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U.S. News LIVE WIRE
Russ Gullotti opens new year with DVN broadcast
In a two-hour live telecast over the Digital Video Network last Friday,
Russ Gullotti, vice president, U.S. Area, outlined what he sees in the
immediate future for Digital and the U.S. Area. His presentation, including
a Q&A session with the field, focused on Russ himself, who is relatively new
to the job, Digital's status, and the state of the U.S. Area.
Russ spoke frankly about Digital's "struggle." The remedy, he said, lies
in decisive leadership at the top, customer-driven initiatives, clear roles
and responsibilities, a switch in focus from internal to external,
developing core competencies, reducing overlapping products, and "putting a
stop to the infighting."
Russ said he had four "number one" priorities: profit, morale, channels,
and organization clarity.
He said revenues are going up and costs are coming down. In the second
quarter, Digital's sales force beat the certs forecast, beat revenue
forecast, and beat profit forecast. "The good news," he said, "is we're on
the way up. The bad news is we're not there yet."
Morale, Russ said bluntly, "stinks." To improve it, "The first thing you
do is make a profit," he said. "Then, get a direction, get an identity,
get customer focused, identify core competencies, tell people who you are."
Morale will improve as Digital improves and it will happen "a little bit
each day."
Russ stated that Digital is in two essentially different businesses:
delivering volumes of products and services and solving complex information
technology problems. As a result, there's a "tremendous" amount of training
and reskilling to be done.
He pointed out that right now, Digital has 7 percent market share in the
world; 93 percent of the business goes somewhere else. Digital has to use
indirect channels to help grab some of that 93 percent. Less than 30
percent of the company's U.S. business today comes from indirect channels.
"It's got to be almost twice that," Russ said.
"The business units are going to tell us where we're going to focus," said
Russ. "The business units are ultimately in charge."
In wrapping it all up, Russ said again that, although Digital still has
problems, the company is on the way up. He pointed out that the product
strategy is clearer; there are nine business units instead of 150;
responsibilities are clearer; the accounts have a "home" for industry focus;
revenues are going up and the costs going down; and we have loyal customers
"who want us to succeed."
(Courtesy of U.S. Communications)
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| Worldwide News LIVE WIRE
Bob Palmer reviews financial results,
discusses new business unit structure in DVN broadcast
(Following is the text of President and CEO Bob Palmer's remarks
which were broadcast on the Digital Video Network today.)
Welcome and thank you for joining me for the second in our series of
televised employee communications.
The need for us to communicate with one another remains urgent and vital
if we are going to return to profitability and meet the challenges of a
very competitive marketplace.
Three and a half months have passed since I assumed the responsibility of
chief executive officer and made my first formal communication to you in
my new role. During that time, we've made a great deal of progress,
culminating in our recently announced senior leadership team.
We have been planning and implementing the restructuring and
reorganization of the company to ensure that the customer is the
primary focus of everything we do. We have developed a business model
that will serve as the foundation for our return to profitable growth.
Our business model is set. As can be expected with changes of this
magnitude, further details of implementation will be worked out as we
move forward.
We have also significantly reduced the rate at which we have been
losing money. And we formally introduced the first of our family
of leadership Alpha AXP systems.
I have worked to restore confidence in our company and its
leadership. I have spent extensive time meeting with Digital's
stakeholders: employees, customers, partners, and shareholders.
A critical part of restoring the confidence in Digital has been to
say what we intend to do and then do it.
For example, at the annual shareholders' meeting two months ago, I
promised to have a new management team in place by the end of
December. This team is in place and was announced just before the
holidays. We have announced our nine new customer business units.
I am also committed to attract some new, outside senior management
talent and bring them to Digital to improve the quality of our
leadership team and the breadth of our experience. We have already
announced impressive additions to our team and others will soon join us.
Today, I will briefly review our current quarterly results, then
discuss our new business unit structure, and its implications for the
rest of the company.
I will review our engineering and product rationalization efforts
and some of the opportunities on which we are focusing. I will also
talk briefly about our supply chain re-engineering efforts. Finally,
I would like to address some of the people issues affected by these
changes.
Reviewing the state of the company last October, it was clear
that this was truly an organization with talented and dedicated
individuals. But at the same time we were a company whose matrix
structure had long since resulted in obscuring lines of responsibility
and accountability; whose groups were so focused on competing with
each other that many had lost touch with our customers and the external
competition; a company that was organizationally confused by the
proliferation of businesses, many of whom had undefined boundaries,
and whose costs were simply out of control. Digital had just lost
$263 million dollars in the first quarter, which is approximately
$3 million dollars per day. And we had reported a loss of $2.8 billion
dollars in the previous fiscal year. The value of our company to our
shareholders had declined from a peak of almost $25 billion dollars in
1987 to less than $5 billion dollars, a truly horrendous loss by any
measure of performance.
It is in this context that we set our direction and developed our
leadership agenda. Our primary direction is to focus the company
on the customer as a necessary step in our return to profitability.
All of the changes that I will discuss with you today are designed
to make us more customer centered in order to help us return to
profitable growth.
