Volume 3, Number 1_____________________________________________________ February 1984

 

State Of The Company Issue

 

At the February 1 State of the Company Meeting, the focus was on the custom­er and Digital's product strengths. Over 400 senior managers attended the meeting, at which Ken Olsen talked about the product line structure, deci­sion making and good management practices. He emphasized the need to make Digital the lowest cost manufacturer in the industry. Jack Shields moder­ated the morning, which focused on putting the customer first, and Jack Smith moderated the afternoon, which emphasized the strengths of current and near-future products.

 

Ken Olsen Talks About Management At Digital

 

Quality Programs And Putting The Customer First

 

Jack Shields; Customer Loyalty Is Our Number One Asset

 

Jerry Paxton: Account Management And Customer Satisfaction

 

Chick Shue; The Field Team Goal

 

Mike Kalagher: Order Administration Issues

 

Dave Grainger: Standard Systems

 

Local Area Networks: A New Approach To Building Computer Systems -- Bill Strecker, Manager, 32-bit Systems Architecture & Advanced Development

 

VAX Strategy: VMS and UNIX -- Bill Heffner, Manager, Systems Software

 

Personal Computers: Friend Or Foe?  Barry James Folsom, Manager, Rainbow Business Group

 

Other News

 

Major Appointments

 

IVIS Applications And Customers

 

Ken Olsen Talks About Management At Digital

 

We are in a changing world. In the next year or two, there will be major technological breakthroughs in our industry like putting a VAX on a chip. We have great reason to be proud of the role we have already played in areas like taking the technology of large, expensive, half-million-dollar compu­ters and making computers that sell for less than a car. The changes yet to come are tremendous.

 

Change is coming not just because of technology, but also because the competition demands it. IBM is zeroing in on us. They are setting about to be the lowest cost manufacturer in the world. Our goal and theirs is to go into the most exciting, most fun and most promising markets. I want them to chase us and'not have us chase them. And this is going to make the next few years fun and exciting. To accomplish this, Digital is going to be very alert, very organized and very effective.

 

We started product lines a long time ago because the company had gotten too big for one person to manage. So, we broke the company into pieces, each one with a model that included the cost to engineer, build, market and sell the product. The measure of success was the product line's profit margin. This model brought us magnificent results. The first year we doubled our profit without hiring anyone. All of this came about because someone was held responsible for a given part of the company. We made it effective by saying, 'You’ve got the model. We're going to measure you every month on what profit you make.'

 

Well, things got a little complicated. Product lines began to feel like the more credit they received for orders, the more power they had, and layers of management began to build. We finally had to sit back and ask ourselves if all the money we were putting into measurements and layers was valuable to the customer. So, we decided to make some changes.

 

The product lines are still the source of strategy. They're still the group that looks to the future and the group that maintains contact with customers because customers sometimes need someone at headquarters to talk with.

 

But, when we took away some of the measurements this last year, we lost some of the positive features of the product lines. One of our goals this year is to get the product lines back to being responsible for defining and managing a model and a strategy for their market area.

 

Things are coming back now. The feeling of influence is reappearing in the product lines. This is important, because they are key to the company's success.

 

The experiences in defining product line roles make me think about the importance of good decision making. This process requires that people worry about how much money they have, how it's spent, and what their strategy is. There are two categories of difficult decisions. One deals with questions that have answers that don't really make a difference. That's why they are hard. In that case, somebody, probably the boss, just ought to flip a coin or go one way or the other. Then there are the hard decisions. My theory is that hard decisions require a lot of work. You have to struggle with them, and you have to talk to a lot of people.

 

There are a lot of hard questions we have to answer. If you go and ask any of our engineers one of these hard questions, you get a different answer from each of them. The answer is always clear when you meet with just one person, but you won't get all the information you need to make the right decision.

 

All I'm saying is that decisions are hard. We don't need arbitrary manage­ment. It's hard. When people ask why we have three personal computers, I tell them it's because we were smart enough to know we didn't know. So, we tried all three. And interestingly, the one that's doing the best was third on the list of which ones we thought would win.

