Richard Seltzer's
home page Publishing home
Articles
about DEC
mgmt memo
.
Volume 5 Number 2
March 1986
Giving Customers
The Competitive Edge Today
Digital’s
Financial Strategy by Jim Osterhoff, vice president and
chief financial officer
Product
Positioning For The New VAX Systems
Putting Pay At
Digital Into Perspective
Direct Deposit
Campaign Aims To Increase U.S. Participation
Digital’s use of its
own products has helped give the company a competitive advantage
-- for instance, bringing products to market quickly, reducing
inventories, providing management with timely data, and responding
to customer needs. Customers can use those same products and
techniques to gain competitive advantages in their various
industries.
That was the main
message of the February broadcast of "Between the Lines," a
program intended to keep employees informed on current
business-related issues. This show is aired over the Digital Video
Network, a pilot project now available in 18 locations in the U.S.
and Canada.
Win Hindle, vice
president, Corporate Operations; Jack Shields, vice presiÂdent,
Sales and Service; Jerry Witmore, vice president, Basic Industries
Marketing; and Bill Koteff, manager, Engineering Product Planning,
all discussed Digital's strong product position and new,
aggressive stance as "the best company in the computer industry."
"The momentum has
been building for Digital in the course of the last year," said
Win. "Our competitive product position has improved to the point
where we have unequaled products in the market today. In addition,
we have had much better financial results in the last several
quarters. And that culÂminated with our Quarter Two financial
report in which Digital had results that were better than anyone
in the financial community had predicted. For example, our
inventories today are well over 25% lower than they were a year
ago.
"So the combination
of better-than-expected financial results and a very good product
position has given both investors and customers a strong, positive
feeling about Digital."
"We have a window of
opportunity," emphasized Jack. "To take advantage of that, we have
to convince our customers that they cannot afford to postpone
purchases. We have to let them know that we have the technology
today that can help them to solve their current problems and gain
competitive advantage in their various industries."
"We've made some
rather remarkable progress over the last 15 months," added Bill.
"Since the introduction of MicroVAX II and the VAX 8600, we have
extended the range
of VAX processing power by several fold, and at the same time we
have entirely replaced the earlier generation of VAX machines.
"Local area and wide
area networks have been a remarkable advancement for both our
customers and ourselves. The coming together of this networking
technology has brought about dramatic changes over the last couple
of years. We're now shipping thousands of network nodes a month."
"We're really on our
second generation of network products today with our local area
networks, whereas others are still talking about announcing
products in the future," added Jack.
"Our advertising
theme is 'Digital has it now,'" noted Jerry. "And that's what we
are proving at DECWORLD '86. We view that show as the real
marketing of our company and its total solutions. Just for that
show, we put together one of the largest private data networks in
the world, serving as a node on Easynet, Digital's own private
data network which is one of the largest in the world.
"Over 17,000
customers pre-registered for DECWORLD '86 (20,000 attended), more
than twice what we had last year. We're showing them what we can
do, not just talking about it in advertising, like lots of our
competitors do. We're saying 'we have it’ and then leading 20,000
customers out on the floor and saying, 'Here it is. It works. It's
fully integrated. It plugs together. It fits your company. We are
able to provide you the products you need to do your work and to
be more competitive.’"
"We have to keep
driving home that message of having it now and demonstratÂing, not
just talking," Jack Shields emphasized.
"We're very
confident," added Bill Koteff. "For DECWORLD '86, within 72 hours
we’re taking 200 computer systems, installing them in three
different locations in Boston that are our plants, powering them
all up, loading all the software, and building a network. It
speaks well of our product set and the confidence we have in
networking. Nobody else in the world can do that."
"In fact, 98% of the
200 computers at DECWORLD '86 hadn't even been anÂnounced when we
held the last DECWORLD 15 months ago," observed Jerry Witmore.
"That’s how much progress we've made in little over a year."
"I want to show the
customers that I host at DECWORLD how Digital is differÂent from
all the other companies," said Win Hindle. "If they just read the
magazines and read the advertising, they would think that eight
other companies had the same capabilities that Digital does. It's
only by bringing those customers to DECWORLD '86 and pointing out
what we can do now that the customers will see the difference."
