Conference 7.286::digital

    One school of thought says that when there is a change in command, the
    outgoing commander takes the heat for all 'bad' things that happen
    before he is replaced, regardless of who is responsible.  This allows
    the incoming commander to effectively start with a clean slate and not
    seem like a bad guy.
    
    Whether this is true in this case or not, I have no idea.
    
    Bob

    Why I think this week's changes are 'old'...
    
    I doubt the 'new guy' would have had time to formulate a plan down to
    such detail.
    
    The apparent randomness shows the cannons were fired without aiming.
    
    The lack of height in the adjustments in inconsistent with the new
    guy's expressed intent.
    
    I would bet the new captain is with his navigator(s) and will neither
    enter the wheelhouse nor direct the helmsman prior to October 1.
    
    
    Don
    

    
    I see no one willing to take ownership of this plan (?).  My own view
    is that anyone who can see a method to this madness is not merely
    perceptive; he's down-right clairvoyant!
    
    
    
    

    I will restate what I tried to say in 1948.226 and 1948.227.  I will
    say again that this is speculation based on a few facts.  I have no
    insider knowledge of KO's or BP's plans.
    
    1) Five and one half years ago, Digital US started losing money on
    everything except services to the installed base.  We haven't stopped
    yet.  Think about it.  For five and a half years, since 1987, Digital
    US has been running red ink.  If it were a separate division, not in
    Massachussetts, it would be closed completely by now.
    
    2) KO recognized the problem and put together a plan to manage his way
    out of the crisis.  The senior managers of Digital US did not
    cooperate, the expense account looters did not stop their looting, some
    salesmen continued to give away the store, and some managers continued
    to manage by illusion, and in general, we did not all pull together to
    make Digital US profitable again.
    
    3) KO got frustrated trying to get the overhead (sometimes called
    "fat") out of Digital US.  He then hatched his plan to punish the
    guilty and reward the people he felt had been loyal.  He counted on the
    managers to cut the workers because he had seen just how self-serving
    they were.  So, he arranged for generous financial settlements.  He
    planned his own retirement for a period when the settlements were no
    longer be financially possible.
    
    4) KO will be gone in a few days.  Many of us expect to see BP cut
    deeply into senior management ranks.  He has said that he would not
    borrow money to pay people to leave.  Few of us expect to see BP come
    up with generous settlements after this current round.  My
    extrapolation is that we will see a significant number of vip's leaving
    and (hopefully) without golden parachutes.
    
    If all goes according to the plan that I believe is in operation,
    Digital US will get down to about 20,000 people someday.  When it does,
    then it, Digital Europe and Digital GIA will be able to address the
    future realistically.
    
    Good luck to those who stay, you're going to need it.
    
    Dick

           RE: .4 
           
    
>                       The senior managers of Digital US did not
>   cooperate, ...
           
           I've seen this at other levels in DEC.  It's like, "OK, you
           want this, we (staff) will come back with a plan".  And,
           usually, it's why it can't or shouldn't be done.  I guess
           that's the "DEC" way of doing things, but how can the
           important things (vs urgent) ever get done if no one is really
           "in charge."  
           
           It gets back to what's best for me and (maybe my group) and
           NOT what's best for Digital Equipment Corporation.  It's an
           evil to be dealt with at all levels of bureaucracy, both in
           private and in the political arenas.  
           
           I think Mr. Palmer will not put up with that kind of stuff any
           longer.  But, it depends how well the vp's & managers (whoever
           is left) are able to confound the higher-ups.  Just my $.02.
           
           Steve

           

    RE: whose plan is this

    Just a thought but could the cuts in the US field be a panic reaction
    to the fact that BP will hold the feet to the fire?? Could the US Team
    have suddenly decided that the Q1 numbers were/are so bad that they
    had to show that they were doing something to cut expenses??  Just thinking
    out loud :-)

    Lee G.  One_day_and_counting

    Been loosing since 1987 huh... Thats about the time I left the field:-)
    
    I cannot count the times I was at a customers site working on some 
    equipment, and the customer ask me how they get ahold of their sales
    person....--customer-- "I want to buy some equipment, and have left 
    several messages for my sales person and they `never' call me back."
    
    I usually got them called and what they wanted.  How many other field
    engineers covered sales Bu%&^% this way?  How much sooner would we have
    started to lose money if the field didn't help out?
    
    Yes this was/is probably the wrong approach, but a sale is a sale, even
    if it had to be pushed from the field (read service engineer), side. 
    No the engineer didn't get any "credit" for the sale either, didn't
    even have a chance for DEC100 or whatever else they call(ed) it.  I
    could have probably gone to Hong Kong or where ever with all the sales
    I got this way.
    
