Vol. 10, No. 6_____________________________________________________________________ July 1991
"MGMT MEMO" was written by Richard Seltzer in Corporate Employee Communication for the Office of the President. It was written for Digital’s managers and supervisors to help them understand and communicate business information to their employees. You can reach Richard at email@example.com
When making decisions about the FY92 budget, the business units are also making decisions about their product and business strategies for several years into the future. The investments we make now and in FY92 will set the course we’re going to be on in FY93, FY94 and FY95. That’s why the budget process is so important to us, especially as we go through this for the first time under the New Management System. That’s also why my new role was created - to help prod and provoke business managers to think and act in a new way. This is catalytic, thought-provoking, company-renewal work - not traditional finance work. It is also a temporary or "sunset" role not work for which it makes sense to create a new organization and bureaucracy.
Our first priority is to get the FY92 budget to work. Next we can focus on longer range planning. To me, the FY92 budget is the first bus stop on the long journey into the New Management System.
My January and February objective was to get the numbers on the table for discussion. This meant assembling plans from the business managers, including the resources they need and the return they expect.
In March and April the objective was to identify issues that needed resolution/approval at various levels throughout the company.
My work in May and June is to force decision making. That includes making people realize that not making a decision on an on-going project is the same as de facto acceptance of the status quo for the continuation of that product.
Once budgets are set, we’ll start expanding the window of time that managers consider in their planning. We’ll ask managers to look farther ahead and deeper: o What businesses are we in that we shouldn’t be in?
o What businesses are we not in that we should be in?
o What businesses are we in where we don’t compete effectively?
o What things do we make or do that we ought to buy from someone else?
o What do we buy that we should make?
o What are the "core competencies" of the company?
Our goal is high growth and profitability. We’re talking about the renewal of the company. My role is to help business managers make decisions and recognize the implications of their decisions. I don’t make decisions myself. That is their job. My job is to focus on the integration points between organizations and look behind the numbers, to see their potential effects across organizational boundaries. Where I see potential problems and disconnects, I have to use persuasion and enlightenment to cause managers to consider and realize the implications and company-wide impact of their decisions.
We want to "build giants" — managers who have the confidence and perspective to see all around them and far ahead. In other words, under the New Management System, a business manager is responsible for proposing plans and implementing them when they’ve been approved. That responsibility should cause these managers to broaden their horizons beyond anything they have had to do before.
For instance, in the past you may have been an engineering manager with limited "budget" responsibilities. Today, you run a product creation unit and the success of your product requires that the sales force knows everything there is to know about your product so they can sell it. That’s a new and different responsibility, and you have to think far beyond the means that were at your disposal before. Also, in the past, you were interested only in your engineering cost. Now as the product creation person, you have to be interested in manufacturing costs as well. You are being held accountable for a much wider range of factors, all of which affect your profitability.
If you are a sales person, in the past, booking an order might have been the most important thing to you. In the future, profitability will be more important.
Basically, my role is to get the business unit managers to do what needs to be done, to prod them to think a little deeper and to help them accomplish what they have to accomplish. I have to let them know that there is a conscience sitting on their shoulder, but at the same time let them know that they are in charge. Every time you tell a business manager what to do, you retard their growth as managers, and make it more difficult for them to truly become "giants."
In other words, while my role might be described as "budget director," this is budgeting in a very broad, qualitative sense that includes long-range planning, and depends on successful implementation of the New Management System. To carry out my work, I need access to all 120,000 employees, but my secretary is the only person who reports to me.
First in the list of my "budgeting" responsibilities is "to assure timely and effective implementation of the New Management System." I obviously can’t implement the New Management System from here. It gets implemented in the plants, customer accounts, product creation units and marketing business units. But I need it to succeed for me to do my job.
I also am expected to "assure discipline," improve "overall company decision-making process," "infrastructure effectiveness" and help develop "strategy." "Strategy" means everything from what business are you in, to what business should you be in, to what are the courses we want to be on as we head into 1995. It includes what we plan to do to succeed in our four major sectors of businesses: commodities, VAX products, enterprise integration and services.
One of the keys to success of the New Management System is that once you have proposed a plan and have a "handshake with the corporation," no one should knock on your door that year to cause you to change that budget. You made a profit commitment to the company. If you find that you are going to miss your commitment on the negative side, part of your job was to have developed contingency plans. You know what the trigger points are; and when you reach those points, you should simply execute your contingency plans. You shouldn’t have to come back for approval again. You know what is acceptable; you act accordingly; and you are fully responsible for the results. You come to make your request once. You receive approval, and you go off and are responsible to deliver on your commitments.
On the plus side, if sometime into the budget performance period you discover that you are going to wildly exceed your commitments to the company, you do have an obligation to come back and let the company know. You do not have the right to unilaterally reinvest that extra profit in your own business because the company may have higher priorities and need to invest those dollars elsewhere.
Today, we have an enormous opportunity to effect important changes. A new budgeting system is going into place. People need and want guidance to work their way through that. At the same time, our overall business is changing and we’re developing new models, for instance for commodities. The new roles of business unit managers have not yet been fully defined or understood. There has been little time for organization and bureaucracy to build up and become entrenched. At the same time, managers fully realize the urgent need to improve the company’s financial performance. Probably more than ever before in the history of the company, people are more willing to listen to guidance, to take a fresh look at their strategies and to change their ways of working with one another. The time is right for renewal of the company, and the FY92 budget process is an important first step in that direction.
