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The Emerging Personal Computer
Value-Added Reseller

by Charles C Caro, Copyright 1985

IBM PC sales hit $5.4 billion (Future Computing, Inc.) in 1984, which was more than double the 1983 total of $2.2 billion. Considering that the Personal Computer (PC) was introduced in 1981 and initially the management information systems (MIS) personnel really had nothing to do with the infiltration of the PC into large organizations, the proliferation of the PC in the corporate environment is nothing short of amazing. Now that the PC has been shown to provide legitimate business solutions for users in the corporate workplace and can be successfully tied to mainframes, MIS people have scrambled to gain control over the PC purchasing decision process.

When a MIS team finally gains control of the PC purchasing decision process it usually finds that it has taken on more than the simple acquisition of PC hardware and software. The MIS team soon learns that its newly acquired responsibility includes not only purchase of PC hardware and software but also hardware and software evaluation, vendor management with its concomitant problem resolution duties, identification of user needs, and training of internal MIS staff plus end-users on the new equipment and software. The complexity of establishing actual control over the use of PCs in the corporate environment can be made more or less difficult depending on a number of factors relating not only to the extent PCs are currently in use throughout the organization and the existing political environment in which PCs have been acquired and utilized but also the channels MIS personnel utilize in providing PCs to corporate users.

There are three (3) basic channels through which PCs enter the corporate environment. Where the MIS department is not participating, for whatever reason, in the introduction of PCs into the organization top management can exercise no control by permitting individual managers and department heads to acquire PC equipment and software by their own means. When individual managers and department heads need PC equipment they go to a local retail outlet and take the advice of whatever salesperson happens to be on the floor. Needless to say, over a period of time the complexity of PC configurations increases as more and more individual buys are made. The result of this method of PC acquisition is chaos because there is no attempt to provide continuity or standardization. Ultimately, the MIS department must be called in to sort out the mess through utilization of another generation of data processing personnel.

Top management in most larger corporations now recognize that the first channel of introducing PCs is totally unacceptable in both the short and long run. In the short run managers and department heads find that the true cost of the PC workstation includes the people cost associated with producing workable business solutions and that implementation without assistance is not as easy as the retail computer store clerk suggested. It can be a very frustrating experience for a manager to learn that the computer store clerk is more interested in putting boxes out the door than in providing service to existing customers. Of course, it is possible that a manager might find a computer store clerk that is willing to provide assistance, but such a circumstance is unlikely to occur in every case.

Admittedly, there is a trend in the microcomputer industry to upgrade the quality of personnel working in the retail computer store, but franchisers and store owners stress volume to meet a quota and pay the overhead rather than value added. More often the corporate manager will be referred to the "service" department where there might be a person qualified to provide instruction on a purchased product. Such "support" is inadequate because it occurs after the buying decision has been made and increases the likelihood of adding additional elements in an increasingly complex configuration. In other words, the manager may be lead into additional purchases that serve no purpose other than provide band-aids for the original configuration. In the long run the retail channel is inadequate because the experiences of single managers is repeated over and over again throughout the organization. Those organizations that permitted the unstructured acquisition and utilization of the PC workstation ultimately invest many times the original cost of the equipment in an effort to retrofit purchased PCs with some measure of standardization.

The second method of implementing the use of PCs is to identify MIS personnel to coordinate PC acquisition and utilization throughout the corporation. This approach affords a measure of control over the phase-in of PC systems, but overlooks one important factor. It is widely accepted that one of the major reasons for bringing PCs into the corporate environment is to not only unburden the mainframe hardware and software but also significantly reduce the people costs associated with providing business solutions. The demand for data processing power by end-users continues to increase not only for business solutions that can be met with a PC but also those business solutions requiring the traditional mainframe power of the corporation. To meet the increasing demand MIS departments must be willing to make decisions that are right not only in the short run but also in the long run. In taking steps to ensure the long run success of the implementation of PC workstations MIS personnel must avoid the pitfalls encountered by non-MIS managers attempting to integrate the use of PC workstations into there individual departments.