    No I am not bragging or asking for a pat on the back.  All I am saying
    is that things haven't worked right for a LONG time.  IMHO, sales has
    NEVER done their job right.  I use the word "sales" loosely.  I know
    there are sales people out there who bust their butt, and do a really
    good job, and should be rewarded for their efforts.  BUT...100 sales
    people busting their butt doesn't make up for the other 400 sitting
    around, just doing enough to keep their job, and making excuses for
    not saleing more.
    
    Maybe the "commission" plan will do the trick.  Sort of like over-time
    to a T5....
    
    just my 2� (or did it get up to 5�)
    
    ART
    
    BTW  I don't know how to spell check in notes!!!!
    
                     

FWIW, any non-sales employee - and customer service engineers are probably
the most important people of all among these - can submit a sales lead
here, get committed feedback and, if closed, receive points that can be
traded in for items in a gift catalogue.

This is called the "Opportunity Channel" here and has seen some pretty
impressive results. Sandy Mackenzie @REO has run this program from it's
inception here... and has done an A1 job on it.
								- Ian W.

    The statement that we have not been making money on anything but
    service for a long time could simply be a reflection of distortions
    in our accounting practices.  When we sell anything there has to be
    a very arbitrary distribution of the credit for the sale. 

    If you look back over some of the groups being cut they are prime 
    candidates for being left out when the pie is divided.  It's easy
    to see the profit in selling new hardware or services but the
    warranty part - getting out the bugs etc. is all expense.  I'm
    afraid Digital is cutting out expenses by making the decision to
    not fix the bugs.  

    Scary if you hope to be here very long.


    Ken

    re .9
    
    I understand that.  How does a Controller face his CEO saying 
    
    "Our accounting system is so distorted that it shows we are not making
    profit on anything but service"?
    
    Regardless of the explanation, 18 quarters of real or reported losses
    on sales of product is evidence of some management problem that hasn't
    yet been solved.  That is too long!  And if someone suggests that we
    just learned this fact, then who has been minding the store?
    
    There is no excuse for this set of circumstances.  Any explanation
    suggests too much tolerance of bad performance by someone.  I hope that
    I would be less tolerant if I were on the BOD.
    
    fwiw,
    
    Dick

I have heard the story about the US losing money for x number of quarters from
Don Z directly.  I don't buy it and here's why.

There's something called allocations that many folks may or may not be aware of.
Since my account team is quite large it classifies as a district in and of 
itself.  That means that in addition to the contribution margins paid on product
(ie we "buy" DEC product at the same basic cost a distributor would eg 68% of
list price) we also get hit with corporate allocations, field allocations,etc.

I'll give you a real live example of this.

We structured a multi year systems integration project which when priced to the
customer was $150M.  Of the $150M, roughly $110M represented the real retail
prices of the goods and services we were selling.  Note that I said retail 
meaning that the hardware and services already included the profit margin.  We 
were told to add an additional $40M to cover corporate allocation.

This of course put the price out of the ballgame and we have pretty much lost
the deal.  

In effect, the corporate allocation is a tax to cover the tremendous corporate
overhead that this company has.  This is above and beyond the margin that is 
already figured into our products which typically makes us non-competitive 
before this allocation stuff hits. 

Moral of the story, once every district gets nailed with its allocations there 
won't be many which can show a profit.

I'll give you another example.  My account is global.  That means we have people
all over the world who work for us generating revenue and incurring expense. 
In order to get and keep these people, we fund them through our US cost center.

When the P & L is done for the account team it is done on a geography basis. 
Europe and GIA look great since there is revenue with little expense.  The US 
P & L is horrible since it reflects US revenue and global expense.  The 
accounting systems are incapable of generating a global P & L or correctly
allocating expense.

So,  when all is said and done.  How well are expenses allocated around the 
globe?   No one knows for sure but these are just two examples why I am very 
skeptical of statements regarding the US losing money for X quarters.  This
company is extremely top-heavy, and I believe the US field is funding it.

    re .11
    
    I don't think anyone disagrees about the burden of overhead.  My point,
    and I think that of some others, is that allocation of such large sums
    of cost in the simpleminded way we have done constitutes mismanagement. 
    Management decides how to allocate cost.  If it does so in such a way
    as to hide the condition of the business, that is dumb and will be
    punished by market forces.
    
    There are two situations, 
    
    1) US would have been profitable if GIA and Europe had their fair share
    of the allocations.  Each would then have been much less profitable
    than they appeared.
    
    2) If we share the allocations fairly, none of the areas would be
    profitable.  In other words, all the revenue made in Digital was
    inadequate to cover the costs.
    
