Vol. 11, No. 1____________________________________________________________ Jan./Feb. 1992
"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
Manufacturing Successes and Challenges (Bob Palmer)
A year ago, the Manufacturing Management Committee determined that Digital Manufacturing was not cost competitive and decided what must be done to reduce the costs associated with the manufacture and delivery of products and services to achieve a leadership position. This article reviews progress made over the last year and looks at upcoming challenges.
Investing in Future Growth through Strategic Alliances in Europe (Wolfgang Jaeger)
In the past eighteen months, Digital has acquired the computer system business of Mannesman Kienzle, the Information Systems Division of Philips and total or partial equity of specialist companies in Germany, France, Sweden, Italy and the UK. Behind this variety of acquisitions, alliances and agreements is a set of common aims — to deliver to Digital’s customers what they need, in the way that they need it, and to focus on growth markets and increased presence of Digital in Europe.
New Generation Processors Make the Timing Right for Renewed Emphasis on TQEM Business (Dick Heaton)
In the 1980s, Digital shifted its emphasis from OEM to end-user markets. We received some short-term benefit in the systems business from that choice, but we left the Technical OEM market open for such semiconductor makers as Intel and Motorola. Now to re-establish ourselves in the Technical OEM market we have to make a fresh start. As a starting point, we are focusing on the eight countries where we now get nearly 90% of our TOEM business.
Television Advertising Will Reinforce Open Message in US (Henry Heisler)
Last year, Digital began a multi-year campaign to position itself as an "open" company. Our goal is to be perceived as the industry leader in open technology services and business practices. Now we’re ready to give the campaign a "kicker" to keep it fresh in the eyes of customers and the media. In the U.S., we’ll do that with television advertising that visually and memorably emphasizes our theme.
An Overview of Digital’s Products and Services, Today and Tomorrow (Ken Olsen)
This article is a summary of a speech Ken Olsen prepared for the Annual Shareholders Meeting in November. It provides a summary of Digital’s product and service offerings.
Advances in Image/Voice/Video Open New Customer Opportunities (Rod Tuttle)
For years, corporate databases have contained only machine-entered information. Much valuable information comes in other forms and is filed in other ways, or is simply remembered or lost. It is time to begin to think in terms of making "people-literate computers" rather than training "computer-literate people."
An Open Systems Vision (Jean-Claude Monney)
Many companies are re-thinking their information technology strategies, looking for the ability to respond quickly to changing markets and organizational needs. Many use the term "Open Systems" to express their objective. Digital emphasizes that industry standard interfaces should be the building blocks of Open Systems.
Digital’s Life Balance Strategy (Laurie Margolies)
Digital wishes to provide appropriate opportunities and flexibility (on Dependent Care and Alternative Work) to enable employees to reach their full potential at work and in their personal goals. We believe that when employees are performing to their full potential, the corporation will as well.
Update on HIV/AIDS (Paul Ross)
Medical advances have dramatically changed our approach to AIDS in the workplace. We now see AIDS more as a chronic, manageable disease. People are living longer; they’re working longer; and they’re staying in the work force longer. Still, ultimately, it is fatal 80% of the time, but lives are being extended significantly, especially when treatment is started early.
Open for Business in Russia and Ukraine
Digital is entering Russia and Ukraine with sales and service offices, an education center, and a long-term commitment to providing information technology and related services.
Thomas Gerrity Elected to Digital’s Board of Directors
"New Directions for Digital Manufacturing," published in the May 1991 issue of MGMT MEMO, highlighted the issues, challenges and opportunities facing Digital Manufacturing and described objectives and strategies to deal with them.
The following article reviews progress made over the last year and looks at upcoming challenges.
A year ago, the Manufacturing Management Committee (MMC) determined that Digital Manufacturing was not cost competitive. We benchmarked ourselves against the best competitors in our industry and determined that we must significantly reduce the costs associated with the manufacture and delivery of our products and services in order to achieve a leadership position. In response to this challenge, we established three primary objectives for the Manufacturing organization:
o to get competitive,
o to stay competitive, and
o to preserve our most important core values in doing so.
To support the achievement of these objectives, we put the following strategies in place: o Simplify our business management processes and organizations, o Reduce or eliminate redundancies and duplications, o Design for manufacturability and quality.
o Purchase our materials more efficiently.
o Utilize our assets more effectively.
At that time^ Digital was beginning to implement the New Management System, with the business and account units as the primary focus in leading our business in the future. The New Management System helped us identify current activities that did not provide adequate value-added for our customers. It also helped us more accurately understand our costs, as well as our contributions to the company’s profit.
Managing our business more closely forced us to look at and eliminate redundancies. Our employees made major contributions to this effort. People closest to the work know best how to spot the overlaps and duplication and how to simplify and rationalize the process.
We also examined our business practices and changed them, where appropriate. We made decisions that enable us to better utilize our assets; we focused on purchasing more effectively; and we set for ourselves a clear set of goals, which were described in the May 1991 MGMT MEMO. A major goal was to reduce total Manufacturing spending by $500 million in FY92, as a first milestone to world-class competitiveness. During the first half of FY92, spending was reduced by over $400 million. By the end of FY92, we are projecting to reduce spending from the time these programs began by more than $750 million, of which $400 million is non-material spending. In addition, the FY92 population will be
reduced to 22,000 from 32,500 in FY90. Finally, a $160 million reduction in Manufacturing inventory is being achieved with 4.4 turns in FY92 versus 3.4 turns in FY91.
These results could not have been accomplished without the leadership of the Manufacturing Management Team and the individual efforts of all Digital Manufacturing employees, with support from our partners in the wider Digital community, all working toward a common goal— to ensure Digital’s long-term success and profitability.