 

So, we change. People who get carried away with their own propaganda, who think they understand the whole thing, will invariably fail. You must experiment and change in order to progress. Final solutions simply aren't the way of science or the way of progress. Difficult decisons take time. It's hard, and you have to change, and you have to be humble enough to admit that you don't know it all.

When we have goals—and they are an integral part of our success--they are proposed by the people doing the work. Goals have to be specific. If everything is budgeted and reviewed, we’ll know where we're going and how to get there.

 

I want our managers to learn the job of management. They must first of all take care of the problems at hand and keep morale high. There is no such thing as, 'I don't have time for this or that.' If you're a manager, you⁸re a sergeant, a lieutenant or captain. Your job is to take care of your people. It doesn't necessarily mean that you have responsibility for the strategy. Your job is to manage to a set of agreed upon goals. You have to budget, control the finances, control the people and take care of the people. If they need help, if they need consoling or inspiring, it's your job.

 

You should worry about management all of the time. You should read and study and learn. And, you must practice your management skills, just like you'd practice the piano or some other musical instrument.

 

You have heard today that we have enormous potential to grow. We have equipment coming that will enable us to do great things. We have to think about how much money we can raise, how much growth that will allow and where we want to budget for development. We have to pick how fast we can go and still remain in control. Then we have to make a list of all the product lines we are in and figure out the long-term stability, the return we can get for our products and the fun and contributions we can make to society and industry with our equipment.

 

A good question we have to consider is, 'How do we decide what products we're going to engineer and what markets we're going into?' First of all, we need to know what we can financially support. In business, this parame­ter straightens everything out. In some cases, we will tie Engineering directly to Marketing because they interconnect so nicely. We'll look at the return, the value, we'll allocate the Engineering funds, work up a consistent strategy and bring it to the Board and say, 'Here is where we propose you allocate money in Engineering.' If we do it right, they'll approve our proposal. So that's how we allocate resources in the company. This means that some projects won't be supported. They can't all be sup­ported .

 

As we set about to grow, remember one thing. IBM has publicly announced that they're going to be the lowest cost manufacturer. As we grow, there might be a temptation to be a little lazy about cost structures and finan­cial models. But, we have to be lower cost than IBM, less expensive. Remember one more thing about Digital and about today. Be proud of what you heard today...we're doing magnificent things as a company.

 

Quality Programs And Putting The Customer First

 

Jack Shields; Customer Loyalty Is Our Number One Asset

 

Most of the problems we experienced in Q1 were transitory. But, the most important, and potentially the most risky issue relates to the long-term viability of our relationships with our customers.

 

When we talk about the assets of the company, we all have our favorite areas to point to. Some say our people, obviously an asset. Others say our product, our engineering, our manufacturing, our sales, our services, our financial stability, etc. But, really the most important asset that this company has is its customer loyalty.

 

If we stay with those customers and if we strive to do a good job with those customers, they will be loyal and the success of the company is almost assured. So we've been looking at issues related to quality and customer satisfaction in the Field and Manufacturing.

 

Quality is a pervasive issue. It begins with the first time you contact your customer, and it never ends because you want that customer to continu­ally buy from you. Everybody in the company plays a role in quality and customer satisfaction. Today we will talk about the aspect that has to do with customer contact:   how we treat the customer, our responsiveness, our

 

ability to make commitments and to follow through on them. Supporting this contact level is a layer of interdependencies that go back to our engineer­ing schedules and the way that we plan and order material and build invento­ry.

 

In Q2, stimulated by some of the things that happened in Ql, senior people in the Field and Manufacturing began to meet every Tuesday. We look at order rates to see if we can get the end-of-the-quar ter skew out of the orders. We focus on what the customer sees of the order cycle once the order has been secured. We look at shipments by week compared to our quarterly goal for shipments. We look at material availability vs. customer expectations.

