Richard Seltzer's
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Articles
about DEC
mgmt memo
.
Volume
4 , Number 4
July
1985
One Company, One Strategy, One Message: Working
Toward Greater Profitability through
improved efficiencies and increased customer satisfaction was the
theme of the June 5, 1985, State of the Company Meeting. Summaries
of each speaker's presentation comprise this special issue of MGMT
MEMO.
One Company, One Strategy: Finishing
Our Products - Ken Olsen, President
Toward Greater
Profitability Jim Osterhoff, vice president and Chief
Financial Officer
Systems Solutions For Our
Customers' Needs -- Bill (BJ) Johnson, vice president,
Distributed Systems
Manufacturing
Competitiveness -- Bill Hanson, vice president, Manufacturing
Operations
Digital In Europe -- Pier Carlo
Falotti, President and C.E.O., Digital Europe
Questions And Answers With Ken
In many areas, we've accomplished more than I
ever dreamed of when we talked about the New Digital two years
ago. We now have a set of products that nobody can match.
This is a result of many years of work and
planning. Fifteen years ago we introduced DECnet, the Digital
network architecture, on which everything has been based. Then, in
1975, we started the VAX architecture and VMS software * and, with
unbelievable discipline for this kind of organization, we’re
sticking with them. We later decided to tie everything together
with EtherÂnet and, after that, came clustering.
We have never, in 28 years, had the response to
our products that we have had with the VAX 8600 and MicroVAX II.
Their power, influence and reception come about because they are,
first of all, VAXs and, secondly, they tie together with
everything else we make.
Through a lot of hard work, we have gotten
people back to one set of prodÂucts, to one strategy, one company
and one plan. The result is that we have enormous power at a time
when we need it.
As you know, the industry is in turmoil. Many
computer companies are going into very serious times. We're now in
an era when many companies are not going to survive and we have
the opportunity to come out on top. We've done the hard part: the
products, the networking, the integrating. Now, we have to finish
the job.
No one completely understands the problems out
there in our market. Most of the people who should understand
don't even realize there is a problem yet.
We're undoubtedly going into a shakedown like
the automobile business and most other businesses. There are too
many computers. They're too easy to make, and it's going to be a
problem.
We have to be ready for the worst. We have to
plan that this business will remain exceedingly competitive. But,
we've got all the assets and we need to exploit them. We also have
to fix our problems.
We don't finish our products. A long time ago,
we decided that there are areas in which we wouldn't sell directly
because we didn't have the reÂsources or the expertise. For these
areas we use OEMs. We've let this evolve into an excuse for not
finishing our products.
Well, we can't do this anymore. This isn't
saying anything negative about OEMs. We still have the same
enthusiasm for them as we always did. However, we will not use
OEMs as an excuse for not finishing our products. We've got to
organize to finish them. This involves an enormous amount of
detail, commitment and effort. We've got to finish our products
and then we can decide which ones we want to sell directly and
which ones we sell through OEMs.
We have friends in different countries who
nationalize industries. PolitiÂcians who know nothing about cars
are absolutely confident they can run an automobile industry. The
game in the nationalized industry is to get reÂsources, not to
make profit. Somebody has the power and everybody politics to get
the resources.
Early in Digital's history, we had some clear,
simple messages and princiÂples. One was, "He who makes the
proposal takes the responsibility for doing it." If somebody
proposes a new product, he or she lays out the plan for the whole
product -- from start to finish — including the marketing and
profitÂability strategy. This worked beautifully. We had, in one
company with one general set of products, more diverse
applications and fields than any company of our size. Since then,
we've gotten the idea that central planning would be better.
I used to laugh to myself at business meetings
when people would lament about socialism, nationalism, and
government interference. They were talking about a lack of
freedom; what they wanted was freedom for themselves, but they
gave none of it to the people under them.
Now, it's a very human reaction to say, "If I'm
in charge, I'll make the decisions." Most of Digital's history is
based on giving responsibility to people who are involved with the
proposal. They were emotionally committed to it. They made it work
whether their plan was right or wrong. They might have done
something stupid, but they fixed it.
Since then, we've decided that we will do our
planning centrally. Our weakness today is that when we dump on the
Sales department a product from Engineering, or dump into
Marketing a product from Engineering, they aren’t in love with it;
they aren't emotionally committed to it or don't even have
confidence in it. Then we say to Sales, "Give us your numbers for
next year." So, a number comes up that doesn't have the commitment
behind it. And that number is what we base our planning on.
The part of the New Digital that we haven't yet
finished is the commitment by the individual marketing groups to a
product. And that means they budget, plan, schedule, and then have
it reviewed so that, for certain resources, they promise certain
results.
Before the New Digital, you heard people say
"power is what I need." Well, the power of an entrepreneur doesn't
come from a budget. It comes from getting the job done. When you
start a new company, your suppliers won't give you the time of
day, you can't hire the best employees, you have very little money
and very little time. The only thing you have is that drive, that
commitment and that love to finish the product. That's being an
entrepreneur.
When people make a plan and it is accepted,
they have to be committed to it. There's nobody who is so mature,
so experienced, so important that he or she can go off and do
products without the responsibility of finishing them.
We are setting about now to do what we always
did. We are breaking marketing into several levels starting off
with the product marketing, which is that group that finishes up
something, delivers it and, when the customer plugs it in, it does
what the literature says it will do. Later on, we will have
budgets for different slices by industry and by area. Everything
we budget will get done and nobody will have authority except in
their budget.
Power isn't the ability to be arbitrary and
tell somebody what to do. Power is having everything under control
and getting everything done.
We have to finish every single detail to make
the product work. People say, "We don't have time." Well, you
don't have time because you want to make more ha1f-finished
products. It may be stifling to budget every single detail, but we
will make sure the customer's job is done, or we will have fewer
products.
Now, we can't wait. We may be in an industry
that is in serious trouble. We have to do this instantly,
thoroughly and completely. I predict two things. One, we will be
overwhelmed with success as we have finished products. And, two,
as we do this, if we do it, we will be overwhelmed with the need
to expand. I further predict that if we limit ourselves to
centralized planÂning, we will say, "We're only going to
concentrate on office and not do factory, laboratory and so on,"
and we will lose much of the business.
Next year at this time, with the products we
have, we have to be on top of the world. We can only do it when we
give responsibility to people, to groups to do their planning and
work that infinite number of vital details.
In the eyes of our owners, the bottom line is
whether their invested capital is growing satisfactorily. In the
absence of dividends, this is measured by the price of our stock.
Our stock sold at $40 a share in 1975 and is at roughly $100
today. The stock price served our owners well during the 1979-81
period but has provided little net growth since then.