As noted in the previous MGMT MEMO, competitive pressures within the computer industry are increasing significantly. To maintain our competitive position, we must continue to invest carefully in critical core technologies and to disinvest in those activities that do not provide Digital with a competitive edge. To survive in a competitive global market, we have to understand and respond to total customer needs with effective solutions. Our continued success is predicated on our ability to respond rapidly to customers, to resolve their business problems and to service them, thus enabling them, in turn, to achieve a competitive advantage within their industry.
In response to these challenges, the Manufacturing Management Committee has committed to lead the re-design of Digital’s customer supply and delivery system — also known as the "Supply Chain." We intend to support accounts and business units by understanding and responding to customer requirements. We are going to implement a system that will establish the benchmark for the industry. It will delight customers, by making it easy to do business with us and by delivering quality and reliable products, processes and services at competitive costs within established, aggressive and predictable timeframes.
At the November meeting of the International Management Committee (IMC), it was agreed that we would lead the design and implementation of this state-of-the-art Supply Chain system. This complex re-design effort is currently being led by five change management teams, which include senior managers and individual contributors from throughout the organization. It is supported by more than 100 senior people, a number that will continue to grow as we move towards implementation. The global integrated system we are designing must be able to respond rapidly to any and all customer requirements, regardless of geographic location and the uniqueness of the request. This system will require changes in our current delivery model which we will be implementing by the Accounts, Business Units, Manufacturing, Logistics and Administration organizations working together towards achieving what is best for our customers and the corporation. To be successful, it will require the active support of all elements of the company.
Time is not on our side. We have been able to sustain ourselves through our financial strength, flexibility and the relative loyalty of our installed customer base; but our overall costs as a company have been too high to provide profitability, and we need to change if we wish to remain in business for the long term. We can, however, turn this
situation around. The potential for improvements in customer responsiveness, overall cost and asset utilization is extraordinary.
A major challenge will be in keeping balance between our urgency to reduce costs and the thoroughness needed for implementation. Our success can be achieved only through the continued commitment and collaboration of all employees working toward the common goal to provide the most value for the customer for the least cost and highest quality in the least elapsed time. This is how we will achieve the leadership position that we owe to our customers, shareholders, employees, and suppliers. This is how Digital will not only survive, but flourish.
Our alliance strategy aims to stimulate the future growth and development of Digital in Europe. It will do so by building a network of companies that will result in : o a greater market share,
o more widespread distribution channels,
o competitive products, and
o a larger customer base.
In the past eighteen months, Digital has acquired the computer systems business of Mannesman Kienzle, the Information Systems Division of Philips and the total or partial equity of specialist companies in Germany, France, Sweden, Italy and the UK.
Behind this variety of acquisitions, alliances and agreements is a set of common aims - to deliver to Digital’s customers what they need, in the way that they need it and to focus on growth markets and increased presence of Digital in Europe.
Both Kienzle and Philips, for example, are highly-experienced in two important areas of the European marketplace: banking and the small and medium enterprise market sector. Furthermore, they offer significant added value to strengthening our organization in terms of service capabilities to the multivendor desktop market.
The banking expertise from Philips with their totally-integrated front-office solutions will be combined with Digital’s ’back-office’ skills in networking and client-server technology that tie together multivendor platforms.
The ability to offer a much wider choice to our banking customers is very important in a
market where we have systems in nine out of ten banks and in most of the 2,000 member banks of SWIFT.
Two-thirds of retail banking expenditure worldwide is made in Europe and with this acquisition, Digital will have major share of the European retail banking market.
A new company for the SME-markets
While overall IT industry growth is slowing down to less than 5%, small and medium enterprises (SMEs) are growing at about three times that rate. To gain marketshare in this thriving $50 billion market in Europe, we felt a new strategy was needed to reach the SMEs faster and more effectively with a wider range of offerings.
This high growth market segment is a totally different business environment, with different business practices and where solutions are the critical success factor. The most appropriate was to form a new dynamic organization, a new powerful legal entity — Digital Equipment Enterprise — which will spearhead our approach to the European small and medium enterprise market.
In principle, this entity combines the SME expertise of Kienzle and Philips into one dedicated organization geared to the particular needs of this sector. More than 60% of Digital-Kienzle’s $500 million business portfolio is based in the small and medium enterprise sector with particular emphasis in Germany, Austria and Switzerland. Philips Information Systems Division gains 40% of its $1.1 billion revenue from the SME market spread throughout Europe.
In the UK, Germany, France, Spain, Austria, Switzerland, the Netherlands, Belgium, and Italy, separate Digital Equipment Enterprise organisations are now operating alongside Digital’s existing subsidiaries.
The streamlined DEE companies sell directly with their own application portfolio into vertical markets such as local authorities, printing and publishing, trade and professional services where we have major market shares. Complementary to this, DEE will work with value-added resellers (VARs) to deliver products and multivendor desktop services targeted to small and medium sized customers. Digital Equipment Enterprise anticipates that over time a majority of its business will be coming through indirect, value-added channels. Furthermore, DEE will focus very aggressively into the multivendor desktop service market since this represents high growth opportunity.
Over the last ten years, our company and the industry have gone through dramatic changes — not only in products, but also in how those products are sold. In 1980 we did about 40% of our business through indirect channels — which includes OEMs (Original Equipment Manufacturers), as well as selling through stores, distributors and dealers. Today we move only about 30% of our business through indirect channels. That’s happened at a time when, industry-wide, the percentage of overall business going through channels has been increasing sharply. Some of our competitors have been increasing their use of indirect channels and taking advantage of that growing market. For instance, IBM went from a 2% market share of the overall indirect business in 1979 to almost 18% share in 1990, while Digital’s share was declining.
