Richard Seltzer's
home page Publishing home
Articles
about DEC
mgmt memo
.
Volume
8, #5 July,
1989
On May 4, 1989, over 700 senior managers
attended Digital’s State of the Company Meeting in Merrimack, N.H.
One key message from that meeting was that Digital has to be
flexible and adapt to change to remain successful in the future.
Speakers described changes in internal operations intended to
better meet customer needs and to make it easier for customers to
do business with Digital. They also emphasized the importance of
the company’s philosophy and such values as honesty, integrity,
trust, goal setting, innovation, creativity, and providing value
to customers. The following are summaries of the speeches.
State
Of
The Company Address by Ken Olsen, president
Information
Management
Systems by Grant Saviers, vice president, Storage and
Information Management
Transaction
Processing
by Dennis Roberson, manager, Transaction Processing Group
PC
Local
Area Networks by John Rose,
group manager, PC Integration
Opportunities
With
Large-System Customers by Bob Glorioso, vice president,
High Performance Systems
Systems
Integration
by Russ Gullotti, vice president, Corporate Enterprise
Integration Services
Financial
Status
And Issues by Jim Osterhoff, vice president, Finance
Digital’s
Values
In Times Of Change by John
Sims, vice president, Strategic Resources
Ken
Olsen
Responds To Questions From The Field
We have the best people, best products, enough
money, and magnificent technology - we have no excuse not to be
the best company with the fastest growth and the best and highest
quality service. The challenge ahead of us is to change with the
technology.
With this year’s budget, we’re simplifying the
Field. The U.S. Field operation under Dave Grainger will be the
account support team. Every customer will have a Digital team
supporting them. Big customers will have one, two or three dozen
people supporting them. In the case of small companies, we may
have one, two, or three dozen customers per person. Our people
will know the customers’ problems and politics. They will know the
future needs of those companies and will make sure that we do our
part in filling those needs. Each account will have a plan and a
budget. That budget will call for the staffing, promise a return
to justify it, and include all the resources necessary to carry
out the support.
Ail of us are here to support the sales people,
because they are the ones who support the customer. The sales
person is the manager of the account. That means that he or she
has the responsibility to make sure we carry out what we have to
do to satisfy the needs of the customer.
Our sales people can’t know everything about
all our products. We encourage them to learn everything they can,
but they still need support from specialists. These specialists
will be budgeted by, be trained by and be part of the group that
develops the products. They will serve as one of the resources of
the sales team. The product group is clearly responsible for the
product message presented by sales to the customer. The rest of us
are there to help.
I have a daughter who at the age of 15 went
shopping in Boston twice a week. She kept telling me how much
money she was saving me by buying things on sale. 1 knew there was
something wrong with this, so I told her, "You set a budget. Lay
out in a budget anything you like. Then you live with it, and I’ll
support it." When she set the goal, she was so stingy I knew she
couldn’t live with it; so twice, without any suggestion from her,
I raised it. It was still tremendously less than when she was
"saving money for me." There’s a lesson there. When we set goals
for ourselves, we set high standards. And measurements are
important so we know how we’re doing.
We owe it to our well-trained and well-educated
people to have them set their own goals, then see how they do and
let them get the satisfaction of a job accomplished. This
approach is absolutely opposed to the idea of goals, set from on
top and policed.
Sometimes we backslide. When the company was
driven from self-imposed goals, we grew 30% and 40% a year. There
might be a hint of an idea of why we’re having difficulty growing
10% right now. As Drucker said, measurements are intended for
encouraging self-motivation; they’re not there for the boss to
use to drive the individual.
Our values are an important part of how we make
decisions and conduct business. First of all, we believe in
honesty — not just when it pays, not just when someone’s looking,
and not just when it’s good business.
Our belief in honesty has many implications.
You can be technically honest, but actually dishonest. You can
present everything that’s factual in such a way that the customer
or your boss walks away with the wrong impression. That’s
dishonest.
Remember, it’s hard enough staying out of
trouble being honest. Maintaining a lie is intolerable.
We also have certain beliefs about people. We
never guarantee that we won’t have a layoff. We couldn’t
guarantee it. But we do take care of people problems with very
careful consideration.
At times like these, managers should look at
employees as they would their own families. You encourage them to
grow and to learn. You are firm with them and hold them to plans.
You also challenge them to create jobs that are exciting.
When we find that we have an imbalance of
people — too many here and too few there, too many with this skill
and too few with that - it’s our responsibility to work that out
thoughtfully. That means that sometimes, we have to re-train or
move people, and sometimes we help them find other positions.
We believe in giving people a chance. We all
make mistakes. At one time we had a senior person who wasn’t
getting his job done. The vice-president who was his boss said to
me, "Ken, let him go." I answered, "Not one of you people would be
here today if I fired you when you made your first serious
mistake." That’s probably true of all of us.
We want to trust people, and we should make it
easy to trust people. Start with the assumption that people want
to be honest. Then make sure you never have an accounting system
that lets people mix up their money and company money.
I want to have each account team and each
product team have a plan, and then trust them. 1 want to make it
easy to trust them. All of their expenses get reported every
month. They know exactly where they stand. All the results and
dates are clear. Everybody knows automatically whether or not they
make their dates and budgets. Also, when a budget is approved by
the Executive Committee and the Board of Directors, that budget is
sacred for a year. Budgets should be formally presented and argued
once. Results are reviewed. If some catastrophe happens, obviously
budgets are changed. The budgets do not need constant politicking
and watching.
The last area that we have to work on is
creativity and invention. Most big companies do not allow
creativity. When a central committee does all the planning, the
span of products is limited to the breadth of the committee. When
staff has to review all projects, only projects which have already
been done by somebody else get through the system.
In his book Mr. Morita of Sony said that when
he introduced the Walkman*, he knew that none of the groups in
Sony would allow it. He couldn’t show it to the engineers. They
had never seen one and wouldn’t have anything to do with it. The
marketing people couldn’t carry on a market survey, so they would
have nothing to do with it. And the financial people wouldn't even
consider it because there was no data on it. He knew he had to do
it all by himself and his future depended on its success. It
turned out to be one of the great innovations in the home
electronics business.
We don’t want to be like the normal big
company, with all of the financial control and all of the staff,
who have absolutely no obligation to get anything through, only an
obligation to keep us from getting into trouble. One way to stay
out of trouble is not to let in any Walkman. And the worst
organization is the one that thinks it is innovative, but nothing
gets through the staff. That’s a challenge. We encourage a lot of
innovation.
We have the resources, the people and the
money. The market is out there. There are a lot of new questions
out there, and we’ve got to find the answers. There’s no limit to
what we can do, if we set about to do it.
*Walkman is a trademark of Sony Corporation.
It’s very easy to make mistakes predicting a
future solely on the basis of technology. There is no question
that we will continue to need leadership technology to assure
competitive price/performance platforms — and I have no doubt
that we are, and will continue to be, committed to putting many
MIPS on the desktop in our departmental systems and in the data
center. But that’s not enough.
We need to adapt our technology and provide
solutions to meet the organizational, economic and cultural
challenges that shape the way people and enterprises really work
today and in the future.
In the past, developers have offered single
applications that would greatly enhance the productivity of an
individual, such as spreadsheets and word processing systems. Many
of these applications were well written and truly helped
individual productivity.
Over time, applications proliferated
independently. They didn’t look or feel the same, resulting in the
need for heavy investment in training by the customer. Most
importantly, they didn’t work with each other, either on the
desktop or throughout the organization. This placed limitations on
their overall effectiveness and on their ability to solve real
business problems. As a result, some effort was made to develop
applications that would look and feel the same to the user. This
is becoming more and more common today, and represents a genuine
gain in ease of use for the end user.
That’s a step forward, but it still doesn’t
address the major problem: the inability of applications to work
together to solve complete business problems.
Many customers have therefore invested to
develop customized solutions to maximize their existing
applications. In a particular customized situation, all the pieces
can be made to work together to solve an organization’s business
problems. The drawback is that these solutions have no
flexibility. Unfortunately, in today’s competitive climate, no
business problem remains static, and customized solutions can
quickly become outdated.
A better approach that makes sense for both
customers and application designers is to build on an architecture
or an application environment, as Digital has done. This approach
provides users with the consistent look and feel that will help
individual products, but also one that has been designed from the
beginning to allow applications to work together.
It maximizes investments in older applications
and has the built-in capacity to integrate present and future
applications as well. This is key to providing a comprehensive
environment for our partners’ and customers’ applications
development activities, and to Digital’s systems integration
approach.
This is only possible with a very disciplined
approach to the system architecture. And this means carefully
defining the pieces and how they work together.
If the architecture is well done, it will
provide comprehensive capabilities to solve today’s business
problems and it will evolve over time to take advantage of
changing technology and customer requirements.
This means that without changing the overall
system architecture, we can change or evolve one component of the
architecture to an open systems standard, for example, as we did
with DECnet to OSI networking software. Or, we can introduce new,
parallel components, while maintaining overall system integrity
and continuity for customers and applications partners who have
made major investments.
In our vision, software developers want to be
able to write applications only once and then deploy them on any
size system anywhere in the customer’s enterprise.
Our customers need to be able to gain access to
the applications they need to get the job done; to communicate
with people within their department and across their entire
organization; and to share information and resources with their
colleagues around the company. They need to be able to do these
three things no matter where they are located or what system they
are using.
