In May 1986, Ray took another step deeper into the NetWare Center quagmire. Novell acquired yet another distributor, Cache Data Products, based in St. Louis, Missouri. Cache Data had 41 employees, three locations, and 1985 sales of about $6 million. The newly acquired company would change its name to the St. Louis NetWare Center.
But there was more to the story. Cache Data had been Novell’s first distributor, and in the three years they did business together, Ray had been impressed with the company’s President, Ken Kousky. Ken had been a teaching fellow at the Wharton School and was a Ph.D. candidate. When Ray talked about him in staff meetings, he called Ken a genius. Integrating Ken and his team into Novell was an early example of Ray growing his management by acquisition.
With Ken on board, Ray restructured Novell quite dramatically. Corporate functions were divided between two separate operating divisions: Novell Utah, with Harry as executive Vice President and general manager, and a new, wholly-owned subsidiary company called NetWare Centers International, Inc. (NCI), with Ken as President. By this time, the number of NetWare Centers had expanded to 11 US locations and three international locations.
Ray explained the changes:
The Novell Utah operating division assumes the responsibility for providing proprietary hardware and software products to all channels of distribution. Its sales focus will be on new products and new channels of distribution.
NetWare Centers will have the capability of supporting their customers with uniformity of training, field service, sales programs and inventory.
Then came the shocker. The thing that Novell resellers had feared from the first announcement happened.
The NetWare Centers will not be limited to the provision of proprietary products from Novell Utah. This gives the overall company continued emphasis on making price/performance selections of products and services to the LAN market that are not necessarily bound by Novell proprietary products.
Ray had moved beyond the original plan for the NetWare Centers. The centers would no longer be mere regional warehouses for Novell products; they would be full-fledged distributor operations. Just a few months earlier, Harry had said that 80% to 90% of the centers’ inventories would be Novell products. Now Ray had taken the concept a step further, and Novell would be competing directly against its distributor customers.
This new move was Ken’s idea. When Ray bought Jersey Micro and Micro Source in November 1985, he acquired those first two distributors’ inventories of non-Novell products in New Jersey and the southeastern US. The Cache Data acquisition brought in additional non-Novell inventory stored in that company’s three warehouses in Chicago, Minnesota, and St. Louis. As a result of the three acquisitions, Novell had become a de facto distributor, and now Ray decided to make it official.
This is a good example of what can happen when a new manager is brought into an organization, particularly through an acquisition. Being brought in to make change, their first change will usually be to try implementing their past success in the new organization. Ken had made a name for himself as a distributor, and Novell now had the tools and business connections in place to become a distributor. With Ray’s blessing, Ken took those tools and ran with them at NCI.
Implementing old ideas in a new organization is always a challenge to the new manager. Sometimes the implementation is completely successful and sometimes not.
Another example of this is when one of Ray’s successors, Eric Schmidt, came to Novell in 1997 and brought ideas from his previous work at Sun Microsystems, which developed Java, an operating system–independent programming language. The first Java implementation at Novell was a bloated file server–management application that earned Java a lot of derision in Engineering and Technical Support.
Novell’s selling partners grew increasingly uneasy at the evolution of NetWare Centers. One example of this dissension was revealed at a meeting on August 2, 1986 at the Radisson Hotel in St. Louis. At the dinner on a riverboat ride, Ken said:
Much of the concern and speculation regarding the NetWare Centers as relevant to our resellers has centered around the role the centers play in sales of Novell products. We believe we are proposing a program of appropriate levels of channel management and intend to maintain your business loyalty through providing sound economic value in the marketplace.
In that speech, Ken also gave a brief history of Novell’s NetWare Centers. In 1985, he said, the first real roots of the NetWare Centers were put in place when Novell’s field service offices began expanding their functional responsibilities.
From the fall of 1985 through the spring of 1986, numerous variants of NetWare Centers were established in the marketplace. Some of these experiments were dictated by economic necessity. In New York, the loss of a distributor in a crucial market area forced Novell to respond instantly with sales and marketing resources capable of fulfilling the lost channel. In Memphis and Atlanta, a distributor was acquired, giving Novell broader product offerings and presence in the market.
There were many other efforts to soothe the unease of NetWare Centers.
“Authorized distributors will deal directly with the regional NetWare Centers, thus receiving more personal attention. Authorized resellers may purchase products and receive support from authorized distributors or, by making a volume commitment, from the regional NetWare Center. NCI’s support of resellers will be based wholly on the reseller’s volume and, therefore, specific need for strong support,” explained NCI President Ken Kousky.
In addition, for any authorized reseller that begins to buy directly from a NetWare Center, Novell will pay his distributor a commission for having found and trained that reseller, [Director of Technical Services Jim] Bills said.
As the computer industry grows, Noorda said, so will Novell. Challenges Novell will meet in the industry are lower hardware prices, copycat products from competitors, and new technology. In order to combat these challenges, Novell will concentrate on marketing its software systems and customer services.
At Networld 86, announcing that NCI would distribute Data Flex, a 4GL (4th-generation language) application development tool, Ken declared:
The marketing of non-Novell software emphasizes the value added to a LAN installation. A LAN is only as useful as the increased productivity it can provide. The catalysts for LAN productivity are the software applications that directly support day-to-day activities.
Another important anomaly of the integration of Cache Data and the creation of NetWare Centers was that the St. Louis facility became a center for Novell’s MIS (management information system) operations.
Ron explained how that evolved:
Two of our distributors went bankrupt the same month. One was Jersey Micro in New Jersey, and the other was Carl Orellano’s distributorship out of Memphis, Tennessee, called Micro Source Technologies. So we lost a few hundred thousand on the Jersey Micro one, and we merged Carl’s business into Novell, because Ray wanted Carl.
In May of ’86 we acquired Cache Data Products in St. Louis. That was the Ken Kousky company. It was in August of that year that Ray transferred all of the shipping and marketing and accounting functions for sales out to St. Louis—the MIS function, everything. Cache Data Products had been a business that was doing about $5 million a year. And in August of ’86 when all this got dumped on them, we would have been doing about a $90-million annual rate. So naturally they came out with a list of about a hundred people they wanted to hire to deal with this. And over a period of months, Ray gave them everything they asked for, which was very disturbing to me.
Craig also had problems with this evolution.
First of all I didn’t think it made a lot of sense to put all that out in St. Louis; secondly, I was just desperately needing people all along to handle the growing network in Provo. It was like pulling teeth to get anybody. I think we got John Strang hired in the fall of ’86, but he didn’t—none of us—we didn’t have the accounting support or the MIS support that they ended up having in St. Louis.
This was crazy. We’re the headquarters, and he’s sending all the resources out to St. Louis, to a company that was doing $5 million a year. It made no sense to me at all.