 

I think the results from Q2 speak for themselves. One thing that we learned from last quarter is that we've got a fantastic organization in this compa­ny. And if we get together around a set of common goals, in spite of all the environmental pressures, we succeed. Respect builds and teamwork builds. This is exemplified in the relationship which has developed between Manufacturing and the Field.

 

I want to thank everyone in the company—particularly people in Manufactur­ing and the Field—for their outstanding contributions in Q2. With contin­ued support, the upcoming quarters will be excellent. I go into the last half of this year with tremendous enthusiasm for our organization and for the things we can do when we set our mind to it.

 

Jerry Paxton: Account Management And Customer Satisfaction

 

Everyone at Digital has a role in customer satisfaction. Account management is the series of programs that allows digital to line up more closely with the way our customers are organized. One of its primary objectives is to make our geographic or market organizations transparent to the customer so we are easy to do business with.

 

We run annual surveys to measure the field on customer satisfaction. Geographic as well as account teams are measured by the surveys, which give us a basis for better communications with the customer. Our highest scores
have almost always been on the attitude and manner of our people in all the Field functions. The low scores have been in lead time, delivery, and generally the other doing-business areas.

 

We focus on making life easier for customers while at the same time learning about their future and current computing needs. For example, we have a planning partnership program. As I speak, there is a three-day meeting go­ing on in Wilmington, Delaware with DuPont. It is primarily a joint plan­ning activity between their senior managers and many of our senior Field and Marketing people.

 

Such meetings help us understand customer needs and help customers under­stand what our products and technology will be in the near future so they can make two-to-five year plans. As we bring our products to market, we work with our larger accounts—to get a feel for product applicability, reliabil-

 

ity, and applications. These meetings are an interactive and very construc­tive way to cement customer relationships.

 

The Customer Assistance Network is another program in Account Management designed to help solve the customer's problem. At the local as well as the corporate levels, we collect data, determine what we can learn from it, and work with the people involved in customer assistance in the Field.

 

Chick Shue; The Field Team Goal

 

Our Field team goal is to treat our customers, large and small, better than any other computer company in the world. Customer satisfaction is good business. It will increase customer loyalty, and help take sales from our competitors.

 

Our first priority is to communicate this goal to all of our employees. Training is also important. We plan to sit with each of our employees to make sure they understand their role in this customer satisfaction mission. From telephone etiquette, to handling complaints, to managing critical customer problems; our employees must perform well in all of these areas.

 

Contacting a Digital office must be a predictable, professional and pleasant experience. Call handling, timeliness, and follow up—all are important. A task force has been assigned to develop a closed-loop tracking system so that every customer receives the service needed to meet his or her request. Already in the New England District, a customer only has to call one con­tact, the Customer Care Center, which provides service across all functions until the customer is satisfied.

 

Measurement and recognition programs will reinforce the importance of putting the customer first. The district manager's salary review will be linked to customer satisfaction through the survey results, as will the FY84 district team award. Finally, we must recognize and thank the majority of our employees who already treat our customers with sincere and professional courtesy on a daily basis. Their attitude, combined with focus and pro­grams, will surely enable the field to achieve its customer satisfaction goal.

Mike Kalagher: Order Administration Issues

 

In managing orders, customer satisfaction means giving commitments that are quick and predictable and delivering against those commitments. The goal is a steady flow of orders.

 

We are pushing to reduce receipt-to-order and acknowledgement times. Receipt-to-certification measures the time we receive an order until it is verified and flowing through the systems. Today, 50% of our orders are indeed cleaned up, entered, and certified within our one-day goal. The other 50% are the problems we are concentrating on. Many of the reasons are credit problems, insufficient data, peak work loading on the work force. The more we do to smooth out the incoming flow of orders, the better off we’re going to be at achieving the goal. We want to view order respon­siveness from the customer’s perspective, which means the day he or she gives the order becomes our receipt date. Order acknowledgement time (i.e., the commitment schedule date) is the next thing the customer sees and, therefore, the primary measure of the order cycle time. We continue to work with Manufacturing and other supply points to eliminate any delays in the cycle.

