Conference 7.286::digital

    Reprinted without permission  from  the  29-Sep-1992  edition of the NH
    'The Union Leader' newspaper.
    
    New Digital Chief Plans $1B in Cuts
    
    From AP and Staff Reports
    
      Maynard,  Mass,  -- The incoming president of Digital Equipment Corp.
    reportedly  plans  to  cut  cost by $1 billion and overhaul the  firm's
    operating procedures  in  an  effort  to  speed product development and
    delivery.
      Robert Palmer, who  officially takes the reins of the ailing computer
    company on Thursday, outlined  the  changes  in  a  14-point initiative
    distributed  to  employees and in  internal  memos,  according  to  the
    industry newspaper PC Week.
      The newspaper reported that changes include:
    - Cutting cost by $1 billion;
    - trimming assets by another $1 billion;
    - Combining the firm's hardware engineering groups into a single unit;
    - Putting Digital's separate networking products into one network 
      communications groups; and
    - Creating individual business units that have more autonomy.
      The   memos  also  indicate  that  Palmer  wants  to  increase    the
    accountability  of  all  employees,  and  better  coordinate the firm's
    products, and  increase  customer  satisfaction twofold to threefold in
    fiscal 1994.
      Company officials confirmed the existence of the memos, but would not
    comment further.
      "This was a work  in  progress.  they are confidential documents, and
    they are without context," said Mark Fredrickson, a Digital spokesman.
      But analysts said the changes  were  necessary  for  the  $14 billion
    company which has been struggling to reverse  a  series of heavy losses
    and chart a new direction.
      "The plans simply articulate what has been clear for some time," said
    Laura Conigliaro, an analyst with Prudential Securities Research in New
    York, "It's clear Digital has to ...  reformulate some  of  the  things
    it's been doing to put itself into fighting shape."
      Palmer, 53  succeeds  Digital  co-founder Kenneth Olsen, who abruptly
    announced in July  that he was stepping down.  Olsen, who helped launch
    the company in 1957,  had come under fire as Digital's fortunes tumbled
    and he tried to reshuffle its management and product lines.
      Digital has eliminated more than  20,000  jobs  in  recent  years and
    analyst have estimated it may cut  up to 15,000 more.  It posted a $2.8
    billion net loss in the last fiscal year and is expected to post losses
    for the next several quarters.
      The company reported 7,240 employees in New Hampshire as  of  July 1,
    down from 7,580 a year earlier.
      Palmer has pledge to revamp the way the firm  operates,  but  has not
    projected  how  many jobs might be cut.  he is  scheduled  to  offer  a
    preview of the changes Thursday.
      Conigliaro called  Digital  "a  traditional computer company that had
    built up a  large  infrastructure  based  on  the premise that business
    would continue as it has in the past."
      But in recent years the industry had gone from being mainframe-driven
    to desktop-driven, and Digital failed to keep up, she said.
      "This company was in danger of  becoming  an anachronism," Conigliaro
    said.    "The industry was changing and  going  in  one  direction  and
    Digital was staying in the same direction.   It  has to make monumental
    changes."
      A Digital spokesman in New Hampshire last night declined to comment.
      But  George Whelton, chief executive officer of Hollis-based  Windsor
    Communications,  a Digital vendor, said he's "very bullish" on  Digital
    in light of the moves mentioned in the news reports.
      "Digital is going to be a much stronger company," Whelton said.  "I'm
    totally convinced Digital will be a stronger company a year from now."
      The  move follow earlier downsizing cutbacks and will bring Digital's
    operation closer  to  the  bone,  he  said.   "Do you save the company?
    that's essentially what Robert Palmer is doing.  He is making the tough
    choices," Whelton said, describing Palmer as "courageous."
      Some people wonder if Digital is following Wang's path to bankruptcy.
    "Digital  is no Wang." Whelton  said,  noting  that  Digital  has  good
    networking products and a good, strong services business.  Digital also
    has  good borrowing power, he said.  "They are  in  a  very  good  cash
    position."    
      Whelton  offered  a  history  lesson:  "Digital's heroes of the  past
    invented mini-computers.   Digital's heroes of today invented the alpha
    chip.  Digital's  heroes of the future are going to invent change.  The
    Palmers and the people  who restart and re-energize the company are the
    heroes of the future."
      What's  traumatic  about  the  change,  especially  in  southern  New
    Hampshire, according to Whelton, is the human factor -- jobs  lost.  "I
    have friends who are losing their jobs," he said.
      Sources  report a parking lot outside the  Drake  Beam  Morin  career
    counseling  center  in  Nashua  is  crowded with vehicles  these  days,
    whereas a few weeks ago it was nearly empty.
      Digital  is sending employees who are being laid off or taking  early
    retirement there to help them find new careers.
    