The backbone supporting these needs is what we
have called the Application Integration Architecture or AIA.
Simply stated, AIA defines the standard which provides a
foundation for the development of products that support the
building of a distributed computing environment, embracing
applications running on Digital and non-Digital platforms.
A full range of applications built on this
powerful application integration foundation is critical to our
strategy. With our software partnership programs, we continue to
assure availability of a wide range of applications. Together with
our internally written applications, our applications partners
continue to be an inherent and critical part of our systems
strategy for providing solutions to customers.
From an application partner and customer
viewpoint, what’s important are the actual tools, products and
applications delivered based on this foundation. Announced in
January 1988, Network Application Support (NAS) provides common
applications access, communications and information and resource
sharing across multiple systems both Digital’s and other vendors.
Think of NAS as the deliverable built on the Application
Integration Architecture just as DECnet software is the
deliverable built on the Digital Network Architecture or DNA.
Evidence of our success with software
developers is the impressive number of companies that have been
through our various training programs — many have committed to
deliver applications based on our DECwindows environment and the
Compound Document Architecture on both VMS and ULTRIX operating
systems. Over 700 have been through DECwindows training. Over 200
have committed to build applications, of which some 120 will run
on ULTRIX software.
Conveying these strengths to our customers is
critical as we move into the 1990s. We need to differentiate
ourselves from the competition in crisp and clear terms.
We can be successful if we:
o Just say yes to the past — assuring our
customers that our applications environment embraces multiple
vendors systems so they can enhance existing applications, and not
have to replace them.
o Just say yes to the present - helping our
customers choose the best platform for the job with confidence
that they will be part of our unified software environment.
o Just say yes to the future — offering the
best software development capability in the industry for
applications in a distributed computing environment, helping our
customers build for the future.
For ourselves, we should remember that we are
in a continuing period of change. Extrapolating past success is
dangerous. Digital is becoming more and more a software company.
As we do, we must balance the need for technological innovation
with the need for continuity and smooth application of technology
to our customers’ needs. The challenge for us is to look at things
differently, behave differently and work differently, as we move
into the 1990s.
Our product strategy is evolutionary. There’s
much which carries over from the past, but there are significant
changes as well.
In the late 1970s, we set out to provide a
family of computer systems built on:
o one hardware architecture (VAX and the
Digital Storage Architecture),
o one software architecture (VMS, VIA and
ALL-IN-1),
o one communications architecture (DECnet), and
o one local area interconnect (Ethernet).
We often represent our overall system
architecture in a layered fashion. At the bottom lies a hardware
architecture. On top of that lies a communications architecture,
then an operating system architecture, an information management
architecture, an application integration architecture, and finally
the applications themselves, which come from a number of sources,
including Digital, third parties, and customers.
By executing our focused strategy, we built a
broad range of compatible computer systems: the same software runs
bit-for-bit across the full range of our architecture. We have a
high-quality, highly-functional software system; excellent program
development tools; industry-leading networking; and a rich
application base. All this has led Digital to the number two
position in the computer industry.
However, nothing stays the same. The strategy
that was right for the late 1970s needed to evolve to respond to
changes in technology and market conditions that occurred in the
1980s and are expected to occur in the 1990s.
Microprocessor performance is increasing at a
dramatic rate - 50% to 60% a year - leading to dramatic effects
in a very short time. Already, microprocessors are challenging the
largest mainframe computers in terms of performance. At the same
time, the graphics- iconic user interface has become established
as the wave of the future, and industry standards have become
pervasive. Standards affect all the areas where Digital
traditionally has added value: the instruction set, the operating
system, the network, the languages and so forth.
Recognizing the advantages of microprocessor
performance, customers have moved applications to distributed
microprocessor-based computers. But they need to link all these
machines together into a coherent distributed computing system.
Today, our customers are less interested in the
components that make up information systems (disks, CPUs and
operating systems) and are more interested in how all these are
tied together with applications to solve their business problems.
Depending on how you count, Digital has about
7% of the information systems business. So
we should expect that when we sell our
solutions to our customers, about 93% of the systems that they
have came from other vendors. To provide a distributed application
environment, we have to integrate with those other systems.
The competition has changed, too. Many of the
competitors we faced in the late 1970s are no longer significant
factors in the industry. Instead, we’ve attracted new competition,
in particular from IBM and Sun. Meanwhile, Hewlett-Packard has
executed a strategy similar to ours and is challenging us by
doing many of the same things that we’re trying to do.
What opportunities result from these changes?
First, we can provide a broad-based alternative to IBM
enterprise-wide information systems. Second, we need to respond to
the challenge that’s coming from other vendors, such as Sun, who
are introducing a new style of computing. We can do that by
providing competitive workstations and servers. Finally, we need
to identify areas where we can lead, such as distributed computing
and information system solutions, as opposed to system components.
To respond to those opportunities, we are
working on:
o desktop computing,
o enterprise-wide networking,
o industry standard operating systems,
o transaction processing and databases,
o the establishment of a contemporary
applications environment,
o distributed computing, and
o systems engineering or application platforms.
In the area of desktop computing, Digital has a
very strong position in terminal-based systems, shipping about
half a million video terminals a year. In addition, we’ve
initiated a major program to create leadership 32-bit desktop
systems, which build on our VMS and ULTR1X operating systems. Some
of those products have been announced already.
In the area of enterprise-wide networking, we
are evolving DECnet software from proprietary protocols to the OS
I international standard protocols. This change is essential for
us to realize our vision of multi-vendor networks. We are also
investing in the components to build very large wide-area
networks and in improving the speed and reducing the cost of local
area networks.
Today, many customers have established policies
that require that their operating system interface will not be
proprietary to any particular vendor. Also, there are many areas
where the best applications run on UNIX systems, and our customers
need access to these applications in order get their jobs done.
Responding to these needs, we are aggressively developing both VMS
and ULTR1X software within the confines of a common, single system
architecture.
Because VMS and ULTRIX operating systems have
different strengths and weaknesses today, we are even-handedly
marketing and selling both, to match real customer needs and
requirements. At the same time, we’re working with other computer
vendors to insure that the UNIX interface is a true industry
standard, and not just another proprietary operating system. In
addition, we are working to include support for software
standards, such as the POSIX interface, in our VMS operating
system.
Many enterprise-wide transaction processing
applications require very large, very high- performance databases.
Digital has initiated a major program to enhance our database and
transaction processing capabilities, to state-of-the-art levels.
Digital has had the lead in distributed
applications, based on our DECnet, VMS, VIA, and ALL-IN-1
software. However, the changing technology, and changing
application requirements have motivated an across-the-board
updating of our application environment. Our overall program in
this area is known as Applications Integration Architecture.
Products already announced include our DECwindows graphics
interface, and our Compound Document Architecture (CDA), which not
only handles text and numbers, but also graphics, images,
spreadsheets and tables. We are implementing these developments in
both VMS and ULTRIX software.
Our overall distributed information system
model consists of client systems and server systems. Typically,
applications run on client systems that are deployed on desktops
or at workgroup or departmental levels. Data resides on the
servers which are typically deployed at the departmental and
enterprise levels. Our network and our distributed systems
architecture links all of this together. The program name for our
distributed system services is Network Application Support (NAS).
For major application areas, such as
engineering, factory, laboratory and office, we are developing
application platforms that include suites of applications (often
from third parties) with all the integration software they need to
work together. We believe that application platforms will make it
much easier for sales people to sell, and much easier for Software
Services to customize those platforms into the particular
solutions needed by our customers to solve complex information
system problems.
Our current product strategy can be summed up
in four points:
o a desktop-to-data center family of computer
system products based on a single comprehensive system
architecture, including both VMS, and ULTRIX operating system
components;
o complete local and wide-area networking
products that are built to the emerging OS1 standards;
o a high-level distributed system architecture,
implemented as a comprehensive set of network application
services, to build business applications for multi-vendor
networks;
o a set of application systems that facilitate
economical solutions to complex information system problems.
Basically, today, we have the same six layers
of our architecture, but we’ve enhanced those layers to include
some additional elements. At the bottom, we have added RISC
hardware platforms. Our networking strategy has evolved to
DECnet/OSI. We now have two equally strategic operating systems
(VMS and ULTRIX). Our VMS operating system is aggressively
supporting standards. We’re moving to an information management
architecture that is common to both VMS and ULTRIX software. And,
at the applications integration layer, we’ve introduced our
Applications Integration Architecture, and in particular our DEC-
windows environment.
The ability to integrate an enterprise depends
on a structured, purposeful approach to organizing information.
That means giving people access to data no matter where it
resides, and in whatever format. It also means enabling them to
transform that data into useful information that can be given
meaning in a relevant context. We call our solution "the
information network."
We’ve moved into an era of database systems
with sophisticated management tools that make network-wide
transactions increasingly possible. While we can provide order and
structure to all the bits, we’re still managing the use of data on
a rather low level.
There is no way to stop the proliferation of
data. At a recent Gartner conference on storage products, 10% of
the users said they already have more than a terabyte of data in
their computer systems. That’s equivalent to filling the Mill
completely with four-drawer file cabinets, stacked wall to wall,
and floor to ceiling.
We already have devices that can store
trillions of bits and retrieve them at the rate of millions per
second. And we’re on the threshold of another massive growth in
data collection - the ability to incorporate image, voice, and
unstructured objects into our computer storage.
