Volume 9, #1_______________________________________________________________
"MGMT MEMO" was written by Richard Seltzer in Corporate Employee Communication for the Office of the President. It was written for Digital’s managers and supervisors to help them understand and communicate business information to their employees. You can reach Richard at firstname.lastname@example.org
On November 16, 1989, over 700 senior managers attended Digital’s State of the Company Meeting in Merrimack, N.H. The meeting focused on the company’s "corporate architecture." This architecture consists of sales, services, business and product strategies. The speakers also emphasized the importance of teamwork and talked about a number of projects intended to make Digital an easier company to do business with, both internallly and externally. The following articles are summaries of the speeches.
By all traditional measures, we are doing well. We are growing and are profitable, like the best of the big companies. In terms of cash flow, even in Ql, which was our slow summer quarter, we ended up with $180 million positive cash flow. We also are investing $1.5 billion this year in new product development and are budgeted to invest $1.2 billion in capital expenditures.
By those measures, we are doing well. But considering the assets we have, we are doing poorly.
We have the best products by far. We can say today, "Digital has it all." We have everything from the simple terminal to the supercomputer. Those products which we dreamed of and planned for two and three years ago, we have today. They are beautiful.
Much of the computer industry is in serious trouble. If you look at the list of computer companies, very few have a significant operating system, or the products to go with it. The future for most of them is very bleak. And we have it all. And yet. we are not selling anywhere near as much as we should. We are not growing like we should and not getting the marketshare that we should.
Phil Caldwell, our director and formerly of Ford, said we have done the hard part. It takes years of investment to build up the staff to generate the products, and to be able to deliver them, sell them and service them. He said the easy part should be to market and sell them.
But how do we do that?
If you go into a fine restaurant, all your contact is with the maitre d’. The maitre d’ takes care of all your wishes without a hassle. There are chefs and many people to serve you. but you don’t notice them. It is a pleasant evening, and you look forward to coming back again. That’s the way it should be.
But instead of operating like that, we follow modern management techniques learned in business school. Service is way down the list of priorities. The most important thing is to measure everybody because, obviously, you get what you measure.
In the other restaurant, nobody knows how many chefs there are. But in this restaurant, there is a meat chef, a fish chef, a salad chef, a pastry chef, a dessert chef and a wine steward. And the important thing is to measure each one.
Then, some customers, who are used to the other restaurant, nicely ask the maitre d’ if could they could have a piece from that item and mix it with this one, and they would like one side of the steak cooked well and the other side not as much. In this restaurant, they use "process" for making decisions. So the maitre d’ goes back and negotiates with all the chefs, and there is an argument about who will get what share. They hold "woods meetings" to talk about it. Then the maitre d’ comes back and explains the problem. Meanwhile, the people are getting hungry.
The customer just wants a meal. He only wants to deal with the maitre d'. He doesn’t want to get in the middle of contests between all the different people who are measured.
We have to remember that the measurement is not the reason we are in business. The process of developing consensus and making decisions is not the main reason we are here.
In the other restaurant, the customer never notices the six people who quietly serve. In this one, they are all vying to be the one who serves, and they argue whose right it is to serve whom, even though the customer doesn’t care.
In this restaurant, when it comes to billing, the finance department won’t allow the waiter to bring the bill until the customer signs that he accepted everything. By then, the customer doesn’t even want to remember what he bought and what changes he made.
That's the way many customers look at us. We try to tell them how beautiful this way of operating is — that it is process that counts. We explain why we wouldn’t want them to pay us unless they signed for it first. We explain why we wouldn’t want them to get the equipment, unless everybody in the organization had their share of the order and had their lawyers argue with one another.
Some people believe in process like a religion. With process you don’t have to know anything about customers or service or products. You simply follow the process. But, unfortunately, the more you are devoted to process, the farther you get from the customer’s real needs.
Last night I called Jack Smith and I said, "Jack, Pete Zotto has a DECWORLD all planned for Boston in second week of July next summer. How do you want to make this decision?" He said, "Oh, quit this process stuff, Ken. Just do it." And he was right.
Generally, at Digital, we would talk about a project like that for nine months. July would be over if we followed that process. So DECWORLD is on for July.
Sometimes people complain that it takes forever to get a decision on a proposal. But far too often, the people making the proposals don’t state them clearly. They present all the data and assume the committee will ask the right question. Instead, they should pose their question in a way that can be answered with a simple yes or no, and make clear who is going to be responsible for the project.
Before Jack Smith took over Engineering, Engineering was in trouble. We had had five years with no major new products. One time we had a woods meeting to analyze our products, I looked around and saw that the people there were all staff people — no product development people. We had gotten so caught up in process that people who knew nothing about technical matters were making decisions about products.
From then on, we promoted the people who were running product development, and now we are on top of the world in terms of products. But the rest of the organization is still in love with process.
Process, when carried to extremes, means we take our best sales people and make them staff people - at district or area — and because they are good, they want to control everything.
Process people often measure their success by how thick the proposal is. They make pie charts because their personal computer makes pie charts. But they have no message to get across.
Many of the committee meetings and staff meetings we hold aren’t really needed because we have no clear questions to resolve. If the question was clear, we could give an answer — yes or no - without all those presentations.
Process people need consensus to make decisions; and every time they look for consensus, the process gets bigger.
I will tell you how you run "consensus." Jack Smith says, "We’re making this change. This manager moves over here, and that one over there. Now let’s have a meeting and get consensus about it." He makes the important decision, and then they talk about what they are going to do.
At a drill company which was doing very well financially, the chairman told his top managers, "We’re in trouble. People don’t buy our products." The sales manager, the chief engineer, and others objected, "But we are doing so well." He said, "Yes. But people don’t want drills, they want holes. If you insist on selling drills, you are never going to get the point."
Likewise, people don’t buy networks or computers. They have problems to solve.
We have to get away from process issues and change our mindset. Instead of explaining our internal processes to customers, we should be focusing on solving customer problems.
For 32 years, we have sold computer hardware and software. We have to move beyond that now and tell our customers, "We'll solve your problem."
We have to give up the processes to which we have become devoted, and act like the first restaurant where the maitre d’ makes the decisions that satisfy the customer. We have to let our sales people stand on their feet and make a deal. Our process just keeps us from simply telling the customer, "We have a solution for your problem."
Today, our message is "we truly have an architecture." It covers the whole problem for any customer. We’ve got the hard part done. Now let’s solve the easy part, which is to satisfy the customer.
Tell us more about DECWORLD next summer.
We didn’t have DECWORLD this year because last time it took so much energy. Then we realized that DECWORLD was an important vehicle for educating the Field. In the enormous effort to prepare for DECWORLD, people got their messages thoroughly organized. In doing so, they got the Field involved, and everybody learned about our products. When we dropped DECWORLD this year, we found we needed to do additional things to make sure that learning took place. We held the Summer Session at Brown University to fill that gap. And as we planned for next year’s equivalent to the Summer Session, it became clear that we should combine it with DECWORLD. One of the few complaints we heard about Summer Session was, "I wish my customers could come." By combining the training with DECWORLD next summer, sales people will be able to take their customers. Also, we are having a traditional DECville in France the first and second week of September. That means that all the exhaustive preparation work we do for that can be used twice. We’ll hold DECWORLD in the same place we had it two years ago -- in Boston’s World Trade Center. DECWORLD will run for three weeks, and will include training classes with sales people and their customers. Yet, it will still be open in the traditional DECWORLD way.
With the cost of MIPS coming down 15% to 20% a year, how are we going to make money?
Computing speed isn’t everything. We have an elegant, rationalized set of products today — something we dreamed about for a long time. Sometimes newspapers say the microprocessor is going to wipe out the minicomputer. Well, for years we have been using basically the same chip in our minicomputers as in our microcomputers. With the same chip, they have approximately the same speed, or MIPS. One fits in a little box, one fits in a medium box and one fits in a huge box. One costs $10,0Q0-$2Q,000, one costs $20,000- $100,000 and one costs over $100,000. Clearly, customers are interested in buying something different than just MIPS. They are interested in
o the size and speed of the memory;
o the number, size and quality of the disks;
o the quality and speed of the controller; and
o the amount of bandwidth for getting information in and out.
Workstations don’t cost very much, but the information just sits there in the box. If you add more communications, you have a minicomputer. If you add a lot of communication speed, you have a big minicomputer. The little one on the desk is not going to do the job of the big machine, and it is not going to replace it.
Our VAX 9000 system is great in speed. It is faster than anything else we have, by a good measure. But customers don’t pay that much just for speed. What we offer is a great disk system, a great fast memory system and a lot of bandwidth in a well-balanced machine; and that total system is worth a million dollars. In addition, we offer a great operating system that we’ve been working on for 15 years. Almost nobody else has such a truly modern, truly significant operating system. With that software, we can integrate the whole organization.
