Vol. 11, No. 5_________________________________________________________________ August 1992
"MGMT MEMO" was written by Richard Seltzer in Corporate Employee Communication for the Office of the President. It was written for Digital’s managers and supervisors to help them understand and communicate business information to their employees. You can reach Richard at email@example.com
Ken Explains the Business Unit Concept (Ken Olsen)
Digital has 50 business units along with about ten functions. If you organize a company like ours by function, each function has to somehow be sensitive to and satisfy the needs of all 50 business units, which is an impossible task. If you budget by adding up the needs of the functions, the numbers tell you next to nothing. The obvious solution is to budget each business unit. They specify what they need from each of the functions, and the company’s budget is the sum of what they asked for. When you can see how each business unit is doing, you can make adjustments to achieve the profit you need, investing in the most promising ones and cutting those that are unprofitable.
Selling Solutions in the Healthcare Industry (Willow Shire)
Healthcare — a large, recession-resistant industry — is in crisis around the world; and Digital can make a direct difference in improving the quality and decreasing the costs of healthcare. Often the right solution comes from a clear understanding of a particular hospital and its problems, rather than the latest and greatest technology.
Helping Utilities Operate in a Competitive Environment (Patti Foye)
Over the last few years, competition and changes in regulations have transformed many utility companies around the world. Electric and gas utilities were huge, monolithic, govemment-like organizations, run centrally. Now they must be more responsive to customers, more concerned about costs, and more flexible and creative in their business practices.
Helping Retailers Succeed in Hard Times (Abbott Weiss)
Retailers are under tremendous economic and competitive strain. It’s a time of consolidations, buy-outs and bankruptcies. Trying to survive, many are looking for new ways to reduce costs, increase sales and become competitive.
DECWORLD Wrapup Report (Deb Nicholls)
Attended by over 25,000 customers, DECWORLD helped uncover billions of dollars of new opportunities.
Alpha Program Update (Ed Pastor)
Our challenge is to turn customer enthusiasm for future Alpha products into sales of today’s products.
Global Project Business — It’s Ours to Win (Will O’Brien)
A recent internal report estimated that Digital loses $500 million to $1 billion annually in global business due to current metrics/reward practices, account planning processes, inadequate worldwide data, and lack of clear strategy/messages and required training. Major changes are under way to address these issues.
Hearing the Voice of the Market (Paul Kampas)May Fortune 500 companies has discovered that their size and past success make it increasingly difficult to hear the "voice" of their market. As a result, small start-up companies capture many of the new opportunities.
Headquarters Organization (Dick Poulsen)
To reflect the company-wide restructuring, as well as the decentralization of the sales and distribution responsibility to our worldwide subsidiaries, we have made changes in our GIA Headquarters activities.
Resource Calendar in Videotex
The U.S. Personnel organization is introducing a Human Resource Calendar in videotex which shows the organization’s most significant events for the fiscal year. To access it, at the system prompt, type VTX HR EVENTS.
(Editor’s Note: In recent speeches, Ken Olsen, president, explained the business unit concept and emphasized its importance for budgeting and business planning. This article summarizes his remarks, and articles which follow outline the strategies of three successful business units: Healthcare, Utilities and Retail.)
A company that makes a single product, like automobiles, can operate with a very simple organization. The goals are clear, and all the functions - engineering, marketing, sales, service, finance, etc. — work for the company and work together to make it a success. Companies with a few diverse products — like air conditioners, locomotives, and refrigerators — are typically organized with each major product having its own separate set of functions. The functions are part of the teams which are based on products.
Digital is very different from those models. We have 50 business units — you might say 50 products — along with about ten functions. If you organize a company like ours by function, each function has to somehow be sensitive to and satisfy the needs of all 50 business units, which is an impossible task. If we try to make Digital look like an automobile company or an air conditioner company, we miss our unique problems and the obvious way to use budgeting and planning to solve them.
Each of our business units has a strategy to win a segment of the market for the corporation. Patti Foye markets computers to the power and utility industry; Willow Shire to the health industry; Abbott Weiss to the retail industry; and so forth. Each business unit has different needs and a different strategy, and yet shares the same functions.
How do you budget the company when you have 50 business units and ten functions? If you budget by adding up the needs of the functions, the numbers tell you next to nothing. If you aren’t making a profit, what can you do? You "squeeze out cost." But at whose expense? Most likely at the expense of the most promising business unit.
The obvious solution is to budget each business unit. They specify what they need from each of the functions. Then the company’s budget is the sum of what the business units have asked for. If you aren’t making a profit, you can arrange the business units in order of profitability and growth; and you keep cutting the bottom ones out until you get the profit you need. That’s very logical and very simple.
You want to go into those businesses that are most profitable, and cut those out that aren’t profitable. You want to invest in those businesses that are going to be profitable. And the only way you can do that is to see how profitable and promising each business unit is — see how much they can promise in growth, promise in profit, and invest in those.
Healthcare — a large, recession-resistant industry — is in crisis around the world; and Digital can make a direct difference in improving the quality and decreasing the costs of healthcare.
We did almost $800 million of business in healthcare accounts in FY91. Worldwide in this industry, we’re a clear number two behind IBM, and gaining marketshare. In five countries — Austria, Australia, the UK, Ireland and Finland — we’re already number one.
In the past, the Digital healthcare strategy was to sell computer hardware to hospital labs, pharmacies and radiology departments and to call in CSOs for departmental applications. From that indirect sales approach, we got hardware and maintenance revenue, with low cost-to-sale. About 70% of our business is still indirect today. However, this makes us vulnerable. The average hardware price has declined sharply, and so have the profit margins. And at the same time, many CSOs now deal with many different vendors, which means we are getting a smaller percentage of the business, with a smaller margin. To counter that trend, we need to teach our sales people to sell solutions.
