Toshiba Makes Amends

"The mobile products have been the mainstay for us, but Toshiba has been up and down over the years," he says. "They put their channel sales reps in the field one year, and then pulled them out the next."

In fact, a number of VARs, like CPR, that once rode the former PC powerhouse to fortune are doing more business with its competitors. By all accounts, Toshiba is wounded. Not very long ago, the company had a stranglehold on the notebook computer market, but it has lost money, market share and partners during the past few years. During a recent press conference in Japan, where the company announced significant losses, Toshiba president and CEO Tadashi Okamura stated simply: "We have to stop bleeding."

So Toshiba America Information Systems (AIS), the Japanese company's North American subsidiary, has applied a tourniquet to its American arm and is taking steps to repair the company. Toshiba AIS recently announced it was restructuring its sales and product operations as part of an ambitious strategy to return to greatness. Shortly after it announced the dramatic restructuring effort, Toshiba AIS invited approximately 100 solution providers to a small reception in New York's Times Square as part of the vendor's ongoing mission to win back partners and promote the company's new channel strategy.

Still, Toshiba has a big hill to climb. The North American subsidiary will have to manage massive internal changes, a new partner program and the abrupt departure of one of its top executives. Here's a look at the challenges ahead and what Toshiba's reinvention means for solution providers.

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The New Look
Restructuring is never easy, and Toshiba's complicated plan will be no exception. Toshiba AIS' operations, which previously comprised five sections, have been consolidated into three main business divisions: the Digital Products Division, Digital Solutions Division and Storage Device Division.

The Digital Products Division will be responsible for Toshiba notebooks, PDAs and other mobile products, while the Digital Solutions Division will concentrate on vertically specialized servers, networking and telecommunications systems, and emerging technologies within Toshiba. The Storage Device Division, which includes Toshiba storage products, remains essentially unchanged in terms of the current alignment within Toshiba AIS.

Gone, therefore, are Toshiba AIS' Computer Systems Group and Telecommunications Systems Group. Mike Durance, formerly vice president and general manager of the Telecommunications Systems Group, is now vice president of the Digital Solutions Division. Mark Simons, formerly vice president and general manager of the Computer Systems Group's transactional sales, will serve as vice president of the Digital Products Division.

Simons had recently taken over the duties of Rod Keller, who headed the Computer Systems Group before abruptly departing this past summer (see "Toshiba's Revolving Door," Sept. 29, page 100). Keller led the effort to revamp Toshiba's channel program, which was relaunched in July. Simons says Keller's position was eliminated, but didn't elaborate on the details surrounding Keller's exit. Simons says the restructuring of Toshiba AIS, based in Irvine, Calif., had been under way for quite a while during Keller's tenure.

The Digital Products Division will concentrate on increasing sales and market share for Toshiba's volume products, such as its line of Tecra notebook computers and Portege convertible tablet PCs.

"The aim is to aggressively grow our business, and I emphasize aggressively," Simons says. "We're very much a sales- and marketing-oriented operation that is focusing on volume."

To that end, Simons says the company is revamping its supply-chain operations to deliver more products faster to its channel partners through the new Toshiba Preferred Partner Program.

"The speed of execution will mean everything," Simons says. "We're going to get better in time to market. We believe there's some significant efficiencies we can gain on the supply chain."

Toshiba AIS introduced its Preferred Partner Program in July and featured such new components as pay-for-performance incentives, rebates, financing options and enhanced sales support. Perhaps most crucial was the addition of the Technology Provider Program, which lets solution providers become service-authorized and receive additional training and technical-support opportunities. The program was specifically geared toward the Computer Systems Group and is now part of the Digital Products Division.

Barry Steinberg, president and CEO of Manchester Technologies, a Toshiba partner based in Hauppauge, N.Y., believes the Preferred Partner Program will improve business for both Toshiba AIS and its solution providers.

"They realized the channel was a better fit for their product line," Steinberg says. "I believe the program will succeed."

