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July1991 ACCORVol.II,NO.4 APublicationfromINPUT AT&T/NCR and The Information Services Industry Note: ThisisthesecondResearchBulletinfocussed PotentialAT&TContributions ontheAT&T-NCRacquisition.Theprecedingbulletin examinedthenewmodelofcomputingthatNCRhad Duringthemergerstruggle,NCRasked, beenengagedindevelopingpriortobeingacquired. "HowcanAT&Thelpus?" Theearly reportsfromthetransitiontaskforces indicateAT&T'scontributionwillbe NCR'sValuetoAT&T largelyconfinedtoitscommunications AT&TwantedtoacquireNCRthreeyears hardware(seeExhibit1). ago. Eventhen,NCR'sattractionswere However,AT&Tmayprovidesignificant clear. NCRwas advantagetoNCR'soperationsin important,butdifficult-to-quantify,areas: •Wellmanaged •NCR'stechnicalstrategieshavenotbeen •Financiallysuccessful widelyappreciated. NCRshouldbeable tobenefitfrombeingassociatedwith •Internationallyfocussed BellLabs,forexample,evenifthetwo divisionshavefewcommonprojectsat •Oneofthefirstsizablecomputer first. companiestomakeacommitmentto UNIX •Bythesametoken,NCR'sopen,value- addedstrategywillgaingreater ThepassageoftimeheightenedNCR's visibilitysimplybybeingassociatedwith attractivenessasaresultof: AT&T. •AscalablefamilyofUNIX-based •NCRhasbeenaconsummateniche processorsofferingsuperiorprice/ player,inpartbecauseitwouldbetoo performance riskyforacompanyofNCR'ssizeto proceedintoomanydirectionsatonce. •Awell-plannedapplications-enabling WithAT&T'sbacking,NCRcancover environment. NCRwasachievingwhat morenichemarketsandalsohave AT&Thadattempted,butfailed,todoby greaterpotentialforsuccessinre- itself. establishingitselfinthegeneral-purpose computingmarket. ©1991byINPUT.Reproductionprohibited. Exhibit1 NCR/AT&TProductSurvivors Products NCR AT&T Computers 3000Series ExceptNotebookand StarserverFT TransactionProcessing TopEnd Tuxedo(ifrequested) Software ApplicationServices Cooperation WorkflowModule Software WorkgroupComputing LANManager/X Stargroup Software Communications Adapters/Internetworking Equipment SurvivingProducts Source: INPUT •Accesstoadditionalresourcescould •NCRcouldbedrawnintothemeasured permitNCRtostepupitsdevelopment (andslow)decision-makingthathas andreleaseschedule. traditionallybeentheAT&T"process." •Finally,asemi-independentNCRwithin •Easilyavailableresourcescansometimes AT&Twilldemonstratetocustomers producemarketoverextensionand andprospectsNCR'sbusinessand uncontrolledproductproliferation. technicalstability. Ironically,ifNCR hadrepulsedAT&T,itwouldhavebeen •AT&T'sownreputationincomputer- underpressuretoproduceextraordinary relatedmarketsismixed. resultstoprovethatitwasworthmore thantheAT&Toffer;additionally,in •AT&Tisaverylargeorganizationwhose manypeople'smindsNCRwouldhave goalsmaynotalwaysbethesameas stillbeen"inplay,"makingitmore NCR's. difficultforNCRtofocusonitscore business. Exhibit2summarizestheupsideand downsideoftheAT&Tcontribution. NCR Balancedagainstthesepotentialpositive mayhavemoreabilitythanmostacquired contributionsareproblemsthatcouldbe companiestoinfluencethetermsof causedbytheAT&Tparent: associationwithitsparent. 2 ©1991byINPUT.Reproductionprohibited. Exhibit2 PotentialUpsideandDownsideofNCRAcquisition NCRIssue UpsideOpportunity DownsideRisk Technicalimage ShareBellLabsaura Losetechnical incitjpfcjricjfcjiicy Open,value-added Gaingreatervisibility Lessmaneuverability strategy Nicheplayer Covermoreandbroader Expandtoofar,toofast niches Flexibilityandspeed Gainmoreresources DrawnintoAT&T's"process" Long-termstability Taken"out-of-play" ChangedAT&Tdirection Source: INPUT Computingvs.Solutions •NCRcertainlyhascapabilitiesfor developingsoftware,asexemplifiedby MuchofNCR'sstrengthhascomefromnot TOPENDandCOOPERATION; competinghead-to-headwithIBMand however,NCRhasgenerallydeveloped DEC. NotonlyisNCRnicheoriented,but onlysoftwarewhereithashadtofill itssolutionsaremorelikelytobe gapsintheapplications-enabling implementedinhardwarethanareIBM's environment. NCRhaschosen, orDEC'ssolutions. BothIBMandDEC whereverpossible,tomakealliances havebeenmuchmoreaggressivethan withDBMSandCASEvendors(wisely, NCR,forexample,intargetingservices inINPUT'Sopinion). andapplicationssoftware. Itisnotthe purposeofthisResearchBulletintoassess •NCR'sprocessingdivision,focussing thefeasibility(orappropriateness)ofthese largelyonthethriftandretail strategies,butmerelytocontrastthemto industries,isrelativelysmall(about NCR's: $150million). Thisoperationcouldbe hamperedbythelegalbarrierstoAT&T •NCRhasadoptedindustrystandard beingintheremoteprocessingbusiness. operatingsystems. Notonlydoesthis eliminatethesignificantrevenuestream InINPUT'Sview,NCR'slowdegreeof availablefromproprietaryoperating participationinthe"solutions"business systemscustomers,butitalsoreduces willbethelargestlong-termissuefacing potentialrevenuefromassociated theAT&T-NCRmerger. Thisissuewill systemssoftware. increaseinimportanceastheinformation technologysectorbecomesfunctionally ©1991byINPUT.Reproductionprohibited. 