The total market value of our company has
increased at a somewhat faster rate than the stock price because,
as we have grown, additional shares of stock have been issued to
provide the capital necessary to support that growth. At the
present time investors value our company at about $6 billion.
There are some 100,000 owners of our 58 million
shares of common stock. Employees account for 16% of the
ownership. Eighty-two percent of our stock is owned by investment
companies, bank trust departments, and insurance companies. There
are 437 such owners. The other 2% is owned by individual investors
who are not employed by Digital.
Among all major U.S. companies, Digital is one
of the top 10 companies favored by institutional investors. It's
flattering to be held in such high esteem by this sophisticated
investor group. But, it is also important to recognize their
expectations, because their buy and sell decisions are reflected
daily in the total valuation of our company, and because we will
depend on them to provide some of the capital required to finance
our future growth. As an ownership body, they are interested in
earnings growth, and it is the responsibility of Digital's
management team to make sure their investment grows.
Investors look carefully at what we are doing
today in the areas of new products, serving our customers' needs,
the efficiency of our operation — all of the areas that bear
importantly on our future results.
At the present time, investors value our stock
at about $100 a share. For that investment, the owner's share in
our net assets is worth $75. The difference between this book
value of $75 and the market value they place on our stock is
essentially the measure of their expectations of our future. The
larger this premium, the higher their expectations.
On March 30th, investors implicitly valued our
future earnings growth potential at $28 a share. The ratio of our
market value to book value was 1.4. You might call this the
expectation index of our investors. Ten years ago our
market-to-book ratio, or the expectation index, was 3.7. By 1980,
expectations had fallen by about 50% to a level of 1.8. Over the
last four years, the investment community has been getting mixed
signals about our prospects for the future.
It is never easy to forecast future earnings
potential, whether you are outside or inside the company. But
investors base their buy-sell decisions on earnings projections
with an implicit adjustment factor for risk assessÂment and other
investment alternatives.
An indication of future expectations might be
the company's actual earnings growth performance in the recent
past. Our earnings per share growth rate during 1972-74 was 54%.
For 1981-83, it was 1%. It is part of a declining trend, but our
three years moving average earnings growth was consistently above
25% until 1982. Based on history and a market value of $103 a
share, or 1.4 times book value, we would estimate that our
investors are expecting future earnings growth of 12-15% a year.
Considering that until three years ago our earnings growth trend
was consistently above 25%, it would appear we have an excellent
opportunity to outperform this expectation of 12-15% a year.
We know
we do most things better than most of our competitors, but for
the past three years or so, it hasn't been reflected at the
bottom line. In 1981, Digital's operating profit margin as a
percent of net sales was over 16%. By 1984, it had dropped to
8%. During this same period, IBM improved its margin while the
rest of the industry experienced declining margins, along with
us, although at a more moderate rate.
We are operating in an industry that
traditionally has had very attractive profit margins. If the
industry continues its long-term growth trend, there is no reason
why we shouldn't double our profitability and return to 1981
profit margin levels, providing we do our jobs properly.
Return on assets comparisons tell much the same
story as the operating profit margin. IBM has combined better
operating profit with improved asset utilization to push its
return on assets higher each of the past three years. In 1984 the
rest of the industry, on average, offset declining operating
profits with better asset performance to report a solid
improveÂment and return on assets. Digital partly offset its lower
operating profits with a somewhat improved asset performance,
particularly during this past year. But in this combination of
profitability and asset management, we are well below our 1981
performance level and also below that of our competitors.
One of the more important financial indicators
of management performance is the trend of sales required to break
even. Another way to describe this is the total costs that must be
recovered before we start earning a profit. In 1981, we required
$2.2 billion of sales to cover our costs before earning a profit.
This was 69% of actual revenue for that year. In other words, we
earned a profit on the top 31% of our sales. In subsequent years,
costs grew faster than revenues, and last year we earned a profit
on only the top 14% of sales. The first 86% was required just to
cover costs.
In a growing business, we might not be able to
reduce break-even in an absolute sense, but it is imperative that
we tailor our cost growth and get our break-even point back to a
lower percent of actual revenue.
There is a correlation, of course, between
operating profit margin and break-even. As profit margin
increases, the amount of revenue required to break even is
reduced. We have been moving in the direction of lower operating
profits and higher break-even pionts. IBM, by comparison, has been
remarkably consistent in its measures over the past four years,
which may explain its seemingly invincible performance in the
stock market. The consistency of this emasure for IBM might also
indicate what it considers critical to sustaining profitable
growth: low break-even volume provides profit leverage on the up
side and profit protectino on the down side. It is celar that we
cannot improve our break-even position unless we reduce our costs.
A comparison of revenue and profit growth may
be the best way to summarize our recent financial performance.
During the 1981-84 period, our revenue
grew at an annual rate of 24%, a higher rate
than IBM's 15%, and higher than the average of our U.S.-based
competitors. Our profit growth during this period was almost
non-existent compared with an 18% annual growth rate for IBM and
14% for other U.S.-based competitors. Our problem has not been too
little revenue growth; it has been too much cost growth. We have
not only outsold the competition, we have outspent them even more.
Roughly half of our worldwide costs are
salaries, wages, and fringe benefits for our people. We presently
employ over 89,000 people around the world. Of this total, 38% are
considered direct -- primarily sales, service and manufacturing
people. The other 62% are indirect. For each direct employee, we
have 1.63 people in indirect or supporting activities. This should
raise questions in your mind whether a reversal of this
relationship wouldn't make us a larger, more productive company.
Another important factor to understand is the
trend of employee costs. Every year, every employee becomes more
expensive, and the compounding effect of these increases becomes
dramatic quickly. For example, between 1980 and 1984, Digital's
U.S. employment grew from 34,000 to 51,000; an increase of 49%.
During this same period, the average compensation grew by 58%,
resultÂing in a U.S. employee cost increase of 135%.
Our revenue during this period increased by 76%
-- greater than the 49% increase in employment, but far less than
the 135% increase in employee cost. Employee additions represent a
long-term commitment. Adding just one person to your staff
represents a commitment of well over $1 million (assumÂing the
employee makes Digital his or her career).
We have been on a declining profit-margin trend
line long enough. It is time to turn around and go the other way.
To reverse direction will require that we develop and implement
plans that will make us a low-cost manufacturer and supplier of
world-class computer products and services.
We cannot just ship our way out of this
problem. We must face the issue of population and its
productivity. Controls cannot be put on for 1986 and then lifted
in 1987. We need permanent and substantive changes in our cost
structure .
In addition to improving profit margins, we
must improve our asset utilizÂation. Today we have assets,
excluding cash, of $5.4 billion, nearly equal to our annual sales.
If this relationship continues in the future and we don't improve
our profit margin, we will require substantial new financing to
support our growth in sales. For example, to achieve a sales
increase of $5 billion from where we are today would require that
we raise $4 billion of new outside capital.
