mgmt memo
Vol. 10 No. 7__________________________________________________
Aug./Sept. 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 seltzer@seltzerbooks.com
Review Of The
Norwegian Pilot Project by Birger Kvaavik, Country Manager, Norway
The Role Of The New
Corporate Marketing Planning Organization
Update On Digital
Services by Russ Gullotti, Vice President, Digital Services
Philips And Digital
Agree
In Principle To The Transfer Of Information Systems
Activities
Corporate Licensing
Office Formed
Digital’s
year-end financial results include a restructuring charge of
$1.1 billion or $8.18 per share. Basically, this charge is for
costs associated with downsizing, facility consolidation and
equipment writeoffs. A portion of these costs occurred in the
fourth quarter of FY91, but most will occur in FY92 and
beyond. The cost savings benefits from these actions will
increase progressively quarter by quarter.
In large part,
we are driven by technology. Our systems become ever more
powerful, but considerably less complex, requiring less work
to build and to service. And through our use of our own
technology, our productivity in all areas — administration as
well as engineering and manufacturing — has been increasing
faster than the market has been growing. At the same time,
changes in the industry have led to the proliferation of ever
smaller and less expensive systems, with high competition and
lower margins, which makes it all the more important to keep
costs competitive. These trends are forcing not just Digital,
but the rest of the industry as well, to make fundamental
structural changes, to streamline, simplify and eliminate
work.
Over the last
two fiscal years, we have recognized restructuring costs
totaling $1.6 billion. These restructuring actions must be
taken in order to remain competitive in our changing
environment. The important thing is that we have made the
decision and now must complete the actions as quickly as
possible. Future cost savings expected from restructuring
will help future earnings.
In FY90, Digital
had restructuring charges of $550 million. The majority of
that money was spent on the people-related costs of
downsizing. We did, however, at the same time reduce our
facilities by about 4 million net square feet.
The FY91
restructuring charge - $1.1 billion - is currently planned to
be split about evenly between people-related and other
expenses (including facilities and equipment). That includes
writing off equipment that is no longer useful because of
excess capacity and technology change (obsolescence).
When we started
this effort, we set targets for ourselves to get our whole
structure to be world-class competitive. We’re not just
trimming. We’re making what we have better than it was before.
Part of the
facility expense is for leases on buildings that we are
closing as we consolidate operations. For instance, when we
consolidate several leased buildings into one building (as we
did with the new Powdermill Road facility, MS02, in Maynard,
Mass.), the leases in the buildings we are leaving may have a
year or two to run and we may not be able to sublet them. In
other words, while we do see immediate savings from the
consolidation, we have to write off the cost of the leases
for the unoccupied buildings, as well as other expenses that
continue after we move out—such as property taxes,
electricity and maintenance. Those costs can all be written
off at the time of restructuring.
With this
restructuring charge, the company takes all these one-time
costs associated with a major change in the business and
expenses them at one time. This way we get them behind us. We
get them out of our cost structure. Then future operating
financial results will reflect just our day-to-day operations
and not costs that we are carrying as a result of
restructuring the coporation for world-class competitive
operation. We can write that activity off today and then go
forward.
Margin improvements
Analysts
noted a number of positive points in our results, including:
o
product gross margin up 2.6%,
o
service gross margin up 3.5%,
o
operating income up 62% (pre-restructuring)
o continued
product momentum particularly at low end, with PCs and RISC
workstations up over 100%, continued growth in VAX 4000 and
MicroVAX 3100 systems, and
o
strong service growth, up 23%.
Revenue growth and
the effect of currency
Total operating
revenues for the fourth fiscal quarter were up 17% from a year
ago; and operating revenues for the year were up 7 %.
Excluding the
effects of currency changes, our year-to-year growth was
nearly flat. Even so, our revenue picture was better than the
results posted by many others in the industry.
Balance sheet
Digital has one
of the strongest balance sheets in the Fortune 500. We have
almost $2 billion in cash and very little debt. We are
extremely strong financially.
Our inventory
performance in the fourth quarter was outstanding. Inventories
declined $48.4 million in a quarter of high volume with
tremendous changes in the mix of business. In addition,
accounts receivable showed a sharp improvement. In a quarter
when we have our seasonally highest revenue growth of the
year, we were able to improve our accounts receivable
performance significantly over the previous quarter. Both
these factors contributed to our positive cash flow in the
quarter.
Cost reduction
efforts
On a
year-to-year basis the costs of the corporation grew at a low
single-digit rate — still too high for flat revenue growth,
but a good trend nevertheless. That cost performance shows
the benefits of the programs that were recently put in place.
They were effective and they need to be continued in FY92. In
fact, because of the increasingly competitive environment, we
need to work even harder on costs in FY92.
We’re not
anticipating the economy to improve dramatically, and the
marketplace is getting even more competitive. Therefore our
efforts to reduce costs while increasing revenues have to be
even greater in FY92 than in FY91.