Hospitals typically have islands of automation and paper-based systems. Many are still using 1970s technology and not using it very well. Blockbuster Video can locate a video tape anywhere in their system faster than a physician can locate a patient in a hospital.
Often the right solution comes from a clear understanding of a particular hospital and its problems, rather than the latest and greatest technology. The sales person has to know that hospital well enough to go to the CEO or CFO and say, for instance, "Nursing is a problem here. You can’t recruit enough nurses, morale is sometimes shaky and the cost per nurse is staggering. A lot of that is overtime costs because nurses have to come back after their shift is over to do time-consuming, handwritten documentation, rather than noting the same information more efficiently on-line as part of their normal work. In other words, information technology can make your nurses more productive and happier, making their job easier and cutting your overtime costs."
Another approach might be to tell them, "You can pay for automating your dietary operations just by the number of meals you’re not going to waste." Hospitals waste phenomenal amounts of food by sending meals to patients who are being fed intravenously or who have already been discharged.
Another natural solution for many hospitals is a clinical information system. Using our regular integration tools we can pull together all of the information in the various clinical systems within a hospital, and give it a common look and feel, and a simple user interface. We can build computer-based patient records and give physicians and nurses ready access to them. Eventually, we want to make it possible for the doctor at the bedside to push a button and see images of the patient’s x-rays on a terminal, along with complete records of all the patient’s tests and medicines.
In most cases, Digital’s regular product line provides all that is needed for healthcare solutions. There are, however, four areas that require special attention: databases,
medical imaging, voice and networks. Hospitals typically have computer equipment from many different vendors, integrating all the information, so it can be readily accessible presents unique database challenges. The main problem with medical imaging is the complexity of storing, managing and retrieving the huge quantities of data from x-rays and other diagnostic imaging procedures. Voice is important as a user interface in hospitals because physicians frequently have their hands occupied with the patient or in other tasks, and hence cannot get to or would not want to use a keyboard. Also, in networking, there are some details we need to deal with that are important for "tele-medicine.*
Today, even the best hospitals and health maintenance organizations (HMOs) don’t invest anywhere near as much in information technology as they could and should. Hospitals are proud if they spend as much as one and a half percent of their revenues on information technology, while typical manufacturing and banking companies spend six to nine percent. In other words, we devote more resources to managing information for building cars than we do managing the information to help a patient feel better. As society readjusts its priorities and healthcare institutions recognize how they can benefit from information technology solutions, the opportunities for Digital are enormous.
For instance, we expect to see huge growth in medical networking and "tele-medicine" in the U.S., particularly in rural areas. Computer networks can put patients and physicians located remote areas in close touch with university medical centers, giving them access to the best care. Integrated healthcare information system serving large geographies can make it possible for an expert to diagnose and even treat remotely.
Also, with escalating healthcare costs leading to pressure from governments and insurance companies, hospitals are recognizing the need to share resources with one another. First, they are beginning to share in the use of multi-million-dollar diagnostic equipment, rather than each facility buying its own. Second, they are sharing highly skilled, highly paid specialists. And third, they are sharing patient information and research data in regional, integrated healthcare information systems. We’ve seen this in Buffalo, New York, and Lyons, France. And we’re also working on projects of this kind in Australia and Italy.
In the increasingly competitive healthcare environment, many smaller hospitals are going out of business and being bought up and organized as chains. There are companies now with more than a dozen hospitals spread over four states, which need to share resources over wide-area networks that can handle voice and image, as well as data. There’s also a need to link hospitals directly with insurance companies and to link together chains of HMOs.
In such major healthcare solutions, Digital’s value is not just hardware, but rather organization consulting, networks, network planning and systems integration, built on a hardware/software platform.
Over the last few years, competition and changes in regulations have transformed the utility industry. Electric and gas utilities used to be very large, monolithic, government-like organizations, run centrally. Now utilities must be more responsive to customers, more concerned about costs, and more flexible and creative in their business practices. They are no longer guaranteed a rate base; their employees are demanding new benefits and career opportunities; and their stockholders are demanding more profit while customers are demanding more service. These changes spell opportunity for Digital.
Utility companies are ready use information technology (IT) in new ways to get value from their IT investment. They realize that by moving information freely inside and outside the company, they become more efficient.
Utilities are also discovering the advantages of distributed systems. Utilities usually have large numbers, often thousands of customers; residential, commercial and industrial. They also have local and district offices where people pay their bills, or talk with customer service about various issues. Distributed systems complement this organizational structure. They can decentralize their decision-making — a style well-suited to their needs.
Today, electricity and gas are sold across national borders worldwide through power grids and pipelines. In this global marketplace, utilities need computer systems to track the product, to forecast it, to handle the peaks and valleys of the load and to help them focus on customers. They also need systems to handle all of the applications and to help them understand how to build new plants and rehabilitate old ones. They need to have new technologies integrated with existing ones to improve efficiency.
Our Utility Business Unit focuses on: electricity, gas distribution, gas pipeline, water and waste management. We segment these into technical and commercial applications.
Plant operations, transmission, distribution, and engineering fall into the technical or operational side of a utility.
The commercial side includes administrative services and customer services - how you run your business and how you get paid for your product. This includes very large systems, capable of sending thousands of bills a month to household customers. Here we sell a broad range of products including office automation, videotex, mail, spread sheets and applications for purchasing and accounting, voice and customer information systems.