In the 1980s, we shifted our emphasis from OEM to end-user markets, and were immensely successful in that arena. The company’s business increased by a factor of three, and we were very profitable. But because of that success, we neglected the technical OEM market, which had been the mainstay of our business, and allowed our marketshare to dwindle. If we had just maintained our technical OEM marketshare, that would represent an addition $2 billion a year for Digital today.
Also in the 1980s, technology made it possible to put a computer on a single chip. Digital, with the Micro VAX II design, was one of the first to make full use of that technology. But we made the strategic decision not to sell the chip to TOEMs, but rather to focus on the needs of end users.
We received some short-term benefit in the systems business from that choice, but we left the TOEM market open for such semiconductor makers as Intel and Motorola. Now to reestablish ourselves in the Technical OEM market we have to make a fresh start.
Today, the company’s strategy is to go after both end-user and indirect business. The New Management System plays into this well. Many separate, unique business strategies such as ours can flourish at the same time.
In TOEM, we have put together a worldwide plan to coordinate TOEM activities in the various countries and to provide the overall direction we need to rebuild this business. As a starting point, we are focusing on the eight countries where we now get nearly 90% of our TOEM business.
For instance, our TOEM business in Italy is nearly as large as that in the U.S. When the U.S. shifted its focus to end-user markets, Italy maintained its OEM focus with an independent group of dedicated sales people. As a result, Italy grew its TOEM business by a factor of five over the last ten years. They stayed close to their customers, knew what they wanted, and worked to provide those customers with the right product. Similarly.
Germany and Switzerland tripled their Technical OEM business, and Japan doubled theirs, in that same time frame; while the U.S. decreased by a factor of three.
The opportunities here are tremendous. The countries that kept their TOEM focus have told us there is about a $12 billion opportunity here, and we are only doing about $500 million with these customers today.
Those countries and our TOEM customers told us there are four things we need to change. Our plan, approved by the Executive Committee, addresses all of them.
First, we have to change our business practices. Customers want to feel that we are dealing with them on an individual basis and not as a statistic. Pre-printed contracts are seen by many as an example of that kind of arrogance.
Second, we have to put in place a technical sales organization. To do this we have created the "Design Win Program" which puts engineering people in the Field who can deal directly with the customer’s engineers and help them design our products into their products. These are technical sales and sales support people with systems engineering skills similar to those of Digital’s sales people in the early days of the company. In fact, many people are coming back into this part of the business because they love to deal with technical customers and products. Right now we have about two hundred of these people worldwide.
Like the rest of the sales force, they report to account managers. In addition, in each of the eight target countries, they also report to a TOEM manager, who provides training and support and makes sure their unique and global issues get the appropriate level of attention. These TOEM managers report directly to the country and dotted line to me. Each of them has a country plan, which identifies the customers and outlines the investments the countries should make, the products they’re going to sell, and what help they need from me. Basically, I work for the country teams to help them implement their plans.
TOEM business requires a far-sighted approach. Initial costs are high, and it can take years to win a new design. But then the revenue benefits keep coming for years after, just like an annuity.
While the country people manage the business within any fiscal year, we also have "segment" managers who are responsible for finding new business in particular industries. They tend to look out two years and work very closely with the country people. They often have to manage cross-country issues, where a sale signed in one country brings in revenue elsewhere in the world.
The four segments we are focusing on now are:
o process control and SCADA (Supervisory Control And Data Acquisition);
o discrete manufacturing; and automatic test equipment;
o telecommunications (switching equipment); and
o laboratory and medical equipment.
We work very closely with the related end-user marketing organizations.
This business is "first-in, last-out." It’s "first-in" because it takes about two years to get designed into a customer’s application, so these customers want to know about the newest technology we have as soon as they can. And we have to get them that information before our competitors do. It’s "last out" because a customer who designs our product in their equipment is going to use it for five to ten years.
These customers are still buying PDP-11 systems, making that a very profitable business 22 years after the product family was first introduced.
Longevity makes this business profitable. That’s why the New Management System is important to this business. It allows us to operate with a different kind of business plan in which we make major investments today to win designs and recover that investment and make profits over time.
The New Management System gives us the freedom to look at any piece of OEM business in which we can make a profit. It also empowers us to negotiate with Engineering, Services and other internal organizations to create the right mix of products and services to meet our customers’ unique needs. It is not uncommon for $200,000 investment in special design work to yield a multi-year $10 million piece of business.
With the launch of a new generation of base products built around "Alpha," the timing is perfect for this renewed emphasis on TOEM business. We’ve been talking to a number of companies about our Alpha technology. Some have already made tentative commitments to us that they will design our products into their products.
Because we have made the strategic decision to allow other companies to design our Alpha processor into their computer systems, we see unique challenges and opportunities ahead. The companies who buy those chips from us will be designing them into computer systems that could compete head-on with our own in end user markets. Under the New Management System, we see that kind of competitive pressure as goodness. It will force us to constantly improve the efficiency and quality of our operations. Also, the external price we charge volume customers for these chips will give us a realistic measure of what internal transfer charges should be.
Our goal is to be the best in the business at all levels — from the chip all the way up to global systems. Our goal is to be competitive and profitable at all levels of integration. With this strategy, we have the opportunity for our Digital-designed computer
architecture to become a de facto industry standard. This fits in with the Open Advantage campaign - our overall thrust as an "open" rather than a "proprietary" company.
Last year, Digital began a multi-year campaign to position itself as an "open" company. Our goal is to be perceived as the industry leader in open technology services and business practices. We have consistently emphasized this theme in print advertising, product announcements, sales training and briefings with industry analysts.