A relatively
small business entity, Digital Norway is in many ways
representative of the Account Groups now being put in place
across Europe. In fact, the Norwegian marketplace seemed to be
a few years ahead of the rest of Europe since zero growth and
open systems became the hymn of the computer market in Norway
in 1987. Therefore, some of our experiences may be of
interest to those who are in the middle of the change process
right now.
The Norwegian
computer market has been shrinking in recent years. So while
Digital in Norway has stayed at a flat total net operating
revenue (NOR), we have actually increased our market share
from 5.7% to 7.1% over the last five years. Over the same
period our overall investment level in Norway as a whole has
decreased 10% in 1988, 15% in 1989 and 10% again in 1990. We
expect 1992 to be the first year with an significant increase
in investment --5%.
After several of
years of zero or close-to-zero growth, Pier Carlo Falotti
presented us with a challenge. "We believe that instead of
feeling bad about the situation, the Norway Country Management
Team should have the opportunity to learn and be a living
example and pilot of how to prosper with zero-growth in
revenue. We have directed them to assume they
are a
distributor who has to survive with this situation and take
all the necessary actions to simplify their processes,
organization and reporting and take any other initiatives
they feel are needed in their context."
When
starting this pilot project, we were faced with three key
questions:
o
How can we be profitable in a zero growth market?
o How can we
reposition indirect support resources to become more
beneficial to our customers?
o
How can we best handle the technology shift towards
commodities and open systems?
The purpose of
the pilot project was to enable Digital Norway to meet its
financial targets in a zero growth market. Our mission was
"to find innovative ways to free up the maximum possible
resources to be used for customer oriented needs and work."
Our
four key objectives were:
o
Put in place an empowered, effective account management
organization.
o Further
develop our administrative and technical support systems (back
office) to give first class support to the account manager.
o Retrain
employees and provide stimulating work and if necessary, make
use of extended education and/or relocation. (Establishing a
feeling of security and trust is very important in this area.)
o Develop
first-class communication regarding the work changes made so
that everyone knows what is happening and, therefore, can
contribute.
We started by
defining "The Rules of Engagement" in a fifteen-page document
that gives everyone an agreed-upon set of standards of
interaction.
We learned that
change is difficult to cope with - especially when it is your
job content that changes. Many senior managers left during the
change process. Only two of the 11 members of the former
Country Management Team have the same role today as they had
two years ago. Only five of the former CMT are now part of the
Norwegian Management Team. Six new managers have now joined
the team. We learned the hard way that the best leaders during
the growth period may not be the best ones during tough times.
It takes a lot
of effort from the team to create and agree on a clear vision,
purpose, mission and objectives. Support from an independent
and experienced consultant is critical to success in this
effort.
We also learned
the importance of involving customers in the change process.
Our Customer Advisory Board has been helpful in shaping our
new organization.
We succeeded in
reducing the size of our organization and increasing
productivity without loss of quality. We are proud of our
achievements during the two-year-long pilot project:
o We reduced indirect resources from 38%
of our total to 24% in two years.
o We have
reduced the number of employees by close to 20%. This included
reducing from 390 person-years to 336 person-years without a
formal transition program. In addition, more than 20 employees
left during May and June this year as part of a formal
transition program. As a result, we started Q1 FY92 with less
than 320 people.
o Through open
communications during this difficult time we managed to keep
the morale, energy and motivational level high.
o We reduced
subsidiary expenses more than 10% during a period when annual
inflation in the country was 4%.
o
We managed to keep Digital’s NOR stable while the total market
was shrinking, o We put in place a new management team and a
very different structure. The necessary
organizational
pruning, based to a large extent on work analysis, has been
successful, while maintaining high morale in the organization.
We have now been
running with an account-based organization for a full year.
The Account Group managers have assumed full responsibility
for their customers with enthusiasm. Their responsibility for
profit as it was defined (Business Contribution Margin - BCM)
made them very conscious of product mix, NOR, expenses in
terms of Sales, EIS and Administration resources as well as
the devastating effect of discounts and allowances on their
bottom line. The pain of not forecasting and communicating
resources needed for projects, particularly from EIS, has come
into very sharp focus.
We knew from the
start that our systems do not support the Account-based
organization. It proved to be very cumbersome for the Account
Group managers, and we welcome the new Account-Based
Management Reporting System. Account managers and Account
Group managers will use this to tell where they stand with
respect to their financial goals.
A dedicated
project manager for the change process was crucial to the
success of the implementation. The role of a strong project
manager was crucial to us in solving conflicts, maintaining
good corporate values, and keeping the necessary discipline in
the process. We put particular emphasis on communicating with
the employees and showing a clear direction.
While we have
now brought the Norwegian pilot to a conclusion, the spirit
will remain the same. We are prepared to operate in a
close-to-zero-growth market, and we will continue our efforts
to optimize resources in a market that requires open systems
and commodities as well as solutions and system integration.
Our dedication
to organizational change has not, however, prevented us from
making longterm investments. We have been successful with
investments in three large projects (Defense,
Telecommunications and National Taxation System) - from which
we expect to reap benefits during the next few years. These
were high-risk investments with relatively high initial costs
and all of them were decided in our favour.