    My understanding is that for several years we operated under 1).  We
    are now operating under 2).  It doesn't matter.  Both situations are
    unhealthy and Digital's mismanagement is obvious.
    
    fwiw,
    
    Dick

Dick,

	I think you're right on the money.  Another problem with the
misappropriation of the cost is that the blame is being misappropriated
as well and appears to be culminating in the downsizing activity.

	In reading some of the recent notes streams there appears to be a
larger proportion of headcount reduction occuring in the US field than 
anywhere else with the exception of manufacturing which has already occurred.

	If the field is burdened unproportionately with the cost of a bloated
corporate infrastructure and the remedy is to cut field expense through 
headcount reduction, the real problem never goes away and you have created 
another problem by crippling your primary sales and service channel.

	If we had truly representative P & Ls and then held P & L managers 
accountable, then the real problem areas of the company would become very 
apparent.  The way the allocation model works now, an organization can perform 
a totally useless function and recoup its costs from US field operations.  

	The flogging will continue until profitability improves.

That's about the size of it.

It gets even worse than that:
I did some research trying to figure out why it seems that Digital
can't be price-competetive in placing our own field employees
in customer residencies.
Seems that for Digital the break-even point is approximately 3-4X where X is
my salary.  Add to that for profit margin, and you are double or triple
the going rate for contractors.  (who also have to cover down-time, medical,
taxes, etc.)

To add insult and injury, the same overhead burden is not added to the cost
of outside contractors, so as the accounting is done, it LOOKS more profitable
to TFSO ALL of our field technical talent, and hire contractors for projects.
This is happening NOW in many field offices.

I believe that if the accounting were more honestly done, the profitability
would be opposite.  (more profitable to use employees)

Even my manager and the district financial analyst could not tell me where the
chunk for "overhead" goes...

Kevin

    set mode/cynical
    
    maybe Digital is trying to establish a franchise, wherein we all get
    laid-off/TSFO'd, and then, for a fee, we can use Digital's name/logo
    when we go out and try to acquire jobs. Our fee (appx 60/hr) would have
    to include a royalty fee back to Digital since we used their name.
    
    set mode/humorous
    
    hmmmm... how fast *can* one cook up a database, with a side  order of
    forms, and a large SQL interface???   :-)
    
    Should we call the franchise McDigital????
    
    
    Bruce (who-apologizes-in-advance-but-couldn't-resist)

    As I've said here and in other fora, in 189 days I will be in my own
    consulting business.  My overhead will be me.  I am going to serve the
    customers that were always too small for Digital.  And those customers
    will get consulting services much cheaper than any of Digital's
    cusotmers (or the competition).  Maybe even as good!  :-)
    
    Dick

    re: .14
    
    The same activity is taking place in "corp." marketing...i.e. a certain
    group used to have a person doing "event logistics".  that person was
    tsfo'd, went to work for an outside firm, and is now on contract to the
    same group, providing the same function.  I'm sure this was a
    "headcount" reduction...but I'm hard pressed to see it as any real
    savings to DIGITAL.
    
    
    Jim

    re .11 and some others
    
    There is an assumption here that 'corporate' is not the 'US Field'.
    While there are corporate functions that are definately outside of the
    field, there are also groups within the greater Maynard area (and
    others) that are considered part of the US field even though they may
    not be located in an account group.
    
    It's not clear to me which part of the 'tax' added in to account plans
    and custom projects is related to US field overhead vs. Corporate
    overhead.  Some presentations I've seen from senior management in the
    past would seem to indicate that the most of this overhead does cover
    cost of 'field' operations.
    
    The point is that I find it very credible that the US has lost money
    for x quarters.
    
    Peter Dillard

Peter,

	The allocation was clearly separated into several pieces.

	Of the $40M allocation, $28M was corporate, $12M was US Field and
something else.  

	
>   The point is that I find it very credible that the US has lost money
>   for x quarters.

We'll never know for sure.  One thing I am sure of,  the state of our 
accounting systems was no doubt a factor in the departure of our former CFO.

John_Biazzo_whose_SI_project_was_in_NYC

I personally don't care what label is on the office in Maynard
which is taking a cut of the money I bring in.

What I find highly objectionable and ultimately detrimental to Digital's
bottom line is that, due to the way the accounting is done (added burdens 
to support people who provide no visible support to me) the business I am in 
(projects and on-site consulting) LOOKS like it is not nearly as profitable
as it really is.  My fear is that this will lead Digital's new data-driven
management to the conclusion that this business should be terminated.
This will directly and substantially hurt Digital's bottom line.

Kevin