Conference 7.286::digital

1660.0. "WSJ: Digital Inching Forward" by SDSVAX::SWEENEY (Truth, Justice, and Flames) Tue Nov 05 1991 08:04

Copyright � Dow Jones & Co. 1991

    Headline: Computers: Digital Equipment Inching Forward In Uneasy Search
    for Olsen's Successor by John R. Wilke


Story:

    MAYNARD, Mass. -- Amid rising concern about management succession, some 
    directors of Digital Equipment Corp. are quietly working to persuade
    its  founder and autocratic president Kenneth H. Olsen to identify
    candidates to  succeed him at the nation's second-largest computer
    maker.

    As a first step, John F. Smith, 56 years old, a senior vice president,
    is  expected to be named to the new post of chief operating officer,
    Digital  insiders say.

    But the 65-year-old Mr. Olsen -- who has headed Digital since it was
    started  in 1957, making him perhaps the longest-running chief
    executive of a major  U.S. company -- shows little interest in
    relinquishing authority.

    "I'm not going to crown anyone," Mr. Olsen said in an interview.
    "There's no  need to discuss succession when the chief executive is
    young and healthy."  Moreover, he added, while the issue is "the
    prerogative of the board . . . if  I found any of them talked to the
    press about this, I'd fire them."

    Mr. Olsen, of course, can't fire directors. But his comment underscores
    the  extent to which Digital's eight-member board is dominated by him
    -- unlike the  investor-led board of Compaq Computer Corp., which
    became impatient with poor  results and last month abruptly fired
    co-founder and chief executive Joseph  "Rod" Canion. In addition,
    insiders say that Mr. Olsen doesn't want to appear  to be reacting to
    pressure, and thus might delay any executive changes.

    No one thinks Mr. Olsen should be forced out. Indeed, some say that his 
    strategic decision-making is critical to Digital at a time when the
    entire  computer industry is reeling from changing technology and lower
    profit  margins. "The irony is that Ken may be the only one who can
    lead them" through  this transition, says C. Gordon Bell, who spent 23
    years at Digital, designing  the flagship VAX computer line, before
    departing in 1983.

    But the succession issue nonetheless has caused concern among some
    investors  as well as directors, and not simply because Mr. Olsen has
    reached age 65.  Digital's results have been weak for more than a year,
    they note, and the  company needs to bolster top management to respond
    more quickly to industry  changes.

    Already, Mr. Olsen's difficulty in letting go may have cost Digital
    some  talent. Six vice presidents have resigned recently, including the 
    well-regarded chief financial officer, James M. Osterhoff, who was on
    the  losing end of a dispute with Mr. Smith about financial
    restructuring. Mr.  Smith is regarded as Mr. Olsen's loyal lieutenant.

    "Ken has a fundamental aversion to letting anyone else become a leader.
    He  sees them as a threat. This hurts Digital's management by driving
    out good  people," says a senior executive who recently left the
    company.

    Moreover, Mr. Olsen's critics say he has been making major decisions in
    a  vacuum -- without a healthy dose of dissent -- and that some of the
    results  have hurt. For example, they say, Mr. Olsen sunk $1 billion
    into an ill-fated  mainframe computer line at a time when big machines
    were losing out to  smaller, simpler designs. They also say Mr. Olsen
    moved too slowly to make  badly needed cuts in the work force and
    delayed by at least a year a redesign  of the flagship VAX line with
    new chip technology.

    On key decisions, Mr. Olsen "has been essentially talking to himself
    for a  decade," says Mr. Bell, the former Digital executive. "He's got
    all these  listeners and no one who will argue with him and tell him
    that he's wrong."

    Executives say the succession issue has sparked concern on the
    eight-member  board. Philip Caldwell, former chairman of Ford Motor
    Co., has been pushing  Mr. Olsen to step up his succession planning,
    they say. Mr. Caldwell didn't  return calls made to his office. In May,
    the board began addressing the  problem in earnest, but put a decision
    on hold to deal with more immediate  strategic and operating
    challenges, say those familiar with the board's  thinking.

    "Ken Olsen is at a fork in the road," says Jeffrey Sonnenfeld, a
    management  scholar and author of "The Hero's Farewell," a study of
    succession. The way a  chief executive handles succession can cap a
    long career or tarnish it, he  suggests, depending on whether he
    relinquishes power gracefully or becomes a  "corporate monarch, one who
    does not retire, but wears his crown to the end."  He calls Mr. Olsen
    "one of the industry's last great heroes," who imposed his  own moral
    code and even his eccentricities on the company he built.

