Conference 7.286::digital

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    Jim Osterhoff, vice president, Finance, has told the company that he has
    made a personal decision to leave Digital and pursue other interests. Jim
    will continue in his current capacity for the foreseeable future. The
    exact date of his departure has not yet been determined.
    
    There is no immediate replacement for Jim.  It is anticipated that the
    company will initiate a search, looking both within and outside the company.
    
    "We certainly wish Jim success in his future pursuits.  He has played an
     important role in the development of a strong financial organization
     within Digital," said Ken Olsen, president.  "This group has been 
     instrumental in leading the company through dramatic improvements
     in technology, great increases in productivity and challenging
     economic times.  As a successful organization, they will continue
     to position Digital for the future."
    
     Jim has been with Digital for nearly seven years.
     
     

     According to the Boston Globe, he is pulling down $400k a year.
     
     
     
     Bryan

    Speaking of salaries, where does the big jump occur ??? I'd guess
    that most senior managers in the company make around 100K ??? Maybe
    I'm off base here, but I must be within 30K or so of the average.
    Is the pay raise for making the jump to a VP 200k-300k ?
    
    Marty

    re: Salaries vs. "Real Earnings" for Corporate Officers
    
    Osterhoff's salary-of-record may be $400K, but his actual compensation
    from Digital is likely to be much higher in the forms of stock options
    and awards.  Most of the corporate officers have such deals in their
    back pockets, but only a few are obliged to reveal them (I think it's
    just the top five money-earners for the company who have to reveal
    their total earnings in financial disclosure statements).
    
    Geoff
    

    I would think that at the "group" manager level (non-VP), you're
    probably talkin' closer to 200K than 100K, but whatdai know?
    
    Anyhow, does this mean that I can announce my intention to leave the
    corporation, not specify exactly when, and be coy about where I'm
    going, and not be walked to the door in about 18 minutes?  I thought
    them was the rules.

    When a corporate officer leaves the company for whatever reason,his/her
    "golden parachute" deploys and showers that person with enough money to
    keep a person "in groceries" for quite awhile. Let's just say that Jim
    O. won't need to worry about his 26 weeks of un-employment
    compensation.
    
    Ken
    
    PS: Lennard,VP's don't have to follow the same rules that are found in
    the "orange book"
    

I came from Wang before Digital.  I saw how a combination of poor fiscal
management and poor product planning/engineering can drive a company into the
ground.

I was relieved when I came to Digital, mainly because of the fiscal policies 
that Jim Osterhoff put in place (from my vantage point it was his doing
anyway).  They provided the safety net of sound fiscal principles incase we
didn't always get it right with products and services.

During all of the downsizing we have been through, there have been things
that made me uncomfortable.  But this, his leaving has me very worried.

I hope we seek out someone who can provide the fiscal responsibility a company
of our size needs to grow.

    From the TOP of the pyramid looking DOWN, the "New Management System"
    appears incredibly elegant.  
    
    Each and every unit in the company either creates products and/or
    services (services here includes design engineering) or adds value to
    existing products and/or services.  Then a fairly simple concept is
    applied; take your total costs of goods manufactured, add the
    appropriate group and corporate allocations (including your distributed
    development costs), set a price that will give you a fair return on
    your investment and sell that product/service to customers - external
    or internal.  If nobody buys, you are either too expensive or your
    product/service is not wanted, or both.  If nobody buys, you go out of
    business - and you SHOULD go out of business.  You have revenue and you
    have expenses, as long as R>E, you have a shot at staying employed.
    
    From the BOTTOM of the pyramid looking UP, the "New Management System"
    appears incredibly elegant.  It is similar to running my household
    finances. I have income and I  have expenses, as long as I>E, I have a
    shot at keeping a favorable credit rating.
    
    Digital is STILL in chaos and dysfunction over how to IMPLEMENT the New
    Management System.  Can you believe that?  When we first thought of the
    NMS we could have taken a bunch of June Grads with BBAs in accounting
    and sent them to Harvard/MIT Sloan/Wharton/ETC to get MBAs with
    electives aimed at implementing the NMS.  They would have graduated and
    be implementing it now.  
    
    A casual observer might expect the FINANCE organization to provide
    corporate leadership in implementing the NMS, perhaps not.  That casual
    observer might conclude that the finance organization has failed,
    perhaps not.  That casual observer might conclude that the CFO is yet
    another VP who is demonstrating an effective form of leadership;
    bailout, perhaps not.
    