We also have an advantage in how well we tie computers together. That’s the basis of our systems integration business. Nobody else has the resources and the hardware and software to tie together a single computing environment from the terminal up to the mainframe.
How can we give account managers budgeting responsibility if they don’t have P&L responsibility?
A long time ago, we learned you can't give everybody P&L responsibility. It doesn’t work. Everybody can’t be telling Manufacturing what to do.
If you give a sales person a full P&L responsibility* the most important things in their plans are not their responsibility. Their success depends on Manufacturing and the other operations in the company. That means that if they have P&L responsibility, they will spend all their time trying to influence the rest of the world and no time selling. We give account managers the responsibility for their own accounts. They propose what they will budget against an expected rate of return. For example, they budget the space they will use; the automobiles, telephones and computers they need, and the software services and field service they need. For that they promise a return. If it looks like a reasonable plan, it will be accepted. Then it is their job to meet their targets.
How will Digital measure and reward team work?
Some things you do because it is the right thing, not because you are measured on it. If you are a professional person you don’t do things just because you are being measured on them; you do them because you are part of the corporation, part of the team. You can’t measure everything. Trying to do so just creates more overhead.
We see extraordinary change occurring in the computer industry — in technology and markets. Customers are expressing their needs in terms that are significantly different from those of just a few years ago. Competitors are as aggressive as we have ever seen them. The financial results in the computer industry range from disappointing for companies like Digital, to near disastrous for companies like Unisys and Wang, with their multi-hundred million dollar losses.
I am going to focus on how we are responding to these changes by evolving our product architecture and formalizing our overall corporate architecture.
Simply stated, Digital’s mission is: TO BE RECOGNIZED AS THE BEST PROVIDER OF QUALITY INTEGRATED INFORMATION SYSTEMS. NETWORKS, AND SERVICES TO SUPPORT CUSTOMERS WORLDWIDE.
Digital Europe has used this mission statement for some time. It was recently adopted by senior management as Digital’s overall mission. "Recognized" means recognized not by us, but by our customers. "Quality integrated information systems, networks and services" means that the competitive differentiator is not an isolated component excellence or process excellence, but rather how well things work together from both a product and services perspective. "Worldwide" means that our products will be designed for the worldwide market, not just retrofitted.
"Architecture" is a way to deal with complexity and change, by breaking down of a large system into smaller elements with well-defined functions and interfaces between the elements. By following this approach, we can change individual elements - for instance, to take advantage of new semiconductor technology — without having to change the entire system. The system in question could be as narrowly defined as a computer system or as broadly defined as our entire corporation.
We have long recognized a need for a product architecture and have effectively used it to create a family of leadership products. More recently, we have recognized a need for a "corporate architecture," one that helps the entire company manage complexity and change.
Today's State of the Company Meeting is focused on the elements of that corporate architecture.
Rather than focusing on how we are organized, this architecture is expressed in customer- oriented terms. Our traditional organizations like Engineering, Marketing and Manufacturing are more implicit than explicit in this architecture.
Our corporate architecture consists of four major elements or strategies. What we develop for sale is based on our product strategy. How we sell what we developed is based on our sales strategy. How we deliver, integrate and service what we sell is based on our services strategy. How we manage our investments in what we develop, sell and service is based on our business strategy.
In our sales strategy, the account manager is the focal point for understanding and establishing a customer’s needs, orchestrating the delivery of resources to meet those needs and ensuring that this delivery of resources is done in a manner that is effective for the customer and profitable for Digital.
Our services strategy provides the expertise to translate a customer’s needs into specific solutions; to define, implement, and maintain these solutions, using both Digital and non-Digital content; to provide custom hardware and software components to complete a customer solution; and to manage the implementation of large complex solutions.
Our business strategy should ensure that all components and processes from products through the sales and services needed for customer solutions are planned and available. This strategy recommends the appropriate investment levels for these components and processes and is accountable for the overall business results from those investments.
In the late 1970s, our strategy was to provide a family of computer systems built on four major architectures:
o a hardware architecture that included VAX computers and the Digital Storage Architecture;
o a software architecture which included VMS, VIA (our information management architecture) and ALL-IN-1 software;
o the DECnet communications architecture; and
o the Ethernet local area network interconnect.
The execution of that strategy produced exceptional results. We created a broad range of compatible or identical computer systems. The recent announcement of the VAX 9000 series gives the VAX family, without question, the broadest range in the industry. VMS is a very high-quality, highly-functional software system. No software system in the industry does as many things as well as the VMS system does. Our program development environment is excellent. It is used in the industry to develop programs not only for VAX systems, but also for systems from other vendors. We have industry-leading networks in general, and local area networking in particular.
All this has led Digital to the number two position in the computer industry.
Since the VAX/VMS strategy was established, there have been a number of significant changes in computer technology. Microprocessor performance has been increasing at 30 to 50% a year. Microprocessors now rival in raw computing power all but the largest systems. This has caused a major shift in how customers think about deploying responsive, cost- effective computing. With the large-scale deployment of microprocessor-based systems, distributed computing technology now provides these systems with the coherence and manageability of large, centralized systems.
At the same time, industry standards have become pervasive in nearly all aspects of computing. Today, differentiation between vendors is based more on superior execution than on superior invention.
In the market, we see increased interest in information systems solutions. With the rapid cost-performance increases in standardized technology, many customers have little interest in the technology itself and only want to understand how it can solve their problems. Today, almost any significant information system is built on or integrates the components of multiple vendors.
When (he VAX strategy was developed, our competition was primarily the other minicomputer companies such as Data General, Hewlett Packard, Interdata, and Modcom. Many of these companies are no longer significant competitors. Instead, we see IBM, which we have challenged with the size and breadth of our product offering, and Sun, which has challenged us with aggressive exploitation of distributed microprocessor systems based on standards. The one competitor who has been relatively constant is Hewlett Packard, the company that is the most similar to Digital in its strategy based on adherence to standards.
With all these changes, we see major opportunities. First, we can continue to provide a competitive broad-based alternative to IBM in "bet-your-business" systems. Second, we can respond to the challenge of Sun by providing competitive workstations and servers. Finally. we can lead the industry in quality and in the areas of distributed computing, application solutions and systems integration.
To exploit these opportunities, we are making a number of changes in our product architecture.
First, we have to accommodate additional computer architectures, not just VAX/VMS, because our customers need the applications that run on these other architectures.
Second, we need to accommodate multi-vendor networks because our customers need these networks to link all of their information systems.
Third, we have to provide robust information management and information access across the network to provide a true alternative to IBM.
Fourth, we have to establish a modern application environment to attract applications to our systems.
In addition, we have to develop a distributed system focus because this is a key source of our differentiation.
Above all. the changes that we make have to be consistent with the direction of technology and with customer expectations.
Today’s overall system architecture, like our VAX/VMS system architecture, has six major layers or elements. However, a number of changes have occurred. The hardware and operating system layers have been combined into a single layer called the "computer layer". This has been done because customers have little interest in hardware differences, except in so far as they support different operating systems. The network layer has evolved to a multi-computer, multi-vendor architecture as known as DECnet/OSI. The information management layer is also a multi-computer, multi-vendor architecture. The application Integration layer has been renamed "NAS," which stands for Network Application Services—another multi-computer, multi-vendor architecture. And, finally, to respond to our customers’ need to manage complex information systems, we have added a management layer, which includes how we plan to manage all elements of an information system — not only networks but also computers, information, and applications.
The next step in the evolution of our overall system architecture is the "client-server" model. This model has been given prominence in recent discussions in the computer industry. In this model, client systems run dedicated applications and server systems that typically store data and sometimes store shared applications. This collection of client and server systems is linked by a distributed computing architecture.
In two of these architectural elements — operating systems and hardware — we have made major changes. Customers are asking for an industry-standard, vendor-independent, operating-system interface, and they need to use applications that are based on UNIX.
We also see customer demand for MS-DOS, OS/2 and Macintosh operating systems. These customers want to preserve their investments in personal computers and need to use personal computer applications. To respond to these changes in customer requirements, we have expanded our operating system strategy well beyond VMS software.
We are now aggressively developing both VMS and ULTRIX as full-line operating systems. In fact, we are putting approximately the same level of engineering investment into both areas of development. We play no favorites here in development or marketing or selling. We will sell the customer what the customer wants and needs.
We are working actively with multiple computer vendors to ensure that the UNIX interface is an industry standard, as opposed to a vendor-dominated standard, and we are aggressively supporting standards within our VMS software. For example, our POSIX work will make it possible to run UNIX programs on VMS systems.
At the same time, we are competitively supplying MS-DOS and OS/2, primarily as client systems in our distributed system architecture, and we are integrating the Macintosh into our computing environment.