    What's different _in the content_ about this plan from previous plans?
    
    A "business unit" is still a fuzzy term.

	I agree with Pat, I don't see much new here. I still believe that 
	most of our problems are "people" problems. Not numbers of people
	so much as attitude of people (managers *are* people aren't they?)
	I'll start getting my hopes up after major changes in management in
	the couple of layers below Palmer happen. And not just bird cage
	rattling either.

		Alfred

    I'm with Pat and Alfred.  We need to take the birds out of the cage,
    not move them around.
    
    Dick

    It's not the term that's fuzzy but people's thinking about it.  It has
    got to be a profit centre.  If you're smart enough to be able to manage
    the accounting and systems for cross-charging, you might be able to
    manage a business unit within a matrix organization.  It has to be said
    though that people are usually not that smart.  In which case the logic
    is that you set up a separate company and handle inter-company
    requirements through contracts, sales/purchase orders and the like.
    
    It's been done before too.  ICL, a U.K. systems shop, set up a separate
    business unit for the retail EPOS market about seven years ago.  They went
    from nowhere to number one or two in the U.K. market and a significant
    player internationally.  And they faced up to all the issues such as
    having a separate, dedicated sales force, and engineering, and
    manufacturing, and services etc.

    
    Would someone please explain how to cut $1 billion in assets.
    And also why a company would want to?
    Thanks.
    

...
   Analysts said the proposed $1 billion in cost-cutting would come from
 employees' salaries and the $1 billion in asset reduction would probably come
 from reducing inventory through the speeding of manufacturing turnaround time.

						Trace

    Some assets make money, others are idle.  I expect they want to cut the
    idle ones.  The JIT hypothesis mentioned in .7 is one way except that
    we haven't yet simplified the material flows enough to make it
    feasible quickly.  $1b will take some significant doing, a lot more
    than the talk we're used to.  Our inventory excesses are the results of
    inconsistent systems, uncoordinated operations, informal and inadequate
    planning.  Lots of cloth to cut a solution from.  Problem is to find a
    tailor with strong scissors.
    
    Dick

    
    Accounts receivables is perhaps the largest Current Asset of the
    Corporation.   In order to meet the Days Sales Outstanding goals for
    the coming fiscal years it will mean a reduction in the $1Billion
    range.
    
    KO

    
    Questions:  
    
    How big are our payroll expenses?  This $1B reduction in payroll
    expense translates to how many rolling heads?
    
    Also, must all the expense reduction be payroll?  Let's get rid of
    the waste like those stupid cassette tapes we send to the field.
    
    -Ed
    
    
    

    The assets as of the end of June 1992 (end of FY92)
    
    Cash             =   $1.337B
    Accts. Rec.      =   $3.594B
    Total Inventory  =   $1.614B
    Prepaid Expenses =   $ .353B
    Deferred Taxes   =   $ .223B
    Land             =   $ .373B
    Buildings        =   $1.872B
    Leashold Improvs =   $ .593B
    Machy & Equip    =   $4.835B
    Other            =   $ .594B
    Less Depr, etc   =   $4.103B
                         --------
    Total            =   $11.284B   (down from $2.875B in FY91)
    
    Looks like we've got a few places to look for $1B in reductions
    Mark
    

    Re: Payroll Expense

    In the US Field org.  Payroll represents approx 60% of your expense.  If
    you are going to cut costs then payroll must be part of that equation. 
    The problem is that to effectively do this Digital must change the way
    it goes to market and conducts its business.  If that doesn't happen
    then Digital will not be able to maintain it's revenue streams causing
    more cost reduction measures and the spiral will continue.

    The individual salesperson in the US is not as productive as a
    salesperson in the UK (as an example).  Therefore unless major systematic 
    changes take place then just asking the sales people to sell more will
    not help.   While allot of activity and talk about changes are taking
    place I have not seen much in the way of results.  Hopefully within the
    next few months these results will crystallize.
    