In all the work
we have done in organizational changes and reassigning or
eliminating work, we have strived to increase the quality of
what we do in order to delight the customer. Therefore, it is
only natural that we will, under the Total Quality umbrella,
continue the work we started with the pilot. We will focus our
effort now on improving the quality of the work we do
face-to-face with customers. We will seek reliable and
pertinent feedback from customers to find out if we are, in
fact, delighting them and living up to our vision.
To do all this
we need to focus on employee empowerment and simplify our
internal behavior and measurement systems. We want to put top
management priority on measuring the kind of behavior that
leads to quality.
Strategic
alliances and relationships have become commonplace in the
computer industry in response to multiple driving forces.
Competition has intensified. Strong contenders have emerged,
most notably Japanese companies, which have "deep pockets" and
vertical integration capability. The playing field is now
international as global markets have opened. Growth has slowed
in the U.S. Europe is preparing for 1992. Available capital
has shrunk as a result of the 1986 tax increase on capital
gains. Rapid technology changes have shortened product life
cycles, demanding greater flexibility for a company to respond
in a timely fashion. Customers have become more knowledgeable
and proactive in setting standards, selecting operating
systems, endorsing open systems and educating their management
teams. In this environment, many companies, including Digital,
have discovered that they can no longer do everything
themselves.
Partnerships are
now an explicit piece of Digital’s overall strategy. These
powerful tools enable us to expand and enhance market
opportunities and save investment dollars by focusing on our
core competencies. A network of partners now shares in the
resources, investments, risks, and market opportunities.
Over the past
five years, Digital has become increasingly more active in
partnering with many different groups, including technology
suppliers, software vendors, universities, government bodies,
industry groups and venture capitalists. We now sometimes find
ourselves in the dual role of competitor/collaborator,
partnering with some of our competitors. Examples illustrate
the variety of Digital’s efforts.
Our External Research Program works with
over 150 universities and research centers worldwide allowing
some of the best and brightest minds to collaborate on
research that will have significant impact on the world of
computing.
Our leadership in many standards
organizations and industry-wide groups, such as the Open
Software Foundation (OSF), X/Open, and the Advanced Computing
Environment (ACE) initiative, has enabled us to enhance
customer value through multiple sourcing and accelerating
standards.
Relationships with selected vendors, such
as the following, have helped customers to work more smoothly
in a multi-vendor computing environment and to extend our
product set and capabilities.
o
Cray Research — A cross-license agreement and technical
exchange effort enhances the efficiency of major users of
supercomputing technology.
o Tandy - Digital is an OEM for personal
computers in the U.S. and other markets.
o
Olivetti — Digital is an OEM customer for personal computers
in Europe and for lap- tops/notebooks worldwide.
o MIPS Computer Systems - Equity
investment and RISC chip technology license.
o
NTT - Digital was selected as part of Multivendor Integration
Architecture (MIA) Consortium to set computer architecture
standards.
o
StrataCom — An OEM and equity arrangement for a component of a
wide-area networking product.
o
Consilium — Equity agreement for manufacturing shop floor
software and compatible products.
o Engineering Automation (EA) - Joint
venture with ABB for process industry software.
o Quest - Equity
and technology license for ceramic technology and manufacture
of specialized parts.
These examples also illustrate the variety
of forms of partnership available. A partnership must be
structured to meet the needs of both parties. For Digital, it
must fit within a business unit’s plan and conform to
Digital’s product architecture, meet the required financial
model, and support the corporate strategy. If one is dealing
with a competitor, it is even more critical that the needs and
areas of cooperation vs. competition be defined as clearly as
possible.
A combination of
tools can be used to create the best relationship. The more
closely a relationship is tied to a core competency, the more
tightly controlled should be the structure of that
relationship. The tools can range from distributor
arrangements to a controlling equity investment. Two
constraining factors make the use of equity the exception
rather than the rule to meet a common objective. Jim Osterhoff
has stated that dollars for capital investment will be
constrained in the foreseeable future and Digital’s cost of
capital is high. Other arrangements such as technology
exchanges, joint R&D, technology licenses, OEM contracts,
and distributor arrangements, enable us to leverage
relationships without necessarily using equity.
Our company-wide
benchmarking efforts will provide us with data on what will
make us a world-class competitor. Partnering is a way to
achieve that status. A mutually- beneficial arrangement will
allow us to:
o
focus our efforts on core competencies,
o
lower our investment in areas not considered core
competencies,
o
increase revenue in our current accounts,
o
allow faster penetration or entry into other markets,
o
provide greater flexibility and responsiveness to product
cycles,
o
broaden our set of alternatives, and
o
leverage core competencies of other organizations.
The Strategic
Relations Group is a core group of a dozen people who focus on
non-tradi- tional, complex licensing and funding arrangements.
We provide the expertise to help Digital’s business managers
understand available alternatives and to fully work through
the type of relationship they may need to develop. We also
help coordinate the effort to ensure the appropriate legal and
financial advice. However, long-term ownership belongs in the
line organizations.