The reactions to this Open Advantage campaign have been very positive. Analysts say we’re on the right track, taking the lead in redefining and broadening the meaning of the word "open." They say we’re putting other companies on the defensive. Customers say that they’ve been waiting for us to take a strong position like this. And sales people indicate that Digital’s newly stated position has opened opportunities for them to present our whole story to customers and to bid on new business.
When the campaign began. Digital was perceived by customers and prospects as one of the most "closed" companies. Starting from that low point, we’ve made significant progress in just six months.
At DECWORLD in Boston this spring, Digital will tangibly present "proof points," demonstrating the multi-faceted openness of the company and the advantages of this approach in a wide variety of industries and applications.
Now we’re ready to give the campaign a "kicker" to keep it fresh in the eyes of customers and the media. In the U.S., we’ll do that with television advertising that visually and memorably emphasizes our theme. These television commercials will help us reach our partners, customers and prospects, as well as our sales force and employees.
At both ten and twenty years ago, computer purchases were mainly decided by a relatively small number of technically knowledgeable people. We could deliver our messages to many of them with print advertising in narrowly-targeted technical magazines. Today, computers aren’t just tucked away in labs. The market has matured, and computers are pervasive throughout business. Many people who do not read technical magazines are affected by, use and depend on computers every day. They make their voice heard when purchase decisions are being made. Image and brand recognition have become very important factors in computer-related sales.
Media research indicates that in the U.S. there are 30 million professionals and managers, many of whom have influence over the purchase of computer products and services. With print advertising in about a hundred different publications, we reach an audience of about 10 million of them. We need to reach the other 20 million, but to do so through print would be prohibitively expensive.
By selecting television programs that attract the audience we want to reach, we can reach cost-effectively about 80% of our 30 million target audience — with the sight, sound, motion and memorable impact that television offers. We want to dramatically present clear, concise, consistent, and competitive messages that address customers’ needs.
To test our commercials prior to shooting, we tried the story-boards on our sales force and on customers and prospects from a variety of industries. We wanted to know, "What’s the message you receive?" Customers answered, "Digital works with the customers as a team player... Digital enhances your existing products and capabilities... Digital is no longer proprietary... Digital is doing business in a different way... Open Advantage means that Digital allows access to multiple users’ products, software packages and tools." Digital sales people said, "It has good impact... I’d like to see it as an ongoing campaign... It says we’re not stodgy, like IBM. It’s you and me working together. It shows we have a sense of humor... Let’s do it!"
We have a multi-year plan for investing in television advertising. We’ll be using mainly sports, news and special programming that is very cost effective for reaching the audience we want to reach. These will include broadcasts of NCAA basketball playoffs and seniors golf tournaments. We’ll use both cable and network TV. The first ads are scheduled to appear in early March.
The following article is a summary of a speech Ken Olsen prepared for the Annual Shareholders Meeting in November.
His actual remarks on that occasion differed from the script, as he responded to the immediate needs of the audience. This text provides a clear summary of Digital’s product and service offerings.
The world is in a recession that affects most industries. It is not clear when it will end, but we have a strategy which takes this into account.
Our business is roughly half services and half products. Our services strategy is one reason we’ve been able to increase our revenues in the face of the recession and cutthroat product pricing.
The services side of our business is split roughly fifty-fifty between supporting new and existing Digital and competitive systems, and integrating new and existing systems from Digital and other manufacturers.
Services is an exciting business because we do so many different things for so many interesting customers. Building services capabilities requires significant capital investment. It involves a large investment in people. It takes time to train people and give them experience. But services makes Digital unique in that we can do the whole job for the customer. Our services business includes nine different offerings.
Hardware Product Services provide the customer with a single source of support for all Digital hardware and most competitive products. We do the whole job.
Software Product Services provide a single source of support for remedial, advisory and distribution services for both Digital and hundreds of non-Digital operating systems, layered software and applications.
Desktop Services supply and support solutions for Digital and non-Digital desktop environ- mentsc including personal computers and workstations from different manufacturers, applications from different software developers, and local area networks.
Customer Training trains 330,000 students each year. The number of classroom hours that we teach places Digital on a par with any of our largest universities. Education is an important business for Digital, in part because we make money on it, but mainly because it is our way to teach our customers what they need to know about our systems, and what it takes to put systems together to get a job done.
Consulting Services consult on technology, management, applications and information systems. They sometimes even get involved in architecture and construction.
Network Integration Services tie everything together for a customer. We will dig holes and bury cable. We will string lines on poles. We will build fiber optic and microwave links.
Operations Support Services provide customized single-source service solutions to help customers integrate and operate their multivendor information solutions, focusing mainly on service management, operations management and logistics management. We use a tool we call NAS — Network Application Support - to customize multivendor systems so that they all work together.
Application Project Services provides the industry’s most advanced custom application and hardware project services, to custom fit technology solutions to our customers’ operations.
Systems Integration is different from our services business. Systems Integration is where Digital, acting as the single point of contact and responsibility, will plan, design, implement and manage the whole job for the customer. We can automate a whole factory or integrate all the desktops in a small office. We do that very quickly for a low price.
We also supply products to and work with other systems integrators including a half dozen of the most significant companies in the market. They like our NAS software for the same reasons we do, and they like to work with us.
Together, Systems Integration and Services amount to about 40,000 people — a very large part of our operation.
One reason we’re so successful in both Service and Systems Integration is that we sell both standard computers and computers that meet standards.
Standard computers are computers built by different manufacturers. These systems are almost identical from manufacturer to manufacturer. So customers buy them from the manufacturer who can give them the best quality and the best service. We support UNIX* on all our platforms and all our computers. UNIX has historically been an important part of the VAX offering. In fact, much of the development of UNIX was done on VAX systems.