In the past, the technical part of the business rarely communicated with the commercial part. Today, all functional areas need to share information and it is essential that applications are integrated among different departments.
Our ability to enable different departments’ heterogeneous systems work together (using Network Application Support or NAS) gives us a competitive advantage. When utility companies need to give their customers a report of their entire year’s history with graphic detail and background, they need to be able to retrieve it from different places in the organization. Digital has the technology and services to help them connect better than any vendor. We write the code that allows the transfer of information to take place, and can help the customer use the information he gets.
Our open approach lets Utilities build on the investments in equipment, software and training that they have already made. We don’t want to intimidate these customers with brand-new architectures and directions. Rather than scare them off, we want to work with them to help them mold their organization into something efficient that meets the challenges of the 1990s and beyond.
We began to extensively focus on the needs of Utility customers two years ago, and now that effort is paying off. We now have over 2,500 utility customers worldwide.
The typical sales cycle with a utility company is 18 months. To succeed long term we need sales people who are committed to these accounts for five years or more. This is a true consultative and systems solution sell. The customers want continuity, and our competitors — IBM, UNISYS and Bull — often have sales people who have been on accounts for 20 years or more, who have spent their entire career on one account.
We also need the commitment of the "virtual team" — the people who need to come together from geographies, business units, and service businesses to bid and then implement projects.
You win here through focus, training and persisting — staying with the program and not giving up.
These are tough projects to win, but they are also very lucrative. Many of these customers are multi-billion-dollar companies, and their IT budget is usually about 2% of their revenue.
We have only a small piece of the utility market, but we are growing rapidly. We are now recognized as a major player, especially in technical areas. We are uprooting the Bull and UNISYS installed bases, and we are also winning projects against IBM. IBM will soon reorganize, settle down and become even stronger in this market so we must move quickly to take advantage of the opportunity.
On the commercial side, our expertise in voice technology is very important. Utilities want to use voice for outage analysis and customer service. We recently won and delivered a large project at Detroit Edison, replacing their outage management system using our
voice technology. In a storm or emergency, they will be able to handle 40,000 customers calls an hour.
Today, most of our revenue comes from the electric and gas companies. But we expect that water and waste will grow quickly. By "waste" we mean water that has been used by electric companies or within the sewage systems of a city. It includes recycling and purification of water.
There are 58,000 water companies in the United States alone. Many are very small. Some are one-person operations that only need a personal computer to do all their computing. But we can reach all of them with our products. And some are large companies where we could and should put dedicated sales people. Once again, we expect that our approach of focusing on the common needs of a set of customers will pay long-term dividends.
This is a very difficult time for retailers. They are under tremendous economic and competitive strain. It’s a time of consolidations, buyouts, and bankruptcies. Trying to survive, many are looking for new ways to reduce costs, increase sales, and become profitable. Even though money is tight, they recognize that their problems are serious and pressing, and are willing to spend for the right solutions.
Fortunately, Digital started to concentrate on this area about four years ago — learning about the business issues that retailers and wholesalers face, and shaping our product offerings to address those issues. We focus on retail and wholesale companies that have annual revenues of $100 million or more. Those companies represent a total market for computer products and services of about $28 billion per year. We have less than one percent of that market today, but are growing rapidly.
Basically, we are showing up more often; we have a story to tell; and these companies are much more willing to listen than ever before.
We have a framework that puts our products and services into a context that retailers understand. This "Digital Retail Architecture" graphically shows the interrelationships of the business processes of a typical retail firm and how applications and information systems can and should work together to help run that business. It gives a picture of the whole business as well as all the individual elements. With this document, a sales person can discuss a solution for a specific problem in service or inventory, and show how this relates to other areas and can fit into an overall architecture.
In any business, there is often a long gap between the time when new technology is available and the time it is widely adopted. The limit is not what the technology is capable of, but rather how willing people are to change their attitudes and habits. If you come out with a better point solution, but they have invested heavily in training and spares, there is a lot of inertia to resist change.
Part of our challenge is to identify the rapidly growing companies that are most ready for change. Often, these are relatively new companies that didn’t exist five or ten years ago and have already become leading retailers; and even newer ones that are now emerging out of nowhere, that have caught the trends and are changing the rules of the game.
Our customers include major names in retailing worldwide, such as: Toys R Us; Ikea home furnishings; Blockbuster Video; Marshall’s discount clothing chain; CVS pharmacies; Montgomery Ward; Beaver Lumber, the Canadian home-improvement chain; Shoe Town; Victoria’s Secret Stores; Deb Shoppes; Fortunoff, the New York Jeweler; W.H. Smith, the diversified British retailer; BUT, the French furniture giant; and European fashion retailers Celio and Etam.
These companies use Digital systems to automate nearly all aspects of their operations, such as point of sale, distribution centers, decision support, inventory management and control, credit authorization, sales tracking, catalog operations, labor scheduling, payroll and accounting. We also provide products and services designed to integrate and network the diverse systems that retailers already have installed.
We’ve concentrated our application efforts on:
o merchandise management,
o distribution activities in the warehouse,
o store systems (typically the point of sale device at the checkout counter),
o the back-room processors that keep track of inventory, work schedules, etc., and o the networks which tie these applications together.
Many CEOs of retail chains come from the merchant side of the business. They have an eye for fashion and trends. They have a sense of what’s a good price and a good profit. That’s the intuitive part of the business. Their selection of merchandise and their ability to get the right product in front of the right customer at the right time can mean the difference between success and failure. We offer them tools to enhance their ability to discern trends and identify where they need to add incentives and plan their product assortment.