(Since last summer, a number of changes have been made in the way Digital is organized and does business. These changes were reported to employees in a variety of ways as they unfolded. Now, seen as a whole, they are often referred to as "The New Management System" or "NMS." At a recent meeting in Cambridge, Mass., Jim Osterhoff explained the New Management System to the financial and investment community. The following article, based on part of his speech, provides an overview of the company’s on-going transformation.)
Digital consists of a wide range of businesses - from selling products produced by other companies to selling Digital-produced components to other systems manufacturers; from small commodity products, to huge one-of-a-kind systems integration projects; and from capital intensive semiconductor operations, to labor-intensive consulting services.
The financial characteristics of these businesses vary substantially from one to the other — in respect to their investment requirements, their capital intensity, where value is added, and their profit-margin potential. In many respects, Digital is a conglomeration of many businesses, each with its own characteristics — not unlike General Electric, for example. But unlike most companies which we would call conglomerates, almost all of our businesses are closely connected in one way or another.
This doesn’t make Digital an easy company to understand. Certain business ratios that are sometimes used to compare one company with another are less reliable indicators when measuring Digital’s performance — revenue per employee, assets per dollar of sales, etc.
It’s probably frustrating for people outside the company to try to figure out what or how well Digital is doing - and, quite frankly, it has created its share of confusion for us the past few years, as this complexity has expanded.
Before summarizing the changes we are making to deal with this complexity, it is important to note that our many diverse businesses are all a part of the same company, with the same shareholders. They are all expected to contribute to the growth of shareholder value. To us, that means they should all have the same top-level financial objectives.
Several years ago, we talked about Digital’s overall financial objectives — 22% return on equity (ROE), 16% return on assets (ROA), and 12% net margins. Recent studies we have done on individual companies within various industries confirm that 20 + % return on equity is a good standard for truly excellent companies - which is what we aspire to be. But "excellent companies" arrive at that result in different ways, depending on the nature of their business. United Parcel and Merck, for example, - both AAA-rated companies — average a percentage return on equity in the high 20’s. United Parcel does it with only a 7% net margin on sales, and relatively low assets, while Merck earns net margins in the 17% range, but with more than twice the asset intensity of UPS.
Companies structure their businesses in various ways to reflect the different realities of their individual industries. By managing these differences, they can deliver exceptional overall results.
There is an important lesson in that which bears on our own situation: We are a company comprised of many different businesses which have different financial characteristics, and we can’t expect them all to conform to the same financial model for profit margin and assets. But they all are represented by the same stock certificate under the banner of Digital Equipment, so we expect them all to deliver excellent returns on shareholder investments.
How then do we then deal with the diversity?
Since the product line structure was dissolved in 1983, we have managed with multiple overlapping dimensions. The total company was broken down many different ways - by geography, by product or service, by business application, etc. The various components of each dimension - individual product lines or geographic sales units, for example - had a manager and a support structure to manage that unit.
The financial results of each business unit included revenues and costs that were partially under the direct control of the manager, and partially influenced by, or in some cases, assigned to the unit. The total of the geographic units added to 100% of the company, as did the total of the product and service units; as did the total of the applications units; and so on.
This system worked well for us as a transition from many individual product lines to a more cohesive, integrated company. But it also had some disadvantages. Each business unit manager could justify incremental investments based on incremental revenue. The problem was that multiple investments from the different kinds of business units could count on the same revenue for their return - multiple investments were being made for the same reward.
The inevitable result of that is a squeeze on profit margins; and the only way to deal with it, in that structure, is with massive central intervention — central planning and detailed control from the top - the type of thing you would expect to find in a communist system. It just didn’t seem a likely formula for success. Rather, we wanted to rekindle a "free enterprise" environment within the company.
The task was to break the company down in a way that individual businesses would have their own identity, their own financial model, and to do this in a way that would eliminate overlaps and create a fresh environment in which entrepreneurism would flourish.
After considerable discussion and a couple of false starts, we are now implementing a New Management System that separates the company into a large number of business units, each responsible for performing a specific segment of the company’s work. It is founded on simple principles: each business unit is responsible for developing and executing its own plan to earn a profit on its value added and a return on its own investment.
The business units fall into three general categories, which we call Creation Units, Marketing or Integration Units, and Customer Account Units.
Creation units create - either products or services. There are creation units, for example, for fault tolerant machines, for UNIX workstations, and for remedial services. The product creation units are responsible for the development and production of the products that fall within that category. In general, they sell their output to other business units at a price that is based on the value to the ultimate customer, at their level of value added — also defined as the best, i.e., (lowest) competitive price in the market for like products.
Marketing or Integration Business Units provide marketing services and develop unique product or service offerings (largely from products and services they get from the creation units, as well as from outside sources). They price their output based on the value they add - again, with value defined as viewed by the ultimate customer.
Customer Account Units sell Digital’s products and services and apply their expertise to solve customers’ business problems. They are expected to be business partners to our customers and earn a profit on their value added. We don’t consider the requirement to make a profit to be in conflict with customer satisfaction any more than it is for Wal- Mart, MacDonalds, or Morgan Guaranty. Profitability is the result of a long and productive relationship with customers - and we expect our senior account managers to stay with their accounts for many years.
Basically, our New Management System breaks the company down into pieces, and sets expectations for each business unit manager to earn a profit and return on investment, aiming at a common ROA objective.