In the area of hardware, technology advances in the 1980s led to the rise of the "reduced instruction set computer" (RISC). For equivalent hardware technology, RISC offers a two-to-one advantage over a complex instruction set computer (CISC). (By the way, it is important to remember that RISC only affects the CPU portion of the system. For example, it doesn’t make memories or disks run any faster.) This performance advantage accounts for the enormous current interest in RISC computers. At the current time, only UNIX-based systems can exploit RISC.
Customers, who are interested in the UNIX systems market, tend to measure product competitiveness on the basis of CPU performance and, therefore, favor RISC-based hardware systems.
To respond to this customer preference, our overall hardware strategy is to offer a complete line of RISC systems primarily for ULTRIX software, in addition to a complete Sine of VAX systems, primarily for VMS software.
We use VAX systems for ULTRIX software where RISC systems are not currently available such as at the very low and very high ends of our product range. Wherever possible, we share components — such as packaging, memory, controllers and peripherals — across our RISC and VAX lines.
We will use aggressive technology and implementation to maximize VAX performance — for instance, through multi-processing, vectors and clusters — and to minimize any disadvantage it has compared to RISC systems. We also are doing advanced development work on the possibility of running VMS software on RISC machines.
In other words, in one computer architecture we have VAX/VMS — the broadest range, best price-performance, high-function system family in the industry — and RISC ULTRIX — the broadest range, best price-performance open UNIX family in the industry.
The Operations Committee and the business segments are new components of Digital’s business strategy. This is a way we’ll be focusing our internal organization so we can do business more efficiently and better satisfy our customers.
The new Operations Comittee came together last summer. In large part, it was created to give the new business segments a forum in which to identify and resolve issues quickly and efficiently.
This committee is responsible for helping the business segments of the company meet their quarterly earnings goals. It also provides a forum to make mid-course corrections to annual plans, and allows for peers to review these plans.
It is in the Operations Committee that the various segments integrate their activities and integrate the major functional areas. It is through the Operations Committee that the segments make clear recommendations to the Executive Committee.
AH of these activities are important. But perhaps the most important role of the Operations Committee is to maintain a passion about satisfying our customers, and to inspire the whole corporation. If we always make our decisions with customer satisfaction as our guide, we’ll win. Meeting our customer’s needs will be the guiding principle for decision-making in the Operations Comittee. We'll resolve issues between business segments by asking, "What is best for our customers?" All other considerations are secondary.
Several months ago, it became apparent that despite our efforts to move toward one company, one strategy, and one message, Digital was still somewhat fragmented. The process of developing and implementing annual budgets was taking longer and longer. It was becoming more difficult for Sales and Sales Support to secure help from the rest of the company.
As the industry slowed down and as competition heated up, it became critical for us to simplify the interna! organization. We had to figure out some way to integrate the various parts of the company to help the Field sell our products.
The business segment approach is a means to bring all the various facets of Digital into one focused, synchronized company, dedicated to satisfying our customers.
Today there are five business segments - three product segments and two service segments. This number is likely to change soon as the segment concept evolves. Today’s five segments are: Low-End Systems, Mid-Range Systems, High-Performance Systems, Enterprise Integration Services and Customer Services. The segments are tied to the Field through Sales Support, and all of these groups are now working more closely together towards common goals.
This way of doing business started with the budgeting process. Budgets from throughout the company now roll up under the five business segments. This means that hardware, software, applications, peripherals, services, sales and advertising now roll up under five distinct, yet complementary budgets. This approach makes it much easier for the company to understand what is happening to profit and loss in five distinct pieces. It also makes it much easier to determine responsibility and accountability. The five segment managers see their responsibility and accountability in the profit and loss of their segments.
Many of you remember the days when the company was organized as separate product lines. For years, that way of doing business worked well for Digital, and the company enjoyed strong growth. The business segment model resembles the product line model, but the differences are also signficant.
The business segments reflect the integrated approach to computing that we must sell in the 1990s. We’ve developed the segments as combinations of functional groups. Each will work with all other parts of the company, and each of the segments covers a wide range of Digital’s offerings, with minimal overlap.
The Low-End Systems Segment includes terminals, printers, personal computers and PC integration, workstations and the MicroVAX family, as well as DECsystems, PDP-11 and real-time systems. The segment focuses on the hardware, software, applications, peripherals and services customers need to do productive low-end computing — all the components, not just the hardware. I am the Low-End Systems segment manager.
The Mid-Range Systems Segment consists of all the VAX 6000 systems, and the mid-range DECsystems computers. Again, the focus of the Mid-Range Segment is on the hardware, software, applications, peripherals, and services that customers require in the mid-range. Bill Demmer is the Mid-Range Systems Segment manager.
High-Performance Systems consists of the VAX 9000 family, the new fault-tolerant systems, clusters and on-line transaction processing. Bob Glorioso is the High-Performance Systems Segment manager.
These three product business segments include in their budgets all the hardware and software the company sells, and the functional budgets of Engineering, Manufacturing, Marketing, Sales and Sales Support.
With this simple segmentaton, we can track sales back more easily, to see if we're investing money in what sells products and what satisfies our customers.
The Enterprise Integration Services Segment consists of Software Services, Educational Services and Computer Special Systems. This segment provides consulting, design, imple- mentations training, and specialized manufacturing to our customers. It is responsible for planning and budgeting for these functions. Don Busiek is the Enterprise Integration Services Segment manager.
The Customer Services Segment includes Digital Product Services, Vendor Support Services and Business Services. Digital Product Services provides hardware and software support for all Digital products. Vendor Support Services supports other vendors’ products that are used in our accounts. Business Services provides customized support for unique user environments. Don Zereski is the Customer Services Segment manager.
By closely aligning these service providers, the segment model will improve the efficiency of our internal operations. More important, we will present to our customers one organization for all their maintenance, consulting, programming and training needs.
Today, the business segments focus on several important areas that will contribute to Digital's long-term success. These are training and sales support, advertising, planning and the overall profit-and-loss of the segment.
Our goal for training during the past year has been to bring more of the right product information to Sales and Sales Support, and to improve the links between the Field and internal development groups.
This effort started with DECtop University last January, when 6,000 people were trained on all our new desktop computing products. When we announced those products on January 10. a large part of the U.S. and GIA sales force had already attended three days of intensive training on them.
That success led to the creation of Digital University Summer School, where more than 10,000 people from Sales and Marketing went through three-and-a-half days of training on all of Digital's products, with a strong emphasis on competitive information.
Right now the Digital University Institute of Technology is providing a full week of training for more than 2,000 Sales Support reps.
These large, focused product sales training events will continue. Each business segment is now responsible and accountable for training Sales and Sales Support.
In recent years, we’ve asked our Sales and Sales Support people to master the details of a blizzard of new products. The integrated computing environment we offer to our customers makes computing easier for them, but it is built on very sophisticated hardware, software and networking. That places even greater demands on our Sales Support people. They must understand all the details of our products so they can help our customers.
We cannot continue to compete and grow unless we have the most knowledgeable Sales and Sales Support organization in the industry. We have a reputation for technical excellence, and our Sales Support representatives are the people who carry on that tradition.
Sales Support is a key link between the business segments and our customers. From now on, each segment — together with Sales — will focus on planning the resources and deployment of the Sales Support people, who help sell our products. The day-to-day management of Sales Support people will be under Sales management.
This year, the plan is to move an additional 500 people into the U.S. Sales Suppport organization. Sales Support also will grow in Europe and GIA. And, under the segment approach, each Sales Support person will focus on both a product and an application specialty.
Business segments also are focusing on advertising products. Each segment is responsible for the budgeting, the content and the placement of ads. The advertising by business segments is distinct from the corporate image advertising we run. The "Digital Has It Now" campaign and the Infinite Voyage campaign will continue. But now, in addition, you will see greatly increased visibility for Digital through product advertising campaigns. This started on Oct. 24 with the VAX 9000 series ads in newspapers and magazines and will continue through the year.
This year, the planning and budgeting process for the company will start with the accounts, and finalize with the business segment plans; and we will have a one-company plan.
The segment approach is not a reorganization. Rather, it is a commitment to a new way of thinking. Sales, Service, Engineemg, Manufacturing, Marketing, Applications, and other functional groups are unchanged. It is the strong leadership of the functional managers that will make the business segment approach a success. What's new is the way in which these functional groups work together.
With this new segment approach, we see more clearly the investment decisions that we must make. The impact of our decisions will show up clearly in the profit-and-loss of each segment.
Today there are five business segments. Over time that will change. As the concept of business segments evolves, it may be necessary to add new segments, combine existing ones, or eliminate segments. Don’t concentrate on five — it’s not a magic number. What’s important is the focus on the segments - a tighter coupling with the Field, and a one- company plan.