We also help take time out of their normal business cycle, enabling them to respond to changes more quickly, and avoid having to mark down merchandise that is no longer in fashion.
We are bringing leading applications to this market. In some cases, we’ve purchased rights to applications. In others, we have made investments with our partners, and have the right to sell their software products directly and profitably. In the past, we might have gone to a retailer and said, "Buy Digital hardware, and here’s a list of software companies you can go to." Retailers don’t want to hear that. They have a problem in inventory or service or merchandise markdowns, and they want help. Now we can offer the complete solution including hardware, software, and services. We also can be the systems integrator.
Many traditional retailers still have large mainframes at headquarters. They’re centrally run, with point-of-sale terminals in the stores, some local in-store processing and some processing in their warehouses. They use networking, but with a rigid, hierarchical approach. Those companies are less likely to turn to us.
Our customers tend to be those who have recognized the cost and service advantages of moving applications away from the central mainfame to distributed and open systems. They want to unleash the knowledge of their store managers to adapt the merchandise mix close to their clientele. They want to give local managers the information they need and let them be free to make changes. They see the advantages of our peer-to-peer networking and our ability to smoothly link together heterogeneous systems.
Basically, we have packaged and promoted Digital’s technology in a way that directly addresses the problems of this industry. We have the best distributed products, the best networking, great integration, and systems that can easily expand. Those are real advantages in this marketplace. And we can explain those advantages to customers in language that they understand and in terms of their own business.
"We used publicity and special mailings to try to attract prospects in addition to existing customers. We got more than we had hoped — over 3,000 of the customer attendees were prospects," notes Deb Nicholls, DECWORLD manager.
Followup surveys indicate that DECWORLD significantly increased awareness of key Digital capabilities, such as multivendor integration, systems integration, partnerships with application providers, migration capabilities.
Most large accounts have several information system partners of choice. According to survey responses, less than 9,000 of the customer attendees considered Digital one of their top three partners of choice before DECWORLD; and after the event, 24,000 — nearly all of them — put Digital in that category.
DECWORLD also helped uncover billions of dollars of new opportunities. This estimate is based on what customer attendees saw as incremental opportunities for Digital as a result of DECWORLD. These include plans for new projects that were stimulated by DECWORLD, as well as changes in current plans and the possibility that Digital might get a larger share of existing projects. The specific information, including the customer contact, has been forwarded to Digital sales people so they can follow up and try to turn those leads into real business.
The Alpha announcement on February 25th, and many subsequent events, have generated enormous enthusiasm for Alpha among our customers and partners.
Our challenge is to turn customer enthusiasm for future Alpha products into sales of today’s products. With new Open VMS VAX systems, and our OSF/1 continuity for UNIX customers, we can generate revenue now. We need to clearly explain that an investment in Digital products today gives customers a head start and allows an easy migration to Alpha systems tomorrow.
With the July 15 th announcement of 13 new Open VMS systems, ranging from workstations to mainframe-class servers, we are in a strong position to capitalize on customer enthusiasm. Our key selling points are:
o Today’s VAX and DECsystem computers provide the flexible growth — the features, openness, and price/performance — that customers need now. These systems offer industry-leading solutions to customers’ business needs today.
o Today’s VAX systems will work with tomorrow’s Alpha systems in VAXcluster systems. Digital products are a clear path leading to 21st Century computing.
o A customer’s investment — in applications, data, peripherals, staff training, service, networking, and other aspects of computing — is protected in a migration or upgrade to Alpha.
o Digital is unique in offering customers the flexibility to choose both the timing and the path of migration to Alpha based on the customer’s individual business model
o Today’s MIPS-based DECstation workstations and DECsystem servers can be expanded (storage, memory, graphics, and even CPU) and will serve customers for many years to come.
o Leasing can be a bridge to the new technology. It is an option for customers who can lease a VAX or DECsystem computer today and switch to an Alpha system in the future.
The announcement of the new lineup of Open VMS systems is the latest in a series of events that leads from the Alpha program announcement on February 25th, to delivery of the first Alpha systems later this year.
In April, the schedules for phased delivery of Open VMS and DEC OSF/1 Alpha software were defined. This information allows the field to work closely with customers to understand their computing requirements, and flexibly manage a migration to Alpha if and when it is the right choice.
For the many customers and software partners who are moving their applications to Alpha, 30 Alpha resources centers are now open worldwide. In these centers, experts are available to help them migrate applications to Alpha, and develop new ones that can take full advantage of Alpha’s extraordinary capabilities.
At DECWORLD’92 in Boston, Digital demonstrated early production examples of a complete family of Alpha systems, spanning from the desktop to the datacenter, running both the DEC OSF/1 and Open VMS operating systems. On these systems we ran software such as Rdb from Digital and applications from 25 industry leading software vendors, including Oracle Corporation, Sybase Inc, Cognos Incorporated, Information Builders Inc, and SAS Institute Inc. These applications are among the most sophisticated available anywhere. Digital’s comprehensive set of software tools made it easy for these vendors to migrate their software to Alpha. Customers and partners were impressed by the tremendous performance of these applications running on Alpha.
Also at DECWORLD’92, more than 650 software vendors made public their commitment to migrate their products to Alpha. We expect to have hundreds of partner applications available when volume delivery of Alpha hardware begins later this year.
