Volume 1,
Number 1_________________________________________________
November/ 1982
Ken Olsen Emphasizes Bold
Products And Financial Conservatism At Annual Meeting
Office Systems To Play A
Major Role In Digital's Future
What Is The Operations Committee
Doing To Contain Expenses?
Introducing A Special
Memo For Managers And Supervisors
A Dollar A Day Can Equal $4.3
Million
Ken Honored With Founders
Award
Over 400
people gathered for Digital's Annual Meeting of
Stockholders in Boston on November 4. Explaining the
company's strategy and its recent performance, Ken Olsen
said, "We have been bold in growing, bold in proÂducts,
bold in technology, and therefore, we feel we have to be
very conÂservative financially. We plan for the long term.
We are willing to sacriÂfice some profit today in order to
grow, develop, make a profit and be stable in the future."
He pointed
out that the service part of Digital's business is growing
faster than equipment sales. "This trend is due to the
fact that the people in that group do a good job, and also
because we service the sum of all the equipment we've
sold. So mathematically, as long as we continue to do a
good job, that part of our business should keep growing
faster than our equipment sales. Just ten years ago it was
14 percent of our gross revenue, and this last year it was
28 percent."
Ken also
emphasized the importance of office automation and
personal comÂputer to the company, and noted Digital's
accomplishments in disk and LSI (large scale integrated)
technology.
"We own the
office automation market," claimed Ken at the Annual
Meeting. He explained that we are not late in that market,
having actually done word processing in 1962 with the
PDP-1. At that time we called it an expensive typewriter.
He emphasized that we have the best word processing and
elecÂtronic mail capabilities in the industry.
"We have a
major share of the market for office automation in work
places like laboratories, universities and factories. We
even automated an entire industry—the newspaper industry,
which now has word processing, electronic mail and
computerized typesetting, mostly using our computers. At
the top 750 newspapers, we have 2,000 computers doing
these functions. So you can say we own the office
automation business—all except one area: the white collar
office.
"We now have between a million and a
million-and-a-half terminals on our computers doing word
processing and electronic mail," he said. This is more
than any other company selling office automation
equipment.
"For the white collar office, we have
all the functions. We’ve been doing them inside Digital
for many years. Altogether we have 20,000 terminals in the
company. We couldn’t survive without the capabilities
these systems provide. Now we want to sell those
capabilities to the outside world.
"Already we have many thousand
terminals installed in white collar offices, and many
thousand of our computers doing data processing in
offices. But as a company we are not well known for these
products; many potential customers have no idea of the
extent of our capabilities in this area.
"Now we have a program to change that.
We reorganized and assigned a number of senior managers to
the task. It's importance is indicated by the fact that
now that group has two members who sit on the Operations
Committee. So, hopefully, over the next year we will take
the lead in the white collar office market as well,"
concluded Ken.
The role of the Operations Committee
is to establish the direction and focus of the company. In
the area of expense controls, the Operations Committee
sets the parameters for expense controls. Digital’s
managers and superÂvisors must implement these decisions
since they are the people who sign the requisitions and
establish the priorities in their departments.
"It takes quite a long time to
institute an effective expense control effort because we
are trying to change human spending patterns and thought
proÂcesses. Digital started its expense control effort in
Q4 of Fy '82. We could foresee that '83 was not going to
be a great year and we started headcount curtailment and
expense curtailment," explains A1 Bertocchi, vice
president, Finance and Administration.
"Now, we understand the human element
a little better and we know that it requires peer pressure
to make expense controls really work. It's been a slow
process but expense controls have begun to help the
company. We just have to make certain they continue and
are consistent around the company.
"There have been some questions about
why we still sponsored employee outÂings, such as Canobie
Lake, and if we will still distribute turkeys at Christmas
in the U.S. In order to understand why outings took place
and why turkeys will still be distributed, it's important
to know that financial commitments were made many, many
months ago. We buy turkeys almost a year in advance of the
actual distribution. Digital will honor its existing
commitments to vendors, but will look closely at our
future commitments.
