Ms. Clock devel- oped an alliance with a third party in Singapore to support the global account with Shell. This would not have been possible without the global account program structure be- cause the country managers previously had no incentive to extend sales operations outside their region. Another HAM, Ann Johnson, on the Northern Telecom account, believed that a main benefit of the program was the sharing of best practices with the customer. In this case, Northern Tele- com's operations were organized similarly to H-P's, and the sharing of best practices provided value-added support to the global account.

Internal Acceptance of HAMs

HAMs as well as the entire sales staff for each global ac- count were funded by the global account. During the pi- lot program, not all accounts funded HAMs and several GAMs were skeptical of the value added by the HAMs' role. Initially many GAMs hesitated to invest in a HAM because of negative experiences with headquarters ac- count managers and sales personnel prior to the GAM program. Within the previous account management orga- nization, headquarters account managers had reported di- rectly to individual product divisions and did not always represent the best interests of the major accounts they supported. As the global account program evolved, most GAMs came to see the value added by the HAMs' role in the new structure, and began utilizing HAMs where funding allowed. HAMs' value-added activities included the development of new business opportunities, sharing of best practices, account visibility at headquarters, and being the eyes and ears of the GAM. Some customers began to recognize the value of having a presence at H-P headquarters.

Other product divisions within H-P also questioned

the HAMs' role. Many product division managers ini- tially saw the HAMs as just another layer of management to deal with. Even after the pilot program, many product marketing managers were still not thinking along global lines. But most changed their view once the organization began to better understand the GAM program and the HAMs' role, and product marketing managers began to change their internal approach, emphasizing a more global strategy.

In fiscal 1992, 50 percent of the global accounts funded half a HAM, 20 percent funded a full HAM, and

30 percent did not use a HAM. In contrast, by fiscal 1993, 57 percent of GAMs funded half a HAM while 31 percent funded a full HAM.

Country Reactions to the GAMS

Within the first year, many managers at H-P saw the pro- gram as a fad and this presented a large challenge to the GAM team. But by 1993, approximately 80 percent of the people who viewed the program as a fad or did not believe in it were no longer in their positions with H-P. Upper management did not tolerate anyone who did not support the program. Further, individuals in key country management positions that were seen as obstacles to the success of the program were encouraged to pursue other opportunities. H-P did not expect automatic buy-in from everyone, and gave senior management two or three op- portunities to buy into the program.

During the first two years of the program, the differ-

ence in performance measurements often created conflict between GAMs and country managers. Country man- agers continued to focus on their geographic regions and felt threatened by the GAMs. Field operations managers often had to step in to resolve conflicts or assist in nego- tiations between the GAMs and country managers. Many executives considered this as one of the problems with the performance measurement system. As a result, the global account performance measurements were revised in fiscal 1993. The new system linked the country man- agers' evaluation to the worldwide performance of global accounts headquartered in his or her country in addition to the geographic regions. This change reduced conflicts and provided country managers with an incentive to co- ordinate and collaborate with the GAMs.

Beyond the performance measurement system, coun-

try managers felt threatened by the GAM program as a whole. Outside the United States, the country managers controlled all accounts within their geographic regions. With the initiation of the pilot program, some of the coun- try managers' largest and most profitable accounts were now under the control of a global account manager. While GAMs dually reported to country managers, the GAM was empowered to manage the global account to satisfy the account goals. In addition, because the program re- ceived a large amount of top-down support and visibility, GAMs were seen as having an advantage over the country managers. Country managers felt their territory was being encroached upon and this adversely impacted coordina- tion between country managers and GAMs. Country managers that did not buy into the GAM program were given several opportunities to accept the program and work with the GAMs. If managers did not eventually buy into the program they were encouraged to pursue oppor- tunities elsewhere in the organization or outside H-P.

Overall, H-P's senior management felt the program

was successful, although during the first two years of the

pilot program a few global accounts changed. In one case, the customer had funded the account, then pulled the funding out, and the global account manager was no longer needed. In other cases, the global account man- ager was not the right person for the job. For example, an area sales manager was successful at managing several accounts in one geography but was not effective at man- aging one account across multiple geographies.

The GAM program had a high profile at H-P and as the program evolved and diffused to more accounts, its success became highly visible. While Mr. Nawratil's pro- posal was designed to use the current sales force, he did not intend to create an elite group or autonomous divi- sion, but this occurred to some extent. During 1992 and in early 1993, the success of the program was heavily promoted and in mid-1993, Mr. Mihran was requested to "tone down" the promotion to avoid conflicts within H-P. As the program received more visibility there was a con- cern that the success of the program might create tension between the CSO and other product divisions.

Customer Reaction

The initial response from customers was positive. Some customers identified the Global Account Program as a strong differentiator between H-P and its main competi- tors, IBM, Sun, and Digital. Ms. Clock, headquarters ac- count manager, commented that the global account program positioned H-P as more than just a first-tier or second-tier supplier: "The customers feel value in the link- age with product groups and headquarters executives."

The HAM for Northern Telecom, Ms. Johnson, be- lieved that her customer encouraged the global account concept and wondered why it had taken so long for H-P to develop the program. Ms. Johnson indicated that the program made a significant impact by breaking down barriers between regions and field operations. She em- phasized that the strength of the program stemmed from the program promotion and visibility to other levels at H- P, and stated that Mr. Mihran had played a critical role in championing the program with executives. Ms. Johnson commented that this type of headquarters presence was an essential feature of the program.

Overall, H-P believed the program was extremely effec- tive. The pilot program began with 6 accounts, evolved to 20 accounts in fiscal 1992, and 26 accounts in fiscal 1993. Mr. Mihran believed that customers were extremely happy with the program. H-P saw the program as a competitive differ- entiator and this was reinforced by the company's inclusion in Fortune's 1993 ranking of America's most admired cor- porations. In the category of computers and office equip- ment, H-P was identified as the organization with the best managers: "Apple is judged more innovative, IBM a better corporate citizen, but H-P's managers are tops."1

1 Fortune, February 8, 1993.

Discussion Questions

1.What obstacles to global synergy do you see in the current sales organization?

2.How does the GAM program solve some of the global synergy problems of H-P?

3.What is the role of the HAMs? Why are they neces- sary? How do GAMs and HAMs collaborate? Is there any conflict?

4.How did H-P try to make the GAM program accept- able to the current sales managers? Are there any other options?

5.Would you say that the program was a success? Are there any negatives? Where should H-P go from here?

Source: This case was developed by George S. Yip and Tammy L. Madsen, Anderson Graduate School of Management, University of California at Los Angeles (UCLA). Copyright George S. Yip.