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Volume 4 , Number 4                                                                 July 1985

State Of The Company Issue


One Company, One Strategy, One Message: Working Toward Greater Profitability  through improved efficiencies and increased customer satisfaction was the theme of the June 5, 1985, State of the Company Meeting. Summaries of each speaker's presentation comprise this special issue of MGMT MEMO.


One Company, One Strategy: Finishing Our Products - Ken Olsen, President


Toward Greater Profitability Jim Osterhoff, vice president and Chief Financial Officer


Efficiencies In The Field And Customer Satisfaction -- Jack Shields, vice president, Sales and Service


Systems Solutions For Our Customers' Needs -- Bill (BJ) Johnson, vice president, Distributed Systems


Field Service Efforts In Efficiency And Customer Satisfaction -- Dick Poulsen, vice president, Field Service


Integrated Sales, Engineering & Marketing Efforts For MicroVAX II AND VAXSTATION II Dave Grainger, vice president, Western and Central States


Manufacturing Competitiveness -- Bill Hanson, vice president, Manufacturing Operations


Digital In Europe -- Pier Carlo Falotti, President and C.E.O., Digital Europe


Questions And Answers With Ken

One Company, One Strategy: Finishing Our Products - Ken Olsen, President


In many areas, we've accomplished more than I ever dreamed of when we talked about the New Digital two years ago. We now have a set of products that nobody can match.


This is a result of many years of work and planning. Fifteen years ago we introduced DECnet, the Digital network architecture, on which everything has been based. Then, in 1975, we started the VAX architecture and VMS software * and, with unbelievable discipline for this kind of organization, we’re sticking with them. We later decided to tie everything together with Ether­net and, after that, came clustering.


We have never, in 28 years, had the response to our products that we have had with the VAX 8600 and MicroVAX II. Their power, influence and reception come about because they are, first of all, VAXs and, secondly, they tie together with everything else we make.


Through a lot of hard work, we have gotten people back to one set of prod­ucts, to one strategy, one company and one plan. The result is that we have enormous power at a time when we need it.


As you know, the industry is in turmoil. Many computer companies are going into very serious times. We're now in an era when many companies are not going to survive and we have the opportunity to come out on top. We've done the hard part: the products, the networking, the integrating. Now, we have to finish the job.


No one completely understands the problems out there in our market. Most of the people who should understand don't even realize there is a problem yet.


We're undoubtedly going into a shakedown like the automobile business and most other businesses. There are too many computers. They're too easy to make, and it's going to be a problem.


We have to be ready for the worst. We have to plan that this business will remain exceedingly competitive. But, we've got all the assets and we need to exploit them. We also have to fix our problems.


We don't finish our products. A long time ago, we decided that there are areas in which we wouldn't sell directly because we didn't have the re­sources or the expertise. For these areas we use OEMs. We've let this evolve into an excuse for not finishing our products.


Well, we can't do this anymore. This isn't saying anything negative about OEMs. We still have the same enthusiasm for them as we always did. However, we will not use OEMs as an excuse for not finishing our products. We've got to organize to finish them. This involves an enormous amount of detail, commitment and effort. We've got to finish our products and then we can decide which ones we want to sell directly and which ones we sell through OEMs.


We have friends in different countries who nationalize industries. Politi­cians who know nothing about cars are absolutely confident they can run an automobile industry. The game in the nationalized industry is to get re­sources, not to make profit. Somebody has the power and everybody politics to get the resources.


Early in Digital's history, we had some clear, simple messages and princi­ples. One was, "He who makes the proposal takes the responsibility for doing it." If somebody proposes a new product, he or she lays out the plan for the whole product -- from start to finish — including the marketing and profit­ability strategy. This worked beautifully. We had, in one company with one general set of products, more diverse applications and fields than any company of our size. Since then, we've gotten the idea that central planning would be better.


I used to laugh to myself at business meetings when people would lament about socialism, nationalism, and government interference. They were talking about a lack of freedom; what they wanted was freedom for themselves, but they gave none of it to the people under them.


Now, it's a very human reaction to say, "If I'm in charge, I'll make the decisions." Most of Digital's history is based on giving responsibility to people who are involved with the proposal. They were emotionally committed to it. They made it work whether their plan was right or wrong. They might have done something stupid, but they fixed it.


Since then, we've decided that we will do our planning centrally. Our weakness today is that when we dump on the Sales department a product from Engineering, or dump into Marketing a product from Engineering, they aren’t in love with it; they aren't emotionally committed to it or don't even have confidence in it. Then we say to Sales, "Give us your numbers for next year." So, a number comes up that doesn't have the commitment behind it. And that number is what we base our planning on.


The part of the New Digital that we haven't yet finished is the commitment by the individual marketing groups to a product. And that means they budget, plan, schedule, and then have it reviewed so that, for certain resources, they promise certain results.


Before the New Digital, you heard people say "power is what I need." Well, the power of an entrepreneur doesn't come from a budget. It comes from getting the job done. When you start a new company, your suppliers won't give you the time of day, you can't hire the best employees, you have very little money and very little time. The only thing you have is that drive, that commitment and that love to finish the product. That's being an entrepreneur.


When people make a plan and it is accepted, they have to be committed to it. There's nobody who is so mature, so experienced, so important that he or she can go off and do products without the responsibility of finishing them.


We are setting about now to do what we always did. We are breaking marketing into several levels starting off with the product marketing, which is that group that finishes up something, delivers it and, when the customer plugs it in, it does what the literature says it will do. Later on, we will have budgets for different slices by industry and by area. Everything we budget will get done and nobody will have authority except in their budget.


Power isn't the ability to be arbitrary and tell somebody what to do. Power is having everything under control and getting everything done.


We have to finish every single detail to make the product work. People say, "We don't have time." Well, you don't have time because you want to make more ha1f-finished products. It may be stifling to budget every single detail, but we will make sure the customer's job is done, or we will have fewer products.


Now, we can't wait. We may be in an industry that is in serious trouble. We have to do this instantly, thoroughly and completely. I predict two things. One, we will be overwhelmed with success as we have finished products. And, two, as we do this, if we do it, we will be overwhelmed with the need to expand. I further predict that if we limit ourselves to centralized plan­ning, we will say, "We're only going to concentrate on office and not do factory, laboratory and so on," and we will lose much of the business.


Next year at this time, with the products we have, we have to be on top of the world. We can only do it when we give responsibility to people, to groups to do their planning and work that infinite number of vital details.