 

Our DEC Standard Price List posed a length and bulk problem that has also been resolved to a large extent. As of Q2, the list had grown to 47,000 line items on 500 pages. In Q2 we took significant steps to simplify that book by examining product demand. We now have a much-reduced price list of under 10,000 items, and expect further reductions.

 

Today an order that arrives in a branch front-end system and becomes a certification is transmitted overnight to a backlog system, and then, with no edits, is made immediately available to Manufacturing to schedule. Manufacturing in turn has done an excellent job of getting the individual orders visible to the plant as fast as possible so that any materials issues can be resolved.

 

We have also begun implementing a new standard delivery program called "DEC 24" where, for selected products, an order and a shipment happen within 24 hours of a simple phone call.

 

Dave Grainger: Standard Systems

 

The Standard Systems Program is a way to simplify the way our salespeople sell and the way our customers order products. It addresses configuration issues and deals with logistics and order administration activities. Q4 is targeted as the start-up quarter for the program, which will be formally launched in FY85. Although parts of the program have been piloted, the next few months are considered a development period.

 

A Standard System is a preconfigured, fully operational system, including an operating system, that can be ordered through a single part number. The plan is to build standard systems in volume and distribute them from special warehouse locations in anticipation of customer orders. Normally, Manufac­turing builds systems to customer order. Under the standard system concept, we will build quantities of certain configurations. We will begin the
program with some eight systems, and potentially grow this over the next year to as many as 20 standard systems. At the same time, we will always continue to provide customers with the ability to order custom configura­tions .

 

Each of our orders now has to be technically edited. With standard systems, orders will be preconfigured, resulting in faster order and delivery turn­around. These systems will be upgradable after they're installed.

 

To make standard systems a workable program at Digital, we need a commitment from each organization. To put together a catalogue, we're gathering inputs from the sales force, product managers, the manufacturing organization and most importantly from the various marketing groups. We need to decide what products to include in the program (various VAX configurations are now being discussed). We're also going to ask the districts and the subsidiaries to include the standard systems in their forecasts, and order processing is going to help to make reliable commitments to our customers. Manufacturing will make the commitment to build those systems.

 

The bottom line is that this program will enable Digital to be much more competitive in the years ahead.

 

Local Area Networks: A New Approach To Building Computer Systems -- Bill Strecker, Manager, 32-bit Systems Architecture & Advanced Development

 

The availability of a sophisticated interconnect technology like Ethernet is part of the reason for the increasing importance of local area networks. But, fundamentally, computing is rapidly converging on personal computers and workstations, and local area networks are important in tying these together.

 

Stand-alone PCs and workstations by themselves cannot provide a whole set of capabilities that historically have been very important in computing, such as shared data, shared programs, electronic mail, and sharing of expensive resources such as disks, printers and tapes. Also, stand-alone PCs and workstations do not provide large computing capabilities or memory resour­ces. Local area networks are the solution to these limitations. In other words, local area networks are in the mainstream of computing.

 

These networks can be looked at as an evolution of the traditional way we build systems. For a decade we built systems with a common bus structure, like a UNIBUS, on which we placed a CPU, memory and controllers for periph­erals such as disks, terminals, printers and communications interfaces. Now we have an Ethernet which links together a set of servers which provide disk service, terminal service, printer service and communications service. This service environment is backed up by a series of personal computers and work­stations which provide local computing and the human interface.

 

We do not yet have some of the little glue pieces that make it all very easy to use. Those will come in time. But we do have the ability to use standard VAX and PDP-11 systems as basic print, disk and compute servers.

 

With current DECnet software, we have mail, file access and file transfer capabilities between the hosts that sit on the Ethernet. Hosts can talk directly to each other. For any environment which has more than a couple of hosts, Ethernet offers significantly lower interconnection costs as compared to the previously available interconnection technologies.