If the real objective of better information
systems is effective and appropriate action, giving people the
right information in the right place at the right time becomes a
priority. '
The opportunities are enormous, and Digital is
already a leader in distributing computing
and information. The keys have been our
advantages in distributed computing and multivendor
interoperability. Now another aspect of distributed environments
is coming to the fore — the fact that most customers have data
stored on equipment from many vendors and need to share
information. And Digital is poised for leadership again, as the
industry pacesetter in the sharing of information, enterprise-wide
in the new, distributed multivendor setting.
Our response to that challenge comes in three
dimensions:
o an overall action plan for integrating the
enterprise by connecting heterogeneous environments into our
enterprise networks,
o a strategy for applications integration that
will help people become more productive with information,
o and the technological road map for building
the products customers need for storing, retrieving, and gaining
access to data.
The major challenge in enterprise integration
is the need to support a broad range of software and hardware
environments in a multi-vendor network. Our objective is to make
the Digital computing environment transparently available to the
user anywhere in this multi-vendor enterprise, by providing easy
interoperability and consistency throughout. We’ve already made
good progress on this.
In terms of information management, there are
three styles of computing. Two of them, decision support systems
and transaction processing, are database-oriented. Then there are
all the other applications. Most applications running today don’t
use a database, but every future application should be built on
one.
Decision support systems are the ad-hoc,
spreadsheet, query types of systems that put emphasis on the end
user. They’re widely used in business to access information that
may be part of a transaction processing system or a manufacturing
application or a corporate payroll. Information that’s most likely
created and managed by dedicated applications or by a transaction
processing system. Digital’s DEC Decision and Team Data decision
support products are flexible and easy to learn and open the door
to effective end-user decision making.
We have an aggressive on-going, third-party
program to provide additional decision support tools. We encourage
this because these languages and tools are rather like flavors of
ice cream. Individual tastes vary. The more choices we have
available the better.
The second area where the database is key is in
transaction processing. Suffice it to say with ACMS and DECintact
products, we are creating an environment that has the right
capabilities and features for distributed, high-performance,
high-integrity, transaction processing.
The transaction processing emphasis is on
performance-critical storing and retrieving of data. No mistakes
are tolerated. The key products, besides the database, are
transaction processing monitors and forms systems. In general, our
approach is the opposite of decision support computing. We do not
support monitors from third parties, since the criteria is not
multiplicity of offerings but integrity, performance, product
quality, and fully integrated support.
That we can support simultaneous computing in
multiple environments is a key differentiator for Digital
overall. That transaction processing, decision support and
applications are well integrated into the information network is a
real Digital strength.
Most of today's applications were not built on
databases due to past performance and capacity limitations. Those
issues are behind us. Databases now provide a standardized,
efficient, and secure way of storing and retrieving all enterprise
information and should become the underpinning for applications in
the future. Use of a database assists application developers in
addressing the needs of their users more rapidly and efficiently.
Use of a database also insures that people can re-use underlying
data and information as applications change to meet business
needs.
What role does our Rdb distributed database
system play in integration? Very simply, it manages information,
stores it, guarantees its integrity, facilitates interoperability,
and delivers the data to the people who need it. Our integrated
architecture for achieving this is Digital Distributed Database
Architecture, DDDA.
From time to time we’ve been asked why we’re
incorporating the run-time environment of our Rdb database system
in every release of the VMS operating system. The answer is that
the technology for storing everything in a database is so sound
that much of our other software is already using an Rdb database
to store their own critical parameters. It’s just smart practice
to take advantage of a resilient, structured, easily-accessed
environment that’s stable over time and, which is also usable by
other people. It leverages productivity, provides flexibility,
and promotes efficiency. Every company should put everything they
know in distributed Rdb databases.
Meanwhile, storage technology continues to
advance. An increasingly broad set of high- performance,
cost-effective storage subsystems are available to manage and
store customers’ information. Our quality, reliability, and
performance are at industry-leadership levels today. Our goal,
which we’ve met in several areas, is to have technology and cost
leadership as well.
For programmers and customers who see the
problem as a memory hierarchy, the issue is maximizing performance
and minimizing cost. The operating system and CPU hardware have
been the means to optimize the interplay of the CPU with its
caches and main memory. Now customers are demanding we automate
the overall information management task, too.
Our job is to insure that the right data is on
the right storage device at the right time. We believe we can do
that best under the umbrella of an integrated architecture. We are
calling this plain AIM, or Architected Information Management.
It’s a cooperative program among storage, database and the
operating system people. Current and near-term elements of AIM
include library management, back-up capability, performance
optimization, and system availability. AIM will give our customers
large productivity gains and reduce costs on the operations side.
In the area of hardware technology, Digital has
leadership in many of the component technologies. We have the
best applications integration strategy in the industry. We’re
strong in database and the interoperability capabilities that let
people work with and manipulate information for increasing
productivity. The market is recognizing these capabilities.
With continued investment and attention to the
challenges, Digital is in a strong position to be the industry
leader in this next evolution of computing — implementing the
information network that is the integrated enterprise.
The handling of business deals with computers
is a very large, rapidly growing business opportunity. In 1988,
transaction processing (TP) represented an estimated $30 billion a
year business. Current industry projections indicate a compound
annual growth rate of over 13% during the next several years. That
would make it a $75 billion business in 1995. The computer
business as a whole is only growing at about 8% a year.
Transaction processing is demonstrating this
rapid growth based on its provision of exceptional, real time
control for all areas of a customer’s enterprise. It is being used
in virtually every major industry and in the full range of large
institutions like governments, hospitals and schools.
To cite, specific examples, transaction
processing enables banks to provide credit card and automated
teller machine services to thousands of customers. Financial
institutions throughout the world use transaction processing to
monitor funds flow on a real-time basis. This allows them to use
sophisticated strategies to manage money and, therefore, to have
more money at their disposal than would otherwise be possible.
In a manufacturing environment, transaction
processing is used for everything from order processing, inventory
management, and warehousing to scheduling, distribution,
purchasing, process control — even personnel.
In retail businesses, it’s very important to
know exactly where your goods are in the pipeline, to keep your
flow of goods and exchange of money active and to keep your
inventory turnover high. That’s how you avoid keeping goods on
the shelves that aren’t selling, and you make sure the goods that
are selling are in constant and uninterrupted supply. Real-time
control over these factors is key to success.
In a hospital, transaction processing can make
all the difference in life-and-death situations. It enables an
emergency medical dispatcher to make sure the right doctors and
specialists are called, the appropriate facilities are made
available, and the right supplies — such as blood of the proper
type — are where they are needed. And it does this in a
time-critical environment, with no room for error, while
economizing use of valuable resources.
In telecommunications, cellular telephones have
created a brand-new set of transaction requirements for tracking
and billing phone calls. Digital’s distributed transaction
processing has quickly gained marketshare in this fast-growing
industry.
Transaction processing allows you to understand
your situation continuously. In any business or institutional
endeavor, that’s the kind of power that propels success.
Before Digital announced its DECtp products
last July, the Gartner group estimated Digital’s 1987 position in
transaction processing at roughly 4% or $1.1 billion. As our
transaction processing customer base has expanded and matured, we
have established a strong set of over 25 reference accounts,
representing a wide range of industries.
We are taking tremendous advantage of the
opportunities offered by the economic unification of Europe in
1992. Our DECtp solution is being particularly well-received in
Europe because our capabilities allow corporations to expand
across country boundaries, while maintaining consistent
functionality. We are making similar progress in GIA, and
particularly in the Pacific Basin, where our growth rate and
opportunities are extremely large.
Our transaction processing announcement last
July has had a dramatic effect on our FY89 results. We are nearing
the 2,000 mark in DECtp-monitor- based systems. This complements
the 11,000+ systems we have sold with our Rdb database product.
This growth in TP systems translates to Digital transaction
processing revenue growth of over 50% from year-end 1988.
Transaction processing is a full systems
approach to computing involving all elements of the Digital
layered architecture. Our FY89 hardware and software announcements
have enhanced our transaction processing capabilities at the
system level across the domains of function, capacity,
performance, price and standards compliance.
Beyond the applications portfolio, the critical
software elements of a transaction processing system include:
o the tools required to develop applications,
testing and VAXset CASE products,
o the forms that provide the interface with the
user,
o the monitors, which provide "traffic cop"
coordination between the various functions of a transaction
processing system,
o a strong database capability, and
o the operating system, which serves as the
firm foundation.
Our plan is to migrate and enhance our existing
tools, forms, monitors, database and operating systems into a full
set of strategic offerings.
This has already begun to happen with the
recent announcement of our leadership, international standard
compliant, forms system - DECforms. Over the next two years we
intend to merge our two current monitors into the DECtp monitor, a
merger of functionality that preserves the ACMS and DECintact
interfaces, and therefore the existing applications investment.
Rdb — the most popular database on VAX
computers — also has considerable enhancements coming that improve
not only its transaction processing performance, but also its
flexibility in handling distributed environments.
VMS software is being enhanced to incorporate
transaction processing primitives to improve transaction
processing performance and functionality.
Finally, our leadership tools will be greatly
enhanced and further integrated as we continue to evolve this
critical application development environment. Our
recently-released Debit-Credit benchmark results show that we have
clear price/performance superiority over - not only IBM - but also
Tandem, the two leaders in today’s transaction processing
marketplace.