At present, we’re still educating the workforce on the new system. We’re also using this new management format for the development of FY92 budgets. But we have already seen significant behavior changes. Managers are looking at their businesses in an entirely new light. The new system exposes problem areas that managers never knew existed, or previously considered to be somebody else’s responsibility. It empowers them to take action to correct problems and exploit opportunities. And it makes their jobs fun again.
Because success is measured at the bottom line, the New Management System also puts a real force behind our cost improvement efforts. And it provides all the right incentives for revenue and profit growth. I believe that the New Management System, added to our dedicated people, financial strength, and technology capabilities, is the right formula for Digital employees, Digital customers and Digital shareholders.
As a company, we must understand our customers to the point where we can provide them with information systems and services that make them successful. We are trying to organize ourselves around that customer-oriented vision. We see ourselves as the means for our customers to achieve excellence.
We have organized the company to support the Account Business Units, who support the customers. To do that, we need many different kinds of expertise - applications, products, software, support, consulting, networks, UNIX platforms, VMS platforms, etc. We have asked the integration business units to combine that expertise in a way that supports the account teams and customers.
At the same time, business units need the expertise of the functions to perform their role. No business units are self-contained. They all depend on other business units and on functions in order to succeed.
With the current emphasis on business units, we may appear to undervalue the functions in the company. That is certainly not the intent. We have emphasized the business units, because we are trying to make them entrepreneurial and allow them to make and implement the plans that they propose, once they are accepted.
The functions — such as Finance, Personnel, and Information Systems — are the "glue" that ties operations together across the business units. Our company is a networked, interdependent structure. All the pieces have to come together to provide solutions, services, and support for the Account Business Units who then support the customer.
In the past, we sometimes talked about our functions as if they were large, powerful and independent entities. When we wanted to emphasize the company as a whole rather than individual interests, we used the word "cross-functional." Today, the business units are separate but interdependent, and the functions play a unifying role for the business units to insure that customer needs are met.
While their role has changed, the functions are essential; functional excellence is mandatory. The business units, of course, have a profit and loss (P&L) statement which is the measure of their performance. In the functions, we use "benchmarking" - comparing our operations to those that we perceive to be the best in the world — as a tool to help determine whether we have achieved excellence in performance and productivity.
First, we look at the excellence of the function in qualitative terms — what is the right way to do that function? Then we look at it quantitatively — how many people does it take to do that work for your size of company? We balance that information with our vision of special circumstances of Digital; we may wish to be different from other firms in how we manage a particular function.
In some functions, other companies have asked to benchmark our operations because they already perceive us as excellent. Our goal, over the long run, is to have all functions become so strong that many companies will want to benchmark us. We want our functions to become models for the outside world - for our customers and potential customers. We already do that in Manufacturing, Finance, and Information Systems where we have groups of experts available to our customers as consultants. We use our expertise to help sell and to help our customers become excellent in the eyes of their customers. That kind of functional excellence can give us a wonderful marketing advantage as we use our own operations as a model for customers.
(The following is a summary of a presentation made by Geoff Shingles to an external audience of some 250 senior European executives in March of this year.)
The image of Gulliver tied down by the little people of Lilliput represents the problems many of us face today. It symbolises "organization" people hounding the spirit of business enterprise and trying to "tie it down" because they see it as dangerous. "Organization" can hold business back when it comes to customer service.
We need to find ways to organize our business that will release the enterprise and initiative of our people and provide service excellence to customers. To achieve service excellence, we need the flexibility to make resources available to meet customer needs.
We don’t just sell computers. These days 41% of Digital’s revenues come from Services. Customers want us to be a real partner — sharing risks and sharing resources with our customers and providing solutions to business problems. Our activities include planning, designing, implementing and managing complete systems for customers.
The account group is fundamental in our approach to "organizing for customer needs" because every customer has a team of people within Digital who are dedicated to his or her service. Each account team needs to provide a unique set of complementary skills and resources, which will change from time to time, but will always be tailored specifically for each customer.
To achieve service excellence, we need to take this "organization by customer" model one stage further — using what we call the "Entrepreneur Model." By "entrepreneur" we imply a spirit of initiative, freedom and energy. The Entrepreneur Model means that each customer account becomes a business unit in its own right.
Each account manager becomes a business manager with full responsibility for customer satisfaction — and profitability. His or her job is to apply company resources to customer needs - profitably. As one of our employees said, "Working for Digital is the closest you can come to running your own business while still being part of a large organisation".
This approach is built on the familiar organizational concept that gets us all focused in the same direction - the "Inverted Triangle". At the top, and therefore given the highest priority, is the part of the organization which is closest to the customer, This is also the broadest part of the organization. The management structure below this supports that front line. This concept drives us to flatten the management hierarchy for greater efficiency. It also encourages the idea that even if you don’t work directly for the customer, you work for someone who does.
Organizational structure alone is not enough to release the creative energy of our people, given a complex mix of business objectives, people, tasks, reward systems, business processes, information systems and organization structures. The three key elements which need to work together are purpose, people and processes. The energy of our people can only be released when these three elements fit together.
The object of our processes and systems is quick response — making life easy for customers. Systems should reduce complexity and release our people to serve the customer, as well as providing management reporting information. They must allow the distributed skills and resources of the company to communicate. And of course they must help us fulfil our purpose. This depends on having the right information and knowledge in the right hands in the right place at the right time. In essence — effective distribution of information to match the organization.
In this, Digital has a significant advantage - the heritage of our computing style. From its very foundation, Digital has developed computers for people to interact with each
other rather than for information collection. Our computers work together he way people work together -- directly. We allow information to flow in all directions, without barriers. This flexibility allows people and organizations to pool information and resources to maximum effect, whether this is locally, nationally or internationally. Such flexibility gives a considerable advantage where customer services is concerned.