"Speaking of commitments, its also
important for employees to understand that Digital has no
intention of starting any new buildings in the near
future. Certain buildings are opening this year because
construction that was contracted months, even years, ago
is now completed. But, we certainly aren't starting any
new buildings. As a matter of fact we're giving up small
leases, we're consolidating and so forth," explains Al.
Last spring Digital conducted a survey
to identify strengths and weaknesses in the ways the
company communicates with employees. From it we learned
that managers and supervisors do not have enough
information about the business to satisfy the needs of
employees. Many employees depend on the grapevine although
they overwhelmingly prefer to get news from their
imÂmediate supervisors. And managers and supervisors
overwhelmingly think it is their responsibility to
communicate Digital's plans, policies and deÂcisions to
their employees, if they only had the information.
As one small part of the solution to
these problems, this "MGMT MEMO" is intended to help you
answer questions your employees have about the company and
its business.
This memo, prepared by Corporate
Employee Communication on behalf of the Office of the
President, will be distributed monthly to managers and
supÂervisors around the world. It will frequently include
messages from Ken Olsen and other company officers.
If you have particular questions you
want addressed, you should forward them to your vice
president who will either answer them directly or pass
them along for inclusion in one of these memos.
If every employee saved just $1 a day,
the company would save over $4 milÂlion in just one
quarter. We're not just talking about cutting back on
discretionary spending such as offsite meetings,
unnecessary travel and postponing optional programs. Your
organizations should have already taken these actions.
What we're talking about are the
"little things" that add up. Turn off the lights when you
leave a room, recycle blank word processing paper as note
paper, write a letter instead of making a long distance
telephone call, cut down on the time you take for lunches
or breaks, etc.
Ken Olsen was honored by the National
Academy of Engineers with the Founders Award on November
3. Established in 1965, the award recognizes outstanding
engineering accomplishments by one individual over a long
period of time. The Academy of Engineering, an
organization of distinguished engineers parallel to the
National Academy of Sciences, examines questions of
science and technology at the request of the federal
government.
Simply put, Digital's cost and expense
controls are our way of managing a very tough business
challenge. It is a natural management response to a
near-term business problem and a longer-term expectation
of more intensive competition in our industry. Digital is
financially strong with $760 milÂlion in cash and
temporary cash investments available for our immediate use
in the business.
This money came, in part, from
investors who expect a return on their inÂvestment. Their
money and our retained earnings is available to let us
invest in new products, new plants and better equipment.
This enables us to continue to make and sell leadership
products and to help us protect our position as the second
largest computer company in the world. In Digital's case,
that is what making a profit is all about—having enough
money to invest in the company's future.
Digital makes its expense control
decisions based on our understanding of the future outlook
of our business. As the future outlook has become less
certain, we have had to take further steps to curb
spending. For the last eighteen months, our expectations
of business have been going down, so we have been
enforcing more and more stringent cost and expense
controls. This has enabled us to continue critical
engineering, product and marketing investments and to keep
the company in a good position to take advantage of the
up-swing in the business cycle when it comes.
There are many chapters in the book of
a company's expense control pracÂtices. We have done
everything rational and reasonable, which we have thought
necessary, given the specific business conditions at
specific deÂcision points. We initiated the salary delay
measure when we realized our business was not going to
turn around as quickly as we had hoped. The decision about
whether or not to continue the salary action deferral will
be made and communicated the first week of December.
Whether or not customer demand for
certain of our products remains weak, we expect to see
positive results from the revenue from Digital's personal
computers starting in Q3. In other words, we expect
results in Q3 and Q4 to be positively helped by shipments
of personal computers. But in the meanÂtime, every
employee must be particularly flexible and creative in
finding new ways to reduce expenses.
We owe it to ourselves, our investors
and our employees to avoid unnecessary spending which does
not clearly generate revenue today or is not critical to
Digital's future interests. If we apply this rule in
examining each and every spending decision then we, and I
believe our investors, can accept the short-term financial
results, because we have done our best. The future of DEC
is very bright... indeed!
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