Businesses are not run in a state of perfection. The real world is a messy place. What happens in the real world is that a lot of things are tried to solve real world problems. Many of those things that are tried are quietly successful and they are used for years and years without notice. Many more are quietly unsuccessful, and they are replaced with new attempts to solve the problem.
Once in a while there is a spectacular success or a spectacular failure. Novell as a whole was a spectacular success, but within that success were many quiet, and a few spectacular, failures. This is the story of one spectacular failure: the Netware Centers of the mid-eighties. The story is told to show how an idea can evolve from good in concept and precedent to sour in execution, and how the sour result is ultimately dealt with.
Ray Noorda is and always has been a man in a hurry. Each of his companies has been a company in a hurry. This is especially true of Novell.
At first the scramble was for survival; two years later, the company was rushing to accomplish a larger goal: Growth of the LAN industry. In 1985, Novell began to spend time and money defining and supporting this fledgling industry: it formed an international users group; it held its first conference for independent software developers; it rolled out its first reseller authorization program; it expanded the distribution of LAN Times; and the idea for the NetWorld trade show was born.
Of course, Novell saw itself as the leader of this new industry. The management team had always prided itself on having technology that was least two years ahead of the competition. In 1985, Judith started publicizing this two-year lead in LAN Times and company advertising. The idea of LAN "milestones" was articulated. Indeed, in this year, Novell invented an historical perspective for an industry that was barely two years old. Players in this business weren't just selling product -- they were making history. This self-consciousness and self-definition and sense of purpose that Novell promoted in defining the LAN industry was, in a way, as important a contribution as its technology.
Novell was not merely catering to an established market; it was creating a new market by exciting public demand for an altogether different kind of product. This new market for LAN products had to be carved out of the existing market for office automation machines, minicomputers, and mainframes. To get the end users jazzed about LANs, Ray and his team had to motivate business partners in the new industry such as resellers, distributors, systems integrators, software developers, and other manufacturers.
The key to it all was the proliferation of NetWare. Ray saw a window of opportunity which would remain open for just two or three years. If Novell could attain a critical mass of installations in that time, its technological claim would prove lucrative indeed, and Novell could find itself the dominant player in an important industry. If Novell failed to create momentum and rally both its allies and its competitors to the cause, its moment in history would pass. Either other LAN companies would overtake Novell, or the entire LAN industry would die aborning as alternative technologies were developed and presented to the market.
In his speeches given during the 1984 to 1989 period, Ray often compared Novell to a mouse among elephants. His point was that Novell and the entire LAN industry existed at the pleasure of the titans of the computer industry. For the moment, the LAN industry was allowed to grow. Why? The LAN companies had caught the giants napping, in some cases, and in other cases the giants were content to let the small frys pay the costs of developing the new technology. When the fruit was ripe the giants would come in and buy the orchard.
Ray was very solicitous of the giants and tried to make Novell helpful wherever possible. If he played his cards skillfully, he could sell Novell when the time was right and then do again what he loved best: building up small companies.
So there was to be NetWare Everywhere -- the slogan reflected the company's marketing strategy. Ray pronounced that all marketing channels would be flooded with NetWare products -- it would be unfair to keep the end users waiting for this revolutionary technology. No business was bad business.
In this spirit, Novell not only sought marketing agreements with OEM customers, distributors, and resellers; it also lined up a number of retail accounts. This was an outgrowth of the "NetWare Everywhere" strategy. It was also a result of IBM's marketing of its slow and cumbersome PC Network Program network operating system, along with other Big Blue PC products, through retail dealers.
In 1985, Byron Kirkwood was appointed retail sales manager and worked with Ray, Harry Armstrong, and Craig Burton in making deals. His staff also began to grow, to include Rob Walton, David Chung, Lee Love, Sue Berrett, and Judith Clarke's second son, Jay Zwicky. By the end of the year, NetWare was being sold by Businessland (62 stores), ValCom (240 stores), and MicroAge (170 stores), ComputerLand, and Entre.