Toward Greater Profitability Jim Osterhoff, vice president and Chief Financial Officer


In the eyes of our owners, the bottom line is whether their invested capital is growing satisfactorily. In the absence of dividends, this is measured by the price of our stock. Our stock sold at $40 a share in 1975 and is at roughly $100 today. The stock price served our owners well during the 1979-81 period but has provided little net growth since then.


The total market value of our company has increased at a somewhat faster rate than the stock price because, as we have grown, additional shares of stock have been issued to provide the capital necessary to support that growth. At the present time investors value our company at about $6 billion.


There are some 100,000 owners of our 58 million shares of common stock. Employees account for 16% of the ownership. Eighty-two percent of our stock is owned by investment companies, bank trust departments, and insurance companies. There are 437 such owners. The other 2% is owned by individual investors who are not employed by Digital.


Among all major U.S. companies, Digital is one of the top 10 companies favored by institutional investors. It's flattering to be held in such high esteem by this sophisticated investor group. But, it is also important to recognize their expectations, because their buy and sell decisions are reflected daily in the total valuation of our company, and because we will depend on them to provide some of the capital required to finance our future growth. As an ownership body, they are interested in earnings growth, and it is the responsibility of Digital's management team to make sure their investment grows.


Investors look carefully at what we are doing today in the areas of new products, serving our customers' needs, the efficiency of our operation — all of the areas that bear importantly on our future results.


At the present time, investors value our stock at about $100 a share. For that investment, the owner's share in our net assets is worth $75. The difference between this book value of $75 and the market value they place on our stock is essentially the measure of their expectations of our future. The larger this premium, the higher their expectations.


On March 30th, investors implicitly valued our future earnings growth potential at $28 a share. The ratio of our market value to book value was 1.4. You might call this the expectation index of our investors. Ten years ago our market-to-book ratio, or the expectation index, was 3.7. By 1980, expectations had fallen by about 50% to a level of 1.8. Over the last four years, the investment community has been getting mixed signals about our prospects for the future.


It is never easy to forecast future earnings potential, whether you are outside or inside the company. But investors base their buy-sell decisions on earnings projections with an implicit adjustment factor for risk assess­ment and other investment alternatives.


An indication of future expectations might be the company's actual earnings growth performance in the recent past. Our earnings per share growth rate during 1972-74 was 54%. For 1981-83, it was 1%. It is part of a declining trend, but our three years moving average earnings growth was consistently above 25% until 1982. Based on history and a market value of $103 a share, or 1.4 times book value, we would estimate that our investors are expecting future earnings growth of 12-15% a year. Considering that until three years ago our earnings growth trend was consistently above 25%, it would appear we have an excellent opportunity to outperform this expectation of 12-15% a year.


We know we do most things better than most of our competitors, but for the past three years or so, it hasn't been reflected at the bottom line. In 1981, Digital's operating profit margin as a percent of net sales was over 16%. By 1984, it had dropped to 8%. During this same period, IBM improved its margin while the rest of the industry experienced declining margins, along with us, although at a more moderate rate.


We are operating in an industry that traditionally has had very attractive profit margins. If the industry continues its long-term growth trend, there is no reason why we shouldn't double our profitability and return to 1981 profit margin levels, providing we do our jobs properly.


Return on assets comparisons tell much the same story as the operating profit margin. IBM has combined better operating profit with improved asset utilization to push its return on assets higher each of the past three years. In 1984 the rest of the industry, on average, offset declining operating profits with better asset performance to report a solid improve­ment and return on assets. Digital partly offset its lower operating profits with a somewhat improved asset performance, particularly during this past year. But in this combination of profitability and asset management, we are well below our 1981 performance level and also below that of our competitors.


One of the more important financial indicators of management performance is the trend of sales required to break even. Another way to describe this is the total costs that must be recovered before we start earning a profit. In 1981, we required $2.2 billion of sales to cover our costs before earning a profit. This was 69% of actual revenue for that year. In other words, we earned a profit on the top 31% of our sales. In subsequent years, costs grew faster than revenues, and last year we earned a profit on only the top 14% of sales. The first 86% was required just to cover costs.


In a growing business, we might not be able to reduce break-even in an absolute sense, but it is imperative that we tailor our cost growth and get our break-even point back to a lower percent of actual revenue.


There is a correlation, of course, between operating profit margin and break-even. As profit margin increases, the amount of revenue required to break even is reduced. We have been moving in the direction of lower operating profits and higher break-even pionts. IBM, by comparison, has been remarkably consistent in its measures over the past four years, which may explain its seemingly invincible performance in the stock market. The consistency of this emasure for IBM might also indicate what it considers critical to sustaining profitable growth: low break-even volume provides profit leverage on the up side and profit protectino on the down side. It is celar that we cannot improve our break-even position unless we reduce our costs.


A comparison of revenue and profit growth may be the best way to summarize our recent financial performance. During the 1981-84 period, our revenue

grew at an annual rate of 24%, a higher rate than IBM's 15%, and higher than the average of our U.S.-based competitors. Our profit growth during this period was almost non-existent compared with an 18% annual growth rate for IBM and 14% for other U.S.-based competitors. Our problem has not been too little revenue growth; it has been too much cost growth. We have not only outsold the competition, we have outspent them even more.


Roughly half of our worldwide costs are salaries, wages, and fringe benefits for our people. We presently employ over 89,000 people around the world. Of this total, 38% are considered direct -- primarily sales, service and manufacturing people. The other 62% are indirect. For each direct employee, we have 1.63 people in indirect or supporting activities. This should raise questions in your mind whether a reversal of this relationship wouldn't make us a larger, more productive company.


Another important factor to understand is the trend of employee costs. Every year, every employee becomes more expensive, and the compounding effect of these increases becomes dramatic quickly. For example, between 1980 and 1984, Digital's U.S. employment grew from 34,000 to 51,000; an increase of 49%. During this same period, the average compensation grew by 58%, result­ing in a U.S. employee cost increase of 135%.


Our revenue during this period increased by 76% -- greater than the 49% increase in employment, but far less than the 135% increase in employee cost. Employee additions represent a long-term commitment. Adding just one person to your staff represents a commitment of well over $1 million (assum­ing the employee makes Digital his or her career).


We have been on a declining profit-margin trend line long enough. It is time to turn around and go the other way. To reverse direction will require that we develop and implement plans that will make us a low-cost manufacturer and supplier of world-class computer products and services.


We cannot just ship our way out of this problem. We must face the issue of population and its productivity. Controls cannot be put on for 1986 and then lifted in 1987. We need permanent and substantive changes in our cost structure .