We support UNIX on our workstation and server products built to ACE standards. This software is based on Digital’s ULTRIX operating system and The Open Desktop* from the Santa Cruz Operation, and will conform to the Open Software Foundation specifications. We also offer UNIX System V and support SCO* UNIX as well as MS-DOS* on our network PCs.
The extent of our commitment to UNIX may come as a surprise. Our competitors like to say that Digital and IBM locked the user into proprietary operating systems so software would not be transportable. That's not true at all. We always had applications that ran on different systems. Transportable software is not new. In the past, if you wrote software in a standard language — FORTRAN, COBOL. C, ADA, there were about 17 standard languages in all — you could move it from one system to another because each language had a standards group that maintained a set of rules that, if you followed them carefully, let an application run on any computer that supported that language.
An important part of our commitment to UNIX is the Advanced Computing Environment (ACE) initiative. ACE started with 21 companies who laid out standards for PCs and workstations — UNIX and MS-DOS on the PC. and UNIX and Microsoft NT (the equivalent of MS-DOS) on the
workstation. These standards mean that the same software will run on both PCs and workstations. ACE also standardized on Intel computer chips for the PC and the MIPS chip for workstations. Since the initiative started, over 200 companies have joined. This is a major step towards developing standard computers that are truly compatible, in the same sense that PC software is compatible.
In talking about standard systems, it is important to remember that the customer buys from the computer manufacturer who offers the best service, the lowest price, and the best installation and integration.
Our VAX VMS systems also meet standards while providing capabilities not found on standard systems. That’s why VAX VMS systems are still the popular solution in critical applications — because of the discipline that has gone into the VAX VMS architecture. This position is not being challenged by our competitors.
VAX VMS is the newest computer operating system in the industry. It’s just 15 years old. UNIX and mainframe operating systems are a lot older.
VMS software was written to do everything our customers ever wanted in an operating system. The same VMS software works on a machine that's small enough to hold in your hands, and up to a mainframe costing a million-and-a-half dollars. This means that you can start small and grow. It means that if you have a two-person office in one place and a giant office somewhere else, both offices can use the same software. And same software you wrote years ago will run on a new VAX computer you buy today and on the VAX system you buy ten years from now.
Also designed into the VAX architecture is the ability to cluster. This means that almost any number of VAX systems, almost any number of disks could be put together in a single system. Business applications lend themselves to this arrangement. You can buy a small cluster and grow it as your applications grow.
The VAX family is the paradigm against which all computers are measured. It does more. It’s planned to do more. It is the most modern computer you can buy. It provides the highest level of data integrity so you won't lose data once you put it into the system. You get out what you put in.
VAX systems did have one drawback — they were not as fast as simpler RISC computers. On October 30. that changed. We incorporated a new chip and our VAX systems instantly became faster than almost all RISC/UNIX machines. They also became became price competitive. Today we’re faster and cheaper per unit of computation than the competition.
This new chip is very interesting. We put 1.3 million transistors on a chip the size of
my thumbnail. With this chip. VAX VMS systems provide better performance and better price performance than RISC systems from IBM, HP. and Sun.
And we have another chip coming, code named "ALPHA." It is very important to understand where ALPHA fits in Digital's strategy.
We’re developing both OSF/1 (UNIX) and VMS systems that will use the ALPHA chip. The ALPHA chip will go into both standard systems and systems that meet standards.
People were a little worried when I said I wanted to show ALPHA to you today. They were worried that I would try to sell it. But I'm not going to sell ALPHA today. Let me tell you why.
Until now, the fastest chip you could buy had a 50 MHz clock rate and that chip had to be recalled because it didn’t work properly. Here you see ALPHA working at twice that speed — 100 mHz. And if you gave ALPHA its head (you'd have to pay the price for fast memory), it would go twice that fast — 200 mHz.
ALPHA will run both OSF/1 (UNIX) and VMS software. The ALPHA here on the stage is using UNIX to create the pattern being generated on its screen.
Why am I telling you not to buy ALPHA today? An operating system like OSF/1 (UNIX) or VMS or MS-DOS or NT is not something you buy and just put on a computer. An operating system has to convert the language you write your program into all the peculiarities of the computer. A mature operating system does all the chores, cuts through all the red tape, and provides all the aids you need to get your work done. An operating system is very complex, very expensive to develop. Every operating system is unique to the architecture it runs on. That’s one reason every UNIX is different. And while every VAX computer is the same from the customer’s viewpoint, we have to adjust the VMS operating system every time we develop new VAX technology. Fortunately, we’re getting pretty good at this but introducing a new VAX computer was a big chore.
The ALPHA operating systems — both VMS and OSF/1 (UNIX) - are particularly complicated. The ALPHA instruction set is different enough so that it will be a year before the new operating systems are ready.
It cost hundreds of millions of dollars to develop and make the ALPHA chip. The cost of making future generations of ALPHA will be hundreds of millions of dollars more. But that's the nature of the business we're in. It is a business where you have to do many things well.
As I said earlier, one of Digital’s great strengths is that we do the whole job. We are not a one product company. We’re not simply selling standard products at commodity prices. We add value to standard systems. And we invest heavily in developing systems that meet standards while providing capabilities not found in standard systems. And we provide the services and the system integration our customers need to be competitive in a changing economy.
Times are also tough for our investors. In this economy we’re not doing what we should for our stockholders. They're unhappy and we’re unhappy for them. But inside the company we’re more excited about our products than ever before. The job we are doing for our customers is more satisfying, more exciting, and in general so much better than ever before. So, even though the economy is not letting us be as profitable as you would like, the things that will count in the long run are in better shape than ever.