 

Our terminal servers can be used to attach conventional terminals or per­sonal computers. In this case, Ethernet offers vastly simplified wiring compared to other approaches. You can put the terminal server in the vicinity of the terminals and use only one Ethernet cable rather than a whole waterfall of different cables. Also, with this method of terminal attachment, all the hosts are attachable from all the terminals and all the PCs. You can go directly from any terminal on the terminal server to any host in the system without intermediate nodes and intermediate consumption of computing resources. In addition, terminals attached to terminal servers perform better, that is, they represent a lower load on the host than directly attached terminals would represent.

 

Digital has the best local area network hardware and software capabilities in the industry. Combining these with our wide area network and cluster capabilities, Digital has the best distributed system and communication capabilities in the industry.

 

But a local area network is not a set of individual components that are thrown in the customer's lap and left for him or her to figure out how to use. If we want to win the local area network battle, we are going to have to engineer, market and sell complete systems that are complete solutions to real problems. We are putting together in Engineering a group whose func­tion is to focus on the local area network as a system. It's very important that the marketing and sales organizations learn the capabilities of local area networks and develop the ability to sell them.

 

VAX Strategy: VMS and UNIX -- Bill Heffner, Manager, Systems Software

 

The VAX family of computers has a huge impact on Digital. We have shipped about 18,000 systems since the first VAX came out in 1977. The family is used by every market Digital sells to. In FY83 it accounted for about 60% of the company's total net equipment sales.

 

The VMS side of this family is based on a single architecture. All of the hardware pieces are based on one specification, and we have a single operat­ing system — VMS. This ensures that all VAX hardware from MicroVAX up through VAXclusters executes the same system software. Based on VMS, we build single versions of each of our layered software products, such as languages and tools and our information management system. We offer com­patibility from the bottom of our family to the top. To the user, this means that his or her applications can run on one member of the family, be transferred to another and communicate with others without any change. Nobody else in the industry has it, nor do we believe anybody can get there from where they are to date.

 

The first member of the family was a VAX-11/780 with just VMS, FORTRAN and DECnet. Our layered products have grown to well over a hundred products. And as we have added new hardware, we have adhered to the one family phil­osophy. As a result, we provide customers with compatibility, consistency, flexibility and growth in almost every direction. This means that customers pay less and their productivity increases.

 

We are convinced that our original decision to adhere to a single architec­ture, our proprietary VMS operating system and a single version of each layered products is correct. We confirm this by the success we have had. However, industry-standard operating systems, most notably UNIX, have also gained wide acceptance.

 

Digital is the leading supplier of UNIX hardware. Our goal is to retain this leadership. Today UNIX is available on our PDP-lls and our VAX sys­tems, and about 5-10% of total VAX system sales are UNIX-only systems. We believe that percentage will increase.

 

To directly support UNIX customers, Digital is developing a set of software and support products. For VAX, this includes ULTRIX-32 and the MicroVAX version, ULTRIX-32M. Both of these implement Berkley's version 4.2 of UNIX. Also, VNX, a set of layered products based on VMS, provides UNIX-like capabilities in the VMS environment, giving the user access to clusters, network, common software, and so forth.

 

The major target for ULTRIX-32 is medium- and large-scale computing in technical markets — such as, computer science research and program devel­opment in universities and labs — where UNIX is specifically required. VNX layered products are more suited for commercial applications.

 

Our selling strategies vary with the customer. If we’re dealing with a UNIX user and a UNIX specification, we sell ULTRIX-32. The message is Digital's strong commitment to UNIX. When the customer expresses interest in UNIX but is not currently a UNIX user, VNX is the product we would try to sell. If the customer does not mention UNIX, we sell our proprietary product — VMS.

 

In addition to UNIX we are watching other industry-standard offerings, such as CP/M[*] and MS/DOS,[†] so that, when warranted, they too can be included in the Digital family. Thus, we continue to push forward with our proprietary products, fully cognizant of the emerging industry standards and offering them either on a stand-alone basis or integrated with other products so that customers receive maximum benefits for solving their problems.