"With DECWORLD '86,
we're trying to position ourselves as understanding customers in
the environments that they work in," explained Jerry. "We're
taking all of the technology capabilities that we have and
bringing them to bear on the problems that give them competitive
advantages in their indusÂtries. We have a competitive advantage
in our industry by virtue of our technology. We want to translate
that for our customers into a competitive advantage for them —
managing their assets, bringing products faster to the market,
working on productivity improvements, just like we use our own
capabilities to do those things in our own company."
"In 15 months we
have announced six major new processor products. And every product
has been introduced and shipped within 30 days of introduction,"
said Jack. "Security analysts and the press are recognizing that
an imporÂtant difference between Digital and our competitors is
the seriousness of our commitment to our customers — that we only
announce a product when we have it; when we can actually do the
job for the customer and make the customer successful."
"Every industry is
going through tremendous change — not just the service industries
like finance and telecommunications, but also the 'smokestack,'
basic industries," added Jerry. "In industries like oil and gas,
chemicals, pharmaceuticals, and automotive, companies are
restructuring, looking for ways to survive, seeking competitive
advantages. And this is creating a massive opportunity for us in
terms of computer technology and information processing, helping
our customers to integrate their companies."
"Independent
consultants are saying that Digital is the best company in the
computer industry today," observed Win. "We have no reason to feel
like we're the underdog. We need to be quietly confident, know our
products, know our customers, and know our customers' problems. We
have the total solution that we can give to the customer. We have
to get that message across. And we have to understand our
customers' problems better so we can apply our technologies and
capabilities and support services to meeting customers'
competitive needs.
"We are in a very
good position, but I don't want us to get complacent. When you're
in this role, it's all too easy to become complacent.
"We're all very
proud of what we did in Q2," he noted. "But there's a Q3 to come
and a Q4 and the next year. We are an excellent company and we've
told the world we're going to be even better. Our profit rate in
Q2 was higher than than it had been in nearly four years. But
we're still nowhere near the goals we've set for ourselves. We
have to get from 9.5% up to 16% profit. And that's going to take a
lot of hard work.
"I wouldn't want
anyone to get the feeling from our conversation today that we have
everything completed and that somehow we can all relax and not
work so hard, because that isn’t true. We’ve got a lot to
accomplish in the next couple of years."
"The products we now
have are the result of having invested about $3 billion in
research and development over the last seven or eight years,"
added Bill. "That represents about 10% of our operating revenues.
As the company grows, so does our research and development
investment. In the future, you'll see more of the same — more
VAXs, more networks. You'll also see innovation in areas such as
artificial intelligence.
"We inside Digital
have sometimes been criticized for the fact that we run our
company with several thousand computers. I think we're just a few
years ahead of where our customers are. They are going to be using
several thousand computers internally.
"In Hudson, in our
semiconductor research operations, we've basically given the
designers unlimited computer power. And in just a few years,
they've produced a premier processor chip — the MicroVAX chip —
and now they’re turning out graphics chips and communications
chips. They were able to accomplish that because we provided them
with lots of free computer power. And I think our customers are
going to begin to do that as well.
"As computing power
becomes less expensive, customers are going to tackle problems
they couldn't tackle before," said Bill. "We've gone through a
time in the computing industry when people basically automated
manual processes. And we are now to the point where they are
designing a process around automation. That’s a completely
different way of addressing a problem.
"I think you're also
going to see a fundamental shift in emphasis away from from
processors to data. Over the years, people have worried more and
more about the processor. But now it turns out that the most
important asset of a company beyond its people is its data --
design data, market data, and financial data. And the management
of that data across a network of maybe thousands of computers and
hundreds of thousands of users becomes very important.
"It takes tremendous
amounts of processing power to manage data, to move data around in
networks, to index it, to reference it, to transmit it and so
forth. That’s an area of technology where we’re investing
heavily."
"I think that, over
the next couple of years, one of our greatest marketing
opportunities is to show other companies how they can gain
competitive advantage by moving data around their organization
faster than they do today," added Win.
"We can talk about
Digital — the way we run our own company -- as being the largest
experiment in information management that has been undertaken,"
Bill continued. "There are 40,000 people inside the company who
are reachable by electronic mail. Easynet, our internal network,
has at any one time about 4,000 computers, and, at odd times,
grows to 8,000.