In addition to improving profit margins, we must improve our asset utiliz­ation. Today we have assets, excluding cash, of $5.4 billion, nearly equal to our annual sales. If this relationship continues in the future and we don't improve our profit margin, we will require substantial new financing to support our growth in sales. For example, to achieve a sales increase of $5 billion from where we are today would require that we raise $4 billion of new outside capital.


An improved return on assets is the answer to this problem. Effective utilization and control of assets are important for two reasons. First, funds tied up in non-earning assets directly reduce profitability and make our stock less attractive to investors. And second, non-earning assets absorb cash that could otherwise be used to finance growth. Clearly the best solution for us is to convert non-productive assets to productive.


In the area of accounts receivable, our Field organization has made some good progress. This year we expect Days Sales Outstanding (DSO) will improve by nine days, from 83 to 74. This will convert about $180 million from non-earning assets into the earning category.


But plenty of additional opportunity remains. Our standard terms are net 30 days, and our DSO is 74. Delivery and installation time, skew and other factors add 38 days to our DSO, more than doubling our standard terms. These are opportunity areas, and they represent $763 million of non-earning assets. If we could reduce these three factors by just 50%, we could free up $380 million of cash.


Inventory is another land of golden opportunity. It is an area where Manu­facturing has begun to make impressive progress. There are many distasteful things about inventory. It takes up space. It has to be counted. It has to be moved periodically. It consumes cash. And, it grows old and loses its value. It's a heavy weight on our shoulders and we are carrying $2 billion of it. We turn our inventory only two times a year, the lowest in the industry.


Our net investment in property, plant and equipment is $1,7 billion. We consider these productive assets, although we all know they are not fully productive. Our investment in property, plant and equipment has grown rapidly over the past five years. By the end of this fiscal year, our five-year investment will total $2.4 billion. I'm sure all these invest­ments, when they were approved, promised handsome returns, but in the aggregate, the returns have not materialized. In fact, our total return on assets has declined. Think about that when you are preparing your next project.


Over the last five years our total capital requirements were $3.9 billion including the $2.4 billion for capital expenditures and $1.5 billion for receivables and inventories, net of payables. These requirements of $3.9 billion dollars were funded essentially from two sources. Net income before depreciation supplied $2.9 billion, since we earned a very respectable return on assets during the first two years of this period. The remaining $1 billion was obtained from outside sources, through new stock issues and debt financing.


Over the next five years we are likely to require several billion dollars of additional capital from outside sources. You can understand the importance of keeping the investment community feeling good about our company.


Improved asset performance has a beneficial effect on earnings. The major effect of better asset management, however, would not be the interest sav­ings but rather would be a substantial reduction in new outside financing requirements. A combination of improved operating profits and better asset management can assure our ability to finance a high growth rate.


To achieve our financial goals requires a combination of continued growth, cost improvement, and better asset utilization. In order to grow, we must have the support of our investors and a willingness on their part to in­crease their commitment to us. Without cost improvement, we cannot generate the profit growth necessary to provide investors an attractive return.


Growth, profit margin improvement, better asset utilization, and investor support are interconnected and are all essential to our future success. If we put our minds to it, we can achieve that success.

Efficiencies In The Field And Customer Satisfaction -- Jack Shields, vice president, Sales and Service


When I managed the services organization some managers thought customer satisfaction and profitability were separate and, at times, conflicting goals. Well, they are not separate and they are not conflicting. In fact, the two are complementary.


A couple of years ago, when we were having troubles, we lost a major order to one of our competitors. We were devastated. We had lost the order because we were unable to commit to certain things with our products and we were honest about this with the customer. Well, we've had feedback that this customer is now in a terrible situation; and I predict that, in very short order, our competitor's products will disappear from that company. And, I believe we will be back in there.


The important thing here is that we lost the short-term business, but we'll win in the long term. If you don't keep your customers satisfied, you are not going to be in this business for the long haul.


We have got to be very clear and very honest as to what we can do. And, most importantly, we have to be able to meet the obligations that we make to our customers in terms of the delivery date and the performance of our systems. And, I must say, we've done a fantastic job in these two areas over the last few years.


One of our goals is to increase the time our people have available to actually sell and service customers. In addition, we obviously want to lower the related costs. To increase sales efficiencies we have to simplify the sale, help automate sales, and be easy to do business with. We have a complex company, and must meet the complex needs from our customers, working with a complicated set of products. As Ken suggested this morning, if you have 8,000 product variations on an a la carte menu, plus the opportunity to mix and match, you are likely to confuse yourself and the customer by attempting to create your own configurations. We think the answer belongs with a simple, straightforward set of products that you know will solve the customer's needs and that can be installed relatively quickly.


To help meet our goal of simplifying sales, 15 months ago we conceptualized "standard systems". This concept is now a reality. We make a two-week delivery commitment for standard systems. You order it, we will get it to you in two weeks. The shipment commitment is the week in which we ship, not the month or the quarter, and we meet our delivery goals 99+% of the time.


On the newly introduced MicroVAX II, 83% of the orders to date have been for standard systems. We are very pleased with this accomplishment, and know standard systems will help us move both the MicroVAX II and the VAXstation II.


We have also been trying to use some automation for the sales reps to improve their communication, and minimize their administrative tasks. We have linked an automatic quotation system to the order processing system so when sales reps generate guotes for customers, they can automatically process the orders when they receive them.


We are setting goals and have a performance tracking system so that every week we know how well we are doing against our goals. We can review this against the accounts we have and, therefore, keep the opportunities for other sales constantly in review.


We want to make sure that it is easy for people to do business with Digital. So, we have taken steps to simplify our contracts and improve our order processing system. In contract simplification, we wanted one agreement for our customers. We have 38 business units, which tend to want contracts with different expiration and delivery dates, and different terms and conditions. So, we have introduced the Standard Volume Agreement that replaces 12 separate product agreements.


Previously, we had over 50 individual service agreements, depending on which type of service a customer wanted. We have simplified these into one general agreement with option riders.


Order processing is an area where we had two very large and complex groups -- the Field and Manufacturing — trying to work together to solve a very hot problem. Teamwork is essential in these complex situations. Without different points of view being heard, we aren't able to come up with the complete and best solution. I think we have made tremendous progress, and I think the teamwork between Manufacturing and the Field is a role model for the company.


We are now processing orders four times faster than we were before. The improvements are essentially in scheduling and certification time, and order acknowledgements. In December 1983, it took us around 55 days to acknowledge a systems order (acknowledge means commit to a date when that specific system configuration would be shiped) . Today, it takes 14 days. This is a remarkable improvement.