In April, Microsoft announced their plans to support Windows NT on Alpha. In June, UNIX System Laboratories Inc. announced their plans to support UNIX System V Release 4.2 on Alpha. The support of Alpha by Microsoft and USL is a strong endorsement of Alpha as a key architecture of the future. These operating systems, in concert with Open VMS and DEC OSF/1, will give Alpha the widest and deepest software application portfolio in the industry.
A further sign of Digital’s long-term commitment to Alpha is the construction of a $425 million, 526,000 sq. ft. semiconductor research and manufacturing facility in Hudson, Mass. This facility will produce future versions of the Alpha family of semiconductors. Digital’s sixth semiconductor wafer fabrication operation, code-named Fab-6, is scheduled for facilty completion in 1994. Manufacturing of advanced sub-half micron generations of Alpha products will commence in 1996. Alpha semiconductors are currently being shipped from the Hudson, Mass., and South Queensferry, Scotland, facilities.
Already, Alpha is attracting new business to Digital:
o At DECWORLD’92, over 15 technical OEMs announced their commitment to utilize Alpha hardware technology. These cover a wide range of industries and applications, from imaging to industrial process control to militarized systems. Over 100 other Alpha design-ins are in process and will be announced by the individual vendors.
o At the recent Design Automation Conference — a leading show for electronics computer-aided design — over 80 potential new customers and partners expressed interest in porting to Alpha.
They were attracted by an Alpha-vs-HP-vs-SUN competitive exhibit in our booth that clearly demonstrated the performance lead of Alpha over these competitors. Alpha workstations running DEC OSF/1 software are the pull, opening new business opportunities for Digital today.
o On June 26, Digital and Olivetti announced a significant business alliance that will extend Olivetti’s system offering to include Digital’s Alpha technology. Under the terms of the agreement, Alpha will become a strategic architecture for future Olivetti products. Digital will supply chips and system platforms based on its Alpha RISC technology and networking software.
Alpha is the industry’s first architecture designed for the 21st century and is stimulating a whole new generation of applications, including multimedia, image processing, and speech and handwriting recognition.
In the early 1980s, 32-bit minicomputers, like our VAX VMS systems, fueled the growth of interactive computing. In the late 1980s, 32-bit PCs stimulated the desktop revolution. In the years ahead, 64-bit systems like Alpha will pull the entire industry in new, innovative directions. With Alpha, Digital is uniquely positioned for the growth that is to come.
A recent internal report estimated that Digital loses $500 million to $1 billion annually in global business due to current metrics/reward practices, account planning processes, inadequate worldwide data, and lack of clear strategy/messages and required training. The opportunity to save on expenses is $20-$30 million.
This article describes major company changes under way to address these issues, progress to date and how Digital management around the world can help to win more global business.
Digital has immense global resources, capabilities and expertise that can be used to help our customers implement their global business strategies. We have demonstrated this in our success in winning such large global projects as Banque Nationale de Paris, Quotron F/X Trader and Optus Communications in Australia. But our internal systems, processes, business practices and metrics/reward policies are hindering us, rather than helping us as we seek this critical new business.
There are billion-dollar projects to be won. For example, Optus Communications won the right to operate Australia’s second telecommunications network and named Digital as the prime contractor for developing the Optus Operational Support System (OSS) for what will be the world’s first fully digital telecommunications network. Digital will be responsible for providing all information technology and services for the Optus OSS, estimated to cost $1 billion over the next 10 years. That win was truly a worldwide effort, with experts from Atlanta, Georgia, playing an important role, despite internal obstacles.
Digital’s processes and practices evolved at a time when our success as a company depended largely on local relationships. Now, to succeed in the global arena, while maintaining the excellence of our local support, our multinational customers need us to act consistently as "one company," worldwide. Implementation of the New Management System is driving this major transformation, giving each multinational customer a worldwide account manager, responsible for coordinating all of Digital’s resources in response to their needs. However, fundamental changes are required so that we support multinationals in the same way that we support local customers today. For example, we must provide leadership and support of our people, and reward the right behavior so that this is the natural thing to do, rather than depending on the herculean efforts of highly-motivated individuals. All too often, the goals and plans of local organizations conflict with the best interests of the company as a whole; and individuals have to fight heroically against bureaucracy to win and deliver these major projects.
The need for global change within Digital is urgent — with hundreds of millions of dollars in incremental revenue for FY93 and FY94 at stake. In particular, economic and
political changes in Eastern Europe and the former former Soviet Union mean that the world’s industrial giants are now bidding on multi-year, multi-billion dollar projects — funded by the World Bank, the U.S., and the European Community— to rebuild the infrastructure of entire nations. They need the information systems and services that we can provide, and we can be a major player. The more rapidly we can carry out the required changes, the sooner we can win and profitably deliver this global project business.
Efforts to "globalize" the company were initiated by the International Management Committee several years ago. The Business Performance Committee is now providing the essential leadership for change and setting policy to ensure we routinely win global project business, such as appropriate revenue recognition and expense transfer policies to motivate the right behavior. Digital’s goal is to make the company "one" in terms of supporting worldwide accounts.
Several separate efforts aimed at globalization have made considerable progress. In particular, Engineering has moved ahead in such areas as global networks, international standards, local language products and international systems engineering. Account management has made major strides in support of these customers.
Last August, Russ Gullotti and the Digital Services Management Team committed to globalization as a key goal for Digital Services. Since then we’ve laid the groundwork, made progress and have set aggressive targets for FY93. According to Russ: "Simply stated, our FY93 goal is to have Digital’s worldwide accounts as reference accounts saying Digital is the best-in-class in global support".