An improved return on assets is the answer to
this problem. Effective utilization and control of assets are
important for two reasons. First, funds tied up in non-earning
assets directly reduce profitability and make our stock less
attractive to investors. And second, non-earning assets absorb
cash that could otherwise be used to finance growth. Clearly the
best solution for us is to convert non-productive assets to
productive.
In the area of accounts receivable, our Field
organization has made some good progress. This year we expect Days
Sales Outstanding (DSO) will improve by nine days, from 83 to 74.
This will convert about $180 million from non-earning assets into
the earning category.
But plenty of additional opportunity remains.
Our standard terms are net 30 days, and our DSO is 74. Delivery
and installation time, skew and other factors add 38 days to our
DSO, more than doubling our standard terms. These are opportunity
areas, and they represent $763 million of non-earning assets. If
we could reduce these three factors by just 50%, we could free up
$380 million of cash.
Inventory is another land of golden
opportunity. It is an area where ManuÂfacturing has begun to make
impressive progress. There are many distasteful things about
inventory. It takes up space. It has to be counted. It has to be
moved periodically. It consumes cash. And, it grows old and loses
its value. It's a heavy weight on our shoulders and we are
carrying $2 billion of it. We turn our inventory only two times a
year, the lowest in the industry.
Our net investment in property, plant and
equipment is $1,7 billion. We consider these productive assets,
although we all know they are not fully productive. Our investment
in property, plant and equipment has grown rapidly over the past
five years. By the end of this fiscal year, our five-year
investment will total $2.4 billion. I'm sure all these
investÂments, when they were approved, promised handsome returns,
but in the aggregate, the returns have not materialized. In fact,
our total return on assets has declined. Think about that when you
are preparing your next project.
Over the last five years our total capital
requirements were $3.9 billion including the $2.4 billion for
capital expenditures and $1.5 billion for receivables and
inventories, net of payables. These requirements of $3.9 billion
dollars were funded essentially from two sources. Net income
before depreciation supplied $2.9 billion, since we earned a very
respectable return on assets during the first two years of this
period. The remaining $1 billion was obtained from outside
sources, through new stock issues and debt financing.
Over the next five years we are likely to
require several billion dollars of additional capital from outside
sources. You can understand the importance of keeping the
investment community feeling good about our company.
Improved asset performance has a beneficial
effect on earnings. The major effect of better asset management,
however, would not be the interest savÂings but rather would be a
substantial reduction in new outside financing requirements. A
combination of improved operating profits and better asset
management can assure our ability to finance a high growth rate.
To achieve our financial goals requires a
combination of continued growth, cost improvement, and better
asset utilization. In order to grow, we must have the support of
our investors and a willingness on their part to inÂcrease their
commitment to us. Without cost improvement, we cannot generate the
profit growth necessary to provide investors an attractive return.
Growth, profit margin improvement, better asset
utilization, and investor support are interconnected and are all
essential to our future success. If we put our minds to it, we can
achieve that success.
When I managed the services organization some
managers thought customer satisfaction and profitability were
separate and, at times, conflicting goals. Well, they are not
separate and they are not conflicting. In fact, the two are
complementary.
A couple of years ago, when we were having
troubles, we lost a major order to one of our competitors. We were
devastated. We had lost the order because we were unable to commit
to certain things with our products and we were honest about this
with the customer. Well, we've had feedback that this customer is
now in a terrible situation; and I predict that, in very short
order, our competitor's products will disappear from that company.
And, I believe we will be back in there.
The important thing here is that we lost the
short-term business, but we'll win in the long term. If you don't
keep your customers satisfied, you are not going to be in this
business for the long haul.
We have got to be very clear and very honest as
to what we can do. And, most importantly, we have to be able to
meet the obligations that we make to our customers in terms of the
delivery date and the performance of our systems. And, I must say,
we've done a fantastic job in these two areas over the last few
years.
One of our goals is to increase the time our
people have available to actually sell and service customers. In
addition, we obviously want to lower the related costs. To
increase sales efficiencies we have to simplify the sale, help
automate sales, and be easy to do business with. We have a complex
company, and must meet the complex needs from our customers,
working with a complicated set of products. As Ken suggested this
morning, if you have 8,000 product variations on an a la carte
menu, plus the opportunity to mix and match, you are likely to
confuse yourself and the customer by attempting to create your own
configurations. We think the answer belongs with a simple,
straightforward set of products that you know will solve the
customer's needs and that can be installed relatively quickly.
To help meet our goal of simplifying sales, 15
months ago we conceptualized "standard systems". This concept is
now a reality. We make a two-week delivery commitment for standard
systems. You order it, we will get it to you in two weeks. The
shipment commitment is the week in which we ship, not the month or
the quarter, and we meet our delivery goals 99+% of the time.
On the newly introduced MicroVAX II, 83% of the
orders to date have been for standard systems. We are very pleased
with this accomplishment, and know standard systems will help us
move both the MicroVAX II and the VAXstation II.
We have also been trying to use some automation
for the sales reps to improve their communication, and minimize
their administrative tasks. We have linked an automatic quotation
system to the order processing system so when sales reps generate
guotes for customers, they can automatically process the orders
when they receive them.
We are setting goals and have a performance
tracking system so that every week we know how well we are doing
against our goals. We can review this against the accounts we have
and, therefore, keep the opportunities for other sales constantly
in review.
We want to make sure that it is easy for people
to do business with Digital. So, we have taken steps to simplify
our contracts and improve our order processing system. In contract
simplification, we wanted one agreement for our customers. We have
38 business units, which tend to want contracts with different
expiration and delivery dates, and different terms and conditions.
So, we have introduced the Standard Volume Agreement that replaces
12 separate product agreements.
Previously, we had over 50 individual service
agreements, depending on which type of service a customer wanted.
We have simplified these into one general agreement with option
riders.
Order processing is an area where we had two
very large and complex groups -- the Field and Manufacturing —
trying to work together to solve a very hot problem. Teamwork is
essential in these complex situations. Without different points of
view being heard, we aren't able to come up with the complete and
best solution. I think we have made tremendous progress, and I
think the teamwork between Manufacturing and the Field is a role
model for the company.
We are now processing orders four times faster
than we were before. The improvements are essentially in
scheduling and certification time, and order acknowledgements. In
December 1983, it took us around 55 days to acknowledge a systems
order (acknowledge means commit to a date when that specific
system configuration would be shiped) . Today, it takes 14 days.
This is a remarkable improvement.
We started something we called PCs to the
Districts last year. We put an allocated inventory in our
districts and allowed them to schedule orders against their own
inventories. We then very quickly ramped up to a guaranÂteed
24-hour delivery operation from a central inventory. The program
has been incredibly successful. In Q3 of FY84, we processed
approximately 4,300 orders, and in Q3 FY85, we processed 32,000
individual orders for fast delivery in less than 24 hours.