    John

    
    
    Re: .6
    
    
    Assets which aren't currently employed in generating revenue
    consume resources just in keeping them maintained.  Imagine what
    it must cost us each year in taxes, utilities, maintenance for
    facilities that aren't producing income.
    
    Steve
    

    re.8 One problem with JIT is vendors who don't take it seriously.
    (And some internal groups are the worst offenders.) JIT says,
    I want just enough, exactly when I need it. Most vendors say,
    screw you, you'll get what we give you, when we give it to you.
    So, you end up with too much, because they don't want to hold
    it back, or too little, which causes you to over-order by way of
    compensation. 
    
    Maybe we need to change 'JIT' to 'JED' - Just Enough, Dammit!

    And of course, if accounts receivable reduces by $1B, something else
    increases by $1B.  It could show up either as increased cash or appear
    that we made $1B more in revenue (or both, depending on how the
    accounting is done).
    
    Mel 

I think he means plant closings, in the talk yesterday he talked of
a plant in "Greenville, South Carolina" (hope I heard that right) that
had been sold off. I think it's more of that type of exercise.

    
    re: .3
    
    	I agree about the management problems; this is a major hurdle for DEC. 
    One of the problems that has caused this has been few career paths in
    the past. Many viewed the paths as managerial or technical. If you were
    at the end of the line technically (this is a common misperception) or
    just tired of the technical grind go for a management position. In my
    opinion there are too many people that became managers for the wrong
    reasons.            
    	I don't know how many times I see technical folks hang it up and go
    into management. Only problem is they still need to deal with technical
    staff or the like. So they then buffer themselves from this with more
    managers. This has happened. Now it will come to a stop. But, even if
    managers aren't technically-minded anymore they are crafty. They will
    realize that they can't add layers of management between them and the
    grunts anymore. Now they can really get creative. I see them drop staff
    like a hot potato and become <insert creative title> managers,
    essentially individual contributors again. Problem is they lost their 
    technical edge long ago, or if they do want it again they push out
    those that stuck with a technical career path. Or let's take the noble
    concept of teamwork, this can get distorted even more. Managers will
    create teams of engineers and ICs and "empower" them with everything
    from project strategy to peer reviews. This actually may be good for
    ICs but what then is the responsibility of management?
    	I have seen excellent managers that don't play these games, that
    keep their technical edge, who formulate strategies, meet with
    customers, take care of staff, solicit opinions of workers, etc. 
    	I just hope Bob Palmer can see through the shenanigans of the many
    and promote the few managers which have the right qualities.
    	And more importantly we need to make sure that people aren't forced 
    (or feel pressured) into management roles. 
    
    - Jim K

Hi,
     I believe the 1b$ cost reduction is also the aim of Bob Palmers value chain
 analysis group. 1b$ reduction in assets would equate to approx 10,000 people.

with regards
Paul

    1b$ in assests reduction could also be obtained by reducing AR by that
    amount and that would not require eliminating employees but rather the
    introduction of customer satisfaction as the revenue recognition event
    rather than the currently-used function-dependent and not 
    customer-dependent events.  
    
    Instead of eliminating employees this would motivate them to work for
    the benefit of the company.  If you were the business manager, which
    option would you choose ?
    
    David

    
    How does reducing AR yield a reduction in assets?   The only way I can
    think of is to write them off as bad debt. 

    You reduce AR by getting customers to pay their bills on time.  Dentist
    experience is often useful.  :-0
    
    Dick

    >> You reduce AR by getting customers to pay their bills on time.  Dentist
    >> experience is often useful.  :-0
    
    This reduces AR but how does it reduce assets.  You credit A/R and
    debit cash -- net assets remains the same.
    
    The only way to reduce assets is to then spend the cash.

    Reducing AR (an asset) reduces total assets if the cash freed from
    quicker collections is used to reduce existing debt or, in our current
    situation, to put off the need for increased debt.  
    
    Reducing the need for additional debt and avoiding the interest expense
    that goes with it, is behind the urgent cash conservation actions being
    pushed in the corporation.
                       