Part of the strength of the New Management System is the fact that our Service people are now an integral part of the account teams. That’s making it easier to implement the necessary changes. But we have to accelerate this effort because we’re losing significant business.
In conjunction with International Accounts Marketing, we are concentrating on transforming 114 worldwide accounts into reference accounts. To do this, of course, we must understand what these customers need, figure out how to satisfy those needs profitably, and then act quickly. In other words, we must earn customer enthusiasm by meeting or exceeding their expectations. A detailed program plan is in place that outlines specific projects for achieving these goals and a Globalizaton Program Office (GPO) has been established to implement it. GPO is a global management team of Roger Sturgess (Europe), John Kiladis (GIA), Joe Allan (Corporate) and Peter Delaporte (U.S.).
The company is focusing on these 114 accounts because they are all global in their operations, are on the leading edge in using information technology in their industries, and represent one sixth of Digital’s total revenue.
If we grow total business from these accounts by 20%, that will have a major positive impact on Digital’s profits. Also, they are real leaders in their businesses. As we learn to satisfy their global support needs profitably, we’ll have the competitive edge with other customers that do or will do business internationally.
Solid progress was made in FY92 in support of worldwide accounts and account teams responsible for these customers. For example:
o Business Performance Committee (Feb.’92) made important policy decisions to break through many of the metric/reward issues hindering winning and delivery of global projects. These policies are being implemented now under the leadership of International Accounts Marketing.
o Throughout FY92, the Open Advantage Campaign consistently drove the message: "Digital - the Standard for Global Support."
o ATLAS was implemented worldwide. This is a global system providing service capability and offering information from 150 countries to account teams. Inquiries now average 10,000/month. The U.S. Account Workbench, European PRIMA/OLIS and GIA vtx systems provide access to ATLAS. (At the system prompt, type VTX ATLAS).
o International Business Support (IBS) has improved response time for quotations for account teams to 48 hours for global project requests.
o Of the total 900 program managers in place, 170 have now been trained on the management of global projects.
o To establish global thinking and leadership skills, most
Digital Services Management Committee members, business unit managers and other senior Services’ management have participated in Advanced International Management Seminar (AIMS) at INSEAD. Systems Integration (SI) management is actively involved in Digital’s CORE program.
o A Short-Term Global Assignment Program has been approved to provide opportunities for senior Services management around the world. Job rotations must be part of their development plan; managers will exchange jobs with peers in other countries for three months for global leadership development.
o Program Roadmap, the standard business process for SI programs and projects, has been enhanced to more fully address global requirements.
o A comprehensive, company-wide, global Business Support Resource Guide was published and distributed to all worldwide account teams in conjunction with DECWORLD ’92. The document describes in an easy-to-use manner Digital’s total capabilities, resources and expertise in support of worldwide accounts.
o A new service was piloted successfully to address worldwide account needs for staging and export. Worldwide rollout by the Operations Support Services Business Unit is taking place this quarter.
o A Worldwide Service Agreement (addendum to the DBA) was created to provide consistent terms and conditions for Remedial Services. Implementation will begin early in FY93 as part of the Digital Pricing Program.
o A comprehensive plan was approved by Digital Product Services to provide consistent hardware and software services on a worldwide basis. Implementation will begin early in 1993.
o Full profit-and-loss (P&L) reporting, including Services, was established by Corporate IM&T for worldwide accounts.
o A Global Support Customer Advisory Board was formed, focused on global support to actively involve worldwide accounts in this important change process. Two meetings have taken place.
As Russ points out, we succeed when our customers say we’ve succeeded. The Customer Advisory Board includes representatives from Asea Brown Boveri (ABB), Michelin, Philips, Siemens and Union Bank of Switzerland (UBS) in Europe; and Bank of America, Bankers Trust, Dupont, Quotron (CITICORP) and Smithkline Beecham in the U.S. We plan to expand the board this quarter to include Asian-based worldwide accounts such as Cathay Pacific, Hong Kong Shanghai Bank, Nissan Motors, Sharp and Sony.
The charter of the board is to accelerate establishment of Digital’s best-in-class global support capability through partnerships between key worldwide accounts and Digital. We communicate with the customers regularly on specific globalization projects through the account teams. We also meet twice a year to report on the progress we’ve made and the goals we’ve set for the coming year, and to get their advice and feedback. Based on customer feedback from the June meeting, we are selectively broadening the scope of the board to address the company’s globalization efforts.
Digital has an extraordinary opportunity to use its strengths to win many more large global projects. The issues are complex; many of the best companies in the world are struggling with identical challenges. If they were easy, we would have solved them a long time ago. We have a good chance to establish Digital’s global leadership in this area.
We are focusing on the toughest problems and will make breakthroughs simultaneously, with strong Digital management support and leadership. FY93 should be a year of major progress in globalization. The opportunity is significant to achieve profitable growth here. This business is ours to win.
Contrary to popular belief, today Digital’s internal data network is heterogeneous — a parallel to what our customers use daily. Digital employees buy and use the applications they need to accomplish their business tasks. On occasion these decisions are made independently of what Digital is building to service customers. The tools that people need to do their work drive what operating systems and network protocols are required. Today, Digital faces the same kinds of challenges internally that our customers see — with the exception of integrating large SNA networks.
This change has come about rapidly. In 1984, our internal network consisted almost entirely of Digital-made products. By 1988, we had enough UNIX-based systems and applications for people to begin putting together an informal TCP/IP network, parallel to our DECnet Easynet network. In 1990, Corporate Telecommunications made a concerted effort to build a TCP/IP backbone to meet these growing needs. Today, that network includes about a quarter of the computers in the company.