When you have a long list of complicated
products, there is a high probabilÂity that there will be changes
to the orders submitted. We have had a 40% reduction in the number
of change-orders per new order in these last 15 months, and the
current ratio is essentially one change for every five orders. So
again, we see a remarkable improvement.
On the order side of the business, we want to
enable the Field to make commitments against a data base and an
availability file, and have ManufacÂturing commit to that. We have
started this quite successfully in Europe, and we want to make it
a company-wide program. We want to get the communiÂcation to the
right people, then trust them to do the job, and eliminate the
middle person.
We are continuing to focus on standard selling
and are going to eliminate technical editing after the fact. Sales
people will be responsible for the quality of the order and they
will have to live with the results of the products we ship. If a
salesperson orders a product and the customer is unhappy with it
after we ship it, we deduct that shipment from the sales person's
net certification.
We measure our field people on customer
satisfaction. We take customer satisfaction surveys from the
people who decided to purchase our equipment. This helps us
understand how these people feel about Digital and our sales
representatives. According to the latest survey, there has been
dramatic improvement, specifically in the categories of the area
we call ease of doing business, lead times (how long it takes to
get a product), order acknowledgements, delivery commitments, and
fast delivery responses. It's important to remember that these
improvements are where it counts — in the eyes of the customer.
Fifteen months ago, we said, "We need to set a
goal for our most important customers because it is critical that
these people are taken care of." In fact, relatively few customers
represent 25-30% of our business. They are incredibly important to
us, and we have a better customer opinion survey score on those
accounts than we do for all accounts, which is exactly what we
want. I should emphasize here that our overall customer opinion
surveys were up dramatically from last year, with even better
scores from the more important customers.
In summary, we believe that customer
satisfaction is the most critical measurement of Digital's future
success. We believe it is inclusive of all the other key
measurements such as productivity and profit, and we are committed
to measure and improve our performance until we are number one in
Customer Satisfaction.
Most people build networks because they want
their employees to be more productive by sharing resources and
having access to all the data they need. They consider the office
environment as including access to management information — both
technical and business information — and they want to make it easy
for their employees to obtain that data in whatever form they
want, whenever they want it.
A financial analyst recently told me that, from
his perspective, the fundaÂmental change in networking occurred
because of spreadsheet applications on personal computers. Because
people now understand and can think about various what-if
scenarios, you can't simply hand them conclusions. You have to
share the basic assumptions and results. And rather than moving
disks
around, it is far easier to send such
information over a network and say, "Did you see what Joe did?
What do you think of it?" He told me, "We have become more
productive through that kind of interchange than by having
meetings and sitting around and talking about various scenarios."
Another person I recently spoke to, who manages
a group of hardware and software engineers, said that the computer
industry has not focused on making the engineer productive.
Typically, the emphasis has been on making the computer
productive, rather than the engineer. But with local-area networks
and with wide-area networks it is now possible for an engineer to
set up a job, farm it out to a "compute server" and meanwhile get
on with other work, thereby becoming much more productive. His
rule is to make sure that when engineers are using computers they
believe that they are holding up the computer rather than vice
versa, that their thought process is the limit, instead of their
having to wait for the computer.
Essentially, our networks enable people to
obtain data and have access to data and to share resources. Once
you put a network in place, people begin to think of it as part of
their normal work life. Then, when you offer an inexpensive way
for them to expand, they will do it. Our approach with our
local-area network is: Buy what you need to get started, then
expand it as your needs require. Start as small as you want and
grow as large as you need. Expand as you learn. In contrast, with
IBM's SNA network architecture, you have to start at a very large
level and then you can expand only in major increments.
Our strategy in networks is to make sure that
our customers don't have to worry about the fundamental changes in
technology that are occurring in the communications world. We are
going to do that worrying for them, and their investment over a
time will continue to be useful.
Networking is not just a one- or two-year type
of engineering project. You do not get into it and then say, "Now
I have built a base, I can go on to something else." It's a
long-term commitment to customers and standards. It is a
commitment to the customer that you recognize you are not an
island unto yourself, that customers are going to want to tie
equipment from other vendors into the network; and, therefore,
helping to drive and establish industry standards is critical.
The customer should not be overly concerned
that all of the levels of communications remain standard over
time, because they never will. As new technologies come along,
there will be cost advantages to making changes, but it is
important that the investment that the customer makes be
realizÂable into the future.
In this industry, technology changes the
cost-benefit analysis at any given point in time, so we have to be
able to allow our systems to grow based on that. That is where
architecture comes in.
Fundamentally, the Digital Network Architecture
(DNA) is the way that we take advantage of technological advances
while protecting our customers' investments. We paid close
attention to industry standards, international standards and
national standards as we developed that architecture, and that
effort is now paying off.
For instance, Ethernet made a major improvement
in the ability of people to interconnect computers and to
communicate within a local environment. When we made Ethernet a
part of our overall network, thanks to our architecture, that
fundamental change offered real capabilities to customers with the
same software that they had before.
The serviceability and availability of a
network depends on how you measure it . When you measure those
factors from the point of view of why you have computer systems,
why people are using them and the access time they have to them, a
local-area network makes a lot of sense. When one computer goes
down, everyone isn't down. People just run their jobs on another
computer. It is invisible to them where the jobs are being done.
That's the issue that many of us, in talking to customers, are
bringing out as to the value of a distributed type of processing
and local-area systems and networks in particular. The whole
really becomes greater than the sum of the pieces. People have
more access to more computing almost invisibly.
With Ethernet, you can move equipment, like
personal computers, from one office to another and just plug it in
the wall. Your network resources are at your fingertips.
With networks, customers often find they have
lower cost per user, and people feel they are more in control of
their job and their task because they can schedule and do what
they want to do at a given time.
We have to think in terms of systems — complete
systems at the product level, the hardware level, and the base
systems software level such that they meet the needs of the
customers that we have traditionally sold to in the past. We also
have to worry about systems at the application level. Sometimes
telling customers, "String this wire around and hook up," isn't
enough. We have to say, "Here is what you do to solve your order
processing problems," for instance.
We also have to think of the network as a
system that happens to be made up of a number of systems. We need
to provide solutions that meet our customer needs. We have to
constantly think about that, and make sure what we do is complete,
or we show customers a growth path so they can do more and more of
their solution with our system.
It is by worrying about what customers do with
our equipment -- worrying about the solutions that they are trying
to use our equipment for -- that we have a great opportunity to
grow very large and very profitably in the future.