Upon assuming this role, I pledged to:
o focus on customer needs, beginning with listening to customer
requirements;
o re-align our business models and cost structure to increase
our competitiveness;
o provide clear direction for the organization, and develop a
management team with clear responsibility and accountability;
o maintain our competitive edge in our core competencies, and
develop and support a highly motivated, skilled workforce;
o reduce the complexity of systems, procedures and products to
make us easier to do business with;
o ensure that all work adds value as measured by the customer,
and, as necessary, downsize intelligently and with as much care
as the urgency of our deteriorating financial situation allows.
These are ambitious goals. This is an arduous task. As I have said
before, the success and survival of the company depend on our meeting
these goals. But it is not going to happen overnight. Digital's
transformation is going to take time. It took several years to fall
to this level and it will require time to climb back up. Remember,
we are determined not just to change policies and procedures, but to
completely transform our focus and the way we do business.
Last week, we announced our results for the second quarter of fiscal
year 1993. And although we have made significant progress, we have
not yet returned to profitability. Neither we, nor anyone else,
expected we would. We did manage to perform better than the analysts
that follow our company expected. It is now obvious that change is
occurring and we are beginning to make progress.
For example, we have cut our losses from $263 million dollars in
the first quarter to $74 million dollars. That is still a loss.
But it represents a reduction of almost $200 million dollars in
one quarter, as well as an improvement of more than $80 million
dollars over the same quarter last year.
There are other positive signs of progress. For the first time
in over five years, our revenue growth exceeded our spending
growth. And by reducing the spending curves, we were able to
improve our operating margins.
We made progress, but we still lost money. We have a long way to
go yet. The truth is that we can't cost cut our way back to
profitable growth, We need to focus on generating additional
revenue.
One immediate task for the newly created Business Units is to
work with our field organization to create additional demand for
our products and services. Despite our progress to date, we
cannot ensure or sustain long term profitable growth without a
radical transformation of our company. We are going to have
completely re-examine all aspects of our business in light of the
realities we face in the marketplace today. And we must be
willing, even eager, to change.
That means we must think about every activity that we have
traditionally claimed was value added and ask ourselves candidly
whether a customer would pay for it if they knew about it. Does
this activity, product or service add value that will be clearly
perceived by our customers? We must always have the customer and
the problems they need to solve uppermost in our minds, and we
must use technology primarily as an enabler to help us solve
those problems better and faster than our competition.
Our senior leadership team has spent a great deal of time and
effort in looking at how to organize ourselves to insure a
customer focus. We reviewed our customer accounts, talked to our
customers and partners, examined business models, tested
organizational alternatives, debated, discussed and decided.
The result is that we are instituting a major change in the way
Digital is managed and structured. Digital is shifting from a
product, functional and area focus to a customer-centered focus
with the introduction of nine new business units: five customer
business units and four product and service business units.
It is hard for me to overstate the magnitude of change this
represents. Rather than having over 100 business entities with
overlapping responsibility, excessive overhead and unmeasureable
profit and loss statements, we are putting the company into the
hands of nine very focused business units.
These nine business units are responsible for understanding
customer needs and delivering the products and services to meet
those needs. They will set the direction for the company, and
they will drive the business. Beginning in fiscal year 1994, the
nine business units will be responsible for all of Digital's
profit and loss statements. Every other function in the company --
sales, marketing, manufacturing, logistics, engineering, everything --
will support the nine business units and be funded by them.
Based on differences in their business models and focus, the
aggregation of business units fell into two groups. The first of
these are five Customer Business Units:
o Consumer and Process Manufacturing: John Klein, manager, who
joins us after 25 years at IBM;
o Communication, Education, and Entertainment: Paul Kozlowski,
manager, joining us from GTE Mobile Communications, where he was
president;
o Discrete Manufacturing and Defense: Frank McCabe, manager.
o Financial, Professional and Public Services: Bruce Ryan,
acting manager; and
o Health Industries, with Willow Shire, manager.
These business units were based on our aggregation of customer
accounts into industries. Industries were then grouped 'naturally'
based on their similarities, for example, defense and aerospace.
And though we are covering every industry because we have customers
in every industry, in the future, we will focus our investments on
those industries where we have significant opportunity.
Health care, for example, is a rapidly growing market, not dominated
by a single information technology vendor. It represents an excellent
opportunity. So we made it a separate customer business unit.
The customer business units are in the products, solutions and
service businesses. Their purpose is to rapidly increase our share
of information technology investment within their assigned accounts,
and to rapidly increase market share in their specific markets.
They will be responsible for delivering the applications, customized
solutions and systems integration services that add demonstrable value
as perceived by their customers.
Business Unit managers will make the decisions on the industries in
which we will invest, and those which we will sell into, but not invest.
The Business Unit managers will establish business plans, and will be
held accountable for the execution of those plans.
At our most recent senior management 'woods' meeting, some of our
customer business unit managers had a chance to talk about their role.
The second aggregation of business units is centered around high
volume products and services. These business units are built on a very
different kind of business model than the one underlying the customer
business units.
