The resignation of James Unruh after seven years as Unisys CEO marks the end of an era in what was once one of the most powerful firms in the IT industry. The company, which can justifiably claim to be the inventor of commercial data processing and which was once second only to IBM in the mainframe market, now survives only by relying on its installed base.
Like many other companies, Unisys saw the bottom drop out of the hardware market and attempted to turn itself into a systems integrator and services firm. Unfortunately, it did so at a time when every other hardware supplier had the same idea, and faced stiff competition. Not that Unisys is doing all that badly. Earlier this year it turned in a quarterly profit of $19 million on a turnover of more than $1.5 billion.
Shortly after the departure of its CEO, Unisys announced a new strategy for the future, placing greater emphasis on the channel. The company has never been the strongest player in the PC world, although it has offered products to its customers since the launch of the PC. But unlike most PC suppliers, Unisys tended to sell direct through its own sales force rather than through dealers.
In 1994, Unisys formed its PC and server division, and in July belatedly announced that these products would be available through the channel. ?The decision to move into the channel is the next phase of a three-year strategy behind Unisys? PC/server division,? it said.
A key part of the Unisys strategy is to manufacture systems to a customer?s specification ? what the company dubs BTCO, or Build To Customer Order. Unisys promises to supply hardware and software systems fully configured within five days. But this solution may well be too little too late. Companies like Dell have been offering build-to-order systems for some years, yet unlike Unisys, they have made considerable capital out of the strategy by telling people about their plans.
The PC/server strategy is the latest twist in a series of turns performed by Unisys over the past few decades. We are looking here at a firm that has changed its name more times than Elizabeth Taylor has changed husbands. The latest incarnation is the product of the merger in 1986 of two mainframe companies, Sperry Univac and Burroughs.
Unisys began life in the electronic age when, in 1951, the then Remington Rand installed Univac, the first commercially available electronic computer. IBM, Remington Rand?s main rival for the punch card accountancy market, stood back aghast.
Like many of today?s PC companies, Remington Rand did not itself invent the product that made its name. In an early move, copied by its successors in the PC world, Remington Rand simply went out and bought two small innovative electronic companies, Eckert-Mauchly Computer Corporation and Electronic Research Associates.
Univac provided Remington Rand with a two-year lead over IBM, but in the end it still lost the opportunity to become market leader.
In 1958, Remington Rand once again upstaged IBM by using the transistor to build computers. A year later, the company produced a machine capable of reading IBM?s 80-column punch cards ? one of the first attempts at plug compatibility. This time, however, IBM was not to be caught off guard, and within four months had produced a transistorised machine of its own.
At about the same time, Remington Rand merged with Sperry to become Sperry Rand. By 1979 Sperry Rand was second only to IBM in mainframe terms, although admittedly dwarfed in revenue terms by its rival. By the end of 1979, IBM had shipped a massive $37,651 billion of machines, while its nearest rival could only manage $3,510 billion. Five years later it was Burroughs that occupied the number two mainframe slot, while Sperry Rand had slipped to sixth. IBM still held 76.8 per cent of the market, with Burroughs having only 5.6 per cent and Sperry Rand 2.2 per cent.
Unisys? belated turn to a channel strategy has a number of features which reflect this curious history. First, at a time when every other major company, conscious of the saturation of the corporate market, is turning its attention to the small to medium enterprises (SMEs), Unisys remains firmly committed to the corporate market. Second, the company is committing itself to a product line based solely on Intel and Windows NT, and is gradually shifting away from Unix. Finally, the company has said it has no interest in the consumer sector of the market, and would not be seeking to recruit high street retailers like Dixons.
According to Simon Shiach, director of sales at Unisys PC/server division, the latest move into the channel is the culmination of a carefully thought out strategy which began in 1994. Up until then, Unisys had simply rebadged other manufacturers? machines, most notably Tulip and Olivetti.
?The watershed for us was 1994. That was when we started to manufacturer our own machines. Until then we had a relationship with Tulip in Europe. In moving out of the OEM deal we had to make sure we had got the products right. We were moving into a busi-ness which was alien to the mainframe manufacturing life cycle,? he says.
Although mainframe manufacturing and purchasing cycles have shortened from the seven to five years that existed in their early days, the rate of introduction of new technology is nowhere near as rapid as in the PC area.