Our business has two main cost components --
labor and materials. And we focus our cost-reduction efforts on
both. For instance, our remote diagÂnostic capabilities enable us
to more quickly and accurately diagnose and respond to customer
problems off site, and also allow us to monitor the condition of
the systems during the customer's use time, helping us provide
more scheduled corrective maintenance at a lower cost than
unscheduled maintenance. Our telephone support centers enable us
to respond to customer usage problems and screen out calls that
require on-site intervention. Our distributed logistics program
shortens our pipeline by moving more of our material closer to the
service delivery locations. A common call-handling system is
streamlining the call-handling process while making it easier for
our customers to deal with us on a day-to-day basis. At the same
time, this reduces our engineers’ reporting time through paperless
reporting. We are engaged in a worldwide realignment of software
service products and spare products to consolidate service
delivery. We are trying to bring about a system-solution approach
to service.
But by far our most exciting success story in
terms of productivity, as well as improving customer satisfaction
and employee satisfaction, came out of a program we piloted in New
York/New Jersey. A similar program began about three years ago in
Field Service Manufacturing and then later on in the Field Service
Distribution Center in Woburn. It was so successful in imÂproving
productivity there that we decided to try to apply it to service
delivery. We call it our "Service Managerial Model."
We found that in New York/New Jersey, our
branch managers were spending well over 50% of their time in the
office supporting and managing administrative types of activities.
As a result of this program, those branch managers now have half
their time freed up to work with employees and spend on
customerÂcare types of activities.
At the same time, our unit managers were
spending over 50% of their time just scheduling and dispatching
field engineers in a totally reactive mode. Now, half their time
is freed up to spend on customers and employee developÂment, and
we have defined pro-active, non-problem related customer visits as
their primary responsibility.
As another example of this technique, we
recently implemented a program in a branch on the west coast. We
found that they had a backlog at the close of every working day of
about 400 service calls. They had job requisitions out for seven
additional engineers and, needless to say, customer satisfaction
and employee morale were low. Three weeks after the project
started, the branch was down to a 30-call backlog at the end of
the day, which is about right for that size branch, and the branch
manager had cancelled all seven job requisitions. In addition, of
course, the project helped decrease customer complaints and raised
the morale of our people by decreasing their overtime and giving
them more control over their work environment.
The success of this service delivery model
results from a collaboration between our regional line management
and an outside consultant firm, Cassidy and Associates. Basically,
New York/New Jersey set the stage, provided the the time and the
management commitment, and Cassidy implemented the conÂcepts. Both
Digital managers and Cassidy then monitored, reviewed, and took
corrective measures throughout the implementation process.
Specifically, Cassidy taught our unit managers a technique they
call Short Interval Management. They did this over a six-month
period of ongoing, one-on-one contact in the unit manager's work
environment. Their goal, in fact, was to change the behavior of
our first-line managers.
Short Interval Managenment is an approach to
controlling the flow of work to the smallest increment of time
that is practical for the type of work being done. The idea is to
break down, analyze, make decisions, and take correcÂtive actions
if necessary at each short interval. In other words, achieve
control over the work and the work environment. For our engineers,
the interval is a service call. For our unit managers, the most
appropriate interval is the workday. We started out with a goal of
better utilizing our people and trying to get a greater
opportunity for customer contact.
In setting the stage for implementation, we
found the job content of unit managers and branch managers needed
much more focus and less overlap. We tend to think of monthly and
quarterly reports, but they needed feedback in real time for their
level of management. Branch managers stressed the need for help
with administration within the branch.
The supervisors in our environment could not
handle more than three primary responsibilities. More would just
confuse them and get them bogged down in detail. So we gave them
three exclusive responsibilities: their customers, their employees
and their employees' productivity.
The workload was unbalanced. Fifty percent of
our supervisor's time was spent on dispatching, and 80% of that
time was spent on some form of call handling. Now, that has all
been reversed. The utilization of our labor force in New York/New
Jersey has risen steadily from 45% just last July, to 55% this
past January and is currently at 85%.
We also found that people could now manage
larger groups. So we have conÂsistently improved our
direct-to-indirect labor ratios and our engineers- to-supervisor
ratios.
How about quality of service delivery? In
response and repair time and also in customer satisfactions
surveys, New York/New Jersey, which three years ago was at the
bottom of the list, is now far above the U.S. average.
What about payback? We spent $600,000 to
implement the service delivery model in New York/New Jersey.
Because that was our pilot, we spent a lot of time on it. For
about three times this amount, we will do the whole rest of the
country. In this fiscal year alone, we have already experienced a
return of over $5 million in labor costs avoided as a result of
greater efficienÂcies and the increased utilization that this
project has brought about.
The "one company, one strategy" message is not
simply a product or an engineering goal. It is a collective
organizational goal. It should provide a way for each of our
individual groups — Engineering, Marketing, Sales, and
Manufacturing -- to take plans and associated goals and work
together to achieve better success in a very competitive
marketplace.
The simple, fundamental message we need to
convey is that the MicroVAX II is a VAX. It represents a
breakthrough in price and performance, and puts Digital in a
leadership position for the next several months, perhaps a year.
We also have created opportunities to move into
new markets that, until this time, were unavailable for computers.
With the MicroVAX II, we can provide solutions that in that past
were $ 100,000-$200,000 requirements, and cerÂtainly out of the
reach of many application areas. We've also moved into a market
that we've not been in before -- the single workstation area. We
need to sell, to build and to ship more of these systems by
several fold than ever before in our corporate history.
By the time MicroVAX II was announced, we had
decided that it was time to position our product, not just within
the Digital family, but also against the competition. In addition,
we needed to tell the world why our approach to computing is
different, significant and more effective.
Based on the experiences we had with our
successful VAX 8600 introduction, we pulled the Marketing,
Engineering and Sales organizations together to launch the
product, establishing a standard systems approach and a finished
product approach in the process. We developed new sales tools, now
adopted as standard corporate sales products, which got
information to the Field well in advance of the announcement.
The first step was for Engineering to define
the product, its capabilities and characteristics. The Marketing
groups then created the first tool, a profile which we call a
"marketing roadmap." In the form of a flow chart, a "roadmap"
highlights the key sales opportunity, application descriptions,
computing requirements of all our VAX systems, Digital's strengths
in the particular application area, information on the
competition, and our strength relative to the competition as well
as some reference accounts.
With assistance from Engineering, appropriate
Field and Marketing groups discussed where the MicroVAX II was
going to be sold and the expected volume. Then we compared the
profile to the standard components we needed to connect together
to create a real systems environment, adding appropriate layered
applications, hardware service and software support and training
to provide a full solution to our customers.
In addition to roadmaps, we developed two other
tools — FAAST charts and the sales manager's resource handbook. A
FAAST chart matches key customer decision criteria against the
type of buyer. It also provides a summary of the competition in
the particular market. The sales manager's resource guide is
specifically targeted at major market opportunities within each
district, and provides a catalog of all of the marketing programs
that are available.