* UNIX is a trademark of UNIX Systems Laboratories. The Open Desktop and SCO are trademarks of Santa Cruz Operations, Inc. MS-DOS is a trademark of Microsoft Corporation.
For years our corporate databases have contained only machine-entered information. If it didn’t come from a punch card, tape, keyboard or wand, it didn't make it into the database. Graphics came later; but even with that addition, the typical corporate database only contains less than five percent of the data that the corporation really needs to run its business. Much valuable information comes in other forms and is filed in other ways, or is simply remembered or lost.
For example, picture a hospital room with a patient on the operating table. At the same time, a pathologist in a lab elsewhere in the hospital (or perhaps even in another city) is examining a tissue specimen from this patient and the image of that specimen can be seen on a TV monitor in the operating room. In this state-of-the-art scenario, the physician does real-time analysis using that image to determine the appropriateness of surgery. Yet, today, that real-time information is not captured as part of the patient’s record. All that is kept is a simple freeze-frame video image and a voice.
Often in business, we wish we could retrieve and forward information that was passed on during a conversation in a meeting or over the phone. Often, too. we need to convey or save a personal signature that serves as confirmation of approval. Those capabilities are here or are coming soon. It is time to begin to think in terms of making "people-literate computers" rather than training "computer-literate people."
The charter of the Image/Voice/Video Product Creation Unit is to generate system level products that empower our customers to index, file, and retrieve all of their meaningful data in image, voice or video form.
We have announced our first wave of products. DECimage EXpress V2.0 is our significant entry into document imaging. Our voice mail is the first mail product in the industry that is truly information-based. Running on VAX computers, it is primarily sold to information systems (IS) people rather than to telecom managers.
These products offer a higher level of functionality than the competition, at a cost that is at or below competition for popular configurations.
Our first multimedia announcements will come later this fiscal year. And next year we expect to integrate all media types into distributed databases. This will be accomplished through the new Distributed Media Services Architecture, which permits accessing any media type of information, anywhere in the network, by whoever has a right to it and needs it.
To provide the highest level of system functionality and performance in the industry, we sometimes go outside of Digital to obtain leading-edge hardware and software to add to our basic image, voice and video capabilities. One addition is a content-based retrieval capability based on a "fuzzy logic" search. ("Fuzzy logic" is the ability to make a precise and correct determination based on imprecise data.) Another addition is the ability to remove fixed text from forms so that only the variable data is picked up by Optical Character Readers (OCRs) and stored. This greatly reduces the amount of storage and network resources and, at the same time reduces optical recognition errors.
Another product being offered with DECimage EXpress software is Image Now, intended for customers who have a need use images with existing IBM forms-based applications. Image Now allows this to happen and without changing any of the application code. This capability can result in savings of hundreds of thousands of dollars when compared to rewriting applications.
The support for these products is in place now. Sales training has been held in the U.S., Europe and GIA. Also, sales and sales support people have attended a two-week training session on imaging technologies. And an Image Partners Program has been formed, with over fifty sales support partners from around the world.
Our customers and potential customers face the difficult challenge of responding to waves of change. One third of the companies that were on the 1970 FORTUNE 500 list aren’t in business anymore, and many more will probably fall by the wayside in the coming decade. Acquisitions, re-organizations and alliances are all part of today's business climate.
In reaction, many companies are re-thinking their information technology strategies, looking for the ability to respond quickly to changing markets and organizational needs. Many use the term "Open Systems" to express their objective.
Some vendors try to give this term a narrow meaning, tailored to what they have to offer, equating it to the UNIX* operating system, or hardware systems that can be licensed, or just volume products. But customers are not really looking for any single operating system, or hardware platform or vendor. They want multiple technologies from multiple vendors because they are well aware that no one vendor who can solve all of the business problems they are likely to face.
Some people believe that the best way to achieve the goals of Open Systems is with standardized products. Instead, Digital emphasizes that industry standard interfaces should be the building blocks of Open Systems. A consistent and disciplined implementation of industry standard interfaces is the best way to protect a customer’s investment in technology and to achieve the connectivity, portability and interoperability that customers want today. At Digital, the strategy for building such open systems is called Network Application Support (NAS).
Enterprises need systems that offer more that just wire connections and file sharing. They need applications that work together ("interoperability") throughout a global network of hardware and operating systems from many different vendors. Enterprises want to be able to incorporate technologies, and Open Systems into their computing environments, without discarding existing investments and disrupting users. They want the flexibility to change in the future, and the freedom to make their own choices, with the security of knowing that any new elements they introduce will work with existing components. They want applications to be available on all the systems they use and independent of the vendor platform being used.
They want to be able to combine the cost/performance, gradual growth, geographic proximity, availability, and reliability advantages of distributed computing with the coherence and functionality of centralized systems. They want integrated distributed computing that makes it possible for everyone in the enterprise to get all the information they need, wherever they need it, from whatever kind of system it is on. whenever they need it, and in addition, they want innovation without losing flexibility.
To create this level of coherence and functionality in a world of heterogeneous, multivendor, distributed computing requires a standard way of doing things and a standard set of services, such as NAS. NAS adheres to a well-thought-out, inclusive architecture that incorporates vendor-independent industry standards.
NAS carries an architectural approach to problem-solving and a dedication to standards into the multivendor computing environment. As a result of this approach, NAS is able to provide services that enable application interoperability and portability across hardware and software platforms from multiple vendors.
Today, we define "Open Systems" as "a vendor-neutral computing environment compliant with established and emerging industry standard interfaces." In other words, Open Systems are a way of delivering products, services and business practices.