In addition to
the core SRG staff, over 50 people in Digital focus on
developing relationships with other companies.
The Investment
Review Committee (IRC), established in 1990 by the Executive
Committee and chaired by Jim Osterhoff, reviews and approves
all capital and investment requests. The IRC has created a set
of guidelines for this process. These are available from John
Doherty, Strategic Relations, DTN: 223-5300 or Steve Whitney,
Central Finance, DTN: 223-4495.
Our experience to date has shown that the
right partnership is effective in cost reduction for
technology access and accelerating market opportunities. We
encourage managers to take advantage of this powerful tool and
include it as a natural part of their business plans.
The recently
completed Project Athena was an eight-year project undertaken
by the Massachusetts Institute of Technology (MIT), Digital,
and IBM to provide a high quality workstation-based
distributed computing environment for research and education
at MIT.
Digital derived
a variety of benefits from its participation in Project Athena
including setting standards, and developing product prototypes
and requirements. Athena was a testbed for product evaluation,
a showcase account, a developer of people and a neutral
environment for working with other vendors. In some instances,
the technologies were prototyped at Athena and then developed
into products elsewhere. In other cases, the concepts were
stimulated by activities at Athena and prototypes were
developed elsewhere. The best known product handed off to
Digital from Athena is the X Window System in the DECwindows
product. Today, the X standard is supported by every major
manufacturer of workstations. Another development of Athena
was the Kerberos authentication service, which has also been
endorsed by every major vendor of workstations.
Perhaps more
importantly, Athena implemented and validated the
client/server model of distributed computing and, in this
context, developed an advanced set of system management
services. These services have attracted world-wide attention
as perhaps the only cur- rently-available solution to managing
large numbers of workstations in a heterogeneous environment.
The External
Research Group within Digital used Project Athena as its first
example of getting innovative technologies to commercial
customers, generating revenue for the company and then
mainstreaming or spawning the business into within the
company.
The old model of
technology introduction consisted of five steps: 1) do
research, 2) hand off to advanced development, 3) hand off to
a product development group, 4) do the development and then
5) ship to customers and support. This "waterfall model" of
technology introduction generally took 5-10 years and often
failed or was too late. The new model is to take product
directly from research to selected customers who need it and
are capable of dealing with the problems inherent in using
research prototypes.
External
Research established an Innovation Technology Resource Center
with the mission of developing, deploying and supporting
innovative technologies for non-academic and academic
customers in order to accelerate new corporate offerings. The
ITRC is a virtual or fluid organization made up of a mix of
business units within Digital who collaborate for the purpose
of establishing themselves early in a nascent business. The
Advanced Systems Development Group in conjunction with
educational marketing, external research and the ULTRIX
Resource Center developed, marketing intailed and supported
what became Digital’s implementation of Project Athena
software called "DECathena". Due to the fact that DEC- athena
is not just software, but a set of configuration and
practices, it is sold as a Service Product.
DECathena
provides an excellent migration path to OSF/DME (Distributed
Management Environment) and uses many of the components
already accepted by OSF for the DCE (Distributed Computing
Environment).
DECathena also
provides additional elements critical to the cost-effective
management of distributed systems that are not yet a part of
the OSF architecture. By working with commercial customers, we
are giving them a head start on where the industry is going,
and we will work with them to take care of any changes as
further development proceeds. Customers benefit from
installing a DECathena environment through managing a large
number of distributed workstations from a central location,
thereby decreasing systems and operations costs through
simplified maintenance and distribution, decreased staff
required to install, repair and update systems and effective
allocation of resources on the network. They also enjoy the
increased security and support of other workstation clients.
After successful
installations at Smithkline Beecham, Kodak, and Dupont,
Digital announced DECathena as a Services Product offering
with rollout in the September/October timeframe. Subsequently,
First Boston also ordered a pilot system and Kodak ordered
DECathena for a 500 workstation operational system. A new
Integration Business Unit (IBU), managed by Jim Neumann, has
been formed to focus on deployment of DECathena as Digital’s
first "Open Systems Services Offering" for management of large
scale distributed workstations in a heterogeneous environment.
In addition, the continued development of the DECathena
software will transition from the Advance Systems Development
Group to The New Software Group in Central Engineering.
Because of the
advent of open systems, workstation operating system software
and hardware have become commodity products. However, because
DECathena is the only available solution to the workstation
management problem, and because only Digital supports
DECathena, this technology has become an important
differentiator that gives Digital salespeople entry to
accounts where they otherwise would have no reason to visit.
It also has generated significant customer interest in
Digital as having a unique advantage in an otherwise
undifferentiated commodity market. In some instances, the
competitive advantage of DECathena is so compelling that
contracts have been awarded to Digital that had initially been
lost to the competition, and have been awarded to Digital when
Digital was the highest bidder.
The ITRC has
been quite successful in validating this new model of
introducing technology directly to customers and in the
process saving years in lead time.