We started something we called PCs to the Districts last year. We put an allocated inventory in our districts and allowed them to schedule orders against their own inventories. We then very quickly ramped up to a guaran­teed 24-hour delivery operation from a central inventory. The program has been incredibly successful. In Q3 of FY84, we processed approximately 4,300 orders, and in Q3 FY85, we processed 32,000 individual orders for fast delivery in less than 24 hours.


When you have a long list of complicated products, there is a high probabil­ity that there will be changes to the orders submitted. We have had a 40% reduction in the number of change-orders per new order in these last 15 months, and the current ratio is essentially one change for every five orders. So again, we see a remarkable improvement.


On the order side of the business, we want to enable the Field to make commitments against a data base and an availability file, and have Manufac­turing commit to that. We have started this quite successfully in Europe, and we want to make it a company-wide program. We want to get the communi­cation to the right people, then trust them to do the job, and eliminate the middle person.


We are continuing to focus on standard selling and are going to eliminate technical editing after the fact. Sales people will be responsible for the quality of the order and they will have to live with the results of the products we ship. If a salesperson orders a product and the customer is unhappy with it after we ship it, we deduct that shipment from the sales person's net certification.


We measure our field people on customer satisfaction. We take customer satisfaction surveys from the people who decided to purchase our equipment. This helps us understand how these people feel about Digital and our sales representatives. According to the latest survey, there has been dramatic improvement, specifically in the categories of the area we call ease of doing business, lead times (how long it takes to get a product), order acknowledgements, delivery commitments, and fast delivery responses. It's important to remember that these improvements are where it counts — in the eyes of the customer.


Fifteen months ago, we said, "We need to set a goal for our most important customers because it is critical that these people are taken care of." In fact, relatively few customers represent 25-30% of our business. They are incredibly important to us, and we have a better customer opinion survey score on those accounts than we do for all accounts, which is exactly what we want. I should emphasize here that our overall customer opinion surveys were up dramatically from last year, with even better scores from the more important customers.


In summary, we believe that customer satisfaction is the most critical measurement of Digital's future success. We believe it is inclusive of all the other key measurements such as productivity and profit, and we are committed to measure and improve our performance until we are number one in Customer Satisfaction.

Systems Solutions For Our Customers' Needs -- Bill (BJ) Johnson, vice president, Distributed Systems


Most people build networks because they want their employees to be more productive by sharing resources and having access to all the data they need. They consider the office environment as including access to management information — both technical and business information — and they want to make it easy for their employees to obtain that data in whatever form they want, whenever they want it.


A financial analyst recently told me that, from his perspective, the funda­mental change in networking occurred because of spreadsheet applications on personal computers. Because people now understand and can think about various what-if scenarios, you can't simply hand them conclusions. You have to share the basic assumptions and results. And rather than moving disks


around, it is far easier to send such information over a network and say, "Did you see what Joe did? What do you think of it?" He told me, "We have become more productive through that kind of interchange than by having meetings and sitting around and talking about various scenarios."


Another person I recently spoke to, who manages a group of hardware and software engineers, said that the computer industry has not focused on making the engineer productive. Typically, the emphasis has been on making the computer productive, rather than the engineer. But with local-area networks and with wide-area networks it is now possible for an engineer to set up a job, farm it out to a "compute server" and meanwhile get on with other work, thereby becoming much more productive. His rule is to make sure that when engineers are using computers they believe that they are holding up the computer rather than vice versa, that their thought process is the limit, instead of their having to wait for the computer.


Essentially, our networks enable people to obtain data and have access to data and to share resources. Once you put a network in place, people begin to think of it as part of their normal work life. Then, when you offer an inexpensive way for them to expand, they will do it. Our approach with our local-area network is: Buy what you need to get started, then expand it as your needs require. Start as small as you want and grow as large as you need. Expand as you learn. In contrast, with IBM's SNA network architecture, you have to start at a very large level and then you can expand only in major increments.


Our strategy in networks is to make sure that our customers don't have to worry about the fundamental changes in technology that are occurring in the communications world. We are going to do that worrying for them, and their investment over a time will continue to be useful.


Networking is not just a one- or two-year type of engineering project. You do not get into it and then say, "Now I have built a base, I can go on to something else." It's a long-term commitment to customers and standards. It is a commitment to the customer that you recognize you are not an island unto yourself, that customers are going to want to tie equipment from other vendors into the network; and, therefore, helping to drive and establish industry standards is critical.


The customer should not be overly concerned that all of the levels of communications remain standard over time, because they never will. As new technologies come along, there will be cost advantages to making changes, but it is important that the investment that the customer makes be realiz­able into the future.


In this industry, technology changes the cost-benefit analysis at any given point in time, so we have to be able to allow our systems to grow based on that. That is where architecture comes in.


Fundamentally, the Digital Network Architecture (DNA) is the way that we take advantage of technological advances while protecting our customers' investments. We paid close attention to industry standards, international standards and national standards as we developed that architecture, and that effort is now paying off.


For instance, Ethernet made a major improvement in the ability of people to interconnect computers and to communicate within a local environment. When we made Ethernet a part of our overall network, thanks to our architecture, that fundamental change offered real capabilities to customers with the same software that they had before.


The serviceability and availability of a network depends on how you measure it . When you measure those factors from the point of view of why you have computer systems, why people are using them and the access time they have to them, a local-area network makes a lot of sense. When one computer goes down, everyone isn't down. People just run their jobs on another computer. It is invisible to them where the jobs are being done. That's the issue that many of us, in talking to customers, are bringing out as to the value of a distributed type of processing and local-area systems and networks in particular. The whole really becomes greater than the sum of the pieces. People have more access to more computing almost invisibly.


With Ethernet, you can move equipment, like personal computers, from one office to another and just plug it in the wall. Your network resources are at your fingertips.


With networks, customers often find they have lower cost per user, and people feel they are more in control of their job and their task because they can schedule and do what they want to do at a given time.


We have to think in terms of systems — complete systems at the product level, the hardware level, and the base systems software level such that they meet the needs of the customers that we have traditionally sold to in the past. We also have to worry about systems at the application level. Sometimes telling customers, "String this wire around and hook up," isn't enough. We have to say, "Here is what you do to solve your order processing problems," for instance.


We also have to think of the network as a system that happens to be made up of a number of systems. We need to provide solutions that meet our customer needs. We have to constantly think about that, and make sure what we do is complete, or we show customers a growth path so they can do more and more of their solution with our system.


It is by worrying about what customers do with our equipment -- worrying about the solutions that they are trying to use our equipment for -- that we have a great opportunity to grow very large and very profitably in the future.