Beyond offering price/performance superiority,
we offer our customers tools and an environment that allows them
to rapidly develop their applications. And we offer the
capability to distribute transaction processing over geographies
and over organizations. Our client-server-based architecture —
DECDTA — is something the competition simply does not provide.
This guarantees future growth capabilities, and protection of our
customers’ investment in their DECtp solution.
Given the worldwide opportunity and rapid
growth, and the successes that we’re seeing in many parts of the
world, transaction processing is a pivotal challenge for us at
Digital. Our obvious challenge is to take advantage of this
substantial opportunity in order to move our business along in the
1990s.
Digital is positioned to win in the PC local
area network (LAN) market. We have the products, services and the
application strategies.
The market in general is positioned for growth.
Industry projections show that by 1991, worldwide shipments of PC
LANs by U.S. manufacturers will total $16 billion. In addition,
PCs on LANs will represent another $17 billion.
The two areas projected to show the most growth
are in servers and customer services - Digital’s traditional
strengths. So we’re already positioned for success in the 1990s.
But there’s some stiff competition. Novell and 3Com have been the
key competitors in the niche market of small, dedicated packaged
LANs. But now major computer vendors, such as IBM and
Hewlett-Packard, are entering this market in a big way.
We have the products, the services and the will
to win. Our strategy fits our strengths in networking, servers,
and standards. Our challenge is to ensure that we all understand
the strategies and that we all work together to dispel the myths
surrounding Digital and its PC and LAN strategies.
The first myth is that Digital’s desktop
strategy supports VAX and RISC workstations only and excludes PCs
— that MS-DOS*, OS/2* and Macintosh* are poor second cousins.
The reality is that our strategy gives users
access to applications using any combination of video terminals,
VMS and UNIX* workstations, MS-DOS and OS/2 PCs, and Macintoshes
via our Network Applications Support (NAS) program, which we
announced a year and a half ago.
NAS provides the means for building an
enterprise-wide network so that systems from multiple vendors can
all work together. It provides common applications access,
communications, and information and resource sharing across these
systems. Now we’re in the enviable position of providing an
integrated approach, not just for our own products, but for every
desktop device that makes up our customer’s environment.
The result of our NAS strategy is to give
customers interoperability on a new scale - going beyond just
network connectivity to sharing information from
application-to-appli- cation and worker-to-worker. Only Digital
provides this common set of services across a heterogeneous
computing environment.
The second myth is that PCs have very low
selling yields. The reality is that selling PCs as part of
complete systems will give high yields.
Today, when a proposal for a timesharing system
is made to a customer, video terminals are included naturally as
the desktop device. But PC sales are often viewed as standalone
device sales, which indeed have low sales yields.
We’re not in the business of selling standalone
PCs through our direct sales force. That’s what our indirect
channels are for. PC sales should be viewed the same as video
terminal sales. The PC is simply the desktop device in a complete
system. Half of the order for the complete system is on the desk.
The other half is the network and servers.
You can sell the complete system and get orders
for all of it, or only get the server half of the order. And the
incremental selling cost for the PC half of the order is low,
particularly when you use DECdirect distribution.
The third myth is that Digital does not embrace
PCs or LANs in our applications strategies. In fact, all of
Digital’s application groups have strategies that incorporate all
of the different types of desktops.
These application strategies for PCs and PC
LANs are based on user needs and fall in three categories:
o standalone PC users,
o users who already have PCs on their desks and
want to integrate them, and
o users who have a mixture of terminals, PCs
and workstations and want to integrate all of them into a complete
system.
The first category — standalone PCs — has a
simple answer. Good indirect channels — DECdirect distribution and
our distributors — have been set up for this purpose.
The second category is those users who already
have PCs and want to integrate them to support many common
applications, share information and resources and make the work
group more productive. Here we sell to the end user. By selling
the appropriate PC LAN to the end user, we provide the PC
integration required.
For instance, when engineering prototypes are
subjected to a wide variety of tests, the results of each test
must be collected and analyzed. Most of the leading laboratory
test instrument manufacturers use PCs as the basis for their
products. By integrating PC-based testing instruments into a LAN,
significant improvements in data acquisition, analysis and control
can be achieved. Likewise, in the retail branch bank today, there
are PCs on most desktops, but little integration. The pressure is
on these banks to improve profitability and competitiveness by
reducing operational overhead and improving the quality of
service. Integration of the PCs into a LAN with communication
services to headquarters is a clear winner to streamline
information flow.
If the customer has more than just PCs, the
answer is to sell an integrated environment that’s optimized for a
mixture of terminals, PCs, and workstations.
For example, when office users need to work
together, regardless of the desktop device they are using, and
gain access to common applications and data, our strategy is the
ALL-IN-1 Office LAN or the ALL-IN-1 Phase II
strategy. ALL-IN-1 software supports many common applications and
provides the integration environment for business applications.
Some think ALL-IN-1 software only supports
terminals. In fact, of the over two million ALL-IN-1 users today,
close to 50% already use MS-DOS PCs or Macintoshes.
As another example, PCs on the shop floor need
to connect to the Manufacturing Build database to pull down
critical information about the design and manufacturing procedures
for a product. This data comes from many sources, such as
computer-aided design (CAD) from a workstation or manufacturing
documentation from a PC. Using the Live Links features of
Digital’s Compound Document Architecture, any changes are
automatically reflected in the Manufacturing Build database, which
eliminates out-of-date information.
Also consider workstations in engineering. Our
strategy is to integrate the PCs supporting engineering
functions, with the CAD and computer-aided engineering (CAE)
workstations, to share documentation, data and project
information.
In conclusion, the reality is that Digital’s
NAS strategy supports video terminals, PCs, Macintoshes, as well
as VMS and UNIX workstations.
The reality is that, although selling
standalone PCs results in low yields, selling PCs as the desktop
device in a complete system, through DECdirect distribution,
actually increases yields.
And finally, the reality is that PCs and PC
LANs play a critical role in Digital application strategies.
*MS-DOS is a trademark of Microsoft
Corporation. OS/2 is a trademark of International Business
Machines Corporation. Macintosh is a trademark of Apple Computer,
Inc. UNIX is a trademark of AT&T Bell Laboratories.
I plan to take aim at three other myths: that
Digital has few competitive PC and PC local area network (LAN)
products; that Digital offers little in the way of service and
support for these products; and that Digital’s pricing for these
products is not competitive.
We’ve been in the PC integration business since
1985, when Digital introduced our DECnet DOS product. In 1986 we
followed with the introduction of the Personal Computing Systems
Architecture and its flagship product - VMS Services for MS-DOS.
That software allows any VAX computer to act as a server for PCs.
Digital has led the way in using minicomputers
as servers for PCs. The Gartner Group recently stated, and
published studies show, that the VAX computer is a more powerful
and robust PC LAN server for most applications than any
Intel-based PC. Digital offers the broadest line of PC servers in
the industry, because the VAX computer family is the broadest in
the industry. This means we can meet the needs of even the
low-entry level LAN market. Only Digital has the capability to
integrate between 10 and 10,000 PCs within the enterprise-wide
network.
Last fall we released our PC LAN Server 2000
product, intended for the turn-key PC market for work groups of 8
to 30 users. This was the first in a family of dedicated VAX-based
PC LAN servers that will keep Digital in the price/performance
leadership position in the dedicated PC LAN market.
But as good as our products are, they’re even
more marketable when they’re backed up by Digital’s top-flight
service and support. Field service is a major factor in Digital’s
overall success with PC LANS. Digital plans, implements and
services networks of all sizes today. We also service IBM PCs,
popular clones such, as Compaq, and Zenith, and the Apple
Macintosh.
Field Service is committed to installing and
servicing LANs of any size from any vendor. We will soon announce
an extensive portfolio of service products which will assist
customers in installing, maintaining, supporting and connecting
their multi-vendor desktop environment. Whether customers need
remedial and software application services or integration support
to get them from the stand-alone environment to the networked
enterprise, Digital service will meet their needs.
Finally, Digital’s PC and PC LAN products are
price competitive. In fact, the list price for our PC DECstation
products is 20% to 30% lower than IBM, Compaq and Zenith.
When we introduced the PC LAN Server 2000
system last fall, we went out of our way to price it
competitively. Also, while the competition charges anywhere from
$5,000 to $25,000 for server software on our VAX computers,
Digital packages its PC server software products with DECnet
software. This means that the over 100,000 installed VAX computers
with DECnet software are already licensed to integrate PCs.
Furthermore, we have recently reduced the price
of our popular PC network integration kits from 35% to 50%,
bringing the cost per connection to under $500. This makes
Digital’s PC integration products even more accessible to a
broader segment of the marketplace. These pricing adjustments are
part of Digital’s ongoing commitment to price products
competitively with the marketplace.
At the same time, we’re making significant
investments to reduce selling costs. For example, Engineering is
focusing on more products that are customer-installable so a
variety of channels can be used to sell them. And Digital is
investing in an all-channel strategy, which is designed to
minimize selling costs by maximizing the use of our indirect
channels that have lower sales overhead, such as DECdirect
distribution and authorized dealers.
I'd like to reinforce the point that selling
PCs and PC LANs can be profitable. For every connection of a PC we
sell, the customer spends over $3,000. That includes the cost of
the connection and the cost of supporting the connection, whether
for networks, VAX servers or expansion on our VAX products and
services. Selling PCs and PC integration is a system sale, with
plenty of follow-on business. Small companies with small LANs are
always growing.