"By using our
technology internally, over the last 10 years we have built one of
the largest commercial test beds for networking. And now we have
to figure out how to take the advantages that we’ve gotten out of
that and translate them into messages that people can understand
about the importance of moving data around and managing it. Then
we can sell those advantages. We easily have a decade's lead on
the competition in that kind of experiment."
"Yes," Jack
reinforced, "Digital's experience in applying computers to solve
problems is a point that we should exploit. There are things that
we do internally that to us seem obvious and that could benefit
our customers. We have to continue to make people aware of all the
good work we’re doing in the application of computers ourselves.
For instance, in artificial intelÂligence, we made great strides
in developing XCON and XSEL, some of the first products in the
industry, while everyone else was treating artificial intelligence
as a research project. We should point out how we use computers
for simulation, to help us bring products to market quickly. We
should tell customers how we have succeeded in running our company
with much less inventory while increasing our net operating
revenues by almost 25% per annum.
"We have clear
examples where we have been successful in making our company more
competitive, and now we have to do a better job of figuring out
how to communicate that to our customers.
"We also have to be
more aggressive. We have the products now. There aren't any areas
of applications where we aren’t the best. We want to make sure
that any bid, any quote, any opportunity -- particularly a large
project -- quickly gets the management attention it needs. With
the products we have and with more new products coming, we are in
a position to be very aggresÂsive in pursuing long-term business
opportunities."
"From a customer's
perspective, having the hardware and the software and the
applications still doesn't mean having the solution," said Jerry.
"Having a solution means having all of that plus whatever services
and support are uniquely required to make it a solution in the
eyes of the customer. And we without question have the best
service organization in the industry."
"The network teams
that we have in the districts are working on projects that we
never would have even thought of a few years ago," added Jack. "We
can do the complete job, the wiring project, the total network for
the customer. We not only have the products; we're a full
supplier. In a relaÂtively short time we have become a supplier of
complete solutions. We not only have it all, but also can do it
all."
The next edition of
"Between the Lines" will be broadcast May 14 at 2 p.m., EST. That
will be the first interactive airing of the program. In other
words, viewers will be able to ask the speakers questions.
Sites on the Digital
Video Network (DVN) include: Santa Clara, Calif. (WRO); Denver,
Colo. (DVO); Colorado Springs, Colo. (KSO); Phoenix, Ariz. (PXO);
Rolling Meadows, Ill. (RLO); St. Louis, Mo. (STO); Dallas, Texas
(DLO) ; Houston, Texas (HSO); Memphis, Tenn. (MMO); Atlanta, Ga.
(ATO and IPO); Washington, D.C. (DCO); Bedford, Mass. (BUO);
Boylston, Mass. (BYO); Burlington, Mass. (UFO); Maynard, Mass.
(PRO); Marlboro, Mass. (MRO); Kanata, Canada (KAO). If you are at
one of these sites, to view a videotape of a previous broadcast,
contact your local DVN coordinator. If not, call Carl Ehramjian,
DTN 273-3588, or (617) 264-3588.
Successfully
managing a company the size and complexity of Digital requires
clear direction in a multitude of strategic dimensions.
Understanding the dimensions of our financial strategy is
essential to understanding the company.
I think of Digital's
financial strategy as having four key elements: volume growth,
asset management, margin improvement/cost control, and stock
appreÂciation. In order for the company to be successful in the
future, we need to succeed in all four of these areas. Two or even
three out of four won’t suffice.
Volume growth
Digital has an
outstanding historical record of volume growth, pacing the
computer industry throughout the '70s and early '80s. For a 2-3
year period prior to 1985, while we were experiencing a lull in
major new product introductions, the flow of new products from our
competitors continued to be brisk. Despite this, we continued to
gain market share during this period, thanks to the strength of
our existing product line and a remarkable job done by our Field
organization.
The changes
occurring in our product set are dramatic. In FY84 less than 10%
of our sales came from "new" products (defined as one year old or
less at the start of the fiscal year). In the last 12 months, we
have added major new products and capabilities to our offerings.