Unfortunately, the most common channel for getting PC equipment in the door is either through a Volume Purchase Agreement (VPA) or by a "SoftVAR" ("Mainframe Software Vendors Threaten Dealers in Fortune 1000 Mart, Thom Hartmann, MICRO MARKETWORLD, 11/12/84, p.57). Hartmann defines a "SoftVAR" as "a company that has sold mainframe and minicomputer software to large corporate accounts for years."

Hartmann continues by stating that "these software sellers are able to add value to their original mainframe software products selling, along with them, microcomputer applications." Like the vendor providing a VPA, the SoftVAR counts as its major advantage, according to Hartmann, the fact that their foot is already in the corporate door. This advantage provides the SoftVAR a significant headstart over any potential "retail" competitor. The SoftVAR's initial advantage of having their foot in the door also gives them a head start on many software vendors in the micro industry because most micro software vendors have been exclusively retail-oriented. Hartmann states that they (the micro software vendors) "don't even know the runnings of a large corporation."

The appeal of working with the same familiar set of vendors is significant and firms most SoftVARs are quick to point out that they have been calling on the corporate marketplace for as many as 16 to 17 years. The name recognition factor of some SoftVARs is also appealing to micro software vendors hoping to gain entry into the corporate marketplace. Certainly the initial "discounts" are attractive to MIS personnel charged with implementing the use of PCs. But on closer inspection it is clear that both the SoftVAR and the vendor providing a VPA add very little, if any, value to the micro products sold to their established corporate clients. Rather, this group of vendors is taking advantage of their corporate client's real and immediate need for micro products while keeping their "foot in the door" for future mainframe and minicomputer product sales. The SoftVAR and vendor providing a VPA is extremely careful to minimize both its risk and exposure because they do not want to lose the opportunity for a mainframe or minicomputer sale from their clientele. In addition, the interest of the SoftVAR and vendor providing a VPA lies in moving large volume to offset the high discounts built into their micro product pricing rather than in providing business solutions for their clients.

Remember that one of the key factors in bringing a PC into the corporate workplace was to increase the productivity of the corporate user while offloading an increasing burden on mainframe equipment and MIS staff. At best the SoftVAR and vendor providing a VPA offer some pieces to the puzzle that makes up the complete solution needed by the user in the corporate workplace. Most SoftVARs and virtually any single vendor providing a VPA fail to provide a complete solution, which means that systems integration throughout the corporate workplace is left solely to the local MIS staff. The SoftVAR's software line is usually limited and in most cases the SoftVAR firm still does not sell hardware or bundle together applications targeted for a specific solution.

Even IBM is unable to provide a complete fully integrated business solution, and may illustrate its bias when the corporate customer suggests that a non-IBM item (whether hardware or software) be included as part of the total solution. In short, it becomes increasingly difficult for the MIS team to retain confidence in either the SoftVAR or the vendor providing a VPA.

MIS personnel very soon discover that there is more to implementing the use of PCs in the corporate workplace than obtaining attractive initial discounts on bits and pieces of a solution. As the list of vendors needed to put together a real solution increases the MIS team charged with the project learns that what may have been a good price on a piece of the solution is likely to be offset by both the people cost of administering the various interfaces with vendors and the dollar expense of inadvertently bringing together pieces that do not match. The situation is compounded by the fact that the MIS team must also provide service to the corporate user and devote time and effort to the identification, evaluation, and acquisition of additional products as new user requirements are defined. In working with the SoftVAR or the vendor providing a VPA the MIS team soon learns that there is no single source to turn to should the pieces not come together in the manner anticipated. In short, the MIS team eventually acknowledges privately that value-added should mean more than having your foot in the door at the right time.

Fortunately, there is a third source for micro products emerging to service the the corporate marketplace. This third source might be called the "Personal Corporate Value-Added Reseller" or PCVAR because firms in this category work as professionals in the sense that they establish a fiduciary relationship with their clients that provides a bond similar to that that a CPA/Auditor or Attorney might establish with a client. A key advantage of the PCVAR is its ability to provide complete high quality micro-based business solutions to a corporate clientele. The emphasis is on service and commitment to making the client's implementation of PCs in the corporate workplace a total success rather than the traditional emphasis on marketing expertise and volume pricing. The value-added to the product acquired through the PCVAR is the service of providing not only quality tailored complete business solutions for its corporate clientele but also the project management expertise required to organize and implement the logistics procedures necessary when working with many individual vendors having little or no experience in working cooperatively with other micro vendors towards a common goal of providing integrated business solutions.