At Digital we have over 50,000 computers linked together in the largest commercial network in the world. Within the network, we have the freedom to organise processes and people to meet whatever needs our customers may have. We focus this capability through dedicated teams that service their customer wherever he or she is in business throughout the world.
For example, the manager responsible for our worldwide business with Unilever stays in touch with a distributed team of 120 people across 15 time zones using electronic mail and electronic conferencing. All the information needed to service the customer is shared. What’s more, we can communicate directly with the customer by electronic mail. This way, the full capability of Digital people throughout the world is made available to the customer. Clearly, you don’t need to be together to work together.
This is also true of our customer support centers. Here, technology and a worldwide organization combine to provide service excellence. Twenty-four hours a day, technical specialists are available by telephone to help the customer. Their single objective is to solve problems quickly.
These specialists have access to the same database of all known problems and solutions. This avoids constantly "reinventing the wheel." It means that an engineer in Australia who comes up with a new idea can make it instantly available to his or her counterparts anywhere in the world. In some cases the customer can even have direct access to this database — providing quick solutions by "self service".
To us, service excellence also means anticipating needs and providing services that customers don’t yet realize they want. Through the application of Artificial Intelligence (AI) we’re able to monitor our customers’ computer systems remotely and sense upcoming problems. This allows us to fix problems before they happen.
We know from experience that, with a network like ours, "centers of service excellence" do not have to be physical centers. Buildings are destructible, but service excellence need not be. In March 1990 we suffered a major fire at one of our UK offices. Fortunately, no one was hurt, but we lost a center which was critical to our service operation. The initiative and skills of our people were quickly engaged to solve the problem, and we had the whole operation up and running again in less than 24 hours. For some months our people were spread around other offices within a 50 mile radius of their former home. But it was business as usual, because they were still able to communicate freely, and still able to use the same core information - regardless of location.
The recovery was a remarkable example of resilience, enterprise and initiative. It was also an example of providing service excellence through our carefully designed organization structure and its supporting technology. What would have been a real disaster for many other companies was recognised as a strategic opportunity for us. We linked our unfortunate experience to the growing demand for disaster recovery and launched Digital Business Protection Services — a service designed to ensure that customers suffer as little from major disasters as we did - or less.
Here are a couple examples of how we help our customers to use service excellence to achieve customer satisfaction.
In the UK, the Royal Automobile Club provides a range of services to motorists - most notably breakdown assistance nation-wide. Service excellence for them is quite simple - get the customer moving again as fast as possible. The ability of their organization to respond with all its resources is critical. But operating on a larger and larger scale with thousands of miles of motorways and over 40 million motorists has meant increasing pressure on response times and resources. In addition, centralized head office functions had become a barrier to service excellence.
To regain their competitive edge in service, they tackled the organization issue in the same way that we did at Digital. They flattened their management structure. They distributed head office functions to the regions. They increased the number of patrolmen by 50% and reduced the number of admin staff. And they put in place training to encourage initiative and responsibility for customer satisfaction. They called it PACE - Personally Accountable, Caring and Enterprising. They set new service standards - 80% of stranded motorists attended to within one hour, and now they consistently exceed this target.
Barclays Bank also organized around the customer. They reexamined the basic service expectations of their customers and started reversing the trend of impersonal banking in the U.K. Their network of personal bankers now have at their fingertips all the resources of the bank as well as the customer’s details and banking history. Such a revolutionary change in banking practice could only have come about with the support of technology and, of course, with an approach that puts the customer first.
We and our customers face the same challenge as we redirect our organizations for service excellence. We need to create flexible organizations that release personal initiative and enterprise, rather than tying our people down, like Gulliver in Lilliput.
To bring this to reality, we and some of our customers have combined organizational thinking with a flexible approach to Information Technology. In this way, organizations can be built around the customer, distributing skills and resources wherever they’re needed. It is not necessary for individuals to be together to work together.
(Pete Smith explained what Digital means by the "Open Advantage" to an audience of financial analysts and investors at a briefing in Cambridge, Mass., on May 30. The following article is a summary of his speech; which introduced other speakers who provided product and application detail.)
Our Open Advantage marketing campaign is intended to change some perceptions that customers have of us. We want to communicate the reality of what our customers are asking for, and how that matches what Digital has. We also want to emphasize some significant investments which that we have made and continue to make in standards, open systems and networks.
Of course, Digital has created some wonderful systems, solutions and services based on VAX VMS systems, and that will continue to be a large part of our business. We have a loyal and committed base of customers, and continue to protect and enhance the investment those customers make in us. That is generally understood.
Less well-known is that fact that Digital has a long history of supporting standards and network computing. We’ve been investing in an unparalleled suite of products, services and business practices that are designed to create open solutions for all customers. Because that is not generally understood, some of our competitors have been successful in promoting a narrow definition of "open" and cultivating the incorrect perception that Digital is "closed." Some of those competitors reduce the definition of openness to mean use of their particular variant of UNIX or their particular hardware architecture.
Today, Digital is an open company perceived as a closed company, and Sun is a closed company perceived as an open company. We cannot allow our competitors to continue to shape customers’ perceptions of us in this misleading manner.
Our Open Advantage campaign emphasizes the environment of open technology, open services, and open business practices that Digital provides today. It’s really geared to point out to customers that we meet their requirements for solutions that are flexible for the future, but also enhance their existing investment. In other words, they want everything to work together - today and into the future.