Still others will be brought to market before the end of this
fiscal year. Therefore, we have reason to be optimistic about the
prospects of continuing to out-perform the industry, and we
project that about half our FY86 sales will come from new
products.
Although we cannot
accurately predict the economic factors which have a significant
impact on overall industry volume, we are well postured to
capitalize on any improvement in the economic picture.
Asset management
Looking at the
second element of our strategy, asset management, we see an
improving picture. Accounts receivable and inventories were both
down in FY85, which is good news. But we still have a long way to
go to be among the industry leaders. I believe we have the
potential not just to match them but to be the best.
Most assets are
non-productive; that is, they cost us money rather than earn money
for us. How quickly we can convert them to productive assets has a
major impact on our financial strength. In FY83 our assets grew
signifiÂcantly faster than our revenue; both receivables and
inventories were excessive. In FY84 we began to turn the corner,
but it was in FY85 that we significantly slowed down the growth of
asset dollars. In FY84, $100 of assets were required to support
every $100 of revenue. In FY85 that number was reduced to $95 of
assets for every $100 of revenue. That means we have been able to
get some additional leverage and productivity from our assets. Our
asset-to-sales ratio is a major factor in determining our future
needs for new outside capital.
As we look to the
years ahead, substantial new financing could be required to
support our sales growth. We can mitigate that requirement
somewhat by seizing the opportunity represented by receivables and
inventory. We reduced DSO (days sales outstanding) by nearly 10%
in FY85, from 83 to 75. This converted $180 million of non-earning
assets (receivables) into cash; but to understand the opportunity
still ahead, consider our DSO in relation to the standard payment
terms for customers, which on a worldwide basis averages about 35
days. Delivery and installation time, order skew, and other
factors under our control account for most of the difference -- 34
days, which represents $700 million of non-earning assets. If we
could improve upon these factors by 50%, that could free up $350
million of cash, and by 1990 these improvements could amount to
nearly a billion dollars. That's nearly a billion dollars we would
otherwise have to borrow or raise by issuing new shares of stock.
Inventory is a
similar story, except here we can point to even greater progress.
A year ago we had over $2 billion tied up in inventory. Despite
inflation and higher volumes that have occurred in the interim,
that total has been reduced to under $1.5 billion. The reduction
has all been added to our cash balance.
Despite our
outstanding progress, we still have a long way to go to be truly
asset-efficient. We still have inventory that is standing still,
doing nothing -- or, worse yet, getting in the way. In addition,
we still incur major obsolescence expense each year — writing off
and disposing of inÂventory for which we have paid good money and
incurred storage and handling expense.
Nowhere in the
company are the results of cross-functional teamwork and
cooperation more evident than in reducing inventory. Much of the
inventory improvement achieved during the past year has resulted
from the joint efforts of the Field and Manufacturing to
coordinate sales plans and proÂduction schedules. More
collaborative efforts in such areas as new product start-up and
end-of-life planning can produce further inventory savings and
also lower obsolescence expense.
Profit margins/cost control
The third point of
our strategy is two-pronged: profit margins and cost control. In
addition to controlling costs, margin improvement can be achievÂed
through a variety of means, including higher prices, lower
discounts, richer product mix, etc. While all elements of the
margin equation are important, cost is perhaps the most critical.
It is the key to our long-term survival in a highly competitive
environment.
Over the past few
years our cost growth has exceeded our revenue growth, and our
break-even point has become dangerously high. This is not a
problem that can be corrected in one or two quarters. It is a
long-term problem that reÂquires permanent solutions. Squeezing
waste out of our spending is imporÂtant, but it won't solve the
problem alone. We need to work more efficientÂly. At the bottom
line, improved productivity means doing less business with
ourselves and more business with our customers.
The largest
component of spending for the corporation is employee costs.
Salaries, wages and benefits represent roughly half our total
costs. At Digital, hiring an employee is a long-term commitment.
We feel good about that, and it's one of the things that set us
apart. But this quality carries with it a heavy responsibility.
Each year the average cost for an employee increases.