Ron Eisenhauer, regional manager, Central
Region, calls the marketing plan "the finest I've ever seen in the
company." And a district manager in the Mid-Atlantic Region says,
"We're giving sales reps the marketing materials they need."
We began our standard system process a year and
half ago in a very formal way, and we have been building upon it.
This is the first time we’ve had the
opportunity to work with a new product and
design standard systems as a integral part of the way we want to
market, sell and manufacture. But I believe we need to move much
beyond this, and into the realm of what I would refer to as
"applications" systems.
Customers want solutions from Digital -- the
appropriate applications, terminals, printers, etc., with a total
service and support package. Conceptually, we should take this to
the point of really thinking about single part numbers and
planning accordingly.
A related effort is known as "work systems."
Our styles of computing say that we're selling collections of
systems these days and that, in fact, the network is the computer.
We need new ways to approach this notion of selling numbers of
systems that are intended to work together as a single system to
solve a given problem. I think Engineering understands the problem
connectÂing these pieces together. We haven't yet translated that
into good marketÂing or good selling plans, and I believe that is
the direction in which we have to move.
The real work is just beginning for us. Having
seen each of our organizaÂtions work in a very collaborative
manner during the last four or five months, I really believe
there's absolutely no reason why we can't get that one plan and
that one message and truly achieve our long-term growth, market
and profit goals.
I feel very proud of Manufacturing performance.
We've come a long way since the infamous QI of FY84. We still have
a long way to go, but the trend is in the right direction.
The key in customer satisfaction is meeting our
customers' expectations. We've come a long way from the 50%
on-time delivery of seven and eight quarters ago. Today we are
over 90% performance in meeting our commitments. In the month of
May, we achieved a 95% performance in the options and systems
business and a 99.6% performance in the low-end business.
This kind of performance required close
cooperation between us, the Field and Engineering. It could only
be achieved by working issues on a weekly and daily basis. Every
Monday morning I know what we have shipped, by plant and by area.
I also know that if a plant or a group has missed their shipping
objectives for that week, that they're immediately working
overtime to get back on schedule by the end of the next week.
Now that shipments will arrive on time, the
next question is: Are they complete? Waivers are a measure of
shipping a complete order. The occurrence of a waiver indicates we
had to receive permission to ship something less than a complete
system. The poor performance of seven or eight quarters ago was
coupled with shipping some 18% of our systems less than complete.
We now are shipping 99% of our systems without waivers. So we can
truly say we are shipping on time and shipping complete systems.
Recognizing the importance of treating
customers as individuals, 15 months ago we established a "zero
slip" program to achieve zero slips for all orders from seven
selected customers. We selected those seven because they
represented large international organizations that ordered a full
range of products and accessories from multiple sets of ordering
sites. These seven customers represented 200 subsidiaries and
2,000 order points. We believed that if we could get to zero slips
with these kinds of customers, then we could achieve zero slips
for all our customers.
A year ago, 1,400 orders for these customers
slipped. Now that's been reduced to 95 slips. Again the key, the
only way for success is to get it to zero slips. And I'm pleased
to say that we've reached the point where shipping sites that have
had only one or two slips are unhappy with their performance.
Now that we can get the system to the customer
on time, the next question is: Will it work and will it stay
working? Our goal is that our systems arrive problem-free and work
when turned on. Comparing Q3 of last year vs. Q3 of this year,
there has been a 31% improvement.
In particular, the VAX-11/730 is a success
story. A year ago we had a major problem with the installations of
that product. A cross-functional task team was put together,
including people from the Field, Manufacturing, Quality Group and
Engineering. Through their efforts, we've been able to increase
problem-free installations to 85%. Their work has served as a
model for this kind of approach on other systems.
Our customers depend on us to meet plans for
introduction of new products. They base their plans on us meeting
our plans. A year ago this was clearly one of our major problems
in terms of customer satisfaction. And again, we collectively --
Engineering, Manufacturing, the Field and Marketing — addressed
this issue. We've seen some major improvements in this area, for
instance with the VAX 8600 and MicroVAX II.
An important factor in this area is that we now
have plans to measure against. This is an agreed-upon plan for all
of us -- Field, Marketing, Engineering and Manufacturing. In FY84
we didn't have that one plan and we weren't all working toward the
same goals, and we weren't communicating the same information,
either to ourselves or to our customers. We now have that one plan
to work against.
Also, we now measure ourselves against our
original plans, not against reÂvised plans. It's important that we
have revised plans so that we can comÂmunicate accurate status to
ourselves and to our customers. But, unless we measure ourselves
internally against our original plans, we're not going to develop
the kind of skills or discipline necessary to consistently achieve
our time-to-market goals.
With our recent performance, I believe we've
begun to demonstrate to ourÂselves and to our customers that we
can be predictable on new products.
Now, what are we doing to achieve competitive
return on assets (ROA)? The relationship of manufacturing costs
with corporate profitability is not a pretty sight. During the
early 1980s, when we were achieving an acceptable profit level,
Manufacturing costs as a percent of net equipment sales was in the
41-42% range. During FY83 and FY84, our manufacturing costs jumped
dramatically to the 51-52% range. Correspondingly profits fell.
Our current cost goal in Manufacturing is to
get back to the 41% range. To make this happen we have to reduce
our manufacturing costs by 20%. We have made a start in FY85,
reducing our costs by 7% this year.
There are many things we in Manufacturing alone
can do to improve our costs. For instance:
o simplifying our structure so it requires less
people to produce our products;
o simplifying our material flow so it takes
less time and fewer manuÂfacturing sites to build our products;
o improving our quality so we improve our
yields and reduce our inspection, repair, test and scrap costs;
and
o taking advantage of automation and expert
systems, especially in our overhead areas .
But Manufacturing alone can't make the total
necessary improvements. We depend on help from all the other parts
of the organization. Selling old products at low mark-ups because
the new products aren't available hurts our cost ratios. Building
products with too many parts or that are not properly designed for
manufacturability hurts our costs. And we waste a lot of money and
assets when Field needs and Manufacturing capabilities are out of
sync.
Currently we have too many people in
Manufacturing to efficiently run our business. Manufacturing
population grew from 21,000 people in 1980 to 32,000 by FY84.
We've broken the trend, we've reversed the direction in FY85. We
have reduced the total number of people in Manufacturing by 3,000
this year, and we are committed to continue that down sizing in
FY86 to a level of 27,000 or less. Once we achieve this desired
level of population, competiÂtiveness will demand that we support
an annual revenue growth rate of 20% with no increase in
population.