PC integration is a core technology that has
many commercial and technical applications. Our challenge is to be
creative in the ways we sell it. We’ve already sold many PC LAN
solutions for use on the manufacturing floor, as well as for
remote data processing and scientific data acquisition and also
for use in banks and in insurance companies.
Digital is committed to PCs and PC integration
as an integral part of our desktop and Network Applications
Support strategies. PCs and PC integration are essential
components of system sales. They represent incremental
opportunities. They offer excellent yields when sold with complete
systems.
To be successful in the future, Digital must
exploit new markets - areas where our presence hasn’t yet been
felt to the fullest. One of the most significant of these
opportunities is large systems customers — customers who need
commercial transaction processing and high-performance technical
computing solutions.
These customers must be on the edge of
innovation to succeed in their business world. They must have
confidence that we will continue to provide them with the
innovative solutions they need. They are making major long-term
investments in Digital as a vendor. In return, thev exnect us to
make maior investments in them — not iust a dollar commitment --
but rather a commitment to this market and to their future
success. And the commitment must come not just from one piece of
Digital but from the whole company.
Last month, I talked with 45 of our most valued
European customers. These companies represent a wide range of
products and industries, but there was general agreement about the
challenges they all face, in particular, the challenge presented
by the increasing pace of business.
For example, one banking customer of Digital
manages assets valued at about $70 billion, and transacts business
valued at $200 billion every day. That’s business totaling three
times the bank’s assets transacted every day. That’s business done
at computer speed. Increasingly, it is in fact the speed of
computers that sets the pace for international business.
The pace of business is mirrored in the pace of
changing technology. At Digital, 90% of the products we sell today
did not exist three years ago.
The companies who win are the ones that can
quickly integrate the latest technologies into the way they do
business. They’re first to market with new products, first in
productivity, and first to recognize and act upon new market
trends.
Volvo is a Digital customer that uses
technology to get a competitive edge. By using computer
integration, Volvo’s new "factory of the future," which employs
1000 workers in Uddevalla, Sweden, will produce 40 cars per worker
every year. In contrast, at traditionally organized auto plants
in Europe, each worker builds only six cars a year.
Clearly, Volvo isn’t just keeping up. It’s
helping to set the pace in its industry. That’s why it’s
successful in Europe, in America, and around the world. "Setting
the pace" is becoming a requirement for survival — for Digital as
well as for our large systems customers.
In a world where technology is relied on for
competitive advantage, an "adequate" solution just isn’t good
enough. Today, a company must be able to select the very best
solution for a job, no matter where that application might come
from. This means making multivendor software, and hardware work
smoothly together.
Digital has hundreds of large systems customers
in Europe who also do business in the U.S. and the Far East. That
means the system we use to run our business must work worldwide as
well.
But, even worldwide distributed computing can’t
stop at the boundaries of a single company. Companies must work
with one another, buying materials from, and selling products, to
one another. In a world of multi-national, multi-industry
corporations, it’s not uncommon to buy from and sell to the same
company. Links between one company’s computing systems and those
of its vendors and customers can make doing business easier and
more productive on both sides of the transaction.
Customers require commitment. We have to
demonstrate that we’re committed to their businesses. We have to
demonstrate it in our relationship with them, in total support for
their business, and, of course, in providing the best products to
meet their needs.
We must never forget that it’s people who buy
from us, not companies. That’s why we need to learn the languages
they speak, and what factors are important to their success.
The reverse is true too: customers buy from
people, not companies, and they like to buy from people they know
and trust. A key to developing a solid relationship is continuity.
Customers expect a consistently high level of support and service
every time they contact Digital.
A big part of this commitment is
predictability. Large system customers need to know what products
to expect. They need a two-year view in which to plan. We
typically give them just six months. They don’t want to have to
make decisions between our alternative solutions. They want us to
tell them what they need to solve their problems. When we’re
confused, our customers are even more confused, and they don’t
buy.
Support means giving our customers the help
they need, when they need it. Customers want us to help them plan
their systems, to help them decide what to buy. After they buy,
they want continuous consulting from a person they know and trust.
They want this person to give them advice on how to grow and to
solve new business problems as they arise. They simply require
this level of support. And, of course, these customers require the
best products, including services, applications, software, and
hardware.
Customers’ service requirements are becoming
more specific and demanding. They want rapid installation so they
don’t see their new systems sitting around not working for a long
period of time. And they want transparent maintenance to insure
the system is always up and the data are always there.
These customers are beginning to look upon
their information systems as a utility, and they want the same
carefully managed, guaranteed system availability that we all
expect from the gas company and the electric company.
In the area of applications, integration is
becoming a critical need. Very few enterprise-wide problems can
be solved with a single application. And, in the multi-national
corporate environments of the large systems customer, these
multiple applications have to work together.
In the area of new systems, we’ve made a
concerted effort to develop products that meet the real business
needs of large systems customers. Our new products for transaction
processing/commercial and high-performance/technical users are
specifically designed to combine Digital’s traditional strengths
with new technologies to provide superior performance on
customer-oriented metrics. These metrics focus on measuring work —
not in computer terms, but in terms of the job the customer needs
to do.
All these large systems applications are
"mission critical." For example, the business lost when systems
are down can be incredibly expensive for a bank that transacts
more than three times its own net worth every day. In a case like
that, the money saved from preventing one failure could pay for
the entire system.
To make the most of these opportunities, we
need a commitment from Sales, Support, Manufacturing, Engineering
— from everyone in the company. We must all commit to win.
Digital is setting a target to become the
industry’s number-one world-class systems integrator. The
worldwide total of all data processing spending is in the range of
$200 billion, and $70 billion of that could be classified as
systems integration. But only $10 to $15 billion is currently
being provided by systems integrators. The rest is being done by
the customers themselves, and they are looking for help, according
to our sales, industry marketing and product marketing people.
Customers want this help so that they can focus on their real
business of gaining a competitive advantage. The growth of systems
integration is projected at 25% per year. This is where the action
is. We have the skills, the people and the commitment, and we
recognize this huge and growing market as strategic and important
to Digital.
What do we mean by "systems integration"?
Definitions vary widely, but some key words appear in most:
project or program management, interoperability among different
vendors, full responsibility, prime contractor, and single point
of contact.
From a Digital perspective, systems integration
projects are usually complex and customized. Digital serves as
the prime contractor or a major subcontractor. It is typically
multi-vendor and cross-functional and may cross geographic
boundaries. We share the risk with our customer for what is
frequently a "bet-your-business" venture for them. This work is
generally done on a fixed-price basis.
Not all systems integration efforts are huge.
The small integration efforts that we do
every day for our customers are part of our
uniqueness. We will not force-fit our customers into any specific
model of systems integration. In fact, it is likely that the
ability to provide the $1 million integration solution for a
customer will be the confidence builder that gets us the $50 to
$100 million system integration order at a later date.
Perhaps the most important aspect of systems
integration is that a marriage of sorts occurs with the customer.
We have seen this already with several accounts. The implications
to account control and account penetration are enormous.
The words "Digital's Enterprise Services"
represent Digital’s shorthand for the full range of integration
capabilities and services that we offer our customers. Enterprise
Services are the "product." Systems integration is not a product.
It is a process, a way to deliver a product. Digital Enterprise
Services include our abilities to plan, design, implement and
manage integrated solutions.
Let’s look at these stages of systems
integration.
First, in planning, to be a complete and
effective systems integrator, we need to understand our
customer’s business. Where are they going? What are their
problems? What strategic advantages are they seeking over their
competitors? How are they organized? By planning with them and
providing management as well as strategic and organizational
consulting, we can better help them determine how technology can
help them succeed. Planning with them also helps us do a much
better job on the design stage.
Next comes the design stage. Here is where we
bring specific technology into the picture. This is where we
design the solution. What are the architectural needs to meet the
requirement specs? Here is where true systems analysis and design
skills come into play. Here is where network design is crucial.
Organization impact may be assessed here also. We change much more
than machines and software when we do systems integration. We may
also change people’s titles, organizations and managers, the
meetings they attend, and so on.
Implementation is where all the pieces of our
company, and those of our partners, come together to "assemble"
the solution to the customer’s problem. We create it, test it and
maybe stage it. Then we deliver it and train our customers on how
to use it.
And lastly, Digital’s Field Service
organization will manage the network and the computer room if the
customer wants us to. Sometimes we’ll even build the computer
room. We will string the cables, manage the system, and maintain
all of it, including the third-party equipment. Field Service
brings superb, creative offerings to the management stage of
systems integration.
Systems integration is not new to Digital. We
are good at it, and we are going to get better. Examples of our
success in developing our skills abound in each of our
geographies.
Our products integrate easily with each other
and with other companies’ products. Our products were designed to
be integrated. This makes our work as systems integrators so much
easier and gives us a distinct advantage over our competitors.
How will we go from good through great to
number 1? First, we need to organize a bit differently. We could
probably deal with $1 billion of business without too much change,
if that was as big as we would ever be. But going beyond that will
take focus and an organization to lead us.
In my new position as manager of Enterprise
Integration Services (EIS), I report to Don Busiek, who is vice
president of all Professional Services. The three EIS managers —
Bill Ferry, Jerry Montague and David Barlow — will manage many,
but not all of the functions necessary for us to become leaders
in systems integration. For example, in the U.S., Bill Ferry will
manage Software Services as he does today. In addition, he will
host manage CSS and Educational Services. These three businesses
are crucial to Digital systems integration efforts. Program
Management also reports to him as does Jon Caputo, as Systems
Integration Business (SIB) manager. The Systems Integration
Business will be responsible for the tools, methods and strategies
necessary for us to grow our systems integration capabilities.