Cost control can be
thought of as the permanent elimination of waste and
non-productive activities. We must examine ourselves critically
and ask how we can do our jobs more effectively with fewer
resources. Where do we have duplication — not 100% duplication but
5 or 10% duplication? Where are we spending premium costs because
we didn't do the job right the first time? What could each of us
do to help another person or component of the company
be more proficient?
Where is there slack in the system? Where are there Digital people
who don't find it necessary to put in 40 full hours a week to get
their jobs done? Where are we paying more than we have to pay for
goods and services? Where are we just doing business with
ourselves that has no ultimate benefit to the customer? Where do
we have unnecessary complexity in our business — in our products,
in the way we approach our customers, in our own organizations, in
the way we interface with one another? What could we get by
without — for a day, a week, a month, or possibly a year? The
answer to these questions and others like them can lead the way to
producÂtivity gains.
Stock appreciation
The last part of our
financial strategy, stock appreciation, is really the result of
improvements in the other three — and the key to keeping the cycle
going. Those of us who are stockholders in the company have a
personal interest in the price of our stock, and as employees,
Digital's market perÂformance is a matter of pride. From the
standpoint of running our business, stock price is important for
another reason. Simply stated, growth consumes capital. As our
sales revenue has grown from zero toward the $7 billion mark, the
investment in assets to support the business has grown nearly as
much. We presently have $1.6 billion invested in receivables and
$1.5 billion in inventories, and over the years we have invested
$3 billion in property, plant, and equipment. Less than half our
total investment has come from profits earned over the years. More
than half has been funded by debt and by sales of additional stock
to employees and on the open market.
A major portion of
our funding, therefore, has been dependent on the investÂment
community's confidence in our company; and that confidence is
deterÂmined by how well do do our jobs, as indicated ultimately by
our financial results -- the key measures being operating profit
margin and asset manageÂment.
Each element of our
financial strategy is related to the other three, and the
financial success of our company truly does require progress in
all four elements. Working on the elements of this strategy in
unison will lead us to the results we all want.
Digital recently
announced a new series of systems — the VAX 8200, 8300, 8650 and
8800 — all of which are available now. At the high end of these
products with the VAX 8650 and 8800 , and at the low end with the
VAX 8200 and 8300, Digital is targeting specific applications.
The VAX 8800
performs well in computation-intensive, multi-stream workloads.
These types of workloads are common in the technical applications
of engiÂneering and science. For instance, the VAX 8800 offers
significantly more performance in applications such as discrete
and continuous simulations, and finite element analysis.
The VAX 8650 is
Digital's largest general-purpose VAX and the leading product in
the office, MIS and manufacturing applications.
The positioning of
the VAX 8200 and 8300 follows a similar pattern. The VAX 8300 is a
multi-processor system that should be sold in the same
computaÂtion-intensive markets as the VAX 8800, but where the
power of a VAX 8800 is not required. The VAX 8200 is the
replacement for the VAX-11/780 and is the general-purpose system
for all marketplaces, but with significantly better
price/performance .
IBM recently
announced its first 32-bit workstation, the RT Personal ComÂputer.
We interpret this announcement to mean that IBM has decided to be
a major competitor in the UNIX technical workstation marketplace.
Digital is strong in
scientific and engineering markets, but IBM, thanks to its
tremendous size, can put a lot of resources into selling its
workstaÂtions. Those resources will include in-depth sales
training, the development of application packages and substantial
expenditures on advertising, seed units and all the other things
necessary to penetrate the market quickly. We need to react
appropriately to counter this challenge, especially since the
choice of a technical workstation has a major influence on the
rest of the computing equipment that a customer will buy.
IBM's early presence
in the personal computer marketplace and their aggresÂsive
marketing made their PC a winner. We do not believe that IBM will
be able to repeat that success here. The workstation marketplace
is already established, and we were leaders in it well before
IBM's entry.
Far more engineers
and scientists use Digital's VAX equipment to get their jobs done
than use IBM equipment. Customers are familiar with us, and the
array of applications software that runs on our equipment. From a
product point of view, we believe we have a substantial functional
edge, a more inÂtegrated solution, a solution that better
addresses the needs of engineers and scientists.