    Mr. Olsen insisted in an interview that talking about succession is a
    waste  of time. "There isn't a big emphasis on titles around here," he
    said. As for  promoting Mr. Smith, he said that "we may do that
    someday," but that a new  title would just reflect "what he's already
    doing today."

    Pier Carlo Falotti, chief executive of Digital's huge European
    operations,  is also on anyone's short list of internal candidates to
    ultimately succeed  Mr. Olsen. Mr. Olsen also has said he may look to a
    new generation of  managers. They include such fast-track executives as
    Robert B. Palmer, a  former United Technologies Corp. executive who
    runs manufacturing, and David  L. Stone, Digital's high-profile
    software chief.

    Still, a handful of heirs apparent has emerged over the years, only to
    lose  favor and be forced out of the company. "Being identified as a
    potential heir  at Digital is like painting a bulls-eye on your
    forehead," says a former  executive.

    Digital is caught in a wave of change sweeping the industry. Smaller
    and  faster machines are eroding its market position, forcing it to
    shutter plants,  shift resources and cut its swollen payroll. These
    moves have exacted a toll:  In the fiscal year ended June 29, Digital
    took $1.1 billion in restructuring  charges, causing a first-ever
    annual loss of $617 million. Digital's revenue  rose just 7% to $13.91
    billion, with a paltry 1% increase in product sales  bolstered by a 16%
    gain in services and software.

    The company still has vast resources, of course: a broad customer base, 
    almost no debt and $2 billion in cash. Some of its businesses are
    surging,  such as computer systems integration and networking. And
    criticism of the  mainframe project and the pace of layoffs is just
    "20-20 hindsight" by poorly  informed outsiders, a spokesman says.

    But the current VAX computer design, which fueled phenomenal growth for
    a  decade, is running out of gas. As a result, the company is preparing
    for a  risky transition to a more advanced computer technology.

    Mr. Olsen has said he plans to stay at Digital's helm at least through
    the  introduction of the next-generation computer chip, code-named
    project Alpha.  Designed to power Digital through the rest of the
    decade, it is expected  sometime next year. The new design is an
    advanced RISC (reduced  instruction-set computer) chip that analysts
    say should yield huge performance  gains at a low cost.

    Digital's own RISC chip development -- now slated to be the VAX
    successor --  was slowed by Mr. Olsen's 1989 decision to stop work on
    an internal RISC  project in favor of a design by now-struggling MIPS
    Computer Systems Inc.  While the move helped in the short term in the
    competitive workstation market,  it effectively delayed development of
    the critically important follow-on to  the VAX, says Mr. Bell, the
    former VAX engineer. And it led to the loss of  David Cutler, "one of
    the best system designers in the world," a Digital  executive says. He
    left for Microsoft Corp. after his RISC work was cut.

    Mr. Stone, Digital's software chief, concedes that the RISC redesign
    for the  VAX line is indeed "somewhat late," and that Digital "has been
    off the  price-performance curve for quite some time." But he rejects
    criticism that  Mr. Olsen makes decisions in a vacuum. Mr. Stone says
    Mr. Olsen delegates  authority in every area except engineering, where
    he takes a more hands-on  approach. "He allows, and even demands, an
    intense level of debate and ferment", Mr. Stone says.

    This story was received by the DowVision news server, contact
    Patrick Sweeney@NYO, SDSVAX::SWEENEY for more information. 

    re: .0---``...a  risky transition ...''
        John Sauter

It's so-oo easy for "stockholders" - that highly elevated, largely ignorant, opportunistic, short-sighted,
and moneyed class of people, and the financial press - the omniscient instigators who
earnestly quarterback from the sidelines after the plays, to agitate for a perceived good on
behalf of a company; they speculate as to motives and bellyache over short-term performance.

>"Ken has a fundamental aversion to letting anyone else become a leader. He  sees them as a threat."

Who, in their right minds, after having built a $14 billion company over  30 years, wouldn't have "an
aversion" to letting just anyone become its leader?  I THINK WE'D ALL BE IDIOTS IF WE BELIEVED THAT
KEN HAS NOT AGONIZED OVER THE ISSUE OF SUCCESSION.

Where were these people when K.O. was building his "dream" of a company?  Where were these people
when he was misjudging (like so many others) the import of the PC market?

Yes, it is attributable to human nature that discussions will abound over issues of common concern,
particularly when the common concern is invested capital. Shareholders do have the right to voice opinions
about how their investments are used. And this IS  the U.S.A., land of democracy.