But Open Systems require much more than just the technology, although that is a very important piece. In a sense, Open Systems are more a process than a product. The fact is that Open Systems are "built, not bought." This means that whoever wants to build Open Systems must have a well-defined process and architecture. Open Systems also require an information technology vendor to provide services, support and business practices that can help users move, at their own pace, to the desired degree of Openness they want to build. At Digital, we have extended the concept of Open Systems to the willingness to do whatever it takes to solve the user’s problem with Open technologies, Open Services and Open business practices. Digital’s term for this is the Open Advantage - the freedom to choose and the power to use the best solutions available from Digital and its partners, or from other suppliers, while enhancing user’s existing and future investments.
In the future, we expect Open Systems to take on an even broader definition, reflecting how companies structure themselves to communicate within their own organizations, with their customers and with their suppliers. It will focus on how a company is able to anticipate, respond to and embrace change.
* UNIX is a trademark of UNIX Systems Laboratories.
The U.S. Personnel Policies and Procedures Manual now includes a statement of the company’s "Life Balance Philosophy:"
"Digital Equipment Corporation, in keeping with our philosophy of valuing our employees and meeting our business objectives, wishes to provide appropriate opportunities and flexibility (on Dependent Care and Alternative Work) to enable our employees to reach their full potential at work and in their personal goals. We believe that when employees are performing to their full potential, the corporation will as well.
"In order to meet our business objectives, we believe Digital must provide an environment in which an employee can join the company and, throughout his/her career, encounter systems that support and encourage personal and professional growth."
This statement is intended to serve as the foundation for related programs and practices which will differ from country to country throughout the world, in response to local needs and consistent with local laws and practice.
One of the cornerstones necessary for developing flexible alternative work programs, "headcount equivalency" has already been adopted worldwide. This means that, for accounting and budgeting purposes, the number of people working for the company is based on the full-time equivalent of the number of hours worked. Previously, all employees — even those who worked only a few hours a week — were counted equally. This inhibited managers from allowing job sharing or hiring people on a part-time basis. For instance, if they had 40 hours of work that needed to be done, they probably wouldn’t hire two people to work 20 hours each, since that would give them a higher headcount than if the work were done by one employee. Now managers have much greater flexibility in making the appropriate match between employee preferred schedules and the skills needed. The company as a whole switched to the new accounting scheme in the first quarter of this year, resulting in a one-time lowering of the total headcount by about 1,700 people.
There are a variety of other ways in which managers can help employees balance the demands of home and work. In some cases, it is possible to adjust the starting and ending hours even though the employee works the same total amount of time. This can be helpful in avoiding rush-hour traffic jams, and juggling day-care schedules.
Some groups have also experimented with alternative work places — either working at home or setting up a satellite office at a Digital building closer to the individual's home. These kinds of arrangements are a natural outgrowth of the cultural environment in Engineering from the start of the company. Digital has long acknowledged the creativity of individuals and the fact that their productivity should not necessarily be limited to the hours they are sitting at a desk in the office. For years, many Digital people have had systems at home so if they have a brilliant idea at four in the morning, they can connect to the network immediately. It’s natural for people who have worked that way to integrate their work life and their personal life and arrive at the unique work arrangements that are most appropriate for them. Those kinds of arrangements are simply a matter of the manager and the employee agreeing on the best way to get the work done.
There are a number of other related ideas that the company is considering but has not yet approved or turned into programs. For example, we are looking at the possibility of adding to or expanding our leave of absence policies to provide for needs that might not now be met.
Basically, in response to the New Management Systems, and the company-wide drive for greater business flexibility, we are trying to provide managers with tools they need to make changes in traditional work patterns, to empower them to do what’s best for the company and best for the employee, rather then constraining them with unnecessary limitations.
At the same time, we’re responding to changes that are affecting society as a whole — the fact that in the U.S. so many households consist of working couples or single parents, and the fact that more and more employees not only have to care for children but also for older relatives. We want to give employees the flexibility they need to avoid burn-out due to the stress of non-work commitments and responsibilities. There are also valid non-family reasons for personal leaves of absence. Some employees would like to take time on their own to do volunteer work to help with social issues — such as helping the homeless. We believe that the more successful and fulfilled employees are in their lives in general, the better prepared they will be to meet the challenges of the workplace.
Medical advances have dramatically changed our approach to AIDS in the workplace.
When we first started our AIDS Program Office, early in 1988, our main thrust was to educate people on what AIDS is and what it isn’t - the myths, the realities and how to protect yourself. We wanted to get across the message that this illness is not contracted casually, and hence all employees should feel safe in the workplace. We still need to reinforce that message because AIDS only becomes real to people when they are directly confronted with it. It’s one thing to know about AIDS at an intellectual level, to have read about it or even attended a seminar on the subject; but when it hits home, through knowing someone who is afflicted, people can easily be overwhelmed and react irrationally. We need to be available with another level of education and counseling when that happens.
Today, in addition to that education work, we try to encourage people to find out if they have contracted the HIV virus (Human Immunodeficiency Virus) and, if so, to seek health care early. A few years ago, AIDS was seen as an acute fatal disease. There was little hope for treatment, and death came within a short period of time. Now, due to medical
progress, we see AIDS more as a chronic, manageable disease. People are living longer; they’re working longer; and they’re staying in the work force longer. Still, ultimately, it is fatal 80% of the time, but lives are being extended significantly, especially when treatment is started early.
In the early 1980s, 90% of people who developed AIDS died within two years. Now, the use of drugs such as AZT and ddi can act as a barrier to slow the disease and prolong life. Today, 67% of people who develop AIDS die within 12 years. The statistics are still horrifying, but the progress is significant.