IBM has had some
penetration on the desks of engineers and scientists with their
personal computer products, but those have not been used for the
key design parts of the engineers' and scientists' jobs. In
addition to the PC, IBM has a different, incompatible subsystem
called the 5080 Graphics TermÂinal which hooks up with their
mainframes. The RT announcement adds a third set of products which
aims at the middle ground between those two.
Digital has one
architecture -- VAX — and two operating systems -- VMS and ULTRIX
— across a broad compatible range starting with MicroVAX II for
under $20,000 and reaching upwards to clusters of VAX 8800s. IBM
now has six incompatible computer architectures and seven
incompatible operating systems to cover that same range of
performance.
A customer who is
interested in getting an engineering solution can come to Digital
and take one of the 2,000 applications running on a VAX and run it
without recompiling on our workstations, or they can have their
applications vendor quickly change the graphics interface to
exploit the graphics of the VAXstation family and then run that
same program on a VAXstation or on a VAX 8800 .
In contrast, with
IBM, an applications vendor would have to provide several entirely
different implementations in terms of operating system, disk file
structure, graphics design and networking to cover the IBM line.
We expect this to be a major handicap to IBM, since most users
want the flexibility our consistency of architecture provides.
We have found from
our own internal use of VAXstations that high-performance
networking is essential for accessing large databases. We offer a
kit that allows the user to open a graphics window on a
workstation that may be runÂning a program on a VAX 8650 or 8800.
So we can actually deliver a full 6 to 12 MIPS of computing power
onto the user's desk with interactive graphics. In contrast, IBM
offers no software support for implementing any kind of networking
scheme for the RT.
So we believe we
have a clear edge in workstation products, but we have to outdo
IBM in marketing as well as in products. That means working
closely with customers, pointing out the long-term benefits of
working with Digital and emphasizing our long-standing commitment
to this technical marketplace.
In this age of
computerization, the sharing of databases, resources and programs
has become an important part of doing business and increasing
proÂductivity. Protecting the confidentiality of this information
has become an important factor in the selection of a computer
system.
VAX/VMS offers four
kinds of security features designed to prevent unauthorÂized
access to or tampering with the system: password controls, access
controls, a security audit log and encryption.
For login, the
system checks encrypted passwords and establishes restraints such
as the number of retries allowed, the length of passwords, and the
time-out limit. The time-out limit determines the amount of time
allowed before the system disconnects from the user. The user must
then redial or reinitiate the login process.
Unfortunately, there
are some dishonest individuals who attempt to break into computer
systems. They very often use programs designed for the speÂcific
purpose of finding a user name/password combination that allows
them access to the system.
Should an excessive
number of login failures come from a particular channel (a
specific combination of terminal, node, and user), the channel
will be shut down. The potential intruder could run a break-in
program for days totally unaware that the channel has been
disconnected. The channel will continue to remain inoperative for
as long as the login attempts continue in addition to a period of
time previously set by the system manager. It is important to note
that the owner of this account will not be prevented from logging
in from another terminal or node during this period.
Passwords are a key
part of the process that enables authorized users to access the
system. In most cases, a password created by the user is
sufÂficient. However, just as some high-security installations
require two separate keys to trigger a series of events, you may
require two separate passwords to gain access to sensitive data.
For example, a personnel adminÂistrator may be asked to update
employee salary records. Before the adminÂistrator can gain access
to these records, the personnel manager will be required to input
a secondary password. Access will be allowed only with the correct
primary and secondary passwords.
VAX/VMS also
provides the ability to define system-level passwords. RequirÂing
a system-level password prior to a user password is useful when
access to a particular system must be restricted. Once the user
has established a connection to the system, the system requires
that the user type a password "in the blind" in order to get the
system announcement message. Once the system announcement message
is received, the user can follow normal login procedures. This
feature is particularly useful in deterring potential intruders.
In addition, VAX/VMS
meets security requirements that are often expressed by auditors.
It allows a file's owner to control the sharing of information
(access control lists) and provides a full range of auditing
features to allow file owners or system managers to monitor the
use of a VAX/VMS system.
The VAX/VMS Security
Audit Log keeps track of data access and attempted logins. It
allows a system manager to produce reports that reflect both the
use of the system by authorized users and any attempts to gain
access to the system by unauthorized outsiders.
How can a user
determine if someone has been tampering with his or her account?