Our sales people often are criticized. Every problem of the company becomes their problem, and they have to fix it and present the solution to the customer. In Europe, we have tried to pull together each piece of the company and to integrate them to support our sales people. Everybody has to keep in mind that they are part of a selling effort.
In the early 1980s, when our business performance in Europe was stagnant and profits were decreasing, Jack Smith came over to Geneva and set up task forces to understand why we had a problem and what we could do to fix it. Essentially, we were over-centralized in our decision-making process. We had too many decision makers who were too far from reality.
We had three different forecasts — one from product lines, one from Sales and one from the general manager. And Manufacturing was totally separate, doing its own planning. Every function had its own system and its own processes.
Meanwhile, sales and software people were desperately asking that we realign ourselves to work the way customers want us to. In other words, we needed to be able to make quick decisions; to have one person responsible for an account. Customers wanted to purchase complete systems, not just hardware and they wanted a coherent Digital strategy.
At that time, Digital Europe was a billion-dollar operation and desperately needed a change. That was when we started what I call the "integration revolution." We decentralized the business responsibility to the country level so that people there could make quick decisions that they felt were right for the customers. That simple change remotivated employees. It made them enthusiastic about fixing their own goals and making them. It worked.
Now, seven years after, we are going through the same process. Today, the U.K. is a billion-dollar business; and Germany and France should reach that level soon. Once again, we are pushing down responsibilities to lower levels, in order to avoid the problems we had in the early 1980s. Over the last six months, as we’ve carried out this decentralization in the countries, we’ve seen the same enthusiasm, the same winning spirit that has carried us for the last six years.
Back in 1984, while we were decentralizing the business responsibility, we also had to eliminate the disconnect between Manufacturing and Sales. To accomplish that, we created what we call the "one plan. " We made a commitment to Manufacturing that whatever we forecast we would actually sell. It worked very well. The results were remarkable. Now we have the countries connected directly to Manufacturing, and we will soon connect local offices directly to Manufacturing.
In the early 1980s, we also had little focus on distribution, order processing and administration. Many businesses used different processes. When Don Zereski was in Geneva, I asked him to let me have his logistics manager so that we could put all the logistic activity together and share the expertise of Field Service. We did that, and over the years, to that logistics operation, we added the responsibility of handling an order from the time we quote to the time we deliver the product to the customers. Basically, by having one organization, we eliminated unnecessary interfaces, simplified significantly and reduced cost. In the last three years, we created a single administration and logistics organization, and our revenue grew 125% and our population grew 21 %.
In the next two years, we plan to conclude a several-year project to make sure that the sales person or the customer can order directly from the plant, with a computer or terminal, with little or no manual interaction.
Our next step was to create a single information services organization. We took all the information services from the different functions, and asked someone whom they all trusted to optimize these processes. That happened in 1985 and led to a few years of tremendous optimization of cost.
Then we felt that customization was not enough in the long term and we had to create an architecture that could allow us to make changes in systems as organizations moved. We have done this. The next generation system will be task-oriented rather than just functional-oriented. This integration of infrastructure has helped us to reduce our cost and put the money saved into expanding our selling activity.
Of course, we will have to continue to improve our cost situation because the business, the competition, and the technology are forcing us to decrease our costs constantly. And this is not a one time effort. But now, to decrease our costs, not only do we have to simplify further, but we have to eliminate work and be more synergistic among the different parts of the company. Some of the things that we liked to do in the past, we will not be able to continue.
Back in 1984, while we were decreasing the cost of our infrastructure, we had to increase sales productivity. First, we analyzed where sales people were spending their time. It turned out that sales people spent an average of just 18% of their total available time in front of a customer selling and just 4% of their time in training. Clearly, we had to increase the selling and training time. We did that by delegating a number of office tasks to other people. For instance, we had too many internal meetings and we didn’t want sales people spending their time configuring systems.
The results were outstanding. We increased our selling time from 18% to 28% and doubled the sales training time, cut in half the time it takes to make quotations and reduced internal meeting time from 14% to 7%.
The other part of our problem was that 63% of the orders at that time were wrong when they reached Manufacturing. That led to tremendous expense, going back and forth to the customer and sometimes fixing the problems with free material. So, we took a few field service engineers to work on this problem, and for an investment of about $200,000, we reduced the percentage of incorrect orders from 63% to 25%. In 1988, it reached 8%, and we expect that this year only 3% of our orders will need a correction. Those will be mainly large system orders that can’t be configured automatically.
But, that was not enough. It was clear that customers want to purchase complete systems, and don’t want to have to negotiate separately with software, hardware and CSS. Therefore, we had to organize to deliver a system. In 1985 we organized our subsidiaries essentially in two separate businesses, headed by a systems business manager and a sendee manager. System business managers were responsible for optimizing packages for the customer, making all decisions related to hardware, software, consultants and CSS. They decided how to put it together, in what mix, at what price, with what discount. The functions provided the skills needed for selling and servicing.
As a result of these changes, the whole organization has rallied behind sales and marketing. After all, everybody in the company wants a strong sales and marketing organization because if you don’t sell, you don’t service, you don’t engineer, and you don't manufacture. It’s as simple as that.
To speed up the effort, we created team recognition where the sales performance has twice the weight of other performances, and we developed clear targets for sales people to expand their portfolio of accounts and penetrate deeper in existing accounts. Everybody had to be measured on customer satisfaction (for salary reviews and stock options) and the focus was on selling.
Marketing, at that time, was becoming the leading function in planning the products, the packaging, and the presentations for customers. Among other things, Marketing decided to concentrate the expertise of all of Digital — including Software, Engineering, Educational Services and Customer Services - into what we call Digital Competency Centers. The first one, in Munich, West Germany, focused on manufacturing. Then we opened one for networks and telecommunications in Valbonne, France; one in London for financial services; and finally one in Brussels, Belgium, for the public sector. With that kind of effort, our systems business went up from $1.5 billion to almost $4 billion in two years.
But we need to do still more to adapt to and anticipate the changes that are coming on the horizon. We are moving more and more in the direction of selling complete systems, complex software, application networks, system integration and services — all areas in which we have experience and natural skills. To succeed in this business of selling advanced integrated systems, we need to change everyone’s mindset. We have to focus training and hiring to develop the expertise required. And we have to organize to sell the whole spectrum of products from personal computer workstations to system integration and do it with a homogeneous organization. Everyone needs to recognize that no single organization can do the whole job by itself. We have to depend on one another, and the system we use has to be interdependent and task-oriented.
The new programs being put in place during FY90 are the continuation of the evolution since 1982.
(Pier Carlo’s additional remarks on teamwork and "the dream" appeared in the November issue of MGMT MEMO.)
Today, we do most of our business with global customers — companies of all sizes that are recognizing the need to expand their global opportunities and new markets to survive and to grow. These Digital customers expect the same consistent, high-quality support for their applications in Malaysia or Manhattan.
Almost all of our customers rely on multi-vendor systems to support this worldwide business. Nine out of ten networks, for instance, include equipment from more than one vendor — and most networks use five or more vendors’ systems. These customers want a service provider with the experience, commitment, resources and flexibility needed to provide total support to these diverse and often complex environments.
In addition, most customers are too busy managing their core businesses to worry about information support management. They need a vendor who is willing to assume the responsibilities, and risks, involved in delivering and managing service to make their complex, global system function as a dependable utility. In other words, most customers want increased focus and attention managing their business, not the dizzying pace of change in information technology.
Finally, customers today want more than great service from their services provider. They need help getting a maximum return on their current and future investments — in applications, technology, equipment and people. They are looking for creative service providers who can leverage their information technology strategy to provide improved productivity, higher efficiency, greater competitiveness and profit.
In short, our customers need a business partner. And each day, Digital is that partner to our customers.
Perhaps the most outstanding demonstration of this happened just a few weeks ago in California. During the earthquake crisis, we flew 50 back-up Customer Services engineers into California from around the country. We shipped $6.5 million in additional materials and spare parts, provided 24-hour support from Colorado Springs and a special hot-line in Dallas, and had nearly 300 additional technicians on standby. Most important, we provided our customers with anything they needed to get back into business as quickly as possible.
We also offered our people and resources to help local communities. In fact, Digital provided the Office of Emergency Services in the County of Santa Clara with use of a leased helicopter which we used to move our people and parts. They needed it to lift and straighten an 800-pound water tank used for fire protection in the hills of Los Gatos. They also used it to ship medical supplies and food into the hard-hit Watsonville area.
This may be above and beyond the typical call of duty, but it’s part of our make-up at Digital. Today, our Customer Services resources include 27,000 professionals in more than 60 countries around the world. They are organized into seven distinct lines of business that range from hardware and software support for the desktop to the data center, to customized service solutions, to value-added networks that leverage Digital and customer resources. Customer Services is part of a larger team that includes all of Digital’s people and a variety of Digital business partners.