We achieved that 3,000-person reduction this
year through a variety of techniques: hiring freezes, and
retraining and relocating people. We've taken advantage of
attrition where it has naturally occurred. We believe we can
achieve next year's goal by continuing these same techniques.
But the real issue is overhead people, indirect
labor. Virtually all the growth has been in indirect labor
categories. Our direct labor base, today 9,500 people, is no
greater than it was in 1980. In fact, we should be quite proud of
our direct labor productivity. We have almost tripled our output
without increasing our direct labor base. So, when we talk about
making impacts on costs, we're really talking about our indirect
population.
Reducing the population is essential, but in
the end it is only successful if the total costs are reduced. Our
growth rate in spending was running 15-20% through FY84. We
brought it down to 12% growth in FY85. But the real challenge for
us is our goal for FY86, which calls for a 2.6% reduction in
spending from FY85. On top of that we have a goal of reducing our
disÂcretionary spending ( non-people , non-material related
spending) by 10%
year-to-year. These will be tough goals to
achieve, but they are clearly necessary for us to get back to the
41% cost level.
Shifting to the other side of the equation in
terms of ROA, we have a long and not so proud history of turning
inventory two times or less per year. Roughly, that means we have
more than six months worth of sales in the manufacturing pipeline.
We're in the process of changing this history. We're driving
towards two and a half turns in FY86 and three and a half turns by
FY88 .
Many factors, such as MRP (Manufacturing
Resource Planning) systems and just-in-time concepts, are
contributing to our success in managing invenÂtory. But the
Field/Manufacturing ship-build plan has been particularly
important. We now have confidence in that plan. This allows us to
eliminate the historic safety stocks that we used to put in to
protect ourselves. Also, we now manage inventory on a daily and
weekly basis. We know when we are off against our goals on a
weekly basis, and we correct on a weekly basis.
In closing, I would like to highlight four
overriding "hows" that I believe have been keys to our success.
First, we are a multi-dimensional organiÂzation. We do much more
than simply ship. Success only comes when we worry about costs and
inventory and people as well as shipments. We can't make our goals
unless we are successful in all elements of our business. If we
fail in any issue, it hurts all the issues. Secondly, measurement
and accountÂability are important. We have objective measurements
in place. People and organizations are being measured against
these goals, and they are being held accountable. The process has
discipline. Third, we run the business weekly. Successfully
controlling a multi-dimensioned business can only be achieved when
we run the business on a weekly or daily basis. Much of the formal
reporting may appear in month or quarter totals, but the goals,
the measures, and the accountabilities are weekly. Daily and
weekly management is the only path to success. Finally, our goals
will only be achieved with one company plan. Today, Engineering,
Manufacturing, Marketing, and the Field have one set of numbers.
That's great, but one plan is more than just a set of numbers. It
must become a way of life. We are moving in that direction; and as
we do so, success and customer satisfaction and profitÂability
will only increase.
In 1983 we decided to decentralize in Europe
because we had missed our budget and profit had been stagnant for
a few years. Also, morale was low. The personnel turnover was 15%
in average, and particularly high in Sales. We were reacting
slowly to competition, and customer satisfaction was not good .
Over the last three years, thanks to the
efforts of our 17,000 people, we have doubled the orders, almost
tripled the profit, increased the number of employees by 63% and
reduced employee turnover by 50%.
Our goals, when we decentralized, were simple.
We wanted to go back to the type of company Diaital had been
before -- very acraressive, very fast, and
entrepreneurial. We wanted to focus again on
the customer rather than on internal discussion and debate. To do
that we wanted to put the responsiÂbility where the action is,
i.e. in the Field, near to the customer. That way people could
regain the excitement and the energy that made this company so
great.
We had to organize in ways that were simple and
gave people the freedom to act. We needed to be much more
efficient, not just by our own internal measurements, but from the
point of view of our customers. We wanted to gain market share,
and believed that the best way to do that is by making our
customers happy. And, most of all, we had to bring back the
motivation and the pride people feel working for Digital.
When we started, every function had its own
separate approach. Field Service went in one direction, Software
another one, Sales another, Marketing another and Manufacturing
another. We needed a common way to be disciplined about how we
approach certain problems. We had to teach our people to think
about all the elements and the interconnection of those elements.
First, we had to define our mission. We all
agreed that we were not just selling computers anymore; we were
selling information systems. And that simple change, from thinking
in terms of computers to systems, required a totally different way
of managing the shift that we wanted to take in Europe .
Second, we had to define our objectives. In the
past, each function was very good at defining its own objective.
But the functions rarely checked to find out if their various
objectives were convergent; if they were helping each other to
succeed. So we worked out a common set of objectives, identical
for all functions. And based on those common objectives, each
function and country built its own plan.
Our first objective was to continue to be the
leading supplier in scientiÂfic, engineering and OEM markets. Our
second objective was to be the preferÂred alternative vendor of
distributed information systems for manufacturing, administration
and office.
We also have some other clear business
objectives, such as meeting and exceeding all our operational and
financial objectives quarter by quarter and developing a single
plan for the Field and Manufacturing to ensure fulfillment of our
customer commitments. That was the first cross-functional plan we
ever had in Digital Europe.
In addition, we set some team goals. The
customer wants to buy a system from us -- not just pieces of
hardware and software. We can no longer ask the customer to be the
integrator of our activities. But to sell and deliver complete
systems, we have to change the way we plan, the way we organize,
and the way we present ourselves to the customer.
In particular, we wanted to make sure that a
salesperson felt responsible to manage the customer and coordinate
the resources inside the company, so the customer has a feeling of
dealing with one company. And the whole Sales organization had to
be geared and changed to manage a system rather than selling
pieces. With that in mind we changed our hiring, our training and
changed the way we plan.
Once the system is sold, we have to make sure
the pieces come to the customÂer in one shipment. And once the
machine has arrived, the customer wants one organization to
service it, not two, not three, not four. We may send five
specialists, but the customer should only call one number to
receive any and all service.
We also wanted to have one invoice.
(Historically, different organizations within Digital billed
separately under different contracts.) And externally, we have to
present one marketing image.
To me, efficiency is guality. Every time you
want to save money, you have to go for high quality. That's true
for your shoes and your food, and it's true for computers. If you
want people to be productive, you have to give them the right
environment and the right tools.
Quality means everything we do, not just our
products. It means the way we write reports, the way we send
invoices, doing things right the first time. Most of all, quality
means respecting our commitments. If we say we're going to deliver
June 15, that's when we're going to deliver, with no exceptions.
Rather than thinking in terms of 13-week sales
cycles, we set up weekly goals, and everybody who didn't meet the
weekly goal -- including the country manager — had to write me a
letter explaining why not. It only took a few months to straighten
out our sales curve. In FY83 we met 55-60% of the budget before
week 12 and the rest in the last two weeks of the quarter. Then in
FY84 and 85, we went to a straight line of orders. Every week we
have a goal, and we meet it. We made that change not by changing
the people, but by changing their attitude.