Field Service Efforts In Efficiency And Customer Satisfaction -- Dick Poulsen, vice president, Field Service


Our business has two main cost components -- labor and materials. And we focus our cost-reduction efforts on both. For instance, our remote diag­nostic capabilities enable us to more quickly and accurately diagnose and respond to customer problems off site, and also allow us to monitor the condition of the systems during the customer's use time, helping us provide more scheduled corrective maintenance at a lower cost than unscheduled maintenance. Our telephone support centers enable us to respond to customer usage problems and screen out calls that require on-site intervention. Our distributed logistics program shortens our pipeline by moving more of our material closer to the service delivery locations. A common call-handling system is streamlining the call-handling process while making it easier for our customers to deal with us on a day-to-day basis. At the same time, this reduces our engineers’ reporting time through paperless reporting. We are engaged in a worldwide realignment of software service products and spare products to consolidate service delivery. We are trying to bring about a system-solution approach to service.


But by far our most exciting success story in terms of productivity, as well as improving customer satisfaction and employee satisfaction, came out of a program we piloted in New York/New Jersey. A similar program began about three years ago in Field Service Manufacturing and then later on in the Field Service Distribution Center in Woburn. It was so successful in im­proving productivity there that we decided to try to apply it to service delivery. We call it our "Service Managerial Model."


We found that in New York/New Jersey, our branch managers were spending well over 50% of their time in the office supporting and managing administrative types of activities. As a result of this program, those branch managers now have half their time freed up to work with employees and spend on customer­care types of activities.


At the same time, our unit managers were spending over 50% of their time just scheduling and dispatching field engineers in a totally reactive mode. Now, half their time is freed up to spend on customers and employee develop­ment, and we have defined pro-active, non-problem related customer visits as their primary responsibility.


As another example of this technique, we recently implemented a program in a branch on the west coast. We found that they had a backlog at the close of every working day of about 400 service calls. They had job requisitions out for seven additional engineers and, needless to say, customer satisfaction and employee morale were low. Three weeks after the project started, the branch was down to a 30-call backlog at the end of the day, which is about right for that size branch, and the branch manager had cancelled all seven job requisitions. In addition, of course, the project helped decrease customer complaints and raised the morale of our people by decreasing their overtime and giving them more control over their work environment.


The success of this service delivery model results from a collaboration between our regional line management and an outside consultant firm, Cassidy and Associates. Basically, New York/New Jersey set the stage, provided the the time and the management commitment, and Cassidy implemented the con­cepts. Both Digital managers and Cassidy then monitored, reviewed, and took corrective measures throughout the implementation process. Specifically, Cassidy taught our unit managers a technique they call Short Interval Management. They did this over a six-month period of ongoing, one-on-one contact in the unit manager's work environment. Their goal, in fact, was to change the behavior of our first-line managers.


Short Interval Managenment is an approach to controlling the flow of work to the smallest increment of time that is practical for the type of work being done. The idea is to break down, analyze, make decisions, and take correc­tive actions if necessary at each short interval. In other words, achieve control over the work and the work environment. For our engineers, the interval is a service call. For our unit managers, the most appropriate interval is the workday. We started out with a goal of better utilizing our people and trying to get a greater opportunity for customer contact.


In setting the stage for implementation, we found the job content of unit managers and branch managers needed much more focus and less overlap. We tend to think of monthly and quarterly reports, but they needed feedback in real time for their level of management. Branch managers stressed the need for help with administration within the branch.


The supervisors in our environment could not handle more than three primary responsibilities. More would just confuse them and get them bogged down in detail. So we gave them three exclusive responsibilities: their customers, their employees and their employees' productivity.


The workload was unbalanced. Fifty percent of our supervisor's time was spent on dispatching, and 80% of that time was spent on some form of call handling. Now, that has all been reversed. The utilization of our labor force in New York/New Jersey has risen steadily from 45% just last July, to 55% this past January and is currently at 85%.


We also found that people could now manage larger groups. So we have con­sistently improved our direct-to-indirect labor ratios and our engineers- to-supervisor ratios.


How about quality of service delivery? In response and repair time and also in customer satisfactions surveys, New York/New Jersey, which three years ago was at the bottom of the list, is now far above the U.S. average.


What about payback? We spent $600,000 to implement the service delivery model in New York/New Jersey. Because that was our pilot, we spent a lot of time on it. For about three times this amount, we will do the whole rest of the country. In this fiscal year alone, we have already experienced a return of over $5 million in labor costs avoided as a result of greater efficien­cies and the increased utilization that this project has brought about.

Integrated Sales, Engineering & Marketing Efforts For MicroVAX II AND VAXSTATION II Dave Grainger, vice president, Western and Central States


The "one company, one strategy" message is not simply a product or an engineering goal. It is a collective organizational goal. It should provide a way for each of our individual groups — Engineering, Marketing, Sales, and Manufacturing -- to take plans and associated goals and work together to achieve better success in a very competitive marketplace.


The simple, fundamental message we need to convey is that the MicroVAX II is a VAX. It represents a breakthrough in price and performance, and puts Digital in a leadership position for the next several months, perhaps a year.


We also have created opportunities to move into new markets that, until this time, were unavailable for computers. With the MicroVAX II, we can provide solutions that in that past were $ 100,000-$200,000 requirements, and cer­tainly out of the reach of many application areas. We've also moved into a market that we've not been in before -- the single workstation area. We need to sell, to build and to ship more of these systems by several fold than ever before in our corporate history.


By the time MicroVAX II was announced, we had decided that it was time to position our product, not just within the Digital family, but also against the competition. In addition, we needed to tell the world why our approach to computing is different, significant and more effective.


Based on the experiences we had with our successful VAX 8600 introduction, we pulled the Marketing, Engineering and Sales organizations together to launch the product, establishing a standard systems approach and a finished product approach in the process. We developed new sales tools, now adopted as standard corporate sales products, which got information to the Field well in advance of the announcement.


The first step was for Engineering to define the product, its capabilities and characteristics. The Marketing groups then created the first tool, a profile which we call a "marketing roadmap." In the form of a flow chart, a "roadmap" highlights the key sales opportunity, application descriptions, computing requirements of all our VAX systems, Digital's strengths in the particular application area, information on the competition, and our strength relative to the competition as well as some reference accounts.


With assistance from Engineering, appropriate Field and Marketing groups discussed where the MicroVAX II was going to be sold and the expected volume. Then we compared the profile to the standard components we needed to connect together to create a real systems environment, adding appropriate layered applications, hardware service and software support and training to provide a full solution to our customers.