    Just an opinion from somewhere near the lower middle of the pyramid.
    
    Dave

    A fellow worker told me that he read an article in the Wall Street
    Journal last week that said that Osterhoff and Ken were at odds with
    each other. Seems that Osterhoff feels that we are still hemorrhaging
    from excess expenses. Anybody see the article?

    I for one have never been that comfortable with Osterhoff. I credit his
    influence with destroying the culture and morale at Digital. His focus
    has been to cut expenses no matter what the cost in non-financial
    terms. In the process, the DEC culture of "do the right thing" was
    mortally wounded, and the employees have lost much of the enthusiasm
    they once had for Digital. I cite some examples we have all lived
    through: continuous erosion of health care benefits, salary freezes,
    poor salary increases, layoffs, car plan almost going away, doubling up
    in hotels, post-its, hanging folders, etc., etc., etc...

    I think Osterhoff missed two big factors:

    1) When employees are motivated and feel that the company values them,
    they will bust their tails to make the company successful. If they feel
    trampled on and demotivated, the hidden costs to the company will be
    enormous.

    2) Focusing too much on cutting expenses removes the focus from where
    it should be: how to capitalize on the assets of the company to make
    more money. It is a retrenchment attitude, an attitude of retreat
    instead of attack that is very hard to recover from - witness Unysis
    and Wang.

    I have no doubt that Digital has unnecessary expenses that need to be
    cut, but in my thinking, it is critical to do it without damaging your
    MOST VALUABLE asset: the employees of the company and their motivation
    to do their very best. Much to my dismay, in my eight years at DEC, I
    have seen a steady attack on this company asset, and somehow, perhaps
    only in my imagination, I have seen in this the hand of Osterhoff.

    
    re: .11
    
    He may be correct in cutting cost, but it's how he did it that me
    and it seems, Ken Olsen, disagree with.

<><><><><><><><>  T h e   V O G O N   N e w s   S e r v i c e  <><><><><><><><>
    
 Edition : 2404              Tuesday 10-Sep-1991            Circulation :  8301 

VNS COMPUTER NEWS:                            [Tracy Talcott, VNS Computer Desk]
==================                            [Nashua, NH, USA                 ]

 Digital - Chief financial officer James M. Osterhoff leaving
	{The Wall Street Journal, 6-Sep-91, p. B3}
   Investors and stock analysts were shocked by the unexpected announcement.
 Analysts and consultants speculated that Mr. Osterhoff may have grown tired of
 fighting with Digital's founder and president, Kenneth Olsen, over the pace of
 cost-cutting and restructuring at Digital. "Digital was a company that never
 knew what its financial goals were pre-Osterhoff. he did a great job," said
 Shao Wang, an analyst with Smith Barney, Harris Upham. Analysts noted that
 under Mr. Osterhoff, accounts receivable and inventories were cut, asset
 utilization improved, and Digital turned into a cash-generating company from
 one that frequently had to sell stock or bonds to finance its growth. "He's
 had a superb effect. The balance sheet is one of the best of any industrial
 company in the world," said Jay P. Stevens, an analyst with Dean Witter
 Reynolds.

    re .10
    
    Rich, I tend to agree with the tone of your note. I believe Jim O. is
    viewed very highly by the financial gurus on Wall St and - hence the
    progniostication of further doom for DEC.
    
    BUT - I also feel that DEC's recent cowering to Wall St is what has
    gotten us into the mess we are in today. Wall St does not want to know
    what DEC will ear next year or next month or next week. They want to
    know what we are earning right now, this minute. This is what we were
    trying to do...please Wall St investors.
    
    But I feel that this is contrary to what made this company great.
    Decisions to invest in the future. Faith in a man (K.O.) to develop the
    correct visions and stick with them. Encourage entrepaneurial
    adventures within the company. 
    
    Have we fostered these principles in the last 7 years? I don't think
    so. 
    
    Perhaps with Jim's movement on to other things we can gravitate back to
    sounder decisions that benfit DEC - not the Wall St investor.
    
    Rich
    

    re: .14
    
    Digital, not Wall Street, is responsible for the problems Digital
    has.   

    re .15
    
    Patrick,
    
    I disagree with you and Michael Douglas:
    
    Greed is NOT Good.
    
