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 this need to address the training and support issue, coupled with Ray’s interest in developing a strong retail channel, led him to make one of his more conspicuous mistakes, which would ultimately imperil the company. That decision was to create a chain of regional “NetWare Centers” to 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 idea also became a bone of contention for the different factions within Ray’s management team. Until the NetWare Centers became an issue, Ray’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 expanded from a small to a medium-sized 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.
This also involved Novell’s first experiment with acquisitions—an experiment that was not altogether successful and which presaged difficulties that attended later acquisitions.
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, Tennessee, called Micro Source Technologies, owned by Carl Orellano.
In spite of the failure of Micro Source, Ray had been impressed with Carl 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 in charge of them, and let Carl head 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 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 many of its hardware components in 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, a hardware manufacturer. “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.
And as noted above (p. 207), 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 pioneered by other manufacturing companies. Ray’s old employer, GE, 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 [Harry] 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, CA, Dallas, and Vienna, VA, will expand to become NetWare Centers. Other company expansion in this area recently included the acquisition of MicroSource Technologies in Atlanta and Memphis, and 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.