It may be surprising to the "SoftVAR" to learn that the PCVAR is able to gain the confidence of corporate MIS personnel without years of prior experience working with large corporate accounts. The PCVAR gains the confidence of corporate MIS personnel by drawing on its prior experience working with first time users of microcomputers and the keenly developed skill of surviving as a small businessman working with scores of largely uncooperative vendors in an dynamic, almost chaotic industry that did not exist more than five years ago. These key factors establish the PCVAR as the provider of the catalyst required to ignite the "intrapreneurial" (the term now in use to refer to the internal corporate entrepreneur) thinking in corporate MIS personnel that bonds them with micro vendors in a joint effort to meet the manifold needs of the end-user in the corporate workplace.

Close examination of the actual users of PCs in the corporate workplace reveals that the MIS staff is working with a person that has much in common with a counterpart in small business. Both the corporate user and the small businessman have a specific need for the productivity boost a microcomputer might provide. Both have little or no knowledge of the functioning of a computer. And, both have little or no interest in squandering valuable work time learning the internal functioning of a computer. With its experience in providing quality business solutions to entrepreneurs in small business the dedicated PCVAR can become an invaluable asset for the MIS staff as: (1)user needs are identified; (2)potential solutions are identified; (3)vendors providing potential solutions are contacted; (4)targeted potential  solutions are evaluated in accordance with corporate standards; (5)evaluation findings are reported back to users; (6)product is acquired and installed at individual work sites; (7)new products are brought into compliance with corporate standards; (8)initial training of user is accomplished; and, (9)MIS staff works to provide on-going liaison between user and vendor. In addition, the experienced PCVAR can work with the MIS staff to ensure that the performance, functionality and credibility of installed business solutions provided to users is not diminished. More than ever before the corporate user with a PC workstation must be serviced on an individual basis in much the same fashion as a user in a small business might be serviced. This requirement for individual attention takes time and patience. When the PCVAR joins the team the immediate effect is that the MIS staff finds that they have more time to devote to providing service to both mainframe and PC users.

The fundamental element of the relationship between the PCVAR and its corporate client is that both parties accept responsibility to operate in a fiduciary capacity. This means that the parties must deal with each other fairly and in good faith since each places trust and confidence in the other for the duration of the relationship. To maximize the benefits of working with the PCVAR corporate MIS personnel must make a commitment to utilize the full range of services provided through the PCVAR.

Without this fundamental commitment on the part of the MIS staff there is an increased risk that the implementation of PCs will be less successful than projected. The nature of the relationship MIS staff forms with the PCVAR requires that there be a free flow of pertinent information on the PC implementation and that the MIS staff recognize that the PCVAR is committed to making the use of PCs successful not only in the sense that satisfactory business solutions are installed wherever the need for a PC is identifed but also in the sense that the desired result is achieved with a minimum of wasted expense and effort. In working so closely with its corporate clientele the PCVAR is required to have access to a considerable volume of what amounts to company confidential information. This is to be expected because the resultant implementation can be no better than the facts used to formulate the solution. The PCVAR is used to handling sensitive information through its years of experience in working with small business, and there are few more closely guarded files than those of a small businessman. In every instance information disclosed to the PCVAR by a client or revealed as a result of the relationship is kept strictly confidential by nature of the fiduciary relationship. The confidentially issue applies to the corporate client as well because it is incumbent that the relationship be mutually profitable. The PCVAR will invest considerable energy and expense in providing service to its corporate clients. Thus, the PCVAR is very conscious of the fact that much of the information passed on to the corporate client during the early stages of the relationship and before significant volume of product has been purchased by the corporate client might be used by the MIS staff to complete the implementation without the further assistance of the PCVAR. Such a circumstance would be damaging for the PCVAR since the product pricing is based on full implementation of the project and startup expenses must be amortized across the term of the project. It is worthy to note that in the long run the MIS staff assumes considerable risk in following such a course because in actual fact the MIS staff would be reverting to the second approach of implementing PCs into the organization and buying all of the shortcomings of that approach.