    Greed drives Wall St.
    
    Wall St drivesd DEC
    
    Rich
    

   I saw Osterhoff do a presentation once in which he simply and clearly
   explained:
    
       o Digital's mistake: Explosive, uncontrolled growth in spending
       against stagnant revenues with shrinking margins.
    
       o The consequences of Digital's mistake: The pissing away of most of
       the money that our shareholders entrusted us with. "Wall Street" (I
       assume that you mean stockbrokers) looked at Digital's balance sheet
       and *correctly* advised their customers that, since Digital had
       pissed away so much of our shareholders' money, our company stock was
       no longer worth $180/share; it was only worth $60/share.
    
       o The necessary steps which Digital must take to replace (or, at the
       very least, to stop frittering away) our	shareholders' money: Cut
       expenses immediately and, in the medium and longer term, improve the
       revenue and the margins on that revenue. Expenses must be controlled
       until such time as the revenue and margins do improve, otherwise
       we're back to wasting shareholders' money again.
       
       o That replacing the shareholders' hard-earned money and giving them
       a decent return on their investment was a responsibility that we had
       all better take seriously. That's why they gave us their money in
       the first place. It is the right thing to do.
       
   Now, .16, I don't know about you and Michael Douglas, but I don't think
   anybody in this story is guilty of "greed." Certainly not Patrick, whose
   thoughtful and clearly written contributions to this conference enrich
   it, IMHO. Your mean-spirited characterization of Mr. Sweeney,
   conversely, does not.
   
   - Larry.

    RE:  .16
    
      I do not know what your definition of greed is, however if it is to
     make money and more of it, then your job depends on how greedy DEC
     is. digital exists for the sole purpose of making money for the
     shareholders, given time, it will cease to exist and so will your job
     if profits are not generated. In this context, greed is good indeed!
     
     fd.                                                         
    

    An observation:
    
    	James Osterhoff joined at about the time (1984-5) that many of the
    replies in the "Old-digital v.s. New-digital" note give as the boundary
    between the old and new digitals.
    
    I leave you to draw whatever conclusions you wish from this.
    
    
    Now, to my opinion (put on asbestos suit)
    
    	I think there is a problem with looking at just the numbers. We
    should find out WHY the numbers are as bad as they are. We should be
    looking at what parts of the company do not deliver enough value to the
    company, and WHY.
    
    	From my vantage post (behind a thick post), it seems that the
    theory of the "New Management System" is to have the free market
    determine this, rather than a central committee. I think this is a good
    idea. 
    
    	I do hope decisions to drop parts of the business are looked at
    carfully. We should find out why we a group cannot compete with outside
    resources; then decide whether we should fix what is wrong with
    ourselves, or buy the service from outside, or get along without the
    service. 
    
    
        

    The crisis of 1984 which were overcame concerned poor financial
    controls and reporting systems.  With the right organization and the
    right systems, the crisis was totally avoidable.
    
    The present crisis reflects a fundamental change in the computer
    industry, no organizational structuring, no accounting system could
    solve.

re: .20
    
>    The present crisis reflects a fundamental change in the computer
>    industry, no organizational structuring, no accounting system could
>    solve.

Maybe "no organizational structuring" will solve it, but longstanding
deficiencies in how we manage, evaluate and deploy our personnel keep
getting in the way of a real solution.

Osterhoff was just the messenger bringing the bad news, so don't lay
the blame at his doorstep.  IMO Personnel should've had systems in place
a long time ago that might have made this downsizing less chaotic:
	-  identifying skills that each employee possesses
	-  highlighting anomalous organizations (1 manager, 2 reports, etc.)
	-  know who the "bottom 5%" are in all organizations
	-  forecast skill mix needed and rate managers on growing it
	-  scrutinize SRI level and rating inequities across organizations
	-  consistent employee evaluation methodology and criteria WORLDWIDE
	-  draw on employee ratings of managers to flag "bad apples"
I must have at least 4 suggestions in the Delta program about issues like
these (all of which are being "studied" by someone in Personnel, i'm sure;^)).