Having secured a retail channel, there still remained the question of how hard these retailers would push NetWare. If the retail outlets were going to be effective NetWare salesmen, they would have to have considerable training and technical support from Novell. For that matter, training and tech support were sorely needed by most of Novell's distributors and resellers. The typical reseller salesperson had less than a year of computer experience and jumped ship frequently. High turnover among reseller salespeople was a big problem for Novell as well as for the VAR (Value Added Reseller, as versus those who just "moved boxes").
Training and tech support had been a problem for Novell from the early days, but rapid growth in the number of customers was making this problem ever more insistent.* [Customers included salespeople from all sales channels, as well as end users. Novell employees and other interested people were also among the students.] From 1983 until the Education Department was created the following year, Jared Blaser and Jim Bills did all the training. *[Blaser subsequently became director of Marketing Technical Services, and Bills became director of Sales.] In May 1984, John Harris and Sandy Searles were hired to head up Education. By early 1986, the Education Dept. was staffed by 18 employees based in Orem and the regional offices. Most students were unable to come to Utah for their lessons, so the Education staff members spent almost half of their time on the road.
As for tech support, Jim Stallsmith had joined the company in December 1983 as manager of Customer Service. When he was promoted to director of Field Service two years later, one of his first assignments was to increase the number of field technicians from nine to 25. Most of these technicians were stationed in Novell's four regional offices (Mountain View, Calif.; Dallas; Vienna, Va.; and Dusseldorf, West Germany).
Ray became convinced, as he analyzed the capabilities of his resellers, that Novell would have to offer systems integration services to resellers and major end users if LANs were ever going to take off. High end tech support and sales support would have to come from Novell, at least until NetWare matured as a product and the level of LAN expertise increased in the world.
At the end of 1985, Ray's interest in developing a strong retail channel, plus his need to address the training and support issue, led him to make a decision that would ultimately imperil the company. This decision -- one of his more conspicuous mistakes -- was to create a chain of regional "NetWare Centers" which would handle training, tech support, sales, and even some manufacturing operations. As the concept evolved over the next six months, it changed in some dangerous ways.
The NetWare Centers also became a bone of contention for the different factions within Ray's management team. The idea also involved Novell's first experiment with acquisitions -- an experiment that was not altogether successful and which presaged difficulties that attended later acquisitions. Until the NetWare Centers became an issue, Ray Noorda's Novell had been a relatively homogenous, cohesive organization; its challenges and frustrations had mostly come from outside the company. There had been differences of opinion -- strong advocacy of different courses of action -- but these differences had not been truly rancorous. All that began to change in 1986, imperceptibly at first. In a sense, the NetWare Centers represent Novell's first real growing pains as it grew from being a small company to a medium-size company. Although no one was aware of it at the time, the advent of the NetWare Centers marked the passing of Novell's "Golden Age" or "Age of Heroes." As this program soured, things would never be the same.
Two outside events caused the NetWare Centers idea to gel in Ray's mind: In November 1985, two Novell distributors went belly up, owing Novell several hundred thousand dollars in unpaid bills. One was Jersey Micro in Saddlebrook, New Jersey, and the other was a distributorship in Memphis, Tenn., called Micro Source Technologies, owned by Carl Orellano. In spite of the failure of Micro Source, Ray had been impressed with Orellano and wanted to find a place for him in Novell. After thinking the matter over, Ray thought he saw an opportunity to take these lemons and make some lemonade. He announced the NetWare Center concept, put Harry Armstrong in charge of them, and let Orellano head up the new NetWare Center in Memphis. Ray also took over the Saddlebrook location, although he dumped the management.
These were Novell's first acquisitions.
Ron Eliason speculated on Ray's reasons for setting up the NetWare Centers:
Ray actually wanted to have inventory in every NetWare Center. He didn't ever really explain this, but it might have been based upon what Businessland was doing. I think everybody realized that in the PC world, everything is sort of an off-the-shelf sale. You know, something in a shrink wrap or box, and people just walk into a Businessland store and buy it off the shelf. So Ray was thinking in terms of having "NetWare Everywhere" and having inventory everywhere.