In addition to roadmaps, we developed two other tools — FAAST charts and the sales manager's resource handbook. A FAAST chart matches key customer decision criteria against the type of buyer. It also provides a summary of the competition in the particular market. The sales manager's resource guide is specifically targeted at major market opportunities within each district, and provides a catalog of all of the marketing programs that are available.


Ron Eisenhauer, regional manager, Central Region, calls the marketing plan "the finest I've ever seen in the company." And a district manager in the Mid-Atlantic Region says, "We're giving sales reps the marketing materials they need."


We began our standard system process a year and half ago in a very formal way, and we have been building upon it. This is the first time we’ve had the

opportunity to work with a new product and design standard systems as a integral part of the way we want to market, sell and manufacture. But I believe we need to move much beyond this, and into the realm of what I would refer to as "applications" systems.


Customers want solutions from Digital -- the appropriate applications, terminals, printers, etc., with a total service and support package. Conceptually, we should take this to the point of really thinking about single part numbers and planning accordingly.


A related effort is known as "work systems." Our styles of computing say that we're selling collections of systems these days and that, in fact, the network is the computer. We need new ways to approach this notion of selling numbers of systems that are intended to work together as a single system to solve a given problem. I think Engineering understands the problem connect­ing these pieces together. We haven't yet translated that into good market­ing or good selling plans, and I believe that is the direction in which we have to move.


The real work is just beginning for us. Having seen each of our organiza­tions work in a very collaborative manner during the last four or five months, I really believe there's absolutely no reason why we can't get that one plan and that one message and truly achieve our long-term growth, market and profit goals.

Manufacturing Competitiveness -- Bill Hanson, vice president, Manufacturing Operations


I feel very proud of Manufacturing performance. We've come a long way since the infamous QI of FY84. We still have a long way to go, but the trend is in the right direction.


The key in customer satisfaction is meeting our customers' expectations. We've come a long way from the 50% on-time delivery of seven and eight quarters ago. Today we are over 90% performance in meeting our commitments. In the month of May, we achieved a 95% performance in the options and systems business and a 99.6% performance in the low-end business.


This kind of performance required close cooperation between us, the Field and Engineering. It could only be achieved by working issues on a weekly and daily basis. Every Monday morning I know what we have shipped, by plant and by area. I also know that if a plant or a group has missed their shipping objectives for that week, that they're immediately working overtime to get back on schedule by the end of the next week.


Now that shipments will arrive on time, the next question is: Are they complete? Waivers are a measure of shipping a complete order. The occurrence of a waiver indicates we had to receive permission to ship something less than a complete system. The poor performance of seven or eight quarters ago was coupled with shipping some 18% of our systems less than complete. We now are shipping 99% of our systems without waivers. So we can truly say we are shipping on time and shipping complete systems.


Recognizing the importance of treating customers as individuals, 15 months ago we established a "zero slip" program to achieve zero slips for all orders from seven selected customers. We selected those seven because they represented large international organizations that ordered a full range of products and accessories from multiple sets of ordering sites. These seven customers represented 200 subsidiaries and 2,000 order points. We believed that if we could get to zero slips with these kinds of customers, then we could achieve zero slips for all our customers.


A year ago, 1,400 orders for these customers slipped. Now that's been reduced to 95 slips. Again the key, the only way for success is to get it to zero slips. And I'm pleased to say that we've reached the point where shipping sites that have had only one or two slips are unhappy with their performance.


Now that we can get the system to the customer on time, the next question is: Will it work and will it stay working? Our goal is that our systems arrive problem-free and work when turned on. Comparing Q3 of last year vs. Q3 of this year, there has been a 31% improvement.


In particular, the VAX-11/730 is a success story. A year ago we had a major problem with the installations of that product. A cross-functional task team was put together, including people from the Field, Manufacturing, Quality Group and Engineering. Through their efforts, we've been able to increase problem-free installations to 85%. Their work has served as a model for this kind of approach on other systems.


Our customers depend on us to meet plans for introduction of new products. They base their plans on us meeting our plans. A year ago this was clearly one of our major problems in terms of customer satisfaction. And again, we collectively -- Engineering, Manufacturing, the Field and Marketing — addressed this issue. We've seen some major improvements in this area, for instance with the VAX 8600 and MicroVAX II.


An important factor in this area is that we now have plans to measure against. This is an agreed-upon plan for all of us -- Field, Marketing, Engineering and Manufacturing. In FY84 we didn't have that one plan and we weren't all working toward the same goals, and we weren't communicating the same information, either to ourselves or to our customers. We now have that one plan to work against.


Also, we now measure ourselves against our original plans, not against re­vised plans. It's important that we have revised plans so that we can com­municate accurate status to ourselves and to our customers. But, unless we measure ourselves internally against our original plans, we're not going to develop the kind of skills or discipline necessary to consistently achieve our time-to-market goals.


With our recent performance, I believe we've begun to demonstrate to our­selves and to our customers that we can be predictable on new products.


Now, what are we doing to achieve competitive return on assets (ROA)? The relationship of manufacturing costs with corporate profitability is not a pretty sight. During the early 1980s, when we were achieving an acceptable profit level, Manufacturing costs as a percent of net equipment sales was in the 41-42% range. During FY83 and FY84, our manufacturing costs jumped dramatically to the 51-52% range. Correspondingly profits fell.


Our current cost goal in Manufacturing is to get back to the 41% range. To make this happen we have to reduce our manufacturing costs by 20%. We have made a start in FY85, reducing our costs by 7% this year.


There are many things we in Manufacturing alone can do to improve our costs. For instance:

o simplifying our structure so it requires less people to produce our products;

o simplifying our material flow so it takes less time and fewer manu­facturing sites to build our products;

o improving our quality so we improve our yields and reduce our inspection, repair, test and scrap costs; and

o taking advantage of automation and expert systems, especially in our overhead areas .


But Manufacturing alone can't make the total necessary improvements. We depend on help from all the other parts of the organization. Selling old products at low mark-ups because the new products aren't available hurts our cost ratios. Building products with too many parts or that are not properly designed for manufacturability hurts our costs. And we waste a lot of money and assets when Field needs and Manufacturing capabilities are out of sync.


Currently we have too many people in Manufacturing to efficiently run our business. Manufacturing population grew from 21,000 people in 1980 to 32,000 by FY84. We've broken the trend, we've reversed the direction in FY85. We have reduced the total number of people in Manufacturing by 3,000 this year, and we are committed to continue that down sizing in FY86 to a level of 27,000 or less. Once we achieve this desired level of population, competi­tiveness will demand that we support an annual revenue growth rate of 20% with no increase in population.