This model will be repeated in our other geographies, GIA and
Europe, in roughly the same fashion. However, in these latter two
geographies, the Information Management function also reports to
EIS.
Some of our priorities are:
o to understand which markets we will go after
and which we will not;
o to further define what products we will offer
and, recognizing that we can’t do it all, o to work actively to
create alliance partnerships;
o to develop and train excellent program
managers; o to develop a clear operational and business model; o
to continue our work on architectures and platforms; and o to
strengthen our project tools, methods and disciplines.
In days gone by, Sales and the customer were
the program managers, and our sales people had no single point of
contact to help them pull together all the diverse resources of
Digital. In the EIS system integration model, the program manager
will assemble the appropriate team of players to win and deliver
the business with Sales. Each of Digital’s businesses and
functions will be asked to bring its value-added input to the
table. These inputs are valid and valuable, but we cannot spend
time maximizing the pieces; we will focus on the whole. For the
life of the program, the program manager has got to be the "boss"
of the program, just as Sales will always be the "boss" of the
account.
We need to train the program managers to
understand the models of our different businesses and to listen
carefully to the value added of each of the team members. But in
the final analysis we need to maximize profits for Digital, not
the pieces of Digital.
This is easy to say, but it will be hard to do.
A fundamental behavioral change needs to occur if we are to attain
our vision of being the best.
EIS is not a division, yet it has to accomplish
the work of a division. To succeed, we need teamwork. To succeed,
we need to accept the role of the program manager as a non-
functionally aligned team leader whose job is to maximize the
company’s position, satisfy the customer and, with Sales, present
himself or herself as the single point of contact on any specific
program.
When we make this happen, there will be no
excuse whatsoever that will keep us from becoming the number one
world-class systems integrator.
Educating
The Field About Our Product Strategy And Products
by Jack Smith, senior vice
president, Manufacturing, Engineering and Product Marketing
At our rate of growth, we double almost every
three or four years. Processes that were put in place about ten
years ago were designed for a company a quarter of our size today
and, most likely, are out of date. When they were designed there
was good reason for them. But today, with changes in complexity
and size, a lot of these things just don’t make sense any more.
They’re not adding to the productivity of our sales and support
people. In fact, the processes may be detrimental to what those
people are trying to do.
We need to remind ourselves that the only
reason we’re in business is that our customers have decided to
invest in us. The reason customers have decided to invest in us is
because our sales people and our support people have convinced
them that we have value. The only reason our sales people can
convince them that we have value is because they have confidence
that we will support them in what they have to do in order to
support the customer.
We have to remember that our customers see our
sales and sales support people and pass judgment on our company
based on their performance. In other words, everything we do must
be focused towards making our sales and sales support people
better-educated, more knowledgeable and, through that, more
productive. In other words, no matter what we do in the company -
whether it be engineering, manufacturing, or whatever - should
contribute to the confidence and the productivity of our sales and
support people. And the training of our sales and sales support
people is key to our success.
What our customers are interested in has
changed over the years. Customers no longer want to talk about
bits and bytes or MIPS. They don’t want to talk the language of
the box. They want to talk about our particular style of
computing, how our approach is going to solve their particular
problems. If that’s what they want to hear, we have to make sure
that our people are trained to provide that level of information.
Some of that is already built into our training curriculum, but to
a large extent it is not.
The first clue we had of this came when we
started our "university sessions." The first one was Network
University, which was followed by DECtop University, a few months
ago. In surveys, the people who attended those sessions told us
that was the best training that they had ever had at Digital. We
probed to find out why. They told us that it was hands- on
solution time and competitive analysis. It was the first time they
were able to see the breadth of our products in a training
environment. At DECtop University, the products were limited to
those that operate in the desktop environment, but we showed the
whole breadth of products in that area. They could see the
solutions running. Then, in break-out sessions, they could ask
questions about particular solutions. More importantly, much of
the content at DECtop University and Network University was
competitive comparison. The hit of the show at DECtop university
was the demonstration of the DECstation 3100 system relative to
SUN’s products. At that time, the DECstation 3100 system was just
a gleam in most people’s eyes. Showing it in operation and
comparing it against SUN’s latest model was an enormous success.
We need more of that kind of training, and we
need to do a better job of it. That’s what we intend to do with
the "Summer School," which will be held in this summer at Brown
University in Providence, Rhode Island. We have about 5,000 people
signed up. Each session will run about two and a half days, over
seven weeks.
It will be run along the lines of DECtop
University. There will be lots of equipment with lots of solutions
running. There will be even more emphasis on competitive analysis.
In addition, it will deal with how to position our products in
relationship to one another; for instance, VAX/VMS vs. RISC/ULTRIX
solutions.
So the Summer School will be even more
intensely directed toward product positioning, product
understanding and comparisons with the competition. It will also
help sales people answer the questions that the competition brings
up when selling against us.
It should be a very exciting time, and I
encourage as many people to attend as possible.
The company’s recent financial performance can
be measured against several key "barometers of progress": growth;
profitability and asset management.
First, let me remind you that we are still a
triple-A company (according to Moody’s), and our financial
condition is very strong. Over the first three quarters of FY89,
we repaid $150 million of debt and returned over $800 million to
our shareholders through share repurchases — and we wouldn’t have
done all of that if we didn’t have plenty of cash in the bank and
confidence in our future.
Let’s review our progress, beginning with
growth. In our last full fiscal year, we were an $11.4 billion
company, which made us number 30 on the Fortune 500 list of U.S.
industrial corporations. As evidenced by our rapid progression up
the ranks of the Fortune 500 - from 55th in 1985 to 30th last year
- we are still a high-growth company by standards of American
business in general.
Over the past several quarters, while revenue
has continued to grow in absolute dollars, our growth rate has
been declining. Throughout FY87 and early FY88, our quarterly
performance was running 23-25 % above the prior year. QI ofFY88,
ifyou recall, was DECWORLD in Boston, and our product strength,
profitability, public exposure, and customer mindshare were at a
peak. But as we found out, even having all our stars lined up was
not a guarantee of future success.
During the following quarters, financial
markets became unsettled, which seemed to affect the general
computer market; and the competition began to make their own
claims about networking, which served to confuse the market and
blunt our competitive advantage. After the DECWORLD peak, our
growth rate began to trend downward.
Throughout FY87 sales were strong and profit
margins were improving. For FY88, we came much closer to our cost
target than we did for our revenue target. Early in FY88 we could
see a revenue shortfall coming and began to initiate cost
restraints; but it wasn’t until three quarters later that we
managed to turn the cost trend downward.
Basically, momentum builds in cost and it takes
time to change direction. Someone remarked recently that costs
have the maneuverability characteristics of a supertanker.
The result of our trends in revenue and cost
growth has been a declining trend of profit margins.
During this period we have made major
investments in people, facilities, products and market programs;
and we have had very successful DECWORLDs, product introductions,
a DECtop University, and many other events. But the combination of
all of these hasn’t stopped our downward trend of revenue growth
and profit performance.
Not only is our profit margin down this year,
our absolute dollar profits are also lower than a year ago.
Through three quarters, our revenue has grown by $1.1 billion, but
our operating profit is down by $170 million.
While cost performance can be obscured by
significant increases or decreases in revenue, good asset
performance is a clear reflection of management’s attention to
basic financial controls. In the three major categories of
operating assets — receivables, inventories, and property, plant
and equipment — our investment since 1985 has grown about 62%.
During the same period, revenue has increased by 90%. In other
words, the operating assets turn rate - a measure of productive
use of these assets - has improved from 1.3 to 1.5.
Inventory performance continues to be the
bright spot in our financial picture. Our inventory level is
presently about $1.7 billion — essentially the same as it was four
years ago. Inventories have been held constant while revenue has
nearly doubled.
The key to effective inventory management, as
being practiced in Manufacturing, Field Service, and elsewhere, is
to distinguish between the material we need and that which we have
simply because we’re inefficient. We have managed to improve
inventory turns steadily during the last four years from 2.3 in
1985 to 3.8 projected for this year.
During the same four-year period, receivables
have grown in concert with revenue. Our days-sales-outstanding, at
73 days, are running only slightly under the level of four years
ago. On the surface, this would indicate very little improvement
in this area. But that’s not entirely correct. Within this $2.9
billion, there has been a quality improvement - in terms of
collectability. The portion of receivables over 60, 90, and 120
days old has declined, reflecting improvements in the important
functions of credit and collections.
I believe receivables represent a very
substantial opportunity for us. We need further improvements in:
o predictability of delivery dates,
o shipment completeness and accuracy, and
o timeliness of systems installation and
start-up.
We also need a more level pattern of shipments
throughout each quarter.
Not only can we sharply reduce receivables, but
we can improve customer service at the same time.
Our fixed investment in property, plant and
equipment is growing rapidly. Since 1985, we have added fixed
assets, net of depreciation, of $1.7 billion.
Since 1985, our cumulative net investment in
land and buildings (combined) has more than doubled, reflecting
growth into more large Digital-owned facilities and higher real
estate costs, especially overseas, where most of our growth has
occurred. Improvements in buildings that we lease have increased
155% in four years. And net investments in machinery and
equipment have grown by 72%, reflecting primarily investments in
semiconductor, storage, and interconnect technologies.