Teamwork is the key to making the Customer Services vision work for our customers: 27,000 Customer Services people, along with many thousands of other people who deliver Digital solutions — all with a single focus — the Digital account.
Customer Services has empowered its Account Managers to make the independent decisions required to close business and satisfy customers, including decisions about support when the opportunity requires quick action. We will do whatever it takes to back up the account team in delivering local as well as international service solutions to meet customer needs.
To make it easier for our customers to do business with Digital, we will offer simplified warranties starting in January in the U.S,, to be followed by international warranties for multi-national accounts, and simplified service pricing and billing procedures.
To help Customer Services seamlessly manage international business and business opportunities, an international service business process has been developed and put in place. The program provides electronic worldwide communications via international customer support desks for the U.S., Europe and GIA, as well as standard tools, documentation, and a review and approval processes. This uniform set of procedures is designed to get the appropriate geography management involved early in the business cycle, making it easier for account teams to exploit new business opportunities.
This will soon be supported by Digital’s first worldwide remotely accessible distributed "info base" system which we call "Atlas. "This system begins field test in March 1990, and will provide account managers worldwide with on-line access to accurate information 24 hours a day, seven days a week. Specific information will include: local service capability, service pricing, and account information.
Our ability to coordinate service resources to serve worldwide customers can be seen in a new business venture that Digital helped develop for a securities information subsidiary of Citibank. This company wanted to offer a new service to subscribers worldwide: a network linking global currency traders, providing up-to-date market information and on-line currency trading. Digital’s role is that of "network operations manager." The services we provide include evaluation and planning of subscriber sites, installation of Digital, IBM and other vendor hardware, ongoing maintenance and coordinated program management of the entire worldwide network.
Since millions of dollars of business will be transacted on it, this network simply can’t go down — no matter what local conditions may be. The service solution requires Digital service managers and personnel from up to 20 nations to deliver a consistent set of very complex services, every hour of every day.
Without Digital participation, the worldwide network envisioned by the customer would have entailed a much higher initial investment and risk. This is because the customer lacked the global network infrastructure required. By supporting this subscription service with Digital’s worldwide network infrastructure, we made it possible for the customer to take advantage of a market opportunity that otherwise might have been missed.
This solution leverages the resources of both the customer and Digital, to our mutual benefit. The customer provides the idea and the banking expertise and penetrates a new market at low risk and low investment. Digital realizes a financial return on our leading technologies and network capability, at the same time as we offer a unique and profitable service to a valued customer.
Digital’s investment in this and similar sales is imagination - and a unique set of capabilities to turn that vision into reality.
One part of that vision is "VANS" — our emerging Value Added Network business. VANS offer Digital an opportunity to strengthen client relationships by providing total solutions to networking opportunities. The definition, development and sale of these solution networks can only be done by integrated teams representing Digital in total.
VANS business strategies are complementary to and synergistic with the broad industry strategies developed by the Digital Competency Centers (DCCs) and the industry marketing staffs. In Europe, senior VANS marketing personnel are being funded in five key DCCs. Their charter is to develop an industry-specific VANS strategy and to drive its implementation within that industry. A similar approach to a tightly integrated marketing strategy is being implemented in the US and GIA.
In addition to supporting new product development and installation, Customer Services also is fully integrated with the system business segments at the business strategy and investment planning levels. When the company commits to a new direction, Customer Services is there with new services and resources to ensure our new offerings succeed at the customer level. New technologies - like the VAX 9000 series - and new markets - like the corporate computing environment — demand new levels of support.
For instance, with Digital’s new "Advanced Electronic Support" (announced with the VAX 9000), customers can receive an on-site service processor. This MicroVAX system will continuously monitor the performance of VAX 9000 systems, utilizing artificial intelligence and unique service applications. The system itself automatically initiates and logs service calls acting as a dedicated link to Digital’s service experts at one of our 14 customer support centers. All this is accomplished without altering or disrupting the way customers do business.
Our information network also gives direct service access to users at accounts like Alcoa, Phillips 66, and Honeywell. Customers can provide complete descriptions of complex problems to our service professionals — without having to wait for a return call to get all the details. Already these customers are seeing productivity improvements over the old ways of reporting and resolving problems.
We recently combined two organizations devoted to providing custom solutions to customer problems: CSS, which engineers the hardware, and Software Services/Engineering, which develops the software. A major responsibility of this new group is to help create and support the evolution of Enterprise Integration Services (EIS).
Our business has changed. The manner in which we are called upon by customers to deliver solutions isn’t what it used to be. In the past we made products and used the products to build point solutions, and customers bought them. Now changing customer requirements have altered the way our organization must respond. It’s necessary to understand the customer’s business needs and to be flexible, to form partnerships, and to be willing to take on different risks.
In traditional applications development, the customer and the developer begin by agreeing on functional specifications, acceptance test plan, delivery date and, of course, price. Months or years later, the developer delivers an application that meets the specifications at the given price.
Today, however, meeting such customer requirements does not necessarily meet the customer’s need. Frequently, the customer’s situation changes during the development period. Original requirements are no longer valid or don’t reflect the business environment.
You rarely see requirements for flexibility or extensibility in functional specifications because it historically has driven up the cost of custom software. Thus, using the traditional approach, applications tended to be inflexible and closed — addressing only narrow, tightly focused needs. For these applications, change is the enemy.
The alternative is to design flexibility in right from the beginning. The result is an application that can grow when customer needs grow, that can be configured for special purposes, and that can be developed quickly, while it is still needed. Today, NAS and SAFE make this possible.
Over the last two years, in cooperation with the Application Integration Architecture (A1A) architects of the corporation, we began the development of a formal program called Software Architecture for Flexible Environments (SAFE). With SAFE we are developing the rules, processes and methodology that specify how to build integrated applications. This will enable Digital to implement consistent solutions around the world — all based on Digital’s strategic architectural directions. The SAFE program strengthens the one architecture message by helping developers create applications that are compatible with our Network Application Services (NAS). It is essential to Digital’s success in the systems integration business.
Our utilization of NAS is the key that assists us in meeting changing customer requirements. For instance, customers now ask for:
o extensible applications that can grow without compromise when their needs grow; o integrated applications rather than point solutions; o applications that are fast to develop and easy to maintain; and o consistency across multiple platforms and environments.
By making application integration really happen, NAS supports all of these requirements.
The BASEstar project is an excellent example of how Digital created a flexible, extensible application that meets customers’ present and future needs. This is an integral part of the Manufacturing AIP (Application Integration Platform) which, based on NAS, integrates various applications throughout a plant environment and can be extended to address unique requirements.
Our BASEstar product took root as a result of a customer’s need, but it is now being sold to several major accounts. Ford Motor Co. bought it not as a short-term solution, but as a long-term architecture for its shop floor.
Digital’s success in automation of the semiconductor industry is another highlight of what Digital and NAS can do for customers. Using VSAP (the VAX Semiconductor Automation Platform). a team of the semiconductor industry's leading companies developed a complete.
multi-vendor approach to clean-room chip manufacturing. Digital’s role was to bring all the disparate technologies together into one, seamless, integrated system. The system that VSAP enables has led to a 10% yield improvement, 20% increase in asset utilization, 25% reduction in direct labor costs and 50% cut in material costs. VSAP provides the kind of flexibility and growth required by an industry that is in constant motion.
Sometimes the best opportunities are in our own backyard. We used the strengths of the Digital architecture to solve one of our own problems — publishing software documentation for low-volume products. We addressed a problem of high inventory obsolescence, low availability, and poor delivery by creating the Demand Delivery solution. This solution uses Digital's standard imaging and electronic publishing applications and custom third- party hardware that was developed in cooperation with Digital.
The result is a Demand Delivery solution that showcases Digital’s architecture. This system is modular and plays in a multi-vendor environment. You can get documentation when you need it, and there are no inventory constraints or problems with out-of-date information. Due to the design for extensibility within a heterogeneous environment, it’s as cost-effective to produce one manual as it is to produce 1000, making this system adaptable to varying customer/business needs. Customers are now banging on the doors for this solution.
It accommodates both image and facsimile transmission, supports videotex, provides a single database for image and demand print files and is independent of image resolution requirements. It is also compliant with applicable standards such as CALS (Computer-aided Acquisition and Logistics Support). The CALS program is part of a Defense Department initiative to create paperless offices by integrating electronic publishing, databases and networks. With CALS, we can create new kinds of data structures that are operating-system independent.
The success we’ve had already, and the success we see ahead, depend on partnerships on two levels.