When customers say they want "open systems," they often mean they want to solve their business problems with open technology -* technology that provides "vendor independence," flexibility and are investment enhancement.
Vendor independence means customers want the freedom to select the best computer vendor at any point in time, without being limited to any one of them. They also want a wide range of applications to choose from.
Flexibility is also important because our customers have computer systems from many different manufacturers with different operating systems, all of which need to work together. In industry terms, they want applications portability, interoperability, open networking and heterogeneous systems management across multiple platforms.
Open technology also means investment enhancement. Today’s customers want to build on what they have, to modify it and evolve it. That means not only protecting their investment in the hardware and the system software, but also in applications, data and training. They want to make sure they have continued access to a broad range of applications. The continuity and availability of the solutions we offer is a number one priority to these customers. The truth of the matter is that Digital is committed to delivering open technology and has been for a long time, as our products and programs such as our Open VMS, ACE, client/server and NAS services prove. We have not communicated that well enough. We are, in fact, leaders in developing open computing, open networking, multi-vendor integration, and multi-vendor systems management.
Underlying our approach is an expanded definition of openness, based on our customers’ real requirements and built on several levels of meaning.
Our competitors typically deliver just lower levels. We deliver the highest level of openness.
The simplest form of open is a single hardware architecture available from multiple vendors. The Sun SPARC chip, which is available from four or five clone vendors, fits this model. But if you want distribution channels for those clones, things become a little less open.
An expanded level of open technology involves a single software architecture - such as UNIX* or MS-DOS* — running on multiple hardware platforms. This is the area where the ACE initiative fits in and open client-server computing and our DOS and UNIX networked personal computers.
The next level relates to standards. Standard interfaces provide the flexibility to port and also to interoperate across multiple hardware and software architectures. These are standards under the control of the community in general, and not any individual vendor. Examples are OSI, SQL, Motif* as a user interface and POSIX. This is an area of great strength for Digital.
But the reality of today’s environment is that many of the world’s systems don’t adhere to standards, and the systems that do don’t necessarily interoperate with the rest. This necessitates a fourth level of openness that takes those initial three and integrates it into customers’ existing systems.
With Network Application Support (NAS), Digital is far ahead of the competition in insuring that our customers’ existing non-standard systems, such as Macintosh*, MS-DOS and OS/2* are integrated into open environments. On NAS, we also provide service and interoperability for standards-based systems, such as Sun, HP and IBM’s AIX. The bottom line is that Digital already provides greater vendor-independence, flexibility and investment enhancement for customers requiring open technology than any other vendor.
Openness requires the power to use the technology. It requires open services — the ability to supply and deliver the planning, design and implementation and managment that makes it easy for customers to fully absorb that technology. Digital is a leader in open services. For more than ten years, we’ve serviced multiple vendors’ equipment. We now service some 8,000 different products from 800 different vendors. We have more than 2,700 professionals supporting different varieties of UNIX. We have more than a thousand inventory locations around the world stocking Digital and non-Digital parts. Just two years since we formally announced our entrance in the systems integration marketplace, as a prime contractor, we’re already ranked among the top five vendors in this area. Coupling this with service alliances with other major systems integrators, we have expanded the range of multi-vendor environments and the scope of support we can offer, and have set the standard for the definition of "open services."
Open Business Practices
Underlying the demand for open technology and open services, is a set of attitudes, policies and organization directions that we refer to as "open business practices." This means technology, services and solutions that support a customers’ business must not only have high quality in themselves, but must be accessible in a high-quality, accessible manner. For example, in announcing our Open Network Licensing program next week, we’ll talk about licensing DECnet Phase IV through third parties. We’re also committed to licensing NAS products on non-Digital platforms. We’re moving towards packaging and pricing our software and systems products in a way that relates much more to the functionality and the number of users supported rather than just the size of the central processor on which those products run. These open business practices, together with open technology and open services, provide an Open Advantage for our customers.
But why is this approach good for us? Why would Digital want to lead in a world where competition is fierce and margins are low?
This is what our customers want. Even customers who are perfectly content with the commercial strength, production quality VAX VMX solutions that we deliver and will continue to deliver, feel that their investments are being protected by our opening our VMS software. Other customers have asked for openness, and have little patience or need for computers companies that are not open.
At the same time, we believe that it’s in Digital’s best interest to push for open systems. Today about 6% of the world’s computing is done on Digital systems, making us a world leader. But we’re interested in the other 94% of the market as well. If the open world really does provide true applications’ portability and interoperability, it will remove one of the biggest inhibitors to changing systems — the cost of migration.
And, as Ken Olsen said at the ACE announcment, if openness means that we have to compete on our ability to offer added functionality, high quality, competitive price/performance, and excellent service, support, software and solutions, we think that’s great. Openness means increased opportunity for Digital.
It also means that we can focus on what we do best, which is engineering, manufacturing, delivering high quality products, services, solutions and networking, and then integrating them with everyone else’s. That is, we can focus on strengthening and expanding our core competencies while letting other companies do what they do best.
Recent ads and all of our current marketing campaigns for networks, production systems, client-server computing, software development, services, Open VMS software and UNIX are an inherent part of the Open Advantage campaign. But, the Open Advantage is also part of our strategy for technology, services and business practices.
For our customers, the Open Advantage represents the power that comes through open technology, that integrates the best of what they have with the best of what’s to come; through open services that make it work together; and through an open business attitude to do what it takes to more than satisfy each of those customers.