Digital has a DECnet backbone with over 75,000 computers and a TCP/IP backbone with over 27,000 computers. We plan to bring both of those backbones together into a single network using a router product now being designed in Reading, U.K. Already, the two networks share mail and other applications with the distinctions largely transparent to the user. Our efforts to further integrate the networks will provide valuable experience and help us develop solutions that Digital’s customers need.
For Apple machines, AppleTalk runs on top of our DECnet software. Thousands of MS-DOS machines are linked to our DECnet wide-area network through local area networks using PATHWORKS software.
In addition to over 100,000 networked computers, the company still has many applications that are accessed remotely from dial-in terminals with modems. In support of this need the Wide Area Terminal Network (WATN) provides over 3 million user connections a year. That includes employees who dial-in from home as well as those who connect to outside information services.
Digital has gateways that enable users to connect to IBM systems from our network. In fact, we probably have better connectivity to IBM than IBM has to itself through those gateway hubs.
The telecommunications function provides gateways that enable connectivity to information and networks external to Digital. Examples of these gateways are the global government- sponsored Internet and connections to X.400 mail. Large volumes of electronic mail flow through these gateways every day. In select instances, it is possible to provide additional capabilities, enabling Digital users to connect to accounts on external systems to use applications and access databases. Basically, if there is a business reason to reach a computer resource outside the company, we can, in all probability, provide a secure and cost-effective solution. Now more than ever there must be a business payback for this connectivity. Digital simply can’t afford to spend dollars on network connectivity that doesn’t have a solid business payback.
For the future, one of our biggest challenges in the area of data networks is intercompany connectivity. Inter-company connectivity must be provided in a fashion that is secure, and we need to be sure that the recipient is authorized to receive the information.
Message addressing mechanisms present another challenge. Here at Digital, we use our three-letter location identifiers to address our mail. Our present challenge is to implement easy ways to address messages when all the Fortune 1000 companies are connected together. The standards aren’t fully developed yet, and the mechanisms people use to send external mail today over the Internet or by X.400 are complex. Our challenge is to harness the technology and make it easy for people to use.
Another major challenge is determining how to reach other countries. Too often, we presume that the rest of the world has the same degree of ubiquitous connectivity that we have in the U.S. That may be true for the U.K. and a handful of other countries. But there are significant problems and expense considerations associated with providing highspeed connectivity to many other countries.
Many countries have underdeveloped telecommunications infrastructures. This includes the countries of the former Soviet Union and Eastern Europe, as well as South America, Africa, China and India. Via satellite, jointly with MCI, Digital just brought the first 64-kilobit circuit into India. A 64-kilobit circuit is very slow and is really ancient technology. The level of connectivity that we take for granted in the U.S. just doesn’t exist in a lot of the world. In some cases, we can install satellite dishes on top of buildings. In other cases, we have to go through considerable negotiation with local governments. In solving these problems to improve communications within Digital, we can also clear the way for customers of ours who face similar problems.
At the same time, we are continually challenged to keep up with the introduction of new products, both those that Digital develops and those that internal users need. There is a lot of work that has to go on in the background, to blend information and telecommunication systems together, and to improve our gateways and build new ones between major product sets and to the outside world. We also have to keep our network easy to use and manage, with all the complexity and heterogeneity transparent to the user.
We’ve seen immense growth of the network over the last 20 years. We have often measured our success in terms of the year-to-year growth; and we are proud that we operate the largest, private, distributed peer-to-peer network in the world. Now we’ve reached a point where, inside Digital, computers have become as common and numerous as telephones. Many of our engineers have two to three workstations each. This is due in part to the fact that the capital cost of computers - which cost center managers see and account for - has become relatively inexpensive. That cost is insignificant compared to the ongoing cost of maintenance, software upgrades, and the cost to provide the lines that link computers together — costs that, for the most part, cost center managers never see.
During the period of rapid growth, Digital operated on the intuitive belief that faster means better. Today, we need to focus on putting the network to effective use to enhance the profitability of the company. Managers throughout the company need to assess what they actually need and when they need it. If they insist on getting information instantaneously and no one uses it, they’ve simply increased the cost to the company.
With the current focus on cost-saving measures, many groups are coming up with innovative uses of the data network to drive bottom-line results. For example: this publication MGMT MEMO and the Petty Cash payment notifications are now being sent over the network. This means that at a time when the company is downsizing, telecommunications usage and costs go up because of new applications — the opposite of what is normally expected. In order to achieve the intended bottom-line cost savings for Digital, groups should reduce their expenses by the amount they have saved through the utilization of the global network instead of spending that money on other projects. More careful planning of data network applications needs to be performed to ensure that the cost of the increased network traffic is appropriately considered as a project expense.
In the past, within Digital, we have provided data communications services at low rates such that managers think of them as "free," similar to the way people used to think of water. We need to find better ways to establish the true market value of this resource, to assess and assign the ancillary costs of maintaining the hardware and software and the connectivity between machines. Telecommunications professionals have a responsibility to make managers more aware of what the company as a whole has to pay for the decisions they make, so that information processing and distribution cost can be optimized.
Many Fortune 500 companies have discovered that their size and past success make it increasingly difficult to hear the "voice" of their market. As a result, small start-up companies capture many of the new opportunities.
What is it about size and past success that blocks the voice of the market? Increased size tends to create steep hierarchies and long value-chains, where many employees are insulated from hearing what customers have to say about their need for newer and better solutions. At the same time, successful organizations become financially and emotionally bonded to the products or services that brought them that success.