VAX/VMS provides users with two different types of messages at
login. The first message informs the user of the date and time of
the last interactive or non-interactive login. (All interactive
login failures are automatically entered into the Security Audit
Log). The second message informs the user of any failures since
the last successful login. These messages are important because
they help users determine if an unauthorized individual has tried
to use their accounts. For example, a user might log in on a
Monday morning only to find that there have been 28 failures since
the last successful logging in. By verifying this information with
the system manager, steps can be taken to investigate and take
further security measures if necessary.
For customers who
need the security of encrypted (coded) data, an optional software
product, VAX Encryption, includes the following:
o a set of library
routines,
o a validation
program to test data sets to verify the implementation of the Data
Encryption Standard algorithm,
o modification to
the VMS backup utility to support encrypted backup savesets, and
o documentation to
describe encryption and key management, the user interface, and
the modification to the backup utility.
VAX Encryption can
be called from applications to perform various steps in the
encryption process. It also provides tools for creating, managing
and deleting keys used in coding and decoding. Files may be backed
up to tape or disk using VAX Encryption. This additional level of
security means that having possession of a tape reel or having
access to the on-disk backup does not allow access to the data
file.
All these VAX/VMS
security features are available on the entire VAX family of
computers, from a single MicroVAX II to a cluster of VAX 8800
systems.
An article similar
to this one will appear in Digital employees within the next
month. The intent is to provide better understanding of the
environment affecting the pay program and, ultimately, their
salaries.
Managers are
receiving this advance notice so they can discuss pay in a general
way with employees who report to them and can better appreciate
the 1986 salary guidelines that have been established.
The basis of
Digital's pay program is to pay competitively. Taht hasn't
changed. What has changed, and always does chagne, is the
environment that determiens competitiveness. One result of this
changing environment is that Digital's spend nubmers have been
decreasing these past few years and will be lower in 1986. Even
so, Digital has had and will continue to hae a fully competitive
pay program. We do, however, have the challenge of managing,
compensation inthis changing environment, as well as of managing
employees' expenctations about their compensation.
Our effots to
deliver competitive pay are influenced by and influence several
factors. These factors are described below.
U.S. Economy
Salary increases for
all U.S. industries have been dropping over the last four years,
and this drop is expected to continue, according to the latest
American Compensation Association salary budget survey. This drop
has occurred for several reasons.
One reason is that
all U.S. industry ahs been going through harder times. As the
United States becomes more a part of the international economy,
competition from overseas grows... resulting in a need for greater
productivity. This is one reason salary increases have been less
throughout the United States.
Another reason is
the drop in the inflation rate from a recent high of 13.5% in 1980 to less than 4%
each year since 1982. Although
Digital, pay-for-performance
philosophy, does not grant having a cost-of-living increases,
inflation can raise or lower compensation levels for an industry
or the
whole economy. Pay
increases tend to follow the inflation curve, with a slight lag.
So, pay increases are typically less than inflation at the top of
the cycle and slightly above inflation at the bottom of the cycle.
This relationship may vary, but is relatively stable over the long
run.
Computer Industry
Over the last 20
years, the computer business has grown phenomenally. Digital and
other computer companies have scrambled to keep pace with the
demand for our products. Sales could and did grow between 30% and
40% annually.
Now, the market is
crowded with many competitors and an increasing array of products.
As a result, the computer industry is behaving more like industry
generally. Signs of these changes have surfaced in the current
softening market and tightening profit margins. Some computer
companies have had layoffs or shutdowns. In addition, pay
increases in the computer industry are slowing down just as they
are in other industries.
Need for and availability
of qualified people
The level of
compensation considered competitive is related, in part, to the
need for and the availability of qualified people. During the last
two decades when the computer business was booming,' the demand
for employees was relatively high and the supply was low.
Companies were growing quickly and needed more and more people
with the qualifications necessary to meet busiÂness needs. Digital
alone grew from 7,800 employees in 1972 to more than 67,000 in 10
years -- more than 7 1/2 times larger. Yet, when the computer
industry was in its infancy, there were not many people with the
necessary skills and experience to perform the work. So, the
competition among the computer companies was stiff for those
relatively few qualified individuals. This resulted in more
substantial salary offers to attract those relatively few
candidates and more frequent and larger salary increases to retain
employees than in companies in other industries.