In many ways, Open Advantage is a return to our roots - Digital’s history and core values. We’re open in the way we work and in the products we build and how we deliver products, services and solutions to customers.
* UNIX is a trademark of UNIX Systems Laboratories, Inc.; Macintosh is a trademark of Apple Computer, Inc.; Motif is a trademark of the Open Software Foundation; MS-DOS is a trademark of Microsoft Corporation; and OS/2 is a trademark of International Business Machines Corp.
The mission of the VIPS Business Unit is to deliver profitable, cost-competitive printers and video products that run on virtually any host computer system (VMS, UNIX, or MS/DOS) directly attached or in a network mode. As computer networks grow so does the market opportunity for text terminals. Digital, as the high reliability, low-cost industry leader, continues to gain market share in the PC LAN area but our main investment and growth area in the near future are X-Terminals, PostScript* printing and networking.
X-Terminals are highly networked desktop devices capable of performing applications which conform to the X Standard as well as terminal applications running on any host platform on any networked environment. These devices bring the networked productivity and flexibility of the graphic user interface to the terminal desktop. Growth and demand for X-Terminals is fueled by the expansion of networks, the functionality of workstations and the thousands of terminal applications available to the user for all industry segments. An X-Ter- minal on the network with access to a host computer provides outstanding graphics capability and workstation functionality at attractive cost levels. Current industry-wide volume estimates for X-Terminals project growth and demand from 250,000 units per year in 1992 to 1.5 million units per year in 1994. We plan to play a dominate role in the X-Terminal market by providing a leadership product that combines innovative engineering with world-class reliability and low cost of manufacture. Our innovative engineering can reduce network and host loading to provide improved efficiency in the execution of applications. This unique Digital capability can improve the performance of an application by as much as 100%.
PostScript is a function-rich printer language licensed from Adobe. Incorporating test, graphic and image capability, it is a software language that is analogous to an operating system for printers. PostScript has been incorporated in Digital laser printer products introduced since 1986. Its functionality combined with DECprint network capability provides a leadership set of printing products from the desktop to high-end production systems.
Our competitive advantage in this commodity market is that our range of products can communicate on a network with both printers and terminals. The user can, with commands in simple language, deliver material from any PostScript printer, at any time, any place in the world.
We complement our product advantages with demand-creation programs, including advertising, to ensure that customers clearly understand the benefits our products bring. These benefits include reliability, versatility, and functionality that truly reflects the customer’s requirements. The process of determining current and future customer requirements and factoring them into the design of products is part of our "Six Sigma" quality program.
Our revenue goals are ambitious. We are planning for this business to double over the next four years, which presents a few organizational challenges. We have the talent and the commitment to maintain products at world-class levels. Strategic plans for channel expansion are now being implemented and demand creation is now embodied in all business plans.
We are placing far greater emphasis on marketing than in the past, as is the company as a whole. The New Management System contributes to this effort. Product and marketing decisions as well as the entire spectrum of business activity from design to delivery, from quote to collection, is coordinated and focused in the business unit which is responsible for the business results. In the VIPS organization, engineering and marketing, including channels marketing, product management and marketing communications, implement a shared strategy that drives the business. The channels components are tied to the US, Europe and GIA. The result is one plan implemented on a worldwide basis.
* PostScript is a trademark of Adobe Systems.
The latest changes in export controls have removed barriers to the sale of most Digital products in the emerging markets of Eastern Europe. The new controls, embodied in the "Core List" finalized at the May 23 meeting of the Coordinating Committee on multilateral export controls (COCOM), will take effect September 1.
These rules will enable customers throughout Eastern Europe to purchase, without obtaining individual export licenses, substantially more powerful Digital computer systems. Newly "decontrolled " products include VAX 6000-430 and VAX 6000-520 midrange systems, VAX4000 servers, and UNIX-based DECstation 3100 workstations. limits on a system’s internal memory were also eliminated. The MicroVAX family of computers was decontrolled by COCOM in 1990.
COCOM, which consists of all NATO countries (except Iceland) along with Japan and Australia, also relaxed controls on even more powerful computers. Many systems in this category will require licensing times of only two to three weeks. While still requiring Individual Validated Licenses (IVLs) for export to the former Warsaw Pact countries, they will carry a presumption of approval if the end use is civilian in nature. Digital systems in this category include DECstation 5000 workstations, DECsystem 5810 departmental systems, and VAX 6000-440, VAX 6000-450, VAX 6000-460, and VAX 6000-530 midrange systems. Even larger systems, up to and including Digital’s VAX 9000 mainframe computers, will be approvable with somewhat longer time periods for review.
"We are clearly seeing a recognition by the U.S. Government and its COCOM allies that it no longer makes sense to restrict the flow of modem information technology to countries that desperately need it to modernize their infrastructures and succeed in reaching their goals of market-oriented economies and democratization," said Lee Mercer, Digital’s Corporate Export manager.
"Many of the export-control barriers that have once prevented the world’s leading computer companies from offering their technology to the modernization process in Eastern Europe have been significantly lowered," continued Lee. "The U.S. Government and its COCOM allies have committed themselves to a presumption of approval for computer systems to the Soviet Union and Eastern Europe."