Ideally, the assistance of a PCVAR is sought very early on in the effort to bring about the successful implementation and integration of PCs into the workplace so that the MIS and non-MIS personnel can benefit from the PCVARs prior experience in the use of microcomputers in the workplace. Should the implementation process already be in progress, or should the MIS staff find themselves in the situation of picking up the implementation process after other less structured methods had been attempted with unsatisfactory results, the PCVAR would begin by participating with both MIS and non-MIS personnel in the evaluation of the existing situation prior to proceeding with further implementation of PC workstations in the workplace. In either case, the PCVAR might participate in product identification, evaluation, testing, and selection. This would include participation in the assessment of needs in the user community. The best PCVARs have no inherent bias towards any single product and is therefore free to provide objective expert advice on products identified as potentially meeting a specific need.

This commitment to obtaining workable solutions for user needs is on-going and the PCVAR is constantly reviewing new products as they come on the market. Because of the PCVAR's visibility in the micro marketplace vendors are usually open to the suggestion that they provide evaluation units for review by both the PCVAR and its clients. In many instances the PCVAR, with the cooperation of its corporate clientele, will act as either an "ALPHA" or "BETA" test site for new products. Increasingly, micro vendors see such activities as a source of quality feedback from the user community.

When product selection has been completed the PCVAR can assume the role of ensuring systems integration geared to meet individual needs while retaining standards throughout the organization. The level of integration achieved through use of a PCVAR would be extremely difficult to obtain by any other means because it would necessitate the addition of extra MIS staff to administer this function. Introduction of such additional MIS personnel would cut into resources that might otherwise be allocated to providing direct service to users.

Ideally, the PCVAR acts as the single source of all hardware and software product used in the corporate client's workplace. The PCVAR's assistance is also available should the corporate client need special procedures for the safeguarding of company confidential information and controlling valuable microcomputer related supplies such as diskettes, removable disk cartridges, and printer ribbons.

Where such supply items are required the PCVAR can arrange to have private label product produced for the client. This generally provides a reasonable measure of control over the expenditure of such items. In being the sole source for product related to the implementation of PC workstations in the workplace the PCVAR provides an interface between literally dozens of individual vendors and MIS staff. This interface affords benefits not only in across the board pricing but also in problem resolution should unexpected hardware/software interactions be observed. In addition to providing an extra measure of continuity during implementation of PC workstations and the general proliferation of PCs throughout the client's organization, an experienced PCVAR provides a comfortable cushion between the corporate users and MIS staff on the one hand and the host of vendors on the other in the event unexpected product interactions are experienced. This binding process ensures a high level of standardization while affording needed flexibility at each level of system use.

As product is delivered to client sites, the PCVAR participates in the training of not only users but also MIS staff that will be providing service to users. In large corporate environments where an entire building of location is to be involved in the transition from either a terminal hook-up to the mainframe or no terminal to use of a PC workstation the PCVAR usually provide a resident on-site representative responsible for ensuring an extra measure of continuity for users working in what amounts to a new environment.

One of the major ancillary benefits of working with the PCVAR is the possibility of affording approved standard PC configurations to corporate employees through a "Company Store" managed and operated by the PCVAR. When employees purchase PC product from a PCVAR operated "Company Store" they receive the same pricing as does their employer. In most cases this results in a savings on PC product for the employee, but coincidentally the employer benefits as much as the employee. It has been shown that when an employee purchases standard company approved PC product they will utilize that equipment and software to enhance their ability to work with the PC workstation. This extra experience is gained outside the daily work environment and at the employee's own expense. Thus, the employer can not only witness a decrease in the amount of work time devoted to learning how to use the PC tools but also enjoy seeing evidence of the savings brought about by the increased productivity of employees' effective use of their PC tools. There are also important legal benefits resulting from the PCVAR providing PC product to employees rather than having such purchases sanctioned directly through the corporation because in letting the PCVAR handle such transactions the corporation never takes title or possession of the product delivered to the employees. Further, the employer would generally be relieved of any liability for providing service on items purchased by its employees. The PCVAR can work with MIS personnel in formulating the best structure for providing PC product to employees.