    
    Carter (CPA hat on)  

    The most important impact of the AR reduction is in the increase of
    customer satisfaction and in Digital's image in the market.  The AR
    reduction, in my opinion, is secondary to these.  
    
    Bringing about the AR reduction as I suggested has the most useful
    effect of getting many parts of this company to work TOGETHER 
    for the benefit of Digital, rather than working independently for the
    benefit of their own, non-company-beneficial metrics.
    
    If the managers of Digital want to reduce assets, AR reduction is the
    most business-beneficial way to do it IMHO.  From Wallstreet's point of
    view, it would also increase ROA (if we had any returns !).  
    
    I hope that the managers of Digital are not so short-sighted as to
    think that, automatically:
    
      reduction in expenses = decrease in employees = Digital's business
                                                                advantage
    
    I also hope they are convinced that this company will not succeed
    without effective business management !
    
    David - European Capability Manager of IEM and CCOO services

    
    Admittedly, we are dealing in the land of opinions here so I will 
    offer yet another, in response to the last few...
    
    The most common goal for reducing assets is reducing inventory.  This
    is usual stated as a goal of increasing inventory turns, which can
    only be achieved by reducing inventory (in either manufacturing
    components or finished goods) or increasing sales.
    
    Reducing AR is generally not a tactic for reducing assets.  It is
    usually done to improve the cash position of the enterprise, as stated
    in the last few.  The goal is usually "to reduce short term
    debt" or "to improve cash on hand".  Neither of these goals reflect an
    improvement in the asset position.  In fact, the former reduces
    assets, while the latter has no effect.
                  

    
    I forgot to mention that reducing AR will result in lost sales, because
    of stricter credit terms.
    
    Reducing inventory of finished goods will usually result in lost sales
    as well, because of stockout conditions.  Reducing manufacturing
    component inventory can also cause lost sales because capacity to 
    produce finished goods is reduced.

re .26

	I'm in the middle of reading Peter Senge's book, "The Fifth 
	Discipline". One of the points he makes is that almost all
	businesses go through cycles of boom and bust, and many
	companies limit their growth during boom years because during
	the bust years they either retrenched their capacity or at least
	did not approve plans for new capacity, and then, when the boom
	re-appeared, they did not have sufficient capacity to meet demand 
	quickly enough. He gives a few example of this, and then spends half 
	a page talking about a company with, early in it's history, occupied
	a small part of a huge building. The company was persuaded to rent 
	a huge part of the building, and six months later, all the space
	was being productively used. That company, Senge relates, went on
	to amazing stretch of uninterrupted growth, which he attributes to 
	the maintenance by the company of reserves which allowed commitment
	of capacity so as not to limit growth. The company? Digital Equipment 
	Corp. I think that also accounts for KO's reluctance to lay people 
	off - he wanted them around so that in the next boom period, he'd
	have immediate capacity to deal with demand.

						Tom_K
	

    The biggest problem that I see with the "14 point plan" is that they
    are all catch-ups. Nothing is there to put us ahead. Cut this out, trim
    that down, make that smaller. How about some agressiveness in our
    outlook...
    
    re . variety...
    
    Why, why, why, this damn paranoia about cutting the number of
    employees...
    
    We met the being of a recession, along with everyone else in the
    industry, on a roll. Some bright Spark, convinced the powers that be
    that we have a poor revenue/employee ratio, and that the only way to
    remedy that, was to cut the number of employees. Whoa back,
    buckwheat... How about attacking the other side of the equation. Try
    increasing revenue... Can we do it, of course, we can. Look at the
    PCBYDEC business, which has gone from non-existant to the largest Mail
    order computer business in the industry in under 12 months. Look at the
    potential... Weaker Competitors are falling by the wayside... How about
    a BU to go out and target picking up Wang and DG business which is just
    begging for a path out of the doldrums that those vendors are in.
    
    We have laid off off thousands and thousands of dedicated individuals,
    to what end...
    	In many cases, because the cuts were numbers and not business
    based, we have canned extremely profitable organizations/people. IN
    virtually every "transition" scenario that I have seen, it hasbeen a
    case, of "snip, snip, snip" and then march the people out of the
    door... I have yet to see one situation, where the person leaving was
    asked to brief a replacement on their current portfolio of activities,
    or even pass on their current files to a replacement. The thousands of
    person-years of effort that has been simply abandoned is downright
    stupid... 
    