Digital’s strategy of investing in the emerging markets of Eastern Europe began in early 1990, with the creation of a joint venture in Hungary. The venture, Digital Equipment (Hungary) Ltd., which is 51-percent owned by Digital, has exceeded expectations in its first year and now employs 80 people. Digital has also announced its first wholly owned subsidiary in Eastern Europe - Digital Czechoslovakia - and has put into place a multifaceted strategy to address the opportunites created by the unification of Germany. Further investments in Eastern Europe will be announced in the coming months.
COCOM has addressed the widely reported computer industry concerns regarding the licensing of software, particularly networking software. Although there are still implementation questions to be addressed, it is clear that COCOM intends to decontrol all software that is sold via mass-market channels, and to focus networking controls only on systems incorporating wide-area networks. Local-area networks are decontrolled; wide-area networks for civilian end users in Hungary, Czechoslovakia and Poland will require only two-to-three- week review cycles for approval. Although wide-area networks in the USSR and China will still require full COCOM review, there will be a presumption of approval for civilian end uses.
In singling out Hungary, Czechoslovakia, and Poland for special treatment by COCOM, the new regulations have recognized their adoption of domestic export-control regimes as well as the progress each has made toward market economies. COCOM also signalled its intention to remove the three countries from control altogether pending evaluation of their internal export control systems.
"The question is no longer ’if’ we can get an approved license for most of our customers, it is simply a question of how long the review cycle will take," noted Lee. "The U.S. Government has committed to processing these cases just as quickly as other COCOM member nations, which is of great importance to U.S.-based exporters."
Industry representatives, led by Digital, worked closely with the U.S. and other COCOM governments to define and adopt a new metric for quantifying computer performance for export purposes. Composite Theoretical Performance (CTP) replaces the Process Data Rate (PDR) metric traditionally used.
"CTP is a fairer and more objective measure of the theoretical capabilities of dissimilar machines than PDR," noted Lee. "The PDR measurement often resulted in computers with similar functionality being categorized differently. CTP creates a level playing field.
"For Eastern Europe, perhaps the most important change to emerge from this year-long process is the fact that the decontrol line no longer represents a virtual embargo line," explained Lee. "The U.S. Government is committed to a presumption of approval for all licenses to civilian end users in Eastern Europe, including the Soviet Union. Non-military customers can reasonably expect to obtain approval for Digital products regardless of where they fall on the scale of power and performance.
"Although the complete overhaul of the export control system anticipated by some has still not materialized, significant progress has been made," Lee continued. "The rate of technological advances in our industry still moves more quickly than the existing process for export controls. This challenge must be addressed in future COCOM discussions."
Rose Ann Giordano has been named vice president of U.S. Marketing, reporting to Don Zer- eski, vice president, U.S. Area. In this position, Rose Ann will work in conjunction with Bill Johnson and Pete Smith in their product and application marketing roles, with the goal of ensuring that Digital becomes the leading supplier of products, services, and solutions to its U.S. customers. She will be a member of the U.S. Management Team and the Corporate Marketing Planning staff.
"In this new role, Rose Ann will bring together all current U.S. Marketing efforts into a cohesive set of programs focused on achievement of the U.S. Plan," noted Don. "She will work collaboratively with Bill Johnson, the PCUs and IBUs, to heighten the leadership image of Digital in target markets and accounts; build buyer confidence in Digital products and services, and be the advocate for U.S. customer needs. This entails creative packaging, promotion and pricing of Digital products, services, and solutions to ensure that the U.S. sales force can articulate the benefits of new products with appropriate demonstrations, characterization tools, and promotional materials."
Rose Ann will be responsible for all U.S. Product and Service Marketing, U.S. Advertising, U.S. Communications and U.S. Area Public Relations. She will also be responsible for the integration of current U.S. Marketing efforts, such as Corporate Leaders Forum, Consultant Programs, and Channels Marketing, into a single, cohesive marketing effort.
Since joining Digital in January 1979, Rose Ann has held product line, marketing and sales management positions. In 1984, she was appointed vice president and Corporate Officer. She assumed her current position as vice president, Eastern States Accounts, in October 1989. Rose Ann’s position as vice president of Eastern Accounts and State and Local Government Accounts will temporarily be filled by John Alexanderson. She will retain her position as Corporate Officer for DECUS.
Digital has formed a Components Business Group responsible for marketing Digital’s peripherals, networks, software and state-of-the-art component products to computer product manufacturers. According to Jim Willis, group manager, "Digital has developed key technology products that are being supplied to other companies as components of their own product set, both at a peripheral level and a sub-component level. There is a significant level of interest that we view as a major business opportunity in these important advanced technology areas.
Formation of this business is an extension of Digital’s on-going commitment to both engineering excellence and the original equipment manufacturer (OEM) market. Investment in basic research and development in components has continued at a high rate which has resulted in an increasing flow of basic component technology, referred to as base technology, for both hardware and software products.
According to Grant Saviers, vice president of Personal Computers and System Peripherals, "Our research and development investment is fundamental to the success of the company. This effort, combined with our world class manufacturing capability, has generated significant interest among major manufacturers who are seeking reliable and skilled global suppliers."
This initiative is also a continuing expansion into OEM markets, reflecting Digital’s historic commitment to resellers. It includes the creation of a dedicated sales force to exploit this opportunity. "We believe that we are responding to manufacturers who view Digital’s technology products as a significant contributor to completing their own solution," noted Jim. "Digital has thirty years experience as a reliable supplier in these OEM markets and we are extremely pleased with the customer interest to date."
Digital and Asea Brown Boveri Inc. have formed a new company, EA Information Systems, Inc., headquartered in Alameda, Calif. EA Information Systems, Inc., is a subsidiary of Digital with its own Board of Directors. Digital owns 80% of the new company, while ABB owns 20%.