For the last five quarters, we have met
regularly with Manufacturing, lookÂing at how the weekly orders
match with manufacturing capacity. Typically, around week three or
four, we get nervous about one or two products. So we write
directly to the district manager saying, "The weekly trend of this
product is behind Manufacturing's capacity to ship. We expect you
to sell so many of these units to be able to use the full
capacity." The sales organiÂzation has reacted so well to this
approach that we have systematically received orders exactly to
the numbers we asked to receive. In other words, within certain
boundaries, we can influence what customers purchase.
Two years ago, we asked Field Service in Europe
to manage the Peripherals and Supplies Group on behalf of the
country manager. They were busy doing their own job, and we asked
them to do a little extra, using expertise and experience on how
to manage an inventory, and how to get third-party comÂpetitors
out of our installed base. And they are doing very, very well.
They have grown what was about a $50-million business to $300
million of busiÂness, with a substantial profit margin.
We have to make sure that the people in the
Field know exactly what their job is. For instance, in Sales there
was no way of measuring who was doing what Monday morning or
Tuesday afternoon. So we put in place a svstem where
salespeople have to plan where they are going
next week, and their superÂvisors have a chance to keep track of
simple productivity measures such as how many calls they have made
and how many visits.
We needed to expand our portfolio of customers.
When we had a crisis back in 1980 to 1982, it was clear that we
didn't have enough customers. So in Germany, for example, they
took senior sales people, complete sales units away from the
existing accounts and said, "As of July 1, you don't have any
customers. You'll have to get new customers." Of course, we
studied the market and gave them some target accounts, but that
was a difficult assignÂment. And at the end of the year, most of
those salespeople had won the DEC-100. Now we measure every
country on the number of new accounts (not just new applications
in existing accounts) they open every quarter.
We extensively use our presence in Europe,
specifically manufacturing, when trying to win customers. We take
customers into our plants and diagnostic centers, and this makes a
significant difference in winning major sales. But we need more
presence, more resources in Europe.
It is absolutely fundamental that if you want
to have customer satisfaction, you have to have motivated people
who are proud of the products, proud of their company. I wrote a
letter to every single employee explaining what we were going to
do. We managers now spend a lot of time in classes and meetÂings
explaining what we are doing. And it's amazing, when we hire
people from other companies, and they see the country manager or
myself or other functional managers spending time with young
employees who just joined the company. They think, "This can't be
true. There must be something different here." And they will never
forget that experience even if they don't see Willi Kister or
Geoff Shingles or myself again for years. It shows we care about
them, and it's true. It takes time, but it really pays off.
We have reduced employee turnover; we have high
morale; and we have a lot of people who want to join our company,
many of whom were referred by emÂployees .
Over these three years, we have learned a few
lessons. We have to make what we are doing very clear to
employees. Middle management tends to stop changes because they
are difficult. Typically, you have pressure for change from the
top, and employees look for change, but in the middle it's limbo.
So it's important to make messages clear. We have to continue to
talk to the Field and repeat, repeat, repeat the message.
Now we have some challenges, and fantastic
opportunities. We have tremendous pressure from IBM. They target
us. They have salespeople who have a specific goal to go after our
customers. But we cannot run the risk of imitating IBM. There are
some things they do well; but if you mimic, you're dead. We have
to be very careful that we don't get too influenced by IBM because
we have our own strategy and we have to continue to do things our
own way.
If we want to be successful we have to continue
to stress such basics as customer satisfaction and productivity
and, above all, we have to we work as one team, as one company,
with one strategy.
Q: How long will it be before the new marketing
organization is worked out, and can you give us a general idea of
what it will look like?
A; There won't be major changes. We are
redefining some of the things we've already been doing. Today, we
have one marketing group that does both products (applications)
and industries. One of the things we are going to do is separate
our product marketing — have them responsible for completing the
product all the way -- from industry marketing, which will make
sure we market it thoroughly to the industry.
The problem we had before when we had a
marketing group for newspapers or typesetting, for example, was
that they only sold hardware and software for typesetting. They
never felt the obligation to sell everything Digital made to
newspapers. So, we had nobody selling them word processing,
accounting software and other applications. As one step towards
being one company, everybody will sell the whole set of products.
In addition to selling typeÂsetting, our newspaper industry group,
for example, will take our whole range of products —- all of those
that are applicable — and sell them to newspapers.
It turns out that the Europeans are way ahead
of the U.S. on this, and the U.S. will follow their pattern
because they're having very good results. When we report on this,
we will not have the American groups supervise the world
industries. We will, once a quarter, get results of our industry
marketing groups by area, and they will learn from each other. One
will not run the other.
By refocusing our marketing, I think we'll make
a number of things happen. Marketing tends to include many details
— all kinds of announcements, literature, planning -— and people
tend to forget that marketing is based on finding out what the
customer needs, finding out what products we have and then putting
the two together. And we often forget that it's the message that
is marketing's job.
In breaking things into pieces, each will be an
entrepreneurial group. Some will fail. People want to grab hold of
things centrally so no one will fail. With that, there is no
motivation and less creativity. It is with this survival of the
fittest that an organization becomes strong and an industry
becomes strong. I once told this theory to a committee of the
National Academy of Science, and someone quoted me, calling it
"Ken Olsen's benevolÂent theory of evolution". Well, I never
claimed that evolution was benevolÂent. Evolution is cruel, but
the results are positive.
Q: Is the theme ONE COMPANY, ONE STRATEGY, ONE
MESSAGE still relevant? If so, why?
A: It's not as relevant as it was a year ago.
In the last year, we have gotten so far in ONE COMPANY, ONE
STRATEGY, ONE MESSAGE that now we're almost starting to look for
more in the words than was ever meant. We are truly ONE COMPANY
now. We don't have separate companies going in different
directions.
We don't have our strategy defined in all
areas, but we do have ONE STRATÂEGY, and we do have ONE MESSAGE.
We have one set of products, one product strategy, one networking
strategy, and, to a large degree, we have arrived.
ONE COMPANY, ONE STRATEGY, ONE MESSAGE is still
important, and we have to hold it in front of us and remind
ourselves. But we have truly, beyond my dreams, accomplished what
we set out to do there. So, it is not as pertinÂent, but it is
still important. Now, we must exploit the results of
entreÂpreneurship and have thorough marketing and have every
single part of the company be more efficient.
ONE COMPANY does not mean doing all the
planning in one place. In some companies, it can, but not here. In
our business, I don't know anyone smart enough to do it all. So,
we break it into pieces where the people who make the decision or
the proposal take the responsibility.