When we started our AIDS Program Office, there was little that could be done medically for people who had the HIV virus, and people chose to be tested for the virus mainly to relieve their personal anxiety of uncertainty when they thought they might be at risk; and so they could have some assurance that they had not infected others with whom they had been sexually intimate. Part of our role was to help those who wished to be tested to identify a credible resource - one that ensured confidentiality of test records, and that had pre- and post-test counseling to help a person fully understand the results.
Today, we know that the virus can remain dormant and not produce any noticeable symptoms for as long as twelve years, and we strongly advise anyone who has been at risk at any time in the last twelve years to be tested. This is important because the earlier the virus is detected, the more effective the latest treatments are and the better prepared your body will be to accept them. In addition, there is some hope of surviving long enough for medical science to develop a cure.
Recent data from the U.S. Centers for Disease Control indicate that AIDS is not just confined to large urban areas, but rather is spreading rapidly in smaller cities — places where people don’t expect it and hence might not take the same precautions.
While information regarding AIDS is kept strictly confidential when the employee so wishes, I know of well over a hundred Digital employees who have died of the disease or who have lost family members to it in the last five years. And we can be sure that the number of people today with the HIV virus who work for Digital, or for any other global company of comparable size, is far greater than that. They are scattered through many different geographies and functions. AIDS in the workplace is not a theoretical matter, but rather an actuality that everyone, and especially managers, have to be prepared to deal with.
Part of my role is to advise managers and help them understand the unique characteristics of this disease, with its recurrent episodic bouts of illness followed by recovery, as well as the effects of the medication used to control the illness. We also help them work through the intricacies of managing performance around the disease and to help them understand Digital’s commitment to accommodation. This includes the same steps we would take
for any person who is seriously ill, including restructuring the job, shortening the work week, and perhaps providing for working at home. Such accommodations are tricky to manage in any case, but are particularly so today, with all the stress of changes in our business and the general economic downturn.
We try to keep people in the work place as long as it makes sense for them and for us, in partnership. We have employees who are healthy and productive, but who are HIV positive, who may be on medication, and for whom the "secrecy" of the condition is a source of counter-productive anxiety. We want to create a supportive workplace in which they feel comfortable about informing their co-workers and friends. We have examples where that has worked very well.
On the other hand, afflicted individuals have to recognize that even though we want to keep them working, there will come a time when it’s not in their best interests to do so. That’s a very painful decision.
Basically, we have three AIDS-related messages for employees today:
o If you believe you might be at risk, get tested; and if you have the virus, seek medical help as early as possible.
o Remember that everyone is vulnerable. AIDS knows no discrimination.
o Understand that you are probably going to know somebody with AIDS, and that you may be working with someone with AIDS; so try to educate yourself and to prepare yourself to act appropriately, with sensitivity and consideration.
AIDS education is a process — it does not happen easily or quickly. We have made a significant start by getting into the fight early and the results have been very encouraging.
(For further information, contact Paul Ross at the HIV/AIDS Program Office. DTN 223-9580)
Digital is entering Russia and Ukraine with sales and service offices, an education center, and a long-term commitment to providing information technology and related services. The company plans to establish a leadership position in these potentially large computer markets, expanding into other neighboring former Soviet republics as their requirements become clear.
Digital will market, sell and service a wide range of products, in full compliance with all applicable export laws. Contracts have already been signed with several new customers for projects in the automotive, aviation, hotel, finance, and natural resources areas. Digital has identified nearly 50 projects for which proposals are under consideration. Digital also supports a number of multi-national customers that operate in these countries.
In addition, Digital signed an agreement with the Academy of National Economy to open a Digital Education Center in Moscow, equipped with Digital computers and applications to be used for training. The center will house a demonstration center and will feature visiting Digital lecturers from various countries. The Academy of National Economy is Russia's leading training center for senior managers, offering courses on business, technical, and economic subjects to over 3,000 people per year.
Russian headquarters is in Moscow, with an additional office to open soon in St. Petersburg. The Ukrainian office will open soon in Kiev.
Peter Sipos, the general manager responsible for the republics, has been working to establish Digital’s entry into these markets for the past year. "Digital has taken a long-term view, and we intend to invest accordingly as we build our new organization," he notes. "In the early stages, at the COMTEK exhibition in Moscow last April, we saw high interest from potential customers, government officials, and the news media. In addition to sales opportunities, we see tremendous technical talent in the republics. In particular, we are seriously considering ways to utilize the significant local software development capabilities to work on projects in areas such as telecom, banking and finance, manufacturing, aviation, energy, health care, education, and public administration."
This is the latest in a series of Digital investments over the past two years toward establishing a lasting presence in the emerging markets of Central and Eastern Europe. Digital had previously opened wholly owned subsidiaries in Hungary, Czechoslovakia, and Poland.
Dr. Thomas P. Gerrity, dean of the Wharton School of the University of Pennsylvania, has been elected to Digital’s Board of Directors. He founded The Index Group, Inc. — one of the world’s leading consulting firms in information technology management — and served as its chief executive officer from 1969 to 1988. In 1988, Index Group became part of Computer Sciences Corporation, for which he served as president of CSC Consulting, the commercial professional services group of Computer Sciences Corporation.
A Rhodes Scholar in industrial economics at Oxford University, Dean Gerrity received his doctorate in management from the Sloan School of Management at the Massachusetts Institute of Technology (MIT). He also served on the Sloan School’s faculty for four years, between 1968 and 1972. He is a director of the Federal National Mortgage Association (Fannie Mae), Sun Company, Inc., and Technology Leaders L.P. His other business and scientific affiliations include the Society for Information Management, Data Processing Management Association and the Institute of Management Sciences.
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