Our capital spending both this year and last
have been in the $1.5 billion range — about twice the annual
spending level prior to FY88.
Looking ahead, I see these elements in the
computer industry environment:
o increased competition in virtually all market
segments;
o a continuation of technology-driven price
reductions - at an accelerated rate - and a trend toward
commonization of prices in Europe as we head toward 1992;
o a hardware/software imbalance that is not
likely to be corrected in the near term; and o slower industry
growth, resulting largely from the combination of the first three
factors.
Throughout our history we’ve been unique in
what we had to offer. But along with the trends listed here, there
is a growing similarity in the product directions of the major
computer suppliers. Even without a competitive product advantage,
companies in the past could survive, and even thrive, simply on
the strength of industry growth. Without that growth, it’s a
different ball game.
As product differences diminish, industry
growth declines, and price competition further increases, the
advantage will shift to those companies that are the most
productive and have, by virtue of their efficient cost structure,
the most flexibility to compete in a price-competitive, buyers’
market. A competitive cost advantage is likely to be a major
factor in gaining market share and achieving growth opportunities.
I see cost emerging as a much greater factor in determining who
will succeed in this business in the years ahead.
In our current cost structure, about 50% of our
total cost is paid out in weekly paychecks to Digital employees
and for employee benefits; 22% is used to purchase material to
make and service the products we sell and for non-production
purposes; 18% is spent for outside purchased services, including
contract personnel, consultant’s studies, travel, advertising,
etc.; and the other 10% is for lease expense and depreciation of
facilities and equipment.
Of our total costs, only about 35% represent
direct value to the customer - i.e., direct costs of the products
and services we sell. The other 65% is spent on sales calls and in
our development labs, offices, and the non-production areas of our
factories. It’s spent on planning and deciding what we’re going to
do for the customer; how, when, and where to do it; and all the
arrangements for making it happen. It’s affected by our internal
systems and way of doing things. It’s all tied up in the internal
workings of Digital.
In other words, in going after internal
productivity, we have about two-thirds of our cost to work with.
In three of the last five years, and again in
FY89, we planned revenue growth higher than actually achieved, and
we put resources in place in anticipation of that higher growth.
As a result, our internal productivity has been generally less
than planned. During the 1984-88 period we added $6 billion more
revenue and 36,000 more employees. During that same period, IBM
added $14 billion of revenue with 8,000 fewer people. IBM is now
in its fourth consecutive year of downward-trending employment.
And Hewlett-Packard has grown by $4 billion in revenue, and added
5,000 employees.
We’re playing in a tough league, with some of
the top companies, not only in the computer industry but in all of
industry. Not being the best in this group doesn’t mean we’re on
the brink of financial disaster. But, on the other hand, our
present position certainly does not measure up to the standards we
set for ourselves. We’re obviously not happy with it, and the kind
of press this generates doesn’t help in our selling efforts.
As 1 said at the outset, we are still a
Triple-A company — and I believe we can hold that if we don’t let
profitability decline any further. We are well-financed, with
virtually no debt on the balance sheet and more than adequate cash
to support current operations.
Our costs are under control, but they are
planned too high and are not sufficiently responsive to changes
in business conditions.
While we’re not achieving the high standards we
set for ourselves, we are still performing at the major-league
level in profitability. That, combined with excellent progress in
inventory management, has kept us strong financially.
And we’re investing. Our confidence is showing.
The outlook for Digital still contains a lot
more positives than negatives. Most encouraging of all is that
the negatives are mostly self-inflicted. They are not created by
the environment, by government regulation, or by economic
catastrophes. They are better thought of as challenges, which we
can manage.
In my opinion, we are facing a new environment
in our industry that places a premium on cost efficiency. It
requires an unprecedented level of commitment to improve internal
productivity.
These challenges will not be met just by asking
more of our people than they are giving today. Continued growth
and prosperity requires that we do things differently — that we
question everything we do internally in terms of its value to our
customers — and that we create, and accept change.
The 1990s present great challenges to every
industry. But our industry is unique in many ways. Some people
would say our industry is maturing because growth is lower. But I
say, "How can an industry that's selling 50% greater price
performance every year be mature?"
We are part of a $200 billion industry. Our
strategy in the U.S. is to hold the line on spending and refocus
our energies to take better advantage of that market with the
technology and products that this company has to offer. To do
this, we must focus absolutely and completely on customers’ needs.
That means readdressing our cost structure and realigning our
resources.
How do we win in the 1990s? We start today by
first solving every outstanding customer problem, and then we
maximize every sales opportunity. "All Hands on DEC" was created
to meet these two objectives: solve every customer problem, and
maximize every opportunity. "All Hands on DEC" is clear evidence
that we can win.
Over half a billion dollars of business
activity is now being impacted by our "All Hands on DEC" programs.
Over 1,600 people have volunteered their services to assist in
ensuring field success. The essence of "All Hands on DEC" is
people working collaboratively with the kind of responsiveness our
customers expect. As we move into FY90, this sense of urgency and
this kind of adaptability will become integral to our operating
style. This will become the norm.
What we’ve been learning from "All Hands on
DEC" reinforces the fact that to grow we need to add greater
skills and more technical resources to our Field organization.
With the multitude of product introductions — a new family of
machines at least once a year — it is difficult to maintain our
product expertise in the Field. One of our primary objectives
this year is to strengthen this expertise through revitalizing our
sales training programs and ensuring close linkage between our
customers and our technology expertise.
We also believe that the strength of industry
and account management will be a key differentiator for Digital
in the 1990s. Accounts (customers) are the basis of our business.
Account sales will be organized and specialized by industry.
Industry marketing will allow us to understand, focus on, and sell
more effectively to our customers.
The U.S. planning process begins with account
plans which are integrated at the district level. The plans
require the active involvement of account sales people as well as
people from Sales Support, Field Service, and Software Services.
Through this planning process we will achieve goal congruence.
Most of the decision making will be
decentralized to our districts or our cross-district account
managers. The district sales manager is the leader and is
responsible for the plan and for carrying it out. I want to give a
strong message of empowerment to our sales managers: "You are the
decision makers. We expect you to be the ones to close the
business on all products and all services."
Organizing around accounts and in the industry
dimension allows us to replicate application successes around
common types of customers. This approach allows our managers to
focus on a few rather than all types of business. And it allows us
to create a communications network with our product people and
with our industry marketers. Our district resources and sales
people will be able to get the help they need when they need it.
We’re also putting a plan in place to link our
product groups and our Sales Support organizations together.
Sales Support is the structure that we will use to bring the
strength of our product and marketing groups to our customers.
These resources will be organized within the districts and evolve
as necessary to support a direct link to our product groups. This
change will simplify and improve communications. And I believe
that it will result in higher quality products, higher quality
solutions, and a dramatic increase in our business.
Digital Competency Centers (DCCs) are important
in that effort. DCCs include Application Centers for Technology
and Systems Integration Centers, extending our reach to the
customer. Competency Centers allow us to focus enough critical
mass to do the complete job that we need to do, plus solve our
customer’s problems, on both big projects and little projects.
We’re establishing such Centers out of our existing resources. We
have already planned two of them — one in New York area for the
financial services industry and the other in Detroit for discrete
manufacturing. In addition, we have a similar set up in Washington
for the Federal Government Systems Group. There we have, in
addition to technical resources and special skills for government
systems, proposals and bid teams and special marketing resources.
The opportunities that we have in front of us
will require a lot of change. Yes, change feels disruptive; but it
is unavoidable. To compete effectively in the marketplace,
continuous change must be a part of our Digital values. Plans for
organizational change should be part of our planning process. We
ought to anticipate the kinds of change the organization has to
make a year from now, two years from now, three years from now, so
that we can participate in it fully and be excited about it.
Anticipating tomorrow’s needs and embracing change are the
attributes of an industry leader.
Another part of embracing change is figuring
out how to do work in different ways. We already have a number of
success stories that illustrate the value of innovation. For
example, through outbound and inbound telemarketing, we have
increased our DECdirect sales 300% since February. DECdirect
distribution is now an $800 million business. We also have a
series of simple programs that clearly distinguish us from
competitors in the ad- on business. One is the fast order, fast
ship, fast install effort. You order your product today; we ship
it today; and we install it tomorrow. Those are the kind of
initiatives that are going to put us ahead in the 1990s.
At Boeing, we responded to and won a major
project by offering ourselves as a prime contractor and then
working in partnership with consulting firms and software
providers. We completely and totally listened to our customer and
then prototyped the application. The net result was one of the
largest system integration projects in the industry and the
largest computer-integrated manufacturing (C1M) project in
Digital’s history. We need to encourage more of that kind of
creativity.
Another part of embracing change is deciding
what work to stop doing. We all need to get our organizations to
take a closer look at the work that we’re doing. Does it really
contribute to our customer’s needs? Does it provide a better
solution for our customers? We’ve got to let go of some of the
work in order to better position our own resources to meet
customer needs. And this can come through simplifying our
operating environment.
For example, one of the most exciting things
about our products is our ability to transport software
seamlessly from one VAX system to another. Unfortunately, the
business structure that we have to support that application
architecture requires hundreds of new part numbers for software
every time another VAX computer is introduced. I know of a
situation where a competitor’s bid for a single workstation
consisted of four line items, ours was 31. Resolving this type of
issue allows us to focus on things that are more productive and
can better serve the customer.