3 dividedbetweenthosefirmsoffering RecentlypublishedresearchinINPUT'S computingplatformsandthoseoffering SystemsIntegrationProgramshowsthe computing-basedsolutions(some ratingsanumberofvendorsgave companies,likeIBMandDEC,offerboth). themselvesregardingtheircapabilitiesin Exhibit3showstheconstituentsofthese solutions-relatedareas. BothNCRand two"platforms": NCRisverywell AT&Tratedtheircapabilitiesvery positionedasacomputingplatform conservatively. Forexample,theysaw supplier. However,atpresentNCR/AT&T theirbusinessconsultingcapabilitiesas isnotamongtheleadersoffering beinglowandgavethemselvesamedium computer-basedsolutions. ratingforsystemsdesign,software development,andintegrationskills Exhibit3 ComputingandSolutionPlatforms Verticalapplications Business softwareproducts Processing/ consulting/ systems industry operations knowledge Systemsdevelopment/ systemsintegration Solutionsplatform Application- Networking enabling environment softwXare Z Operatingsystem Processor Computingplatform Source: INPUT 4 ©1991byINPUT.Reproductionprohibited. (excludingtelecommunicationscapabilities certainkeyvendors,IBMestablished inAT&T'scase). referralrelationships. Thebaseofvertical applicationsfromcrediblevendorsisoneof Asnotedabove,thecombinedfirmfaces thereasonsbehindthesuccessofthe legalbarrierstoparticipatingfullyinthe AS/400. IBMwouldneverhavedevotedits remoteprocessing,systemsoperations,and resourcesifithadcreatedapplications networkservicesbusinesses. Thiscouldbe thatcouldrunonothervendors'hardware. acriticalimpediment,sincefirmslikeEDS ThisisthedilemmafacingNCR(andother andIBMarebiddingaggressivelyfor UNIX-basedmanufacturers): howtohold systemsoperationscontracts. Recently,for ontothevalueitaddstoopensystems- example,IBMwonasystemsoperations basedapplications. contractwithZale,whichincludes operatinga2,000-nodenetworknowusing StrategicChoices NCRPOSequipment. Tryingtosell throughand/ortoone'schiefcompetitoris NCRwillhavetobecomemoretightly noone'sideaoffun. linkedtotheprovisionofservicesand software. Beingasemi-OEMcouldleave NeitherNCRnorAT&Toffersapplications thefirmdependentoneventsoverwhichit softwareproductsaimedatvertical hastoolittlecontrol. markets. Onerationaleforthisisthe largeamountofUNIXsoftwareavailable, NCRcanbuilditscapabilitiestoprovide muchofitaimedatverticalapplications. solutionsdirectly,althoughthiswillnotbe ArecentanalysisbyINPUT,forexample, easy: disclosedthatthereweremoreMRPII packagesofferedontheUNIX/Xenix •Buildingupaprofessionalservices/ platformthanonanyothertwoplatforms. systemsintegrationorganization internallycouldbealengthyprocess; UNIXApplicationsSoftware timewouldnotbeonNCR'sside. Itisnotclear,though,howNCRcantake •Acquisitionofaqualityprofessional advantageofthelargenumberofUNIX organizationwith—sufficientcriticalmass verticalsoftwareproducts. Firstly,these wouldbedifficult andcertainly numbersmaskthefactthatthevendors expensive. Post-acquisitioncoordination offeringUNIXpackagestendtobequite andculturaladjustmentissuescouldbe small(seeExhibit4). Largesoftware evenmoredifficult. productvendorswilloftenbringbusiness toanassociatedhardwaremanufacturer; •Writingnewverticalapplicationsisa verysmallvendorsmaynotevenbe lengthyprocessproducinguntested credibleorcapableenoughtosupport software. Therefore,acquiringor businessamanufacturerbringstothem. licensinganexistingproduct(ora company,insomecases)wouldusually Equallyimportant,theindependenceof makemoresense. UNIXapplicationssoftwarevendorsfrom hardwaremanufacturersmaybecounter- Therearealsostrategicproblems productive. TakethecaseoftheAS/400: associatedwithNCRbuildingupits IBMneededtocreateacriticalmassof internalsoftwareandservicescapabilities: applicationspriortoproductlaunch. Many existingvendorswerepersuadedto •NCRwillhavetobeverycarefulinits produceAS/400versionsoftheir selections;mistakesmayhavetobedealt establishedproducts; otherssawthatit withforsometime. wouldbetotheiradvantagetodoso. For ©1991byINPUT.Reproductionprohibited. 5