One of the
characteristics of the project that helped insure this success
was the built-in requirement that the project actually deploy
the technologies it developed. By co-loca- ting development
and delivery, MIT reduced the risk of a purely academic
research effort.
An aggressive
program of technology transfer was carried out by the project
but especially during the last two years of the program when
results were becoming available. A monthly newsletter was
generated and distributed to about 600 individuals who
requested it. The newsletter was supplemented by sending
technical reports to departments that might benefit from them.
In addition, three notes files were created for electronic
conferencing; one for project management, one for Athena
software issues, and one for deployment issues.
The Athena
development was undertaken to solve an important problem and
to meet a pressing need; and thus could be reasonably expected
to provide important and useful results at the right time.
This "problem-directed research" is very productive, in
contrast to technology-directed research in which some piece
of new technology is explored in an attempt to find a problem
that it solves. Since customers face the same problems that
MIT did, and are eager for solutions, we were able to transfer
the technology directly to selected parts of the market,
saving several years of development time, giving us a
leadership position and providing immediate help for
customers.
Perhaps the most
important lesson from Athena is the demonstration that
industry and academia can work together to accomplish
worthwhile objectives that neither could accomplish alone.
Bill (B.J.)
Johnson has been appointed to the newly created position of
vice president of Corporate Marketing Planning, reporting to
Jack Smith, senior vice president, Operations. In this
position, B.J. is responsible for Product Marketing, Corporate
Marketing Services, Internal Communications and Public
Relations. His new organization will complement and augment
the existing Applications and Industry Marketing Group headed
by Peter Smith, vice president.
According to
President Ken Olsen, "The organization of marketing activities
under Bill Johnson enables Digital to further increase its
focus on customer and account needs. It effectively positions
the corporation to meet the challenges of the computer
industry in the 1990s."
According to
B.J., the complexity of the computer industry and the
increasing sophistication of customer needs "play into
Digital’s ability to provide integration services across a
multitude of industries on a global scale. Our job is to help
our customers improve their competitive market positions
regardless of the industry or geography in which they
participate."
B.J. says that
his key objective is to clearly define Digital’s products in
terms of how they fit customers’ needs. "Today, sales people
are confused about what products to sell to which customers,"
he explains. "When we were a one-strategy, VAX VMS company,
this wasn’t a problem. Now, with UNIX and VMS products,
personal computers and Network Application Support, the
strategy is more complicated. We have to make it easier for
sales people to answer the question ’why Digital?’
"At the same
time," he adds, "Engineering now faces tighter budget controls
than in the past. This means that when unexpected engineering
problems arise, it isn’t possible to simply ’throw money’ at
them to get them solved quickly. As a result, optimistic
commitments regarding the availability of products sometimes
aren’t being met and sales people who base their account plans
on such commitments are embarrassed in front of customers. We
need more realistic commitments, and Engineering needs to be
held to them.
"We also have to
make some changes in the way business units and account
organization work together, so sales people get meaningful
answers to their questions and so they get timely information
regarding changes in product plans.
"1
have identified four deliverables for my first year on the
job:
o Product
messages that translate into sales strategies. This
means clear, concise, consistent, customer-oriented and
competitive messages for each and every product.
o More focus
on competitive analysis. We are good at competitive
analysis of products and technologies but need to look at
services and business practices, such as investments in
third-party relationships. We need to pull together the
scattered competitive analysis resources throughout the
company and bring this kind of information to marketing
people so they can use it to plan their strategies and
tactics.
o Closer
links between accounts and other business units. I want
to put in place a process for documenting schedules and dates
and for managing change. We need a quarterly review of
changes and requested changes, with an understanding of who
can make changes and how. As with a contract, people have to
be held accountable all the way around.
o Goals and
metrics for marketing events. For example, for every
announcement we should lay out on a time line what we intend
to accomplish, especially in terms of customer benefits. And
we should put in place measurements so we know whether we’ve
accomplished what we set out to do.
"My idea of
marketing is getting customers to understand that we have what
they want. That breaks into three parts: know the customers,
know what they need, and educate them that our product set
fits those needs."
B.J., now a
member of the Executive Committee, has been with Digital for
18 years in marketing and engineering leadership positions.
Most recently, as vice president of Telecommunications and
Networks, he was responsible for creating and integrating
global networks for customers throughout the world. He is
credited with increasing Digital’s networking business from
$250 million to $1.5 billion in just four years. He will
remain in charge of Corporate Telecom and the Telecom Business
Group. His networking responsibilities will be handled by
Michael Thurk, previously the Networks and Communications
Business manager.
The integration
of Customer Services and Enterprise Integration Services (EIS)
into Digital Services is advancing on or ahead of plan. This
is a complex undertaking. We are merging two organizations
that would both be Fortune 500 companies in their own right.
Now we have an organization that provides over 40% of the
company’s revenue.
We have
established the Digital Services framework, and the structural
integration of Corporate Services is now complete. The
Corporate Clusters, Business Units and Functions are all in
place with their managers. They, in turn, will continue to
fill in the framework with their own goals and objectives.