EA Information Systems, Inc., is based on ABB’s Engineering Automation Software Division, a leading supplier of 3-D plant design and engineering document management systems to engineered product markets within the power, process and manufacturing industries. All members of the original management team, including Joseph Morray, Jr., company president, have assumed similar management roles in EA Information Systems, Inc.
According to Robert Home, vice president for Research & Development Systems, "The establishment of EA Information Systems, Inc., provides customers with an engineering automation solution that encompasses the complete plant cycle — from design to operations — distributed and supported on a worldwide basis."
The new company’s products include PASCE[*], an engineering system for operations, analysis and design; and Resolution*, an engineering document management system for the full control and distribution of engineering drawings and other documents.
Robert noted that the move emphasizes Digital’s close alliances with leading software suppliers for key markets. Process engineering systems are critical to those customers who must control and maximize plant engineering information to meet new environmental and safety regulations. Software packages from Aspen, Autodesk, Bentley Systems, Excalibur Technologies and ProSys all integrate with products from EA Information Systems.
Asea Brown Boveri Inc., headquartered in Stamford, Conn., and its subsidiaries provide products and services for the power, process, automation, environmental control, transportation and other markets. It is part of the ABB Group, Zurich.
Dan Thatte has been named manager of Digital Services Business Systems and Methods group, reporting to Russ Gullotti, vice president, Digital Services. In announcing the group, Russ explained, "Within Digital Services, we are striving to insure that we have the best business processes and systems to enable us to delight our customers and enhance our profitability. This means creating internal systems, as well as developing methodologies, tools, and associated training to assist customers in integrating people, business and technologies.*
Specifically, Dan and his team will work closely with the Services Business Units, geographies and the Digital Information Management & Technology (IM&T) function to:
o Assist Services Business Units in the establishment of business architectures, practices, processes, policies, and procedures;
o Establish and implement information, data and systems architectures in support of Services business needs; and
o Develop and implement a common portfolio of methods, techniques, guidelines, integrated tools and professional development and training programs for the Systems Integration, Support Services and Consulting business units.
Dan will be a member of Dan Infante’s Corporate Systems Steering Committee.
In his 15 years at Digital, he has held a number of positions in Customer Services, EIS, Manufacturing, Logistics, information systems and new ventures. Prior to Digital, Dan spent 11 years in the high-tech industry in various IS and industrial engineering positions.
Thomas Phillips, retired chairman of the board and chief executive office of Raytheon Co., has been elected to Digital’s Board of Directors.
Mr. Phillips retired as Raytheon chairman and CEO on March 1. He now serves as director of that diversified company, which is active in electronics, aviation, appliances, industry and environmental services, publishing and construction.
He joined Raytheon in 1948 as an electronics design engineer and rose through a series of engineering and management positions. In 1960, he was elected vice president of Raytheon and appointed general manager of its Missile and Space Division. He was named executive vice president of Raytheon in 1961, president in 1964, CEO in 1968 and elected chairman of the board in 1975. During the 1960s and 1970s, he was the architect behind Raytheon’s diversification into commercial businesses.
He is a director of the John Hancock Multual Life Insurance Co., State Street Investment Corp, and Knight-Ridder, Inc. In addition, he serves as trustee of Gordon College and an honorary trustee of Northeastern University. He is also affiliated with the Business Council and the National Academy of Engineering.
His public service commitments include membership on the Executive Committee of the United Ways of Eastern New England and the corporation of the Joslin Diabetes Center. He is also a director of the Laymen’s National Bible Committee, Inc.
Crenshaw has joined the corporate Trade Organization
as International Trade Development manager, reporting to
Cliff Clarke, corporate manager, International Trade and
Policy. In her new job, she will identify new and emerging
growth markets for Digital. In developing trade, the
emphasis will be on reducing time to market by better
integrating and leveraging existing resources throughout
the corporation. Her immediate attention will be focused
on the Middle East, Africa and Central and Eastern Europe.
Prior to this position, Sallie was Global Programs manager
for the Telecommunications Business Unit. From 1980-1987,
she held marketing and business development management
positions in Para- dyne-AT&T, both in the U.S. and
Sergio Giacoletto has been appointed vice president, Services Europe, reporting to Pier Carlo Falotti, president, Digital Europe; and Russ Gullotti, vice president, Digital Services. Sergio was previously vice president, Enterprise Integration Services (EIS), with responsibility for Systems Integration, Professional Services and Information Technology in Europe. He had been Director of Information Systems for Europe since 1984. After joining Digital Turin in 1974, Sergio spent three years establishing and managing the Turin Software Services branch before moving to the South-West Europe Region headquarters in Geneva to start a Technical Support Group. He was later responsible for the Field Service support organization and was instrumental In establishing Customer Support Centres in each country and the European Technical Support Centre in Sophia Antipolis, France.
Susan Schweizer has been named Telecommunications Strategy and Service manager, reporting to Peter Brown, Corporate Telecommunications manager. In this role, Susan will lead the development of the strategies for service delivery and management of Digital’s corporate data, voice, and video networks, as well as network applications. As Digital’s Data Network manager for the past two-and-a-half years, Susan developed and delivered the strategy, plans and tools required to support data network services for Digital employees throughout the world. Prior to joining Digital seven years ago, she was a member of the graduate faculty at Simmons College in Boston and a teaching fellow at the University of Pittsburgh.