Another benefit of having a PCVAR representative resident at the corporate sites is that the PCVAR can supplement the on-site hardware maintenance provided by internal corporate maintenance personnel. At locations where large numbers of PCs are in place the PCVAR can usually replace, on a temporary basis, any element of standard PC configurations from local PC stock. Should the client be unable to effect repair on a component the PCVAR can act to have the component repaired at its home depot. Obviously, the cost of this maintenance service is not bundled in with the basic configuration pricing since a client's capacity to provide maintenance may vary from location to location and it would be unfair to those PC users at locations with local maintenance facilities to pay for the maintenance costs of PC users at locations with limited, or no, local maintenance facilities.

In some situations the PCVAR may advise the corporate client to consider the possibility of obtaining PCs on either a straight lease or a lease-purchase option. When it appears that such arrangements would be in the best interest of the corporate client the PCVAR can work with the MIS staff charged with the project to target firms wanting to hold the leases and negotiate lease terms. On a more limited scale this same facility may be worked up to provide employees with the means to acquire PC workstations for their homes.

Identifying potential PCVARs is still very difficult since many firms with the capacity to provide such comprehensive service for corporate clients are not going out of their way to advertise their services. The reason for this reluctance to advertise is that in making a commitment to a corporate client the PCVAR is stating that it is willing to devote considerable time and energy to ensure successful completion of contracted work. In addition, a PCVAR does not have to have very many clients to be successful. For instance, if a client warrants that it is going to install several thousand PC workstations over a one to three year period the PCVAR can look forward to five to eight millions dollars in business for each one thousand units installed. Thus, a hand full of clients could produce revenues exceeding many of the top retail computer chains. It is conceivable that many retail computer

chains may wish to implement PCVAR-like services, but the MIS personnel looking at a former retail computer store as a PCVAR must be confident that the retail computer store is offering more than a name change to gain entry into the corporate environment. There probably is a real danger in becoming too big as a PCVAR because it becomes very difficult to control the quality of service provided to clients. Through proper project management techniques the PCVAR should be able to successfully install anywhere from ten to fifteen thousand PC workstations per year. That would mean that the PCVAR could look forward to annual revenue in the neighborhood of fifty (50) to one hundred twenty (120) million dollars. If only FORTUNE 1000 companies were targeted, then there would be room for 100 to 300 PCVARs to function profitably without much risk of running into another PCVAR. In actual fact, there are several thousand large corporations in need of the services of the PCVAR, so by the 1987 there may be a thousand or more PCVARs in the marketplace each with a handful of clients. Since the demand for computing power is more likely to increase over time than otherwise, these thousand or so PCVARs can look forward to many years of profitability. It is apparent that the leading PCVARs will be sought out in much the same fashion as the "Big Eight" accounting firms.

The overall impact of the PCVAR way of doing business will have a wide ranging impact on how other business is conducted in the computer marketplace. Below the level of large corporation is a vast number of medium sized organizations eager to gain the productivity boost afforded by utilization of PC workstations. A second-tier of PCVARs will be needed to service these organizations. What will be missing is the "Toys-R-Us" approach to selling microcomputer hardware and software. There is already a growing trend in the microcomputer industry towards emphasis on vertical market rather than the traditional take them as they come retail mentality. The effect is that the "perceived buying procedure" of the microcomputer customer is finally taking on substance. And the perception is that price and marketing expertise alone cannot guarantee success for a microcomputer product. Instead, the customer is looking for a solution to a specific need and willing to go with a vendor offering a complete solution even though it might initially cost more than buying product at a lower price from a vendor that might not be able to deliver anything more than a price advantage.

The irony of how the PCVAR came into existence is that with the PCVAR offering its services to the FORTUNE 1000 corporation the data processing industry seems to have come full circle. Initially, data processing power was reserved to only the largest of corporations. As technological developments brought down the size and cost of computer equipment smaller organizations were able to benefit from the use of data processing power. With the introduction of the microcomputer small business was able to step into the Computer Age. Now, the professionals forming PCVARs are providing service to the FORTUNE 1000 corporation based on the expertise they gained in providing small businessmen with a springboard into the Computer Age. The net effect is that large organizations are learning that there is a larger than realized degree of transferability of skills and techniques between large business and small business, and the successful large corporation of the 1980s and 1990s will have an increasing interest in transferring the things that make small businesses successful to their organizations. The successful PCVAR will position itself to play a key role in the transfer of ideas from small business to large business.

 

 

 

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