The geography
Services organizations also have begun restructuring and will
be continuing these activities for some time to come. Sergio
Giacoletto has been named vice president, Digital Services,
Europe, and Jerry Montague has been named vice president,
Digital Services GIA. Their headquarters organizations are
aligning to support the single Digital Services structure.
Full integration of the Services organizations in their
extended country structures will be happening gradually.
In the U.S.,
teams are now being formed to begin the integration process.
Integration in the U.S. will be similar to GIA and Europe -
geography headquarters first, then a gradual integration
throughout the regions. Bud Keating and Ray Wood, Digital
Service vice presidents for the U.S., will lead this effort.
In all cases,
these activities will progress cautiously, taking care to
avoid disruption of ongoing business. Current plans are for
all integration activities to be completed by June 1992.
We have
established the Digital Services framework, and the structural
integration of Corporate Services is now complete. The
Corporate Clusters, Business Units and Functions are all in
place with their managers. They, in turn, will continue to
fill in the framework with their own goals and objectives.
The geography
Services organizations have also begun restructuring and will
be continuing these activities for some time to come. Sergio
Giacoletto has been named vice president, Digital Services,
Europe, and Jerry Montague has been named vice president,
Digital Services GIA. Their headquarters organizations are
aligning to support the single Digital Services structure.
Full integration of the Services organizations in their
extended country structures will be happening gradually.
In the U.S.,
teams are now being formed to begin the integration process.
Integration in the U.S. will be similar to GIA and Europe —
geography headquarters first, then a gradual integration
throughout the regions. Bud Keating and Ray Wood, Digital
Service vice presidents for the U.S., will lead this effort.
In all cases,
these activities will progress cautiously, taking care to
avoid disruption of ongoing business. Current plans are for
all integration activities to be complete by June 1992.
We know the
transition has caused a certain amount of pain and stress, but
the advantages of integration are great. In creating a single
Digital Services organization, we eliminate the charter
overlaps and redundancies that existed between EIS and
Customer Services. We can proceed forward with Digital
Services under one banner. This will clear up confusion with
the field organizations and it will make us easier to deal
with for our customers. There will be better coordination in
Services and we will not appear disjointed to our customers or
our account teams. There are also economies of scale that will
be achieved that will help keep our costs lower, thus
increasing profits for Digital.
Integrating
Services also helps us prepare for growth and profit
opportunities in the 1990s. It enables us to focus our
energies "outward," positioning our business to line up with
how our customers buy.
And we are
seeing that customers buy things differently these days. Our
customers used to buy VAX/VMS production systems with an
application, and occasionally some customizing to go along
with it. We built a sales force — and an overhead structure —
to support this.
Certainly this
continues, but we are seeing other behaviors as well. We have
noticed different patterns to customer buying habits and the
corporation has categorized them into four types: commodities,
production systems, systems integration and services. Digital
is in the process of organizing to address these patterns more
directly.
We’ve organized
Digital Services into three clusters of business units
(Product Services, Education and Consulting Services, and
Systems Integration and Support Services) to serve these
buying behaviors. This also helps us to integrate ourselves
more fully into the plans of the rest of the company.
As we’ve been
integrating the Services organizations, we’ve joined together
to develop a new mission and vision, and some objectives and
strategies to help us achieve them.
Our
Services mission is to:
Ensure our
customer’s success in the use of information for their
business by providing services with the best expertise,
people, partners and technology available worldwide.
Our vision is:
We are the best full service supplier in the industry.
o Our customers
say it.
o Our employees
know it and are proud of it.
o Our
competitors strive to achieve our standards.
The objectives
we’ve set are at a macro-level and we know it will take us
some time to fulfill them all. These objectives are:
o We will create
an environment that promotes continuous improvement in our
performance and our learning. We will focus on training, and
we will get better every day.
o We will become
the #1 world-class systems integrator. Perhaps, we will be the
biggest systems integrator in the world, but we will be the
clear leader in integrating global customers across oceans and
multiple countries. We will clearly be best-in-class.
o We will expand
our multi-vendor services offerings to provide multi-vendor
services for all our Services offerings. We will be even more
"open".
o We will be an
organization that focuses on the customer first, and then
looks back in. We’ve got to leam to think from the customer
perspective — from the outside in, rather than the inside out.
o Digital
Services wants to be known for our collaborative behavior
within Digital. The word ’interdependence’ will become part of
our lexicon. Service strategies will be set jointly with other
Digital organizations, and we will be working together.
o Finally* we
will grow market share and we’ll do this while also achieving
all of our goals for profitability and return on assets.
To
accomplish all this, we have put a number of strategies in
place:
o We will focus
on building core competencies—program management, multi-vendor
skills, consulting, etc. Training will be an area of great
focus.
o We will work
on enhancing our global operations. Our customers with
international business concerns are counting on us to do this.
o We will work
closely with the Integration Business Units (IBUs) to jointly
decide the best way to present ourselves into our target
industries, focusing on the areas identified as key strategic
markets.
o We will
balance our business management capability with
entrepreneurship. We want to be responsible and keep good
business regimen, but we don’t want to lose the spirit of new
ideas and entrepreneurial ism.
o We will
continue to build alliances. We cannot do everything by
ourselves, and our customers will not even trust us if we try.