First, the various groups within Digital, which are necessary to reach a goal, must form partnerships with one another. We need to draw on Digital’s resources in forming such partnerships to allow the energy of these groups to flow together for a common goal. We recently had a major success selling the DECtp-compatible Reliable Transaction Router to a large financial institution and we are field testing this with a number of others around the world. The success of this venture hinged directly on the joint efforts of our Software Services Engineering group in Zurich, Base Product Marketing, and the TPSG engineering group from High Performance Systems. Such cooperative strategic initiatives are key to Digital’s enhanced time-to-market and market position.
The second type of strategic partnership is the one we form with customers. The old buyer-seller relationship is no longer appropriate for mission-critical applications and strategic business relationships. We’ve had to make alliances with our customers and really work in concert with them. Their partnership with us forms a synergy that can lead to solutions that are exactly what the customer needs.
Sometimes, forming such alliances increases the overall complexity. We have learned how to manage these complexities and develop unique solutions. The payback has been worth it.
The Digital architecture represents a solid long-term investment. It has already allowed the Field organization to create custom solutions that meet current and future needs. It has allowed customers to create business solutions for today and tomorrow.
This is an extremely exciting, active and challenging time at Digital. The industry is changing rapidly, and our customers’ needs are changing rapidly as well. Sometimes we lose perspective on how important our contribution is to the computer industry, to our customers and to the world in which we live.
In early September, the world’s attention was riveted on an unprecedented event - the arrival of Voyager II to the planet Neptune. Voyager was launched in 1977 — the same year Digital introduced its first VAX computer and embarked on the single-system strategy that changed the face of our company. One of the first VAX-1 1/780 systems was installed at Jet Propulsion Laboratories for reconstruction of photos from the Voyager mission.
During the last twelve years, the technology has evolved with networking, clusters and graphics to produce the fantastic, high-quality image enhancements that were transmitted back to earth for whole world to see.
The technology advanced rapidly. Twelve years ago it would have taken a year to get the first photos back from Neptune. Five years ago, it would have taken three months to transmit the photos. In September 1989, those images came with the speed of overnight express.
We can all be very proud of the role that Digital technology, products and support played in that important mission. Success of this kind comes when we follow the basic values that have helped us so far.
Customer satisfaction has to be the number one goal for the whole company. How do we ensure that? I see three themes emerging.
First, we are empowering people on the front lines, and we are organizing ourselves to put accountability and responsibility in the right place. This means giving our people the authority to make decisions. When people have authority, they take responsibility for their actions, and ownership for the results they expect. We have truly superb people in this company — people who are dedicated, who want more than anything to do the right thing for the customer and for Digital. When they feel ownership, when they feel they have the authority, responsibility, and support to do the job, they are empowered, and they achieve excellence.
The second theme is teamwork. If we are going to do the right thing for the customer, then everyone who comes in contact with the customer has to work together. This means the sales person who leads the effort must work with the services representative, or the systems integration consultant must work closely with sales support specialists.
When we act as one company with one architecture and one message, customers see us as one team. This one team provides access to Digital's outstanding resources, provides a consistent and high level of service, and delivers the knowledge of business solutions and dedication to customer success that our customers need.
The third theme is quality. Commitment to quality is one of Digital’s most fundamental values. This means quality products, services, and people.
It is in this context that I want to talk about selling in the U.S.
Six months ago, I said that we should focus more efficiently on the customer by: o focusing on accounts,
o moving decision making closer to the customer,
o increasing sales and sales support resources,
o cutting red tape,
o improving training and
o creating a more positive and open climate for new ideas.
By focusing on accounts, we are putting customers at the center of our business. This has meant some organizational restructuring. We no longer have nine sales areas. Today, the U.S. sales organization looks like this:
o End-user districts report to four Sales Regional vice presidents (Central — Frank Bowden, Eastern — Rose Ann Giordano, Southern — A1 Hall, and Western — Larry Goodwin).
o Corporate and Named Accounts, which account for 60% of our business, are the overall responsibility of Bob Hughes, our Account Sales Program Office manager.
o Account managers for Aerospace and Electronics now work with Bob Long; Finance and Media with Ron Hevey; Manufacturing (formerly Discrete) with Ray Wood, Petrochemical (formerly Process) with Ron Eisenhauer; and Telecomm with Harry Eisengrein.
o Government districts work with Harvey Weiss.
o Volume districts work with Jay Atlas.
These changes focus senior management on accounts.
But empowerment is not accomplished solely through organizational restructuring. Rather it comes when we change our role from telling to listening, from commanding to responding, from internal meetings to customer meetings. We have made great strides toward this end in the U.S.
There are thousands of customers in the U.S. Each one of these is an account with an account manager, who is fully responsible for Digital’s activities with that customer.
Today, the account is the basic building block of Digital. The account manager owns the responsibility for the account plan, and all the account plans added together equal the sum of Digital worldwide. That puts the customer, through the account manager, at the center of all of our planning. We will invest in accounts and deploy our resources accordingly across the districts, the country and internationally.
Every sales unit is made up of one or more accounts. Corporate account managers and large geographic accounts will build their plans for revenue, expenses, and headcount for the entire account. Unit managers will incorporate information in a plan that covers their part of any large account, plus all their locally based accounts.
This new approach is a vote of confidence in those people who manage our sales units and accounts. They are now business managers, with the authority and responsibility for account plans. Those plans include revenues, as well as expenses, human resources, support resources and investments.
A simple process of account plan and unit plan approval is all that stands between the account budget and implementation.
District managers will lead this process by providing local management, sales leadership and all the required support to the units. The account sales vice presidents will provide leadership for our large national and international accounts — and ensure the active development of our corporate accounts.
The management structure we have is as efficient and streamlined as when I first joined Digital 20 years ago. The corporate account manager reports to the account sales vice president who reports to me. From the sales rep contributor to Ken Olsen, there are now
We’ve given each manager the opportunity to request incremental resources for identified business. This builds on the account plans already developed from the bottom up. For the first time, sales managers can truly plan out their business and get the resources they need to achieve their plans. The plans will be reviewed and approved by the account sales vice presidents and regional sales vice presidents.
The plan is all set. The decisions have been made. The managers are being trained. Implementation begins Jan. 1, 1990.
We have extended the FY90 forecasts by six months, through calendar year 1990, to make the transition easier, and to help us plan investments.
This represents a big change for the Field, and some of them have a wait-and-see attitude. They know that getting the right resource, with the right expertise, at the right time is going to require some mixing and matching across the corporation — especially for scarce resources.
But there is also a ground swell of excitement at all levels. Last week 1 met with over 300 workstation sales and sales support people in Palo Alto, Calif., for a sales rally. At this rally, our sales people identified over 300 opportunities with a combined business potential of $1 billion. In this exercise, sales reps talked about what they could do if they had certain resources. And we set out to get those resources.
There is a lot of initiative and energy out there. Most important, the sense of empowerment has the sales force out with customers, selling, instead of worrying about the organization or red tape.
The transition from empowerment to increased revenue doesn’t happen instantaneously, but there is cause for optimism. Sales reps are more enthusiastic about the outlook.
Six months ago, the U.S. Field had over 30,000 people. I promised that we would bring that count down by about 5%, while increasing direct sales and sales support resources. That effort is well under way. The total U.S. Field population was reduced by 508 in Ql. At the same time, total sales and sales support, including those in the pipeline and committed for training, increased by 217. That means our headcount of those not involved directly in sales and sales support is down by 725.
U.S. Sales and Services has opportunities for employees within Digital to get out to the front lines and work directly selling and supporting customers. A lot of effort is being put into making that transition a positive and manageable experience. But we need the on-going support of the entire company.
This past August, we sponsored a coming together of field and corporate resources in Marlboro called "Career Opportunity Days." This has already resulted in moving nearly 300 corporate and U.S. staff into the Field. And a followup event is in the works. Sales and Sales Support resources are being increased, and we’re focusing on where they are most needed.
Six months ago, we promised that we would reduce red tape. We’ve gone in two directions to accomplish that.
First, we reduced the levels of management required to make decisions. For example, I had a study completed to provide me with lists of all the approvals needed by the Field for things like allowances, business advances and expenses, credit lines and relocation. The lists made up a thick book. Today, we’ve replaced all that with a single page.
We’ve also made progress in Sales Administration. We’re working hard to make it easier, simpler and more timely. Mike Kalagher will discuss these changes in detail.
Six months ago, we stated that the Field needed more effective training and that we would deliver. We said that every sales person must know the customer, our products the competitors’ products, and the differences, and must know and use Digital resources.
We’ve taken enormous strides in that direction with DECtop, the Digital University Summer Session and the Digital University Institute of Technology. In addition, U.S. sales has had special training for sales managers on the new budgeting and management process.
We are seeing a transformation of the scope and depth of the training we do. In the U.S., we have increased our training budget by over 60% this year alone. This spring, we will introduce the Digital Consulting Conference in Phoenix. This is a focused educational experience for our customers, matching some of our finest consultants to work some of the most difficult customer needs. And don’t be surprised if we eventually create a Digital University that combines the best of our recent training experiences for not only Digital employees, but for customers as well.