The decision to move to BTCO was made at the same time, although few people outside the Unisys customer base knew of the strategy. ?The thing we should have done is to have made more noise about BTCO when we introduced it,? Shiach admits. But he believes the decision to turn to the channel and BTCO gives the company greater strength in unfamiliar territory. Selling through the channel 18 months ago might have made more sense, but Shiach maintains that at the time the company did not have sufficient experience.
The other reason for taking the plunge now is the changing face of the industry itself. Compaq?s decision to buy Tandem puts it into the major league which, if it manages to marry the culture and products of the two companies, will provide it with desktop-to-enterprise platforms. Meanwhile, companies like Dell are redoubling their efforts to further penetrate the corporate market. So, with Dell looking to strengthen its reseller channel, and Compaq looking to sell at least some its products direct, the industry is undergoing a period of transformation.
IBM?s decision to sell its low-end mainframe, the Multiprise 2000, through the channel is another straw in the wind. Shiach hopes that the major PC players like Dell and Compaq are going to focus their attention on one another rather than on Unisys. ?As long as they are worrying about each other, then I am happy,? he says.
Shiach admits that the combination of BTCO and the turn to the channel is a risky one, since many Vars and dealers make their money by adding to baseline system features ? larger memory and storage, applications, peripherals and the like. However, if these features were built into the system by Unisys at its manufacturing plant in France, it would, in effect, reduce the reseller?s role to that of a box shifter.
But Shiach maintains there are a number of reasons why the resellers would welcome the move. First, Vars do not have to order a completely configured system, hardware, operating system or applications bells and whistles. They can, according to Shiach, simply order the system unit, screen or any minimum combination of features, and add the rest themselves.
The other main advantages are that resellers no longer need to hold a large number of systems in stock ? Unisys promises a five-day turnround for BTCO systems ? and that the boxes are rigorously tested before leaving the manufacturing centre. This short delivery cycle means both reseller and customer demand can be fulfilled in the shortest possible time, which, Shiach implies, is good for repeat business. The system also improves cash flow for the reseller ? a major burden on many companies as profit margins shrink ? as well as adding another dimension to resellers? sales propositions.
Unisys is committed to both NT and Intel for its entire future range of machines, from the PC, through the server, to the enterprise system. By 1999 the company expects to have dropped its Unix offering and to be selling NT-based systems.
But even Shiach is forced to admit that corporate customers are still wary of a top-to-bottom NT solution, and wish to see improvements in scalability and Microsoft?s SQL Server before committing themselves.
However, Shiach claims, the tide is slowly moving away from Unix to NT. ?A year ago, one of our Vars was a very strong Unix house, but 30 per cent of our customers tell us they want NT,? he says.
Unisys currently has about 30 Vars, and hopes to increase this to 60 within 18 months. It is also looking for a distributor or master reseller for its desktop products, and two distributors for the server systems. ?We only want one corporate reseller for the desktop systems. I want to make sure we do not over-distribute, but we understand that right now we are under-distributed,? says Shiach.
In the 1970s, what is now Unisys was a part of a group of companies known as Bunch ? Burroughs, Univac, NCR, Control Data and Honeywell. All were mainframe companies, all had a reasonably large installed base and all sought to challenge IBM?s supremacy, with varying degrees of success.
These firms generally managed to hold on to the installed base they had built up ? Unisys is still an extremely large player in airline reservation systems ? but reliance on the mainframe is no longer a guarantee of success and profitability. IBM may have shipped more of its mainframes in 1996 than ever before, but it was at a fraction of past prices and largely to its existing customer base.
Unisys was not alone in failing to recognise the move toward PCs, some firms, like Digital, initially tried to offer a PC that was not IBM/Dos compatible before finally bending to the inevitable. Others, Unisys included, signed OEM deals with PC manufacturers.
Unisys? new strategy may just allow the company to claw its way back into the market, but it will be an uphill struggle. Once again the company finds itself out of step with the industry with one foot, while bringing itself into line with the other.
The belated decision to sell through resellers may ensure that at least part of the firm?s installed base remains loyal, but PCs sell on price rather than technology, even in the corporate market, and compatibility means that one PC is much the same as another.
By playing to its strength in the corporate market, Unisys may find some success, but its rivals are also targeting this sector, as well as the SME market which Unisys has eschewed.
While Unisys has the strength to retain and supply its existing customers, the real question is whether the new strategy will enable it to win new ones.
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