We must work on partnerships.
o
And finally, we will work harder to instill a total quality
focus throughout Digital Services. We want total quality in
everything we do, and we want to be known for that.
Digital is a
services company as much as it’s a hardware or a software
company. Digital Services is absolutely crucial to Digital —
today, tomorrow, and for a long time to come.
Digital recently
launched the "Open Advantage" campaign, which speaks to our
ability to meet our customers’ requirements for flexible
solutions and their desire to not be locked into a single
vendor. Digital is uniquely positioned to do this, and along
with "Open Technology" and "Open Business Attitude," "Open
Services" is one of the pillars of the campaign.
Customers want
to talk about "Open" and we have a great story to tell in
Services around the whole environment called "Open."
We can provide
multi-vendor support — we lead the industry in providing
support for third-party equipment. It’s going to be a key area
of strategic focus. We support 8,000 different products from
800 vendors and this is only the beginning. Multi-vendor
support means different logistics systems and different
thinking.
Digital’s "Open
Services" provide flexible solutions. Our customers need
unique support services and we’re going to provide them. If
they want to stage something in Dallas, break it down, reship
it to France and set it up again there — and have the warranty
move across the ocean — we’ll work out a way to do that for
them. That’s what being flexible means.
Digital Services
also provides the customer with a single point of
responsibility — one person to manage all the disparate parts
of a solution, to make life easier for our customers.
Customers won’t have to deal with multiple vendors themselves,
and they can focus on their primary business and leave the
rest up to us.
We’re setting
the standard for services and we intend to become the
benchmark in the industry, against which all other services
companies will be measured. IBM may have an equal scope and
reach, but they don’t have the "Open Attitude,"
Hewlett-Packard doesn’t have the breadth of services we do,
and SUN doesn’t do too well in services at all. They will all
be focusing on services someday, but for now we have the
advantage.
We’re not only
leaders in multi-vendor support, we also have a tremendous
training organization. Last year we trained 160,000 internal
students and 160,000 external students. If we look at that on
a full-time student basis, it’s the equivalent of a 27,000
student university.
Two years ago,
we launched our systems integration business. At that time we
weren’t even mentioned as a systems integrator anywhere by
anybody. Today, only two years later, we're consistently rated
as third or fifth, depending on how things are counted.
In summary, we
have integrated Customer Services and EIS to position
ourselves for the future. We have highly profitable
"traditional" hardware and software support businesses which
will be maintained and encouraged to grow, and we are also
building some new, high- growth businesses.
Services is very
big business today, and will continue to be in the future. We
are building an organization which will carry us forward to
meet the challenge.
Philips
Electronics N.V. (Netherlands) and Digital recently announced
that they have reached agreement in principle, subject to
consultations with the Philips’ workers’ representatives and
the necessary official approvals, on the sale of most of
Philips’ Information Systems Division to Digital.
The final
agreement will cover the Division’s activities for financial
institutions, small and medium enterprises, image and document
management systems, and all related customer service
activities. It will not include Dictation Systems and Smart
Card, nor the manufacturing activities in Eiserfeld, Germany.
The transfer is expected to be completed by October 1, 1991.
Philips
president Jan Timmer said, "This move must be seen in the
context of the ongoing rationalization of the information
systems industry. Although the restructuring program of our
Information Systems Division led to considerable improvements
of its bottom-line, we are convinced that the longer term
interests of our customers and employees are better served
with this transfer of activities to the excellent Digital
organization, with which we have had a close relationship for
many years. This will allow us to focus our efforts on the
personal computer sector of the information technology market.
The personal computer business now forms part of the division
for Consumer Electronics products."
Jack Smith,
senior vice president, Operations, said, "Today’s announcement
fits perfectly with our strategy of improving our position in
the market for small and medium enterprises and financial
institutions. Philips has a good market position, excellent
products and an in-depth knowledge in specific areas of
interest to us. Digital’s outstanding range of products and
the expertise of our people, combined with the specific
know-how of Philips, make a perfect match. We are both
committed to the world of open systems and international
standards, and together we will be able to provide new,
additional benefits to customers based on our combined
strengths."
Both companies
also announced that they had agreed to explore the
possibilities for cooperation in a wide range of areas
including personal computers, components, CD-I (Compact Disk
Interactive) and other multi-media applications that will
increase the business potential for both companies.
All employees
involved in the information systems activities covered in
today’s announcement, approximately 7000 people, will
transfer from Philips to Digital.