    	What has been shown, time and again, is that we too often get down
    the rat-hole of having differing parts of the corporation, working
    against each other. These so-called business units, should follow in
    the model of Sun and Apple. Let's break out the Field Hardware
    Maintenance organization into a seperate company (as it has always been
    reasonably profitable in it's own right). Let's get Software out on
    it's own, Like Apple's Claris.   And instead of just laying people off,
    let's canvas the potential departee's for some signs of enterpreneurial
    skill. The South Pacific Region (Australia/NZ) recently dropped around
    300 people from it's workforce to bring it down to around 1250 people.
    It spent around $35M to do so.   Sheesh, give me $35M, and my pick of
    300 talented and experienced professionals, and I'll turn it into $100M
    in two years. A number of people lost in that transition, are now
    making almost obscene amounts of money, picking up business, that DEC
    can't cope with through downsizing, or didn't regard as being worth the
    enterpreneurial effort.
    
    This all still gives the perception that senior management think we are
    in an uncontrolled Death spiral. 
    
    .27 really sums it up, to my way of thinking. We are still trying to
    spiral down, while the rest of the industry is recovering, and laughing
    at us... One of the biggest problems that still exists in DEC, and I
    don't think that Palmer has even acknowledged it, is that we have a
    middle management organization that takes everything literally. There
    is a sad dearth of creative interpretation of corporate edicts.
    Remember the old "Post-it Note" ban... We actually paid people to
    calculate how many thusands or whatever, we spent on Post-it notes. But
    where was the bright person, who could take that, walk into 3M and say,
    "We buy 1 Million post-it Pads at $3. a piece, retail. We'll pay you $x
    (less than 3 mill) to drop ship n cartons or pallets of same to each of
    our facilities... We could have survived that trauma, with bargain
    priced post-its, if only we had more creative management...
    
    Repeat after me, folks... "We are a big corporation. We can weather
    small recessions. We can take market share from our competitors. We
    don't need to go out of business. The recession is over. Grow the
    company. Stop the paranoia. We can make money. We can do a win-win
    situation here..."
    
    q
    

    re: .28
    BRAVO q!!!!!!!!!!!!!!!!!!!!
    
    I agree 100% that we can be profitable again without losing good
    people.  I can't get it out of my mind with all of this downsizing
    that DEC is giving away a LOT of brainpower to the competition and
    most of those who were forced to leave have no qualms about "sticking"
    it to DEC when they get hired by one of our competitors!!!
    I wouldn't either.......Regarding taking marketshare, I almost puked
    when I read this weeks DIGITAL TODAY front page article in which the
    author reveled in the thought of going after small and medium sized
    business to sell our products and services. The article treated the
    idea as REVOLUTIONARY.  For years the larger customers have been
    buying less and less and we in services have been suggesting to sales
    that DEC should be selling to small/medium companies but were always
    told that it was unnecessary..that DEC makes 90% of its profits from
    10% of its customers.....I hope that Bob P pushes harder for DEC to
    "pound the pavement" more and make ourselves visible to all size
    companies!  In the past, whenever I put in a sales lead from a local
    "mom and pop" shop for a small system or PC, the lead disappeared into
    oblivion with excuses that its a waste of time.  Too bad...we can use
    all the sales we can get now and good hard-working people have to lose
    their jobs.......
    
    /bob

    re .-1
    
    thanks...
    
    Re selling to small business... A Sales Manager told me the story
    recently, of how he went out with a sales rep to talk to a remote but
    important customer with a reasonable amount of hardware. That done,
    they said to the FS engineer that looked after this rural area, "what
    the hell, any other customers worth talking to... Our plane doesn't go
    for n hours". They wen't to a local customer that had been happily
    running his 11/34's for several years. Gave him Systems and Options
    Catalogs, talked to him about new technology, and so on. Didn't think
    much more of it, until the Sales Manager rang a few weeks later to see
    if the guy had any questions. 
    
    He did, he wanted to know where to send the order for the 6000 based
    cluster to replace his PDP11. 
    
    I can think of hundreds of Customers out there, that saw Digital to be
    an innovative and responsive provider of technology solutions in the
    80's. Nowadays, we are too damn stupid to follow up on a lot of those
    customers to bring them into the 90's. 
    
    Peter Q.