What can be done to alleviate these large company restraints? Structural solutions include flattening the organization and/or dividing it up into multiple smaller divisions. Another approach is to include customers much earlier and more completely in the process of product or service investment and creation. To that end, IBM has implemented a program they call "Market Driven Quality" or MDQ. With MDQ, they are institutionalizing much of the learnings that came out of their Baldrige Award winning AS/400 organization in Rochester, Minnesota.
Today, Digital has scattered pockets of excellence, where people have developed skills in hearing the voice of the market. But unlike IBM and others, we have not yet begun to broadly institutionalize that ability. We need to do so to create consistently high levels of customer satisfaction and continuously revitalize our businesses.
To begin this journey, Corporate Marketing, under Bill (B.J.) Johnson, vice president, has initiated a program called "Voice of the Market." The objective of this program is to make dramatic improvements in Digital’s ability to target, translate, and transform market needs into delighting and satisfying customers and sustaining value, more rapidly, more accurately and most cost-effectively than our competitors.
The Voice of the Market team is drawing extensively on the work and knowledge of experts both inside and outside of Digital. In addition, a formal benchmarking activity will identify the best-in-class "voice of the market" practices in leading companies across industries.
Initial findings indicate that three critical elements are needed to truly ’hear’ the voice of the market:
o A front-end loaded value creation process
In a front-end loaded process, additional energy, expertise and resources are invested early in the value creation activity to explore, characterize, and validate customer needs for value (in both products and services). Such processes can dramatically
reduce time-to-market and production costs, and increase customer satisfaction by getting products and services right the first time.
o An expert, focused "inbound" marketing activity
"Inbound" marketing refers to moving knowledge about customers and the market into the corporation and embedding it into the value-creation activity. "Outbound" marketing refers to moving knowledge about created value out of the corporation and into the marketplace by such means as sales, channels, events and advertising. The skills, competencies, knowledge, tools and measurements of these two kinds of marketing differ dramatically. Briefly, inbound marketing uses a variety of research techniques to lead and facilitate a front-end loaded, multidisciplinary process involving Engineering, Marketing, and customers.
o A market knowledge and expertise resource center
The work of inbound marketing needs high quality information services, research services, consulting services, training, and tools and methods, including a repository of related work done in Digital and pointers to experts inside and outside of Digital. To a "user", such resources would feel like a "center," but the expertise could come from people distributed throughout the company who cooperate closely on this project.
(Currently, the program is implementing a variety of pilot activities across Digital to explore and validate the concepts and practices described above. For more information, please contact Paul Kampas at DTN 223-6377, or at RDV AX:: KAMPAS.)
Digital’s current organizational restructuring provides the right synergy among Engineering, Manufacturing, Marketing and Sales, and is structured to ensure industry benchmark performance from each component of the organization. As a result, Digital now becomes a market-driven supplier of systems and services to the field. Conversely, the field takes on a competitive, benchmarked sales and distribution role.
To reflect the company-wide restructuring, as well as the decentralization of the sales and distribution responsibility to our worldwide subsidiaries, we have organized GIA Headquarters activities as follows:
Systems and Services Business Group - Ray Wood
This group drives and supports the continuing development of all existing business, as well as any new businesses we choose to enter. This organization will not manage the business, but will ensure each business we are in strives to attain best-in-class performance in market share, growth, P&L and on-going strategic directions.
Operations and Logistics Group — Rob Katz
This group focuses on the sources and supply of systems and services, converting customer orders into revenue and managing the logistics, administration and distribution requirements in the order management cycle. This group is also responsible for the development of common business practices, processes and information systems required to support our business activities.
Area Resource Center
This center provides the traditional, functional services required to support the business units and the subsidiary operations. They include:
o Finance - Dave Spratt
o Legal — Art Fisher
o Human Resources - Jerry LoPorto
o Security — Rich Rowan
o Facilities - Neal Hannon.
This organization will be responsive to the needs of the business units and the subsidiaries, creating a center of excellence aimed at efficient support delivery and best-in- class improvements.
Sales and Marketing Group — Ron Bunker
This group will have two distinct and separate roles. Since our subsidiaries are designed to provide the sales and distribution role for the company, Sales and Marketing will have the traditional, functional responsibility of ensuring our Sales and Marketing organization is the best in the industry. They will achieve this through organizational design, training, marketing communications, sales tools, compensation and rewards.
Their second responsibility is to implement and manage change that drives the long-term growth and viability of organizations throughout GIA. They will address our management operating system through improving our planning process. They will implement improved management processes by a consistent focus on the implementation of change. The goal is to work together to ensure our organizations and processes at area, subsidiary and regional levels attain and maintain best-in-class sales and distribution organizations.
With the complexity and speed with which our industry moves, the management of change will continue to be the key to our success. Therefore, I am delegating to the GIA Sales and vice president, Ron Bunker, my authority to help manage and implement change. He will represent me at corporate, to the business units and to the field. He will make commitments and accept responsibility on my behalf.
The U.S. Personnel organization is introducing a Human Resource Calendar in videotex which shows the organization’s most significant events for the fiscal year. The objective of this calendar is to provide managers with timely information to help them execute their human resource management responsibility. The calendar is also intended to provide employees with advance notice of important Personnel activities so that they can better plan and manage their interactions with the Personnel organization. Examples of significant events include: salary and stock planning, schedules for open enrollment periods, affirmative action plan development schedules, etc. This calendar is now on-line. To access it, at the system prompt, type VTX HR EVENTS. For more infomration, call Doris Hesch at DTN 223-9397.