Philips
Electronics N.V., founded in 1891 and with headquarters in
Eindhoven, The Netherlands, is one of the world’s largest
electronics companies, with sales of $30.8 billion in 1990 and
262,900 employees worldwide. Its products include lighting,
consumer electronics, components, semiconductors, personal
computers, communication systems, medical systems, industrial
electronics and domestic appliances and personal care
products. Philips and Digital already have a long standing
relationship and both companies consider this agreement as a
perfect fit. For Digital, the strengths of Philips’
Information Systems Division are particularly important:
o A good market
position with small and medium enterprises specifically in the
areas of general business applications, local municipalities,
health care, printing and publishing, wholesale and
distribution, travel and hotels.
o A solid market
position in providing solutions to financial institutions,
specifically front office solutions. (They have more than
150,000 seats installed in 20 of the leading European banks.)
o A tradition of
commitment to standards and open systems. (Several years ago
they announced a strong commitment to open UNIX systems based
on Intel and Motorola. Their strongest focus is on the Intel
platform, which fits very well with Digital's Intel- based
line of products.)
Furthermore, the culture of Philips fits
with Digital’s.
This agreement
should be seen as an important element in Digital’s efforts to
achieve future growth and development in Europe. It will
increase Digital’s market share, expand its distribution
channels and customer base, and also strengthen its system
integration capabilities and product offerings.
A Corporate
Licensing Office (CLO) has been formed to license out
Digital’s patented and non-patented technology for revenue on
a worldwide basis. The CLO is a corporate function that
operates as Digital’s licensing agent in behalf of the Product
Creation Units (PCUs). It works collaboratively with PCUs and
others to enable them to develop and implement revenue
producing licensing-out business strategies. The CLO reports
to Martin Hoffmann, vice president and general counsel .
The CLO is
already operating as the licensing agent for a number of
organizations, including the Compound Document Architecture
(CDA) Program; the Electronic Publishing Systems (EPS) Group;
Distributed Computing Component Engineering (DCCE) for the
LAD/LAST Program; International Account Development Program
(IADP) within TNSG (The New Software Group); the Process
Technology and Development (PT&D) Group;
Telecommunications & Networks Manufacturing Group; U.S.
Area Manufacturing (USM); and the Corporate Research Group
(CRA). In addition, the CLO is working with many other
organizations to help them develop and implement licensing
strategies in support of their business plans.
Jan Jaferian has
been appointed Director of the CLO. Since joining Digital in
1974, she has worked in various business, engineering,
marketing, quality and strategic relations assignments in such
organizations as ISB (Information Systems Business), LSG
(Large Systems Group), CRA and GIA.
Jerry Lester,
who brings twenty years of licensing experience as well as an
engineering background, has been appointed Corporate Licensing
Counsel to support the CLO. Jerry joined Digital in 1981, and
has been Counsel for the former High End, Mid-Range, and
Software Engineering Groups, as well as more recently the ISB
and CRA Business Units.
Appointments
Bill
Bruckert, systems
architect for the fault tolerant family of products, has been
named Senior Consulting Engineer. He has contributed to the
architecture of the VAXft family of products, as well as to
the areas of system availability and reliability. Among his
accomplishments, Bill has published an article in the Digital
Technical Journal, authored a chapter in "The Theory and
Practice of Reliable System Design", Second Edition, and is
the holder of over 20 patents or applications in process.
Since joining Digital in 1969, Bill developed several
DECsystem 10 options and was the lead engineer for the VAX
8650 system.
George
Champine has been named
manager of the Infrastructure Technology Office in Corporate
Information Management and Technology. He will report to John
Pacy, manager of IM&T Infrastructure Strategies and
Services. A critical IM&T strategy is the re-design of
Digital’s information technology infrastructure to an
enterprise model. George will concentrate on assuring the
technical integration of the infrastructure to support
multivendor products, services and technologies. As a member
of the Corporate Research organization, for five years George
managed Digital’s participation in Project Athena at MIT.
Earlier, he represented Digital at Micro-electronics and
Computer Technology Corporation in Austin, Texas.
George "Bud" Keating has been named U.S. Customer Services
vice president, reporting to Don Zereski, vice president, U.S.
Area, and Russ Gullotti, vice president, Corporate Services.
Prior to this appointment, Bud served for several years as GIA
Customer Services vice president. He joined Digital in 1981
and has held a number of key management positions within
Customer Services at the Corporate level. He was appointed
Business Ventures Group manager in 1986. Prior to joining
Digital, Bud was the vice president of Customer Services for a
Digital OEM and held other key service management positions
within the industry.
Rich Nortz has been appointed vice president,
Desktop Business, reporting to Don Zereski, vice president U.
S. Area. In this newly created position, Rich is responsible
for focusing all sales, marketing, service and integration
efforts in the United States into a cohesive strategy that
positions Digital as the number one supplier of Desktop
products, multi-vendor Desktop integration, and Desktop
services. Rich has managed the U.S. Customer Services
organization for the past two and a half years. During this
time the organization has seen significant improvements in
customer satisfaction and major increases in profits.
Mike Thurk has been appointed group manager,
Networks and Communications Group (NAC) reporting to Jack
Smith, senior vice president, Operations. Mike has been with
Digital since 1980. His most recent position was the Networks
Business Group Manager and he has served as acting Networks
manager since April. Prior to joining Digital, Mike held
positions in marketing and engineering for GTE Sylvania.
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