For Novell, more pain before any gain By Scott Berinato, EWEEK
May 24, 2000 5:49 PM ET
Novell Inc.'s new CTO Dave Shirk thinks this, finally, is the nadir.
The earnings-from-hell announced Tuesday, which followed the earnings-warning-from-hell announced early this month, were slightly better than expected.
At least they're over.
Along with earnings, Novell announced yesterday a major reorganization that was meant to be the last piece of an overarching reinvention of the company that started with the DENIM (Directory Enabled Network Infrastructure Model) platform announcement two months ago at the Brainshare conference, where Senior Vice President of Marketing Steve Adams inspired Novell users and Wall Street alike with a coherent new marketing message, which in turn sent the company's stock up close to $40 per share.
Instead, the company's new vice president of sales resigned after just four days. And the restructuring -- into four business units acting as independently as possible -- has turned into an exercise in survival, apparently with much help from Wall Street, where Novell is trying again to find its footing.
Novell's stock price is hovering just above $8 today.
"The financial situation certainly increased the speed at which Steve [Adams] and I moved through this, but it's a continuation of the process we were on," Shirk told eWEEK Wednesday in a wide-ranging conversation.
In January, Shirk outlined the steps he was taking to complete the internal overhaul, and this new model is partly due to that. But it has also been affected by the poor earnings and recent conversations with Wall Street on how to turn things around.
The four new business units are as follows:
Net Management, headed by Craig Miller. It will focus on established product lines like NetWare, ZenWorks, GroupWise and BorderManager.
Net Directory, overseen by Paul Smart. It will focus solely on making the directory as ubiquitous as possible and a key technology in electronic commerce.
Net Content, led by Simon Khalaf. It will focus on appliances like the Internet Caching System and on the emerging technologies for content distribution.
Novell Customer Services, headed by Sheri Anderson. It will handle all consulting, education and technical support.
Additionally, Ken Anderson was promoted to CIO, while Shirk was promoted to Chief Technology Officer. Rich Nortz was promoted to senior vice president of sales, replacing Nicholas Tiliacos, the former Lucent Technologies Inc. executive who resigned for "personal reasons" four days after coming aboard May 10.
Listening to Wall Street
The business units will act more independently than product lines did at the old Novell, with "virtual profit and loss" tracking to gauge their performance not only as part of Novell but against the competition, Shirk said.
Indeed, Shirk noted, Wall Street has been suggesting such a setup for months, and Novell now seems ready to listen.
"It's always coming up -- the Wall Street issues," Shirk said. "Several financial analysts have actually suggested this model over the past few months because it's a way to look at how the products fit against competitors and what our 'go to market' was against market segments. We're not really catering to them, but they've been suggesting it, and now we're doing it."
Shirk said he's heard even more extravagant suggestions, including breaking up the units into wholly owned subsidiaries.
"You hear people say if we ran full P and Ls on these units you'd essentially have huge valuable startups, but there are pros and cons to that, too," he said. "There's a whole range of options and models in the industry right now, but we look at this as the best. This lets us put the appropriate investment model in place and compare our business appropriately to competitors in the space. Now we have the ability to segment out the investment models [of the business units] not only to Wall Street but to customers and employees."
Rumors of a bargain buyout of Novell have swirled as well, but Shirk wouldn't comment on them. Instead, he tried to stay upbeat about the DENIM strategy and how it will fit with the reorganized company.
"We've got the strategy. The strategy is kicking," he said. "But we still had a gap in the go-to-market cycles, in our getting knowledge to the channel and training on it. The best way to solve that issue was to move to a business unit structure. We had already started to align the resources that way."
Getting focused
Shirk maintained the financial situation has not dampened enthusiasm for the DENIM strategy.
"The financial thing has not really affected people's evaluation," he said. "The interest level and the strategy is ringing so true we're kind of assuming they all understand the issues around the channel. They also understand we have been struggling with the channel in the new service provider model.
"The diehard [customers] are happy. I met with several new customers and systems integrators and they are excited. We've focused with them."
Shirk admitted the morale inside Novell has suffered in the face of the financial crisis and realignment. He said the gap between the DENIM announcement and the realignment, which was needed before the strategy really took off, proved costly.
"Anytime you're an underdog and people are speculating and rumor boards are churning -- yeah, it's a huge weight. ... We got people's morale up, then there was this period of time with people walking around waiting to see what would happen next," Shirk said. "The most important part of the announcement and urgency was getting people focused, to make sure people know what the direction is and, even if we make some mistakes along the way, that they are committed to it.
"[The executives] were pretty adamant in employee discussions about this. They were saying, 'It's not OK to kind of wander around. You understand the strategy and get focused, and if you can't do that maybe it's time for us to look at other options for you.'"
Asked if he wanted to emulate the turnaround of Apple Computer Inc., which has significantly rebounded from earlier woes, Shirk said yes.
"When Steve [Adams] and I were going through earlier discussions, we grabbed other models," he said. "We looked at what BEA had done. We looked at how Network Associates has accomplished their model. We looked at Apple, though it's a little different because it's hardware more than software. But, yeah, we think about all that and we settled on the business unit model as the most logical way to get it done."
Asked about new products in the pipeline, Shirk said there will be four by October, but declined to comment further, except for one "tease" about the future of NetWare.
"There's a tsunami heading to the enterprise and service providers called wireless and broadband, and you'll need a good multiprotocol engine to drive that," he said, suggesting Novell will adapt the software to those hot markets.
"But the more important thing is, we've got some good products that have shipped, and we have not had the focus to get them the attention they need," he said.
The question now is, as it has been for some time, does Novell finally have the focus? |