Our mission is to provide the highest quality
information systems, products and services to our customers
worldwide. Our goal is to be a quality organization and do a
quality job. And as we achieve quality, growth comes as a result.
Quality relationships with customers are probably the most
critical aspect of our goal. We depend so much on our existing
customers. We’re continuing to develop those relationships, to
grow the opportunities with those accounts. We also depend on
them for sourcing and identifying new opportunities and new
customers. How we’re perceived in the marketplace and by our
existing customer base is key to our success with new customers.
Our sales philosophy is to completely satisfy
customers’ needs before, during and after the sale. Our goal is to
provide not only quality solutions but also to maintain
enthusiastic support for them. Our sales people need to be the
best in the business - the best trained and the most knowledgeable
about our customers’ needs. They must completely understand our
product capabilities as well as industry application strategies.
They need to also be business partners and entrepreneurs. They
need to be working with customers to help them define the
solutions to their critical needs for success in the 1990s. Each
and every sales person must know the customer, know the products,
know the competitors products, know the difference, and know how
to use our internal resources.
As we enter the 1990s, I believe we are
well-positioned and just beginning to see the benefits of a more
responsive operating style. The market is demanding, and the
competition is extensive. But we have the people, the products
and the competence to grow our leadership position in the 1990s.
We are facing more significant challenges today
than at any other time in our history from the global competitive
marketplace, the technology race, the economy, our customers, the
cynical press and skeptical Wall Streeters. We seem to do our best
when the going gets a little tough on the outside.
We have all the ingredients for continued
success as a company. We have the people, products, money,
customer following, reputation for excellence and history of
achievement. There are good reasons for our employees to feel good
about Digital, its future and their role in it.
People are our most valued, most envied, and
most sought-after resource. They are what makes us go. It is their
competence and hard work and loyalty that has brought the company
to this point; and it will be their competence, hard work and
loyalty that will keep us growing into the future. If we have any
passion for winning, it must be felt by them. They must be the
fire in our corporate belly.
The other thing that gives us an advantage over
other companies is the Digital value system — the feelings and
beliefs of our people that make Digital the company it is and will
continue to be. The source of our greatness as a company lies not
only in what we do, but in who we are and how we do things. We are
a hard-working, high-performing organization. Our primary goal
continues to be quality. Our overriding priority continues to be
customer satisfaction, and our hallmark continues to be
excellence.
In today’s fiercely competitive environment, it
is as important to keep the faith as it is to keep the books — to
remain committed to the simple but powerful ideas on which this
company was founded. Digital’s bedrock values must hold us
together and keep us centered. These values provide our stability
in an environment of constant change.
Ken reminded us today how these values — such
as honesty, commitment, quality, completeness, simplicity, and
receptivity to people and their ideas — must continue to set us
apart from the competition.
These values are translated into practice by:
o listening to our employees and by acting on
what we have heard,
o treating each other with respect,
o creating and delivering quality products and
services,
o reducing red tape for our customers and for
those within the company,
o taking responsibility and being accountable
for our actions, and
o knowing our areas of expertise and developing
ourselves professionally.
Our values are based on Digital’s corporate
philosophies that were developed 32 years ago. With all the other
changes that have taken place over our first 32 years, these
beliefs have remained unchanged. One of those philosophies, "the
first rule," says "when dealing with a customer, vendor, or an
employee, do what is right to do in each situation."
These philosophies are a recipe for leadership.
True leaders inspire their people to do the right thing. Within
this framework, we need to maintain an environment in which every
employee at every level feels respect for our past, involvement in
our present, and responsibility for our future.
As members of Digital’s leadership corps, each
of us has the responsibility to ensure that our people are
invested in Digital’s values, which support the success of the
company. These values must be institutionalized in our
organization, and they must be passed on and perpetuated in our
culture throughout the world.
If we say that our employees are our most
valued asset, they must be treated that way and be made to feel
it. We must continue to provide a working environment in which
creativity, innovation and risk-taking are valued and rewarded,
and we must show the same loyalty and support we expect.
We must also recognize that because of its
traditions of success and its reputation for quality, Digital
continues to be the object of very high expectations by the
outside world. We are seen as a standard of excellence in
industrial leadership, commercial success, social responsibility
and good corporate citizenship. Sometimes these expectations are
unreasonably high, particularly on Wall Street, but we can’t let
them distract us from our real mission which, simply put, is to
satisfy our customer, employees and shareholders, and to stay in
business forever.
We face three key challenges. The first is to
manage change. For Digital, change is a way of life. If we don’t
change, we won’t survive. Our job is to manage change. Our people
are bombarded with change. They know this and generally have
embraced it as part of their working lives. But change can still
represent a threat to them and us.
We are the gatekeepers of change. We must see
it in a positive way and prepare our people to embrace it. As our
competition intensifies, however, we will continue to make changes
ranging from reorganization to redeployment of resources. Our job
is to make sure the effects of these changes don’t weaken the
morale or destroy the spirit of your people.
The second challenge is to keep values alive
and breathe life into them where they have been weakened. We must
make sure that what we do matches what we say we believe.
Values offer us strength. But they are fragile.
When times get rough, we are tempted to regard them as
unnecessary. This is not acceptable. Our core values helped to
make this company what it is today. And we must protect them and
make sure they stay part of how we do our business. We need to be
vigilant. If we are not, our values will slip away.
Honesty, quality, creativity, risk taking, and
respect for the individual are not up for grabs.
Our third challenge is to support an
environment for creativity and innovation. People need the best
working conditions to maximize their contributions to the company.
They need to work in an environment that fosters free thinking and
empowerment, an environment of creativity and innovation.
If for any reason, creativity or the energy
that supports it is stifled, the company is at great risk.
Unnecessary layers of bureaucracy and red tape can and will
suffocate us. We are responsible for fighting off any such
tendencies. We must maintain a creative environment where two-way
communications and trust prevail.
To do this, we must lead. We must work with our
people in setting clear goals and removing obstacles in their
path. Then we get out of their way and let them do their jobs.
This is the way we empower them and create an environment that
will assure Digital strong and continued growth.
At the end of the program, Ken Olsen,
president, responded to a number of questions that had been
submitted by people in the U.S. Field organization. The following
is a summary of a few of those questions and answers.
Innovation,
creativity,
and even programs like "All Hands on DEC" are impacted by
dwindling resources brought about by cost constraints. Have you
any encouraging words or direction on managing these resources
or how to achieve long term goals when faced with a short-term
survival goal? Is the spirit of entrepreneurship nonexistent or
discouraged?
Having budget responsibility or being an
entrepreneur does not mean freedom to spend money. It means
responsibility to have a budget that fits together. We have more
resources than we need to do all the support we want for sometime
to come. If we exploit what we have, we'll have a lot of growth.
Being in charge of a budget means going over
every single expense item, cutting out all of those which aren’t
critical, and concentrating the money on those things that are
important.
When the company had product lines that were
working well, the budget was an ordeal, yet it was a wonderful
experience. It was the most fun time of the year. That is when you
were in control.
How do
we know whether to sell RISC/ULTRIX or VMS/VAX products?
The answer is obvious: use the machine where
the software is. There’s very rarely any overlap. When things only
play on RISC workstations, recommend a RISC workstation. When it’s
a critical commercial application, the software is not available
on UNIX or ULTRIX operating systems, so recommend a VMS solution.
Normally, there’s no question at all.
Sometimes customers insist on UNIX* or ULTRIX
software. For instance, a big financial organization told us that
their trader station program was going to run on UNIX because they
read they could buy pieces from anybody and they would all fit
together. After a few months of doing that, they sheepishly came
back and bought our VMS operating system.
What are
we doing about software for our UNIX workstations?
When SUN was making fun of IBM and Digital one
or two years ago, they said they’re going to free the world with a
universal software system that anybody can use. Everybody’s
computer will play everybody’s software.
Now when we’re giving them a hard time with a
better and faster workstation, they change their story. Now they
say that software can't be transported to Digital hardware without
an awful lot of work. Unfortunately, that statement is right. It
is going to take a while to get applications software transported.
For those people that want to do their
programming on the ULTRIX operating system, we’re in good shape
already. But when there’s a particular application that has been
on one machine, transporting it is a major job. We’re doing quite
well in getting software companies committed to this task, but it
does take time. We have a large number of engineering and science
applications that are now becoming available for the DECstation
3100.
Anticipating this delay, we committed ourselves
to make a VAX workstation first. And our VAX workstation is now
the largest selling workstation in the world.
Does the
introduction of RISC signal the end of our VAX family?
No. In fact, when we came out with our
UNIX/RISC workstation, the sales of our VAX products mushroomed.
This means that when people see we're broad minded they have much
more confidence in our traditional products. Similarly, in the
past, every time we brought out a new machine, the old one sold
well. The evidence that we were investing in the future gave
customers the confidence to buy the old one. We are investing more
in VAX VMS than ever before. It was designed and planned after
UNIX and the major IBM systems
What is
our strategic commitment to large, high-end systems?
About a half a billion dollars. You hear all
sorts of things from the press, for instance that workstations are
taking over high-end computers and that minicomputers are on their
way out. The nice thing about the high end is that the market is
so big, you don’t need very much of it to produce an awful lot of
income.
* UNIX is a trademark of AT&T Bell
Laboratories.