It was a short jump in reasoning: If retail outlets are important, why not set up our own chain in addition to using independent chains? We have to find a way to improve our field support anyway, so why not create some regional offices that will be retail outlets as well as training, tech support, and sales support centers? Then there's the advertising and PR value. We'll call them "NetWare Centers," and before long, "NetWare" will become a household word!
Of course, the distributors and resellers will grumble about Novell increasing its regional presence and making additional direct sales. But they need to understand that as NetWare proliferates, more opportunities will eventually come their way. The direct retail customer we sell to today will need the reseller's value added services when he upgrades or expands his NetWare installation. Furthermore, the NetWare Centers will be regional inventory warehouses serving both distributors and resellers. Regional inventories will shorten delivery times to our distribution customers and allow them to reduce their inventory carrying costs. We can also offer them sophisticated systems integration services as sales support.
In talking the concept over, Ray and Harry saw yet another opportunity in the centers. Novell shipped in many of its hardware components from other areas of the country, like Silicon Valley. These components were then assembled in Orem and shipped right back to the regions whence they came. Why not use the NetWare Centers as assembly points and eliminate all this back-and-forth shipping?
In retrospect Ray was widely criticized for his NetWare Centers, yet at the time the concept had ample precedent. For one thing, the idea of regional inventories is a time-honored one which many manufacturing companies -- especially smaller ones -- still use today. For example, in the electrical industry in the early 1980s, manufacturers felt pressured to maintain far-flung networks of regional inventories, because if contractors were unable to find the brand they were looking for they simply switched to a competitor's line. "It was like an auction out there," said John Monter, vice president of sales for Panduit Corp. "We reasoned if our products weren't immediately available in the marketplace, we would lose the sale." As Novell's hardware became more and more a commodity item, it too could become subject to such brand-switching.
Then too, as noted above, IBM was also marketing its LAN product through retail dealers at this time. Ray felt he had to fight fire with fire.
Even the idea of getting deeper into the distribution business had been coined by other manufacturing companies. Ray's old employer, General Electric, had years ago created a nationwide chain of electrical wholesaler-distributors known as the General Electric Supply Company (GESCO). GE had been competing with its own independent distributors for years. There was also precedent in the computer industry. For example, in 1984, Apple acquired its four largest distributors.
So early in 1986, Ray announced that Novell would be establishing nine NetWare Centers (seven in the US., one in Great Britain, and one in West Germany). An article on the subject appeared in the January/February issue of LAN Times:
"The goal of the NetWare Centers is to provide an effective supply of hardware and software LAN products to Novell's customer base. The idea is to bring all the services now available only at our corporate headquarters out into the field to provide faster, more effective solutions," explained Noorda.
The centers will stock inventory for Novell's distributors and dealers, cutting down on the inventory they'll have to carry, speed up delivery to the entire customer base, and provide better service, field support and technical training.
... According to Armstrong, "The centers will be regionally accessible and will create a bridge of better communication and support for our customers."
...
Having NetWare Centers in the field will cut product lead times and this should eventually lower costs. "Many times we receive hardware from our suppliers and then turn around and send it right back to the same area. NetWare Centers will allow us to cut down shipping expenses," stated Noorda.
The present regional offices of Novell in Mountain View, Calif., Dallas, and Vienna, Vir. will expand to become NetWare Centers. Other company expansion in this area recently included the acquisition of MicroSource Technologies in Atlanta and Memphis, and New Jersey Micro in Saddlebrook.... Novell plans to have all the NetWare Centers operating by the end of the company's current fiscal year in October 1986.
Ray added a resolute yet upbeat message for his resellers and distributors:
All channels will benefit from a more localized service organization. . . . Ultimately the customer is the end user. All the channels serve as a means to reach the end user and we must always keep in mind that we will be selective in using those routes that serve him effectively -- now and in the future.