But, just maybe, we could be getting our butts kicked by the Pacific-Rim nations just because of our
dogged concern for the short term.  It's a problem endemic to every facet of our society, but
most evident in reviews of the quarterly financials.

When you're going on a long journey, you may step in something along the way that's very smelly;
but the journey's direction and goal are what's important; and if you're fortunate, you'll have
some companions along with you who'll enjoy the experience and share your long-term
goal. 

Ken Olsen has clearly made his share of misjudgments; but he has been, and continues to be
A leader with a LONG-TERM focus - something America sorely needs.

In fact, America calls men like him VISIONARIES.

Here's .3 rewrapped to fit 80 columns so the rest of us can read it (I'll
bet the author uses DECwindows Notes).

            <<< HUMANE::HUMANE$DUA1:[NOTES$LIBRARY]DIGITAL.NOTE;1 >>>
                          -< The DEC way of working >-
================================================================================
Note 1660.3               WSJ: Digital Inching Forward                    3 of 3
SUBWAY::JAHMAN::ELLIS "Peter S. Ellis Jr. - FDDI LE" 31 lines   8-NOV-1991 11:42
                 -< More Comments fFrom the Peanut Gallery... >-
--------------------------------------------------------------------------------
It's so-oo easy for "stockholders" - that highly elevated, largely ignorant,
opportunistic, short-sighted, and moneyed class of people, and the financial
press - the omniscient instigators who earnestly quarterback from the sidelines
after the plays, to agitate for a perceived good on behalf of a company; they
speculate as to motives and bellyache over short-term performance.

>"Ken has a fundamental aversion to letting anyone else become a leader. He 
sees them as a threat."

Who, in their right minds, after having built a $14 billion company over  30
years, wouldn't have "an aversion" to letting just anyone become its leader?  I
THINK WE'D ALL BE IDIOTS IF WE BELIEVED THAT KEN HAS NOT AGONIZED OVER THE ISSUE
OF SUCCESSION.

Where were these people when K.O. was building his "dream" of a company?  Where
were these people when he was misjudging (like so many others) the import of the
PC market?

Yes, it is attributable to human nature that discussions will abound over issues
of common concern, particularly when the common concern is invested capital.
Shareholders do have the right to voice opinions about how their investments are
used. And this IS  the U.S.A., land of democracy.

But, just maybe, we could be getting our butts kicked by the Pacific-Rim nations
just because of our dogged concern for the short term.  It's a problem endemic
to every facet of our society, but most evident in reviews of the quarterly
financials.

When you're going on a long journey, you may step in something along the way
that's very smelly; but the journey's direction and goal are what's important;
and if you're fortunate, you'll have some companions along with you who'll enjoy
the experience and share your long-term goal. 

Ken Olsen has clearly made his share of misjudgments; but he has been, and
continues to be A leader with a LONG-TERM focus - something America sorely
needs.

In fact, America calls men like him VISIONARIES.

    One must draw a distinction between agonizing over a successor and
    avoiding the issue, and I think the question is whether Ken is doing
    the former or the latter.  Succession planning is important for any
    organization, both in the short term (who will take over if the head is
    struck down?) and in the long term (who are we developing to take over
    in, say, five years?).
    
    Stockholders and analysts may not be familiar with the peculiarities of
    any one business, but by the same token they're familiar with a broad
    range of companies and their situations, and they can see parallels
    that we perhaps cannot.

    But I don't think that succession planning is wisely done in full view
    of interested bystanders.  Whatever is being planned, it should be
    confidential, not material for WSJ or HUMANE::DIGITAL rumor mills.
    
    Dick

    Succession planning at all levels of an organization is simply good
    management practice - separate from the discussion on an heir apparent
    to KO.  While many companies absolutely are clear on who the next in
    line is for the CEO, many do not.  DIGITAL, however, seems to go to a
    great deal of trouble to not succession plan at any level.  It
    certainly leaves us vulnerable to disruptions if, for example, a plane
    crashes as happend about 5 or 6 years ago to the IBM management team
    that ran their PC business.  Thus while who replaces KO is certainly
    interesting to discuss, the real question is:  Is there a person who
    will be running the company in case something happens to KO, until the Board
    can decide on a successor.  Perhaps there is already that level of
    understanding, and we are just not privy to who that might be.
    
    It is important to remember that a KO successor would not necessarily
    come from inside DIGITAL (a la Scully at Apple) - so why would we
    name someone if that is a real possbility?