Productivity
improvements and technological advances have also reduced the need
for large numbers of additional people and, because of the
evolution of the industry, the supply of qualified individuals is
increasing. Digital's current hiring restrictions, which are
expected to continue for some time, is evidence of this change. We
do, however, continue to need some experiÂenced and skilled people
to fill necessary positions as they become open. For most of these
positions, however, there are more individuals available with
related skills and experience than in the past.
Job Movement
Employees will be
staying in positions longer. The norm at Digital a few years ago
was for employees to change jobs on average about every 18 months
during our rapid growth. This rapid flux is slowing as the need
for addiÂtional people slows. Business needs also require managers
and employees to conduct business in a more cost-effective and
efficient way. In effect, employees in the successful computer
companies will be working smarter.
So, employees must
clearly understand the need to work more cost-effectÂively. They
have the advantage of being in a job longer and becoming more
familiar with their
jobs. To reinforce this behavior, part of the performÂance review
that determines salary increases should be clearly linked to these
efforts to contain costs.
Delivery of pay for
performance at Digital
We in Digital pay
individuals competitively by basing their ending salaries on their
skills, abilities and contributions relative to the job they are
performing. The first step is ensuring that employees are in jobs
that they can perform or learn to perform with some training. The
salary range for each job is based on defined responsibilities and
required skills; this range is competitive with what other
companies pay for jobs with similar responsibilities. So, the
entire salary range is competitive depending on the qualifications
and performance that an employee exhibits in fulfilling the job
requirements.
An employee's
qualifications and performance carry different weights at
different times. The starting salary of a new employee should be
based on the qualifications he or she brings to the job. Once an
employee has been on the job for a while, however, performance
becomes a more critical factor in determining that employee's
salary level within the range. Stronger performÂers should be in
the high end of their salary range over time. Weaker perÂformers,
regardless of length of service, should be in the lower end of the
salary range. Performance is rewarded by ending salary, rather
than by the size or frequency of salary increases. Each salary
range is designed to offer the flexibility necessary to recognize
differences in performance.
The intent of
differentiating ending salaries is to give greater rewards to the
stronger performers and, by seeing the positive effect of hard
work and results, motivate all employees. Our challenge is in
managing the compensaÂtion program in a way that attracts the most
qualified candidates and retains a quality workforce. The
compensation program in place enables managers to leverage the
available dollars to achieve appropriate ending salaries.
In early April,
Payroll will launch a campaign to increase the number of U.S.
Digital employees in the Payroll Direct Deposit Program by at
least 20%. Today, 65% of all U.S. employees use direct deposit.
While managers need not be actively involved in promoting the
program, their support and understanding is important to help
Digital reach this target.
For the company,
direct deposit, or electronically transferring funds,
o Is a more reliable
way to distribute pay than issuing paychecks directly to
employees. Direct deposit through the federal banking network to
individual checking accounts is not vulnerable to weather, air or
courier strikes or other physical interference.
o Reduces banking
and associated company processing costs.
o Keeps funds safe
while they are in transit. There is no live check to be lost or
stolen.
For the employee,
direct deposit, besides being safer,
o Makes an
employee's pay available without a trip to the office or bank.
o Offers employees a
choice of over 28,000 U.S. banks for their checking accounts.
Nearly every bank, savings and loan, and large credit union
(including DCU) participates in direct deposit.
o Allows employees
to move funds from checking to savings or other accounts through
any bank offering automatic transfer services.
In March, cost
center managers will receive advance copies of the direct deposit
literature that will go to non-participating employees. PSAs will
receive literature, background information and updated enrollment
forms to make it easy for employees to sign up.
In April,
non-participating employees will receive a brochure at home
highlighting the advantages of direct deposit, outlining how
direct deposit works and answering common questions. Local Digital
newsletter articles and posters will also appear.
In July, enrollment
will be measured against the the goal. Direct deposit will
continue to be offered, as usual to new and current employees.
With your support,
the company can reach its goal of having 85% of the U.S. employee
population in the Direct Deposit Program. This success will reduce
costs and improve payroll distribution.