We achieved that 3,000-person reduction this year through a variety of techniques: hiring freezes, and retraining and relocating people. We've taken advantage of attrition where it has naturally occurred. We believe we can achieve next year's goal by continuing these same techniques.


But the real issue is overhead people, indirect labor. Virtually all the growth has been in indirect labor categories. Our direct labor base, today 9,500 people, is no greater than it was in 1980. In fact, we should be quite proud of our direct labor productivity. We have almost tripled our output without increasing our direct labor base. So, when we talk about making impacts on costs, we're really talking about our indirect population.


Reducing the population is essential, but in the end it is only successful if the total costs are reduced. Our growth rate in spending was running 15-20% through FY84. We brought it down to 12% growth in FY85. But the real challenge for us is our goal for FY86, which calls for a 2.6% reduction in spending from FY85. On top of that we have a goal of reducing our dis­cretionary spending ( non-people , non-material related spending) by 10%

year-to-year. These will be tough goals to achieve, but they are clearly necessary for us to get back to the 41% cost level.


Shifting to the other side of the equation in terms of ROA, we have a long and not so proud history of turning inventory two times or less per year. Roughly, that means we have more than six months worth of sales in the manufacturing pipeline. We're in the process of changing this history. We're driving towards two and a half turns in FY86 and three and a half turns by FY88 .


Many factors, such as MRP (Manufacturing Resource Planning) systems and just-in-time concepts, are contributing to our success in managing inven­tory. But the Field/Manufacturing ship-build plan has been particularly important. We now have confidence in that plan. This allows us to eliminate the historic safety stocks that we used to put in to protect ourselves. Also, we now manage inventory on a daily and weekly basis. We know when we are off against our goals on a weekly basis, and we correct on a weekly basis.


In closing, I would like to highlight four overriding "hows" that I believe have been keys to our success. First, we are a multi-dimensional organi­zation. We do much more than simply ship. Success only comes when we worry about costs and inventory and people as well as shipments. We can't make our goals unless we are successful in all elements of our business. If we fail in any issue, it hurts all the issues. Secondly, measurement and account­ability are important. We have objective measurements in place. People and organizations are being measured against these goals, and they are being held accountable. The process has discipline. Third, we run the business weekly. Successfully controlling a multi-dimensioned business can only be achieved when we run the business on a weekly or daily basis. Much of the formal reporting may appear in month or quarter totals, but the goals, the measures, and the accountabilities are weekly. Daily and weekly management is the only path to success. Finally, our goals will only be achieved with one company plan. Today, Engineering, Manufacturing, Marketing, and the Field have one set of numbers. That's great, but one plan is more than just a set of numbers. It must become a way of life. We are moving in that direction; and as we do so, success and customer satisfaction and profit­ability will only increase.


Digital In Europe -- Pier Carlo Falotti, President and C.E.O., Digital Europe


In 1983 we decided to decentralize in Europe because we had missed our budget and profit had been stagnant for a few years. Also, morale was low. The personnel turnover was 15% in average, and particularly high in Sales. We were reacting slowly to competition, and customer satisfaction was not good .


Over the last three years, thanks to the efforts of our 17,000 people, we have doubled the orders, almost tripled the profit, increased the number of employees by 63% and reduced employee turnover by 50%.


Our goals, when we decentralized, were simple. We wanted to go back to the type of company Diaital had been before -- very acraressive, very fast, and

entrepreneurial. We wanted to focus again on the customer rather than on internal discussion and debate. To do that we wanted to put the responsi­bility where the action is, i.e. in the Field, near to the customer. That way people could regain the excitement and the energy that made this company so great.


We had to organize in ways that were simple and gave people the freedom to act. We needed to be much more efficient, not just by our own internal measurements, but from the point of view of our customers. We wanted to gain market share, and believed that the best way to do that is by making our customers happy. And, most of all, we had to bring back the motivation and the pride people feel working for Digital.


When we started, every function had its own separate approach. Field Service went in one direction, Software another one, Sales another, Marketing another and Manufacturing another. We needed a common way to be disciplined about how we approach certain problems. We had to teach our people to think about all the elements and the interconnection of those elements.


First, we had to define our mission. We all agreed that we were not just selling computers anymore; we were selling information systems. And that simple change, from thinking in terms of computers to systems, required a totally different way of managing the shift that we wanted to take in Europe .


Second, we had to define our objectives. In the past, each function was very good at defining its own objective. But the functions rarely checked to find out if their various objectives were convergent; if they were helping each other to succeed. So we worked out a common set of objectives, identical for all functions. And based on those common objectives, each function and country built its own plan.


Our first objective was to continue to be the leading supplier in scienti­fic, engineering and OEM markets. Our second objective was to be the prefer­red alternative vendor of distributed information systems for manufacturing, administration and office.


We also have some other clear business objectives, such as meeting and exceeding all our operational and financial objectives quarter by quarter and developing a single plan for the Field and Manufacturing to ensure fulfillment of our customer commitments. That was the first cross-functional plan we ever had in Digital Europe.


In addition, we set some team goals. The customer wants to buy a system from us -- not just pieces of hardware and software. We can no longer ask the customer to be the integrator of our activities. But to sell and deliver complete systems, we have to change the way we plan, the way we organize, and the way we present ourselves to the customer.


In particular, we wanted to make sure that a salesperson felt responsible to manage the customer and coordinate the resources inside the company, so the customer has a feeling of dealing with one company. And the whole Sales organization had to be geared and changed to manage a system rather than selling pieces. With that in mind we changed our hiring, our training and changed the way we plan.


Once the system is sold, we have to make sure the pieces come to the custom­er in one shipment. And once the machine has arrived, the customer wants one organization to service it, not two, not three, not four. We may send five specialists, but the customer should only call one number to receive any and all service.


We also wanted to have one invoice. (Historically, different organizations within Digital billed separately under different contracts.) And externally, we have to present one marketing image.


To me, efficiency is guality. Every time you want to save money, you have to go for high quality. That's true for your shoes and your food, and it's true for computers. If you want people to be productive, you have to give them the right environment and the right tools.


Quality means everything we do, not just our products. It means the way we write reports, the way we send invoices, doing things right the first time. Most of all, quality means respecting our commitments. If we say we're going to deliver June 15, that's when we're going to deliver, with no exceptions.