The bottom line is we are listening to the Field and working together with other groups in the company.
We said that we wanted to be open to new ideas and innovation. To that end we established a Corporate Quality Improvement Program, called the DELTA Program, under Jim Pitts. DELTA is built on the belief that innovation and ideas come from the people who actually do the work. DELTA will help us identify ways in which we can improve our products, services and business procedures and priorities. Everyone can contribute.
With all the change that we are going through, it is appropriate to remind ourselves that our sales force is a precious asset. These are skilled, determined, and committed people, who are doing the right thing for the customer and for Digital. We need to continue to support their leadership, to break down barriers, to simplify, to clarify.
Just as Voyager II opened new worlds, we are exploring new customers and opportunities during our voyage into the 1990s.
I'd like to share some exciting progress in the Administrative areas, and to enlist your support for the challenges that lie ahead of us. I will review the highlights of many things we have done to date to support our Accounts, and show how it all comes together in something we are calling the Account Workbench. Let me talk about our views of what our Accounts need.
Over the years, as we were growing rapidly, we operated with a high degree of independence and, from time to time, got out of alignment with one another. As the total market slowed, it became critically important for us to get aligned.
We have come a long way as a company at lining up the pieces. We understand that each contribution is important to our total success. It is imperative for us, today, to keep in mind the effect on the company, as a whole, and on our customers as we make decisions. Our account teams - our one point of contact - should provide the total support that our customers need. When we achieve this, there will be no doubt that we are "one Digital."
1 want to talk about some of the progress we’re making in support of our accounts.
EDI or Electronic Data Interchange is an emerging set of international standards that govern how trading partners can do business with each other electronically. To electronically trade business documents with multiple outside entities - whether they be suppliers, customers or banks - you first need discipline and cooperation inside your own company.
About three years ago, when EDI was emerging, we pulled together an EDI Board and a crossfunctional EDI Implementation Committee. At the time, there were a dozen independent efforts inside Digital to develop EDI capability. We now have a "one Digital" EDI implementation. This positions us to do business with any of our trading partners who have invested in EDI.
People across the company pooled resources, made the hard tradeoffs and compromised on their needs and timetables. Every function in this company that interfaces with trading partners has helped to develop one EDI platform. This platform provides a transmission interface, implementation of protocols and standards, and transport of EDI records, to any internal functional application.
We developed our internal EDI implementation with a commitment to "use what we sell and to sell what we use." We have developed our EDI tools, approaches and business practices jointly with our customers and suppliers.
Today we are taking EDI orders from 11 different customers at 25 sites. Many of these trading partners were the ones that helped us develop our tools. We are executing financial transactions with five banks. We have 24 vendors on line for receiving our purchase orders and distribution transactions. We have pilots under way with customers in Europe and the Far East. We are well-positioned to add any of our customers, suppliers, or financial institutions to our active EDI list of trading partners as quickly as they are prepared with their implementation.
EDI is just ONE of the exciting tools we are using to support our accounts.
We need to align all of our people, processes, activities and systems to ensure that those of us not on the front lines are supporting the needs of our customers. And in the eyes of our customers, we need to ensure that our company remains simple.
In the order processing area, over the last several years, we feel particularly proud of having evolved a single integrated environment where, in essence, the customer can do business with us through the ordering channel that he/she feels most comfortable with.
We believe our Electronic Store was the first in the industry. Last year, customers accessed the Store 200,000 times. We have learned that this utility lends itself to retrieving product information and quickly generating valid quotes from Digital. Our customers can then forward these quotes to their own purchasing department for order placement.
We have integrated support for our indirect channels, and our distributors are doing the bulk of their business today through the Electronic Store.
The people who make up our telephone ordering organization (DECdirect) today take 600.000 calls per year. About half of those are orders. This is over 60% of the total U.S. order volume, and approximately half of that is executed through our Fast Ship process.
Because of cross-company collaboration, we have been able to pull together a fully integrated FASTship process that has over a thousand products.
Starting with 50 products a few years ago, we have since added the most popular options. Last year we added workstations, personal computers, and software products.
This list continues to expand and the utilization has skyrocketed. Over a quarter million orders last year, worth three quarters of a billion dollars, were executed from our FASTship Menu and shipped to customers within 24 hours of when we received them.
These orders are entered wherever received (telephone, Electronic Store, EDI, or the local office account team), and are electronically transmitted to the drop ship site with no other intervention. In addition, we have a number of suppliers who are connected to this process and committed to execute same day shipments. These suppliers send us an electronic verification so that we can invoice our customers. That is the ultimate in "Just in Time," i.e,, instant delivery with no inventory.
Customer Satisfaction Survey
These are positive breakthroughs, but only count if our customers tell us that they count. As shown in our annual customer survey around ease of doing business for the last six years, we have made considerable progress.
Terms & Conditions
In 1984, every question on ease of doing business with us got low marks. Today, our customers fee! good about our lead times, and our ability to meet their needs and expectations. Our customers feel particularly good about our acknowledgment of their orders in a timely fashion and our being predictable.
They are feeling terrific about us meeting our delivery commitments. In 1984, this was the lowest score. Today, we score 8.2 on a scale of 10. This is fantastic performance. They also are pleased today with our followup after the order is delivered.
One area that remains a high priority for us all is our business practices. They affect the ratings customers give us on terms and conditions of doing business with Digital.
As Don Zereski mentioned, we have a solid commitment for a January warranty simplification. In addition, we have a broad cross-company initiative to simplify our software. This effort impacts business practices as well as software products and the systems that support them.
Support for Account Teams
Our commitment is to provide both skilled people as well as integrated systems in support of our account teams. We have announced to the sales force the return of sales administrators. Any sales unit manager, who sees a need, has the latitude today to add a sales administrator to her/his organization, and we will provide host management and support from the local administrative organization as required.
Within Administration, we are focusing our existing resources around our accounts. Every account team will have an identified administration member who will support the team by coordinating the delivery of the full scope of cross-functional administrative support.
We are feverishly developing tools needed for the sales force. One of these tools is the Opportunity Investment Planning System to help support front line sales with the management of their return on responsibility. This tool, which was developed in under 60 days, is very simple to use and has received high marks from Sales Unit Managers.
A program called the "Account Workbench" is an important milestone in the evolution of integrating our company and becoming simpler. In the past year we ran experiments in the sales units using laptop computers. From these experiments we learned that remote capability is not as important as the need to integrate our fragmented applications and provide one easy-to-use point of access. We developed a prototype — a simple, single interface to these applications.
We tested the prototype at Summer School and got valuable feedback from the sales force. We applied this to the on-going development of the several applications we have been working on. These applications, as defined by the sales force, are being integrated into a single-user interface called the Account Workbench.
The Account Workbench is in pilot today. We will begin rolling it out across the country in January. We will provide simple menu access to existing and future account management tools. Some of the existing tools include mail and word processing.
This Account Workbench will integrate such tools as: o the Financial Analysis and Sales Tool;
o the Software License Configurator;
o XSEL, which improves in "user friendliness" with each release,
o AQS. which in its next generation will be an easier-to-use configuration creation system resulting from the current partnership between Sales, Engineering, Manufacturing and Administration;
o a price look-up module which allows any user to verify any product or price in the Price File;
o a compendium of account management reports, aggregated into a single menu; o a new system for generating proposals; and
o an order-status module, which allows any authorized user to immediately get status on orders by knowing the "DEC number," or the customer’s purchase order number, and allows sales people to use their badge number to get the status on any of their orders, regardless of how or where the orders were taken.
We need to continue to simplify and integrate what our company does and how our company does it. We need to do this together. When we do it together, we have something very powerful and very exciting.
In October. Digital announced the new VAX 9000 high performance system. Consultants gave us rave reviews, and we received the best press we have had for some time. The analysts agreed that this was a major milestone for Digital.
Perhaps more important than our external success, has been the good feeling generated internally. Everyone in the company feels proud about this system and the positive feedback Digital has received. And that’s the way it should be.
One of the most important things we have learned about selling in the high end is that when you sell a VAX 9000 system you don’t just sell the hardware — you sell Digital. And one of the most important messages we would like to share today is that the VAX 9000 system was created by the whole company. It was truly a "one company" effort.
From the beginning of this project we knew that we were going to go after the high-end market. So we started off with three big issues: o Was this a market worth entering? o If it was, could we develop the necessary technology?
And if we could, would we be able to position ourselves successfully in a market dominated by IBM and its style of computing, selling and service?
We addressed the market issue first. Our VAX installed base needed higher and more reliable computing power. They were expecting to grow with Digital. The danger was that some customers had the perception that the VAX/VMS family was at its end. A few had even purchased "hot boxes" from our competitors.
