| Digital - Divided strategy for layoffs
{The Boston Globe, 23-Nov-90, p. 62}
[This is the entire article - TT]
Now that Digital has concluded that layoffs re all but inevitable, the
company faces the tougher problem of determining just how deeply to cut its
work force.
Senior managers are sharply divided over the issue. The result is a
cautiousness that is hampering the company's efforts to reverse a two-year
slide in profits.
For example, Digital announced Tuesday night that it will close its plant in
Phoenix. It will try to find other jobs for the plant's 476 employees, but it
conceded that some layoffs - it's first since founder Kenneth H. Olsen set up
his machine shop 33 years ago - are likely.
Yet it was less than a year ago that it tried to save the plant by phasing
out most manufacturing and trimming the payroll with an expensive buyout
package. The shutdown seems to be a tacit admission that voluntary severance
and other half-measures are not enough.
"It's been a noble experiment," says John Adams, who follows Digital for
Adams, Harkness & Hill in Boston.
Indeed, Wall Street's frustration with Digital could be seen in its reaction
to the news of the closing of its Phoenix facility. Digital's stock fell 2 3/8
Wednesday to 49 3/8, a drop analyst George Elling of Merrill Lynch attributed
to disappointment that the company still shies away from quickly laying off
unneeded workers.
"Investors read this as DEC still pussyfooting around," he said.
Thus many Digital executives favor heeding the advice of Wall Street, where
analysts say it must slash as many as 20,000 jobs if it is to remain
competitive with leaner rivals. This camp notes that Digital produces about
$106,000 in revenue per employee, whereas the figure at Sun Microsystems is
nearly double that.
But others at the company argue that such comparisons are simplistic because
Digital sells everything from personal computers to mainframes while Sun
cranks out only workstations. This camp insists that drastic cuts would kill
the progressive paternalism nurtured by Olsen and leave Digital crippled when
the economy turns around and computer sales eventually rebound.
Complicating matters is the fact that Digital has overhauled virtually its
entire product line in the past year. Some Digital executives say they should
wait to see if the new products spark a pickup in sales, which would ease the
pressure to make heavy job reductions.
Decision-making is never a quick process among Digital's consensus-minded
executives. Nevertheless, Digital watchers say the handwringing will soon come
to an end.
"The current reading in the organization is that they would like to avoid
layoffs until after the holiday season," says John Logan, a consultant with
the Aberdeen Group in Boston. "We expect severe layoffs after Jan. 1."
Logan believes that Digital's managing executive committee will instruct the
heads of many business units to carry out the cuts as they see fit. This
decentralized approach makes it hard to calculate how many jobs are at risk,
Logan says, though he estimates that 10,000 to 15,000 workers will eventually
get pink slips. Digital employs 30,000 in Massachusetts and 123,000 worldwide.
The reason Digital must reduce its work force is twofold. The computer
business, especially in the United States, is in an extended slump, which has
been aggravated by the general economic downturn. At the same time, the entire
industry is being transformed by the advent of so-called "open systems," which
allow users to mix and match equipment from different vendors. This shift has
left suppliers like Digital, which were accustomed to the fat profit margins
commanded by their proprietary systems, with costs that are way out of line
with the profit margins possible in the open systems world.
"Digital is now paying the piper for ... the years when things were so
expansive" and it hired in big numbers, says analyst Stephen Cohen of
Stamford, Conn.-based Soundview Financial Group.
Cohen thinks Digital will begin significant layoffs, but not in the numbers
that "the hawks on Wall Street are calling for."
Nearly one out of four Digital employees works in Massachusetts, so layoffs
will likely hit hard here. In addition to its headquarters in Maynard, Digital
has substantial operations in Boston, Franklin, Hudson, Marlborough,
Shrewsbury, Springfield, Westfield and Westminster.
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