Rather than thinking in terms of 13-week sales cycles, we set up weekly goals, and everybody who didn't meet the weekly goal -- including the country manager — had to write me a letter explaining why not. It only took a few months to straighten out our sales curve. In FY83 we met 55-60% of the budget before week 12 and the rest in the last two weeks of the quarter. Then in FY84 and 85, we went to a straight line of orders. Every week we have a goal, and we meet it. We made that change not by changing the people, but by changing their attitude.


For the last five quarters, we have met regularly with Manufacturing, look­ing at how the weekly orders match with manufacturing capacity. Typically, around week three or four, we get nervous about one or two products. So we write directly to the district manager saying, "The weekly trend of this product is behind Manufacturing's capacity to ship. We expect you to sell so many of these units to be able to use the full capacity." The sales organi­zation has reacted so well to this approach that we have systematically received orders exactly to the numbers we asked to receive. In other words, within certain boundaries, we can influence what customers purchase.


Two years ago, we asked Field Service in Europe to manage the Peripherals and Supplies Group on behalf of the country manager. They were busy doing their own job, and we asked them to do a little extra, using expertise and experience on how to manage an inventory, and how to get third-party com­petitors out of our installed base. And they are doing very, very well. They have grown what was about a $50-million business to $300 million of busi­ness, with a substantial profit margin.


We have to make sure that the people in the Field know exactly what their job is. For instance, in Sales there was no way of measuring who was doing what Monday morning or Tuesday afternoon. So we put in place a svstem where


salespeople have to plan where they are going next week, and their super­visors have a chance to keep track of simple productivity measures such as how many calls they have made and how many visits.


We needed to expand our portfolio of customers. When we had a crisis back in 1980 to 1982, it was clear that we didn't have enough customers. So in Germany, for example, they took senior sales people, complete sales units away from the existing accounts and said, "As of July 1, you don't have any customers. You'll have to get new customers." Of course, we studied the market and gave them some target accounts, but that was a difficult assign­ment. And at the end of the year, most of those salespeople had won the DEC-100. Now we measure every country on the number of new accounts (not just new applications in existing accounts) they open every quarter.


We extensively use our presence in Europe, specifically manufacturing, when trying to win customers. We take customers into our plants and diagnostic centers, and this makes a significant difference in winning major sales. But we need more presence, more resources in Europe.


It is absolutely fundamental that if you want to have customer satisfaction, you have to have motivated people who are proud of the products, proud of their company. I wrote a letter to every single employee explaining what we were going to do. We managers now spend a lot of time in classes and meet­ings explaining what we are doing. And it's amazing, when we hire people from other companies, and they see the country manager or myself or other functional managers spending time with young employees who just joined the company. They think, "This can't be true. There must be something different here." And they will never forget that experience even if they don't see Willi Kister or Geoff Shingles or myself again for years. It shows we care about them, and it's true. It takes time, but it really pays off.


We have reduced employee turnover; we have high morale; and we have a lot of people who want to join our company, many of whom were referred by em­ployees .


Over these three years, we have learned a few lessons. We have to make what we are doing very clear to employees. Middle management tends to stop changes because they are difficult. Typically, you have pressure for change from the top, and employees look for change, but in the middle it's limbo. So it's important to make messages clear. We have to continue to talk to the Field and repeat, repeat, repeat the message.


Now we have some challenges, and fantastic opportunities. We have tremendous pressure from IBM. They target us. They have salespeople who have a specific goal to go after our customers. But we cannot run the risk of imitating IBM. There are some things they do well; but if you mimic, you're dead. We have to be very careful that we don't get too influenced by IBM because we have our own strategy and we have to continue to do things our own way.


If we want to be successful we have to continue to stress such basics as customer satisfaction and productivity and, above all, we have to we work as one team, as one company, with one strategy.


Questions And Answers With Ken


Q: How long will it be before the new marketing organization is worked out, and can you give us a general idea of what it will look like?


A; There won't be major changes. We are redefining some of the things we've already been doing. Today, we have one marketing group that does both products (applications) and industries. One of the things we are going to do is separate our product marketing — have them responsible for completing the product all the way -- from industry marketing, which will make sure we market it thoroughly to the industry.


The problem we had before when we had a marketing group for newspapers or typesetting, for example, was that they only sold hardware and software for typesetting. They never felt the obligation to sell everything Digital made to newspapers. So, we had nobody selling them word processing, accounting software and other applications. As one step towards being one company, everybody will sell the whole set of products. In addition to selling type­setting, our newspaper industry group, for example, will take our whole range of products —- all of those that are applicable — and sell them to newspapers.


It turns out that the Europeans are way ahead of the U.S. on this, and the U.S. will follow their pattern because they're having very good results. When we report on this, we will not have the American groups supervise the world industries. We will, once a quarter, get results of our industry marketing groups by area, and they will learn from each other. One will not run the other.


By refocusing our marketing, I think we'll make a number of things happen. Marketing tends to include many details — all kinds of announcements, literature, planning -— and people tend to forget that marketing is based on finding out what the customer needs, finding out what products we have and then putting the two together. And we often forget that it's the message that is marketing's job.


In breaking things into pieces, each will be an entrepreneurial group. Some will fail. People want to grab hold of things centrally so no one will fail. With that, there is no motivation and less creativity. It is with this survival of the fittest that an organization becomes strong and an industry becomes strong. I once told this theory to a committee of the National Academy of Science, and someone quoted me, calling it "Ken Olsen's benevol­ent theory of evolution". Well, I never claimed that evolution was benevol­ent. Evolution is cruel, but the results are positive.


Q: Is the theme ONE COMPANY, ONE STRATEGY, ONE MESSAGE still relevant? If so, why?


A: It's not as relevant as it was a year ago. In the last year, we have gotten so far in ONE COMPANY, ONE STRATEGY, ONE MESSAGE that now we're almost starting to look for more in the words than was ever meant. We are truly ONE COMPANY now. We don't have separate companies going in different directions.


We don't have our strategy defined in all areas, but we do have ONE STRAT­EGY, and we do have ONE MESSAGE. We have one set of products, one product strategy, one networking strategy, and, to a large degree, we have arrived.


ONE COMPANY, ONE STRATEGY, ONE MESSAGE is still important, and we have to hold it in front of us and remind ourselves. But we have truly, beyond my dreams, accomplished what we set out to do there. So, it is not as pertin­ent, but it is still important. Now, we must exploit the results of entre­preneurship and have thorough marketing and have every single part of the company be more efficient.


ONE COMPANY does not mean doing all the planning in one place. In some companies, it can, but not here. In our business, I don't know anyone smart enough to do it all. So, we break it into pieces where the people who make the decision or the proposal take the responsibility.

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