The four Product and Service Business Units are:
o Components and Peripherals: led by Larry Cabrinety;
o Storage: led by Charlie Christ;
o Multivendor Customer Services: led by John Rando; and
o Personal Computers: led by Enrico Pesatori, who will join us on
Feb. 1 from Zenith Data Systems, where he served as president and
chief executive officer.
Each Business Unit represents a distinct opportunity. The very tough
PC market is distinguished by fierce competition, slim margins and a
distinct business model. It represents the largest single market for
computer hardware. To succeed in this incredibly dynamic business,
the PC Business Unit needs to be treated as if it were an autonomous
business. And it will be. It will have its own engineering, marketing
and distribution organizations, and, of course profit and loss
responsibility. We have a growing personal computer business and intend
to be a player here.
The Storage Business Unit will be responsible for our storage
investments. We can no longer invest in storage products created
soley for Digital hardware. Return on investment of our storage
research and development requires reaching out beyond our installed
base, even to our competitors. Our Storage Business Unit will compete
for the storage business on all platforms, for both end users and
original equipment manufacturers.
The same situation holds for the Components and Peripherals Business
Unit. We will sell boards, chips, monitors, printers and other
components to other companies, including competitors.
The Multivendor Customer Services Business Unit represents a major
advantage for Digital. Our services infrastructure with its global
capability already distinguishes us from most of our competitors.
Today, we service more than 14,000 products from 1,300 vendors.
This is a profitable business that still has room to grow. And by
making it a business unit, we can clearly distinguish where we are
making money, where we need to invest in new services, and where we
must reduce our costs.
Three of our Product and Service Business Unit Managers had a
chance to talk about their roles at our last management meeting.
The focus on business units represents a transition of the P&L
from area management to business unit management. As a result,
the role of area management will change as well.
What will not change is the critical importance of our sales and
service people who are our first and primary point of contact
with our customers. Their commitment to our customers and
knowledge of customer needs remains vital. The business units
will support in sales and service, in part, through distributed
worldwide service centers. These will provide expertise and
support in the full range of products, industry specific
applications, services and systems integration.
Sales and service resources in the field will work in close
partnership with business units to deliver what customers need.
They will also work in close partnership with all our other channels
of distribution, whether direct merchandising, distributors,
applications partners or resellers. We can only afford to sell
directly when we are adding obvious value for which the customer is
willing to pay, and for which we can earn a profit.
Partnership and teamwork between business units, field resources
and channels are essential for our short term and long term success.
To implement this new business model, we will plan for fiscal year 1994
by 13 territories. Some of these are countries, others are regions.
They were chosen based on a number of factors, including language,
geography, culture, law, currency, and tax structure.
They are as follows, in Europe:
o United Kingdom
o Germany
o France
o Italy
o Nordic Countries
o Rest of Europe
o Emerging Markets
United States,
and in G.I.A:
o Canada
o Japan
o South Pacific Region
o Latin America/Caribbean Region
o Asia
Each will have its own territory manager. The territory managers
and the business units will work as a team to effectively meet
customer needs. We need to focus our energy on our external
competitors, not on each other. Teamwork and partnership are
essential if we are to maintain the flexibility to change and
stay on top of the marketplace.
The role of the territory manager will be to work in tandem with
the Business Unit managers to jointly develop business plans for
the territories. Once the plans are agreed to, the territory
manager is responsible for delivering the revenue goals and
profit contribution. They will also manage the local value-added
work in support of the achievement of these plans. Changes to
the plan will be discussed and agreed upon in conjunction with
the business unit managers, as appropriate.
The new customer focused business model is going to require changes
in the way we work with each other in all of the functions. For example,
the business units will need a process to work closely with engineering
to ensure that customer requirements are incorporated into products and
services, and that they add value and functionality for which customers
are willing to pay.
Bill Strecker and our Engineering community are already making progress
on implementing the changes they will have to make in order to support
the business units. They are engaged in a major restructuring effort
to ensure that Engineering is responsive to business unit product
requirements. To accomplish this, they are simplifying the Engineering
organization, unifying the product strategy and focusing on strengthening
our core competencies.
As part of the Engineering strategy, we will introduce modularity in
our hardware systems so that we can maximize customer options while
minimizing costs. Engineering will also focus on investing in software
that allows us to meet customer needs while differentiating us from the
competition, and ensuring that we have the applications and components
we need from our partners when they can best provide them.
Engineering will manage within a business model that can be sustained
in today's environment, and will maximize the utilization of our core
competencies. The restructured Engineering organization, working closely
with the business units, will be innovative, timely and market-driven.
Digital will leverage and build upon Engineering's core competencies in
networking and network management, software, high performance
microprocessors, computing systems, and systems engineering.
Currently, we are confident we can focus and succeed in at least
three broad areas.
First, there is the opportunity for upsizing PC and PC Local Area
Networks, or LANs. Customers have spent a lot of money integrating
PCs, PC LANs and work groups. A lot of that work has been done. It
has resulted in an increasing awareness of the need to tie those groups
into corporate and distributed databases and networks. Digital, with
its core competencies in networking and network management has