We felt we could win with our installed base, but we would have to move fast. If we didn’t, we would lose some of them.
In addition, there was a greater market out there. We found that not everyone who has a mainframe today is happy. There are a number of IBM, Unisys, CDC and Honeywell users looking for an alternative.
The numbers supported us. This is a $40 billion market. Any significant market share — even 5-10% - would be a substantial win for Digital.
Also, fast growing applications in areas like transaction processing and high performance technical processing are vital to Digital’s overall strategy. These applications often require mainframe or even supercomputer power. If customers were going after those new applications, we didn’t want to be left out simply because we didn’t have a high performance system.
So there was a market, but it wasn’t going to wait for us. Time-to-market was a critical issue.
We concluded that if we could combine the leadership of the VAX/VMS family and our distributed systems and networking environment with the characteristics necessary for mainframe performance, we would not only have a winner in this market, but we could actually expand the definition of "mainframe."
We had to have a world-class machine to go head-to-head with the very best in the business. This meant the highest performance VAX hardware we could possibly produce. It required using technology that would be new the day the product was announced.
Innovation doesn't just happen. It has to be created. That requires substantial financial and human commitment. It also requires the willingness to take a risk.
Because we built on the underlying strength of the VAX/VMS family, we could limit our risk to physical technologies. In addition, we had an experienced, successful core team from the development of the VAX 8600 system.
To produce world-class quality and to do it right, we focused on tools and technology. Working closely with manufacturing and packaging engineers, we invested heavily in CAD/CAM (computer-aided design and computer-aided manufacturing) tools and simulation. We knew that if we succeeded in building the tools and crating the simulation methodology up front, the risks later on would be minimal.
Our partnership with Manufacturing has been a major success. Not only did our technology breakthroughs — the Multiple Chip Unit (MCU) and the High Density Signal Carrier (HDSC) — come in manufacturing, but the whole manufacturing process, up to and including systems integration, is new.
The partnership between Engineering and Manufacturing was so close that boundaries dissolved. For example, Jim McElroy, one of the five engineers who started the VAX 9000 project, is now MCU Volume Manufacturing manager. And Chris McGill, from Manufacturing, now manages Interconnect Process Development Engineering.
As a result of our technology breakthroughs, Digital is a physical technology leader. The MCU and HDSC are major achievements. This technology will change the way computers are made. No other company in the world can mass produce this technology today.
Innovation wasn’t confined to technology, but included the way people worked together. Instead of working on one critical path one step at a time, the goal was to have multiple critical paths. That meant working in parallel within the project and cross-functionally across the company.
From the beginning, we knew that competing with IBM meant high reliability and superb service. We believe that our VAX 9000 system sets standards of its own. It has ultra- high reliability. The system even predicts many errors before they occur and automatically calls Customer Service for support.
We wanted to meet customer’s mainframe expectations around service. So working with cross-functional teams from Customer Services, Enterprise Integration, Educational Services and Sales Administration, we built a comprehensive service program. In addition to hardware and software support, this program includes a customized Support Implementation Plan, featuring unlimited training, consulting and management services.
The VAX 9000 announcement included applications as well as technology, service, software, and storage products. Thanks to the work of all marketing groups, the VAX 9000 system served as the platform for announcing strong commitment to the high end from our CMPs (complementary marketing partners). This support brought Digital to the "glass house" and into the supercomputer market for the first time.
We learned two major lessons from our work on the VAX 9000 system. First, we learned that if we were going to create a major new system, the whole company was going to create it with us. We had to work as one company. Second, we learned that if the whole company worked together, we could innovate, take risks, enter new markets and win market share. We learned that we can do anything if we work together.
In the last year and a half, we have seen an exponential increase in the intensity of what our accounts want us to do in systems integration.
In the recent past, our main value added was to provide our customers with state-of-the art hardware systems, operating systems, and user tools. Then it was the job of the customer to provide the solution. Customers either did this themselves in-house, or turned the job over to a third party.
Now, our customers don’t want to engineer their solutions in-house. They don’t want to do the installation, or the management or enhancements. Nor do they want to seek out a third party and manage that third party to do the work. They just want to concentrate on their business, such as making automobiles, airplanes, or steel, or providing insurance or banking services. But, at the same time, they are worried about putting this critical work in the hands of under-capitalized small third-party operators. They also worry about giving this job to companies that are just system integrators and leave the continuing development of the product and process technology to others. They want to deal with "real" people who spend their time on a day-in-and-day-out basis learning and providing the expertise to successfully perform this work.
Quite simply, our customers are looking for an entity that has the capital substance and the staying power to see these mission-critical, "bet-your-business" projects through to completion. They also want an entity committed to continue the development of the product and process technology, and not put it in the hands of others. They want an entity that has people who really understand their problems and are willing and able to integrate their product expertise with the understanding of their business. They want to deal with people who work on problems like these on a day-to-day basis.
If you step back and look at this business, you see that there really aren't many companies other than Digital who can meet these needs. And these customers are willing to pay dearly, because the savings to their enterprises are simply enormous. That’s our opportunity.
A leading aerospace company is a good case in point. When we first started talking to them, we used the typical technical hardware jargon — MIPS and megaflops and terabytes. But it became evident very early in the conversation that this was not what they wanted to talk about. They had a $60 billion backlog. Factory throughput was practically down to zero. They didn’t even measure their inventory turns because they were so low. They wanted us to solve that problem.
After we started working with them and got to know them, I asked, "Why Digital?" They said they had looked at all the computer companies from the point of view of their progress relative to the return on assets over the last six or seven years, and Digital stood out above everybody else. We had doubled our inventory turns in a period of four years, and saved the company a billion dollars. They said that our people must know something to accomplish this. If we could do that for them with their $70 billion backlog, it could result in huge savings.
I asked if there were other reasons. They said they had brought in a pure systems integrator and another large computer company to give presentations in addition to Digital. The first two presentations were the most polished, professional presentations their top management had ever seen. Nothing could go wrong. They understood everything. The problem could be solved. Then the Digital salesman came in and started going through the same kind of presentation. But he finished his introduction very quickly and said, "I have someone I want you to talk to." He brought in a seasoned manager from Manufacturing. Dressed casually, in stark contrast to the polished appearance of everyone else present, he knew the realities of a manufacturing environment. He said "Let me tell you about shop floor control systems. No one has fouled them up more than I have, and no one has one as good as I have today." He went on to tell them about all the mistakes of the past — what could go wrong, what to look out for, and what he was doing at that point in time. He was a "real person" — the kind of person these customers want to talk to. Two minutes after the meeting was over, the Digital people were asked to come back in. We had the contract. It was that simple.
Opportunities similar to that one are numerous and enormous. Total worldwide spending in data processing is estimated at $200 billion, and $70 billion of that is for systems integration. Only $10 to $15 billion of that is currently being provided by vendors. The rest of it is being done by the customers themselves, and, as I mentioned earlier, they don’t want to do it. They need help.
The challenge is obvious. But, for the first time in my career, we must worry equally about getting the business as we worry about not getting the business. In many of these situations, you only get one shot. If you make a mistake that shuts down someone’s business, they'll remember it for a long time, and they won't be bashful about passing that information on to their friends in the industry.
The flip side is that when you do it right, you have the customer forever, and you leverage more and more business through their enterprise.
Today, people from other parts of that aerospace company are seeing our work on this program and are giving us additional business.
Systems integration is an enormous opportunity for us. I personally think that within five years, 50% of our business will come directly from systems integration or indirectly from leveraged business relative to systems integration.
We are fortunate because we have the people and the resources to work with customers anywhere in the world, and we are already considered leaders.
We are leaders because we have already solved many of these problems internally, for instance, in manufacturing, finance, and engineering. In fact, you could look at Digital as an in-house laboratory for these solutions for our customers.
We are also leaders because we offer all the necessary capabilities. Some of our competitors just design. Others design and implement. Still others implement and manage. We are among the few who have the skills to handle it all — from planning and design to implementation and management.
These capabilities have made us a leader, but what puts us into a category all by ourselves is that we have "real people" who are experts in their functional areas and can share their experience with customers. We are getting these people to rotate into our systems integration environment and take their skills with them.
This helps our customers; and it also does a lot for us, because the experience of working with customers puts them in the real world where they see real problems. Our people then bring back what they have learned to their respective environments so we can get even better at what we are doing.
We must continue to grow our leadership position, but we must be both aggressive and careful. We cannot promise what we cannot do. You only get one shot at this. But we have the confidence that we know how to do it.
We have to continue to work
together as a team while others are retreating. It is time for
us to place to win in the systems integration market. It is time
for us to be committed not to strive to be number two, but to be
number one - to take all of this business that we can.
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