Toshiba, which does 90 percent of its business via indirect sales, had lost ground in the channel during the past few years, but the new program is helping the company win back partners; more than 400 solution providers have signed up for the program since July, Simons says.

"Toshiba was a mainstay in the channel throughout the 1990s, and we lost that," he says. "Now we're trying to get that back."

Toshiba's restructuring will also have an effect on the channel program's resources. The company is reallocating its workforce and budgets to strengthen the partner program.

"We're [shifting] head count up by about 20 percent and the overall investment by about 50 percent," Simons says.

Toshiba's restructuring comes at a price, however, as the company has significantly reduced head count. Toshiba also announced recently that it will cut another 200 jobs, bringing the head count for AIS to approximately 1,050. Consolidating the various divisions into three parts, however, has saved Toshiba "tens of millions of dollars," Simons says.

Welcome Back, Partners
Will Toshiba's comeback effort resonate with solution providers? Longtime Toshiba VARs applaud the new partner program effort but say the vendor has a long way to go before winning their favor.

CPR's Schimmelmann says Toshiba officials have courted his company in recent months, heavily promoting Toshiba servers and networking products, but CPR turned down the offer to expand its business with the company.

"Toshiba came to us asking us to carry their servers and networking stuff, but there just wasn't a compelling reason to make that investment," he says. "Our customers didn't see a need to move from Hewlett-Packard."

Part of the problem, CPR says, is that Toshiba's channel program and product-support services have declined in recent years, and there's little, if any, local relationship with Toshiba officials.

"I've had the same rep at HP for years," Schimmelmann says. "If Toshiba had that kind of presence and consistency with local channel reps and support, then we'd do more business with Toshiba and probably carry their servers and network appliances, too."

On paper, Toshiba's plan for North America appears to be the right medicine for its channel woes. But the company is still very much in flux after Keller's departure and while the restructuring is ongoing.

Tom Riche, president of Extel Communications in Haledon, N.J., believes the internal changes at Toshiba AIS will ultimately improve the vendor's business.

"I think it's going to be a good thing," Riche says. "There's a lot of crossover and integration between the product lines, and I like what Mike Durance has done [with the Digital Solutions Division]."

Extel isn't a typical Toshiba VAR; instead of notebooks and mobile-computing products, the solution provider focuses on the vendor's other business--network and telecommunications technology. Riche says Toshiba offers network and telephony products in the Digital Solutions Division strong enough to compete with better-known vendors, such as Avaya, Lucent and Nortel Networks.

In addition, Riche says, being an exclusive Toshiba VAR has helped distinguish his company in a very competitive market.

"Toshiba has had issues with their computer division for years, but the telecom unit, even though it's small in comparison, has been a very profitable business for them," he says.

The Digital Solutions Division, which incorporated the former Telecommunications Systems Group, will take a different approach to the channel. Products, such as the Strata CTX digital telephone system, won't necessarily be focused on high-volume sales. Instead, according to Durance, the Digital Solutions Division will be focused on expanding its technology in emerging markets such as IP telephony.

Toshiba officials say there is overlap between the solution providers in both divisions. Prior to the restructuring, the Telecommunications Systems Group had 300 authorized "dealers" in the United States. It's unclear how the new Toshiba AIS will handle partners in the Digital Solutions Division and whether the Preferred Partner Program will be made available for all product divisions.

But so far, VARs that have stuck with Toshiba through its recent hardships say the vendor is on the right path with its new organization and strategy.

Simons says that he and other Toshiba AIS executives expect to see positive results from the restructuring and new partner program within 12 months.

"The ownership in Japan is fully behind this strategy," Simons says. "I think we can be profitable as a group immediately."

Toshiba America: Then And Now
In an effort to increase volume sales, Toshiba America Information Systems recently restructured its internal operations and consolidated five major product divisions into three business divisions and one operations division.
Take a look:

Pre-Restructure

Post-Restructure