It's nice to get rid of redundant work, but that doesn't say that the people
currently doing that work might not have greater value elsewhere in the
company (possibly more value than some of the entrenched people in other
"safe" organizations).  It shouldn't be as hard as it is to determine this!

								paul

    Hmm.  Sounds like a bit of clash between "don't shoot the messenger"
    and "he who proposes, disposes".  I can just envision how Osterhoff
    could have been caught in the crossfire if he was a messenger with bad
    news (don't shoot him) with a proposal that nobody likes (shoot him).
    From what I've read here, it sounds like he tagged the problem well,
    but some folks don't like what the solutions have done to the company.
    WS only sees the company from outside.  To them it looks good because
    they are looking at the paper and things looked good on paper.  But,
    they don't see the whole picture or at least that's what we feel.  And,
    the whole picture involves taking a long term view, and how much
    pressure is on WS to invest in Digital for the long haul?  Of course,
    WS is absolutely right if the cost center, the fundamental unit of the
    company, focuses only on short term revenue generation and sacrifices
    long term ...
    
    Steve

    Re:  The Wall Street Issue:
    
    I believe Digital has spent many hundreds of millions over the past few
    years buying back millions of shares of stock to insure that even
    though our results are dropping, the impact on the earnings per share
    (EPS) does not seem to be dropping as rapidly.  Could we have done
    better things with that money?  Was it effective? (especially with the
    stock no better and usually worse than book value per share).  Was this
    a Wall Street oriented strategy?
    
    Mark
    

I generally summarize articles.

					Trace

    First off, I meant Patrick no malice in .16. I respect his
    contributions in all the conferences I have seen him particpate in. It
    was a difference of opinion - nothing more.
    
    To perhaps better illustrate my feelings about
    stockholders/investors/Wall St, whatever.............does anybody know
    of a company called Ampex? Perhaps you have seen some magnetic tapes
    made by this company.
    
    Well, back a few years, Ampex was fooling around with a new fangled
    gadget that allowed a person to put a tape (reel to reel) on a machine,
    hook it up to a TV and then watch what was on the tape on TV. What a
    marvelous idea. One could even record what was on TV and play it back
    later.
    
    Well, Ampex was selling a few of these units to schools and some
    businesses but profits were slow coming in and Ampex hadn't yet figured
    out the gold mine they were sitting on. Their profits were modest but
    at their stockholders meeting, investors wanted increased revenues. The
    Video Recorder concept was explained but no time was taken to figure
    out how best to use this gem. Investors/stockholders/Wall St told Ampex
    to sell the patent. A company in Japan called JVC bought it giving
    Ampex a bunch of money.
    
    JVC is a giant today and nearly every home has a VCR. Ampex is about
    the same size that it used to be.
    
    My point is that I feel investors only look at the bottom line of
    today. Too many of them lack the vision it takes to lay the foundation
    of a bright and profitable future. R&D, retooling, re-educating - these
    concepts are not in the investors' handbook of useful terms.
    
    I am not naiive enough to believe everything was and is hunky-dorey
    with DEC. We have problems. Sure. But we have a President and CEO who
    is dynamic, stubborn, resourceful and who built a giant out of a garage
    idea. Investors don't think about R&D the way Ken does. 
    
    I'm sorry but I think the trend toward a service economy is a direct
    result of a craving for quick profits which is driven by the investment
    minds that are prevalent in the NYSE.
    
    Rich
    

    Once again, I take keyboard in hand, in order to defend those without a
    voice here, our owners, our shareholders.

    Shareholders have a right to expect a return for their money which they
    entrust to us employees at Digital.  And we have let them down big
    time.

    Losses are destroying the value of their investment in Digital, and
    each quarter they are told, next quarter will be the one.

    Patience in 1988, 1989, 1990, 1991, etc. when will the shareholders see
    consistent earnings growth?

    No one forced Ken Olsen to sell a large percentage of Digital to the
    public, but sell he did, and I think our shareholders expectations
    regarding when Digital should become profitable are right on the money.

    If we still have investments where return is not expected for 5 years,
    I'd be plenty surprised. 

    Ampex, by the way, didn't fail on R and D, but on marketing and
    manufacturing efficiency.  There's more of a lesson for us there than
    you indicated.

    According to a memo I just read,Osterhoff didn't resign,he's still a
    DEC employee. He just resigned his duties. How sweet it is! Still a VP
    with the whopping salary but now the responsibilities belong to someone
    else.
    
    Ken

RE: .28

Maybe you'd prefer that he left the company high and dry, without any
transition period in which to train a suitable replacement?

--PSW

    RE:-1.
    He should be treated as other employees, or does the size of his
    paycheck dictates special treatment. He was NOT transitioned,
    he decided to leave!
    
    I'd prefer he left LOW and WET!!
    
    fd.

    Some random thoughts on the matter:
    
    Re: the comment on Osterhoff joining the company at the same time as
    the transition from the "Old DEC" to "the New Digital"
    
    Coincidence; I've always believed that the "New Digital" was the fault
    of our growth, the rapid ballooning of the VP ranks, and a plethora of
    managers who were administrators rather than leaders.  The ensuing
    political chaos made us blind to the changes in the industry that are
    dragging us down.
    
    Re:  the re-purchase of stock by the Company
    
    The company uses most of the stock it repurchases for employee stock
    plans.  Considering the number of employees who have been dumping DEC
    stock lately, I assume that most of that stock is back in circulation.
    
    Re:  the Wall Street short-term mentality
    
    That isn't just a Digital problem, it's an American problem.  DEC can't
    buck the system all on it's own.  K.O.'s title is not "Dictator".
    
    Re:  walking Osterhoff to the door
    
    Nothing in the Orange Book demands that Osterhoff be shoved out the
    door just because he's resigned.  If it's in the Company's best
    interest that he stick around through a transition period, then it's
    completely appropriate that he be allowed to do so.
    
    Re:  Osterhoff's financial reign
    
    All I know is this:  Digital managed to squander incredible amounts of
    money over the last few years, and Osterhoff was the only top manager 
    I recall speaking out against it.  Someone (K.O. I assume) allowed it
    to occur anyway.  I'm sure all of us who prowl this notesfile know
    the feeling of frustration that occurs when you're not *allowed* to
    do the job you're capable of.  In this respect, I sympathize with
    Osterhoff, and wish him better luck in the future.
    
    Geoff
    

    There's a memo floating around which exposes some dirty underwear
    in Finance.  It implies that O. is leaving because of disagreement
    with KO over NMS.  There was also an interesting comment on how
    engineering finance managers were unhappy with Lyn Benton....accused
    her of "yessing" K.O. too much.
    
    I agree that NMS appears to offer an "elegant" solution to our present
    problems.  But, as far as I can tell far, far too much time is
    required to determine that a product ain't gonna make it on the
    market.  We're still taking three years to develop something, and then
    three more to determine whether it's going to make it.  I don't think
    it is going to work because of that.
    
    Back to Osterhoff.  He probably had aspirations for the top job.  I
    believe that in the car industry where he came from, top jobs are often
    filled by financial types, GM being the prime example.  He probably
    finally understood he wasn't going to make it in DEC.

    I heard KO stopped inviting Osterhoff to the meetings where you'd
    expect the Chief Financial Officer to be.

    Reminds me of the fabled way that NCR once laid off senior executives.
    At some big (annual?) meeting there would be chairs and places set up
    with place names. That's how IBM got started. Thomas Watson couldn't
    find his name.
    
    
    				herb
    
    

    1) Osterhoff joined Digital from Ford.  He had been in charge of Ford
    Europe, which was the ONLY profitable part of Ford at the time.  My gut
    feeling is that Phillip Caldwell, ex Ford Chairman, and member of the
    Digital BOD, had some influence.
    
    2) When Osterhoff came on board, Digital was not viewed well by the
    Financial community, and our balance sheet was in poor shape.  For the
    last few years, Digital's balance sheet has been viewed by the
    financial community as one of the healthiest in the industry.  Many
    credit Osterhoff for making this happen.
    The poor showing of our stock probably has something to do with the
    fact that our sales have been flat while our expenses have been
    increasing.  DEC stock is held mostly by large institutions.  Buy/sell
    decisions are often made by computers, when the "price" is right.  The
    stock is often traded to take profits.
    
    4) We had salary freezes in 81/82, before Osterhoff (under the reign of
    Al Bertocci).
    
    5) I believe Osterhoff wanted the headcount reductions to happen a lot
    faster than they were, which was in disagreement with K.O.  I also
    believe they had some disagreement about the NMS.
    
    		Ex-finance guy...now out working with customers
    

    re  .34
    
    Doubtless the biggest mistake ever made at NCR!

    Papers announced today that he has been named CFO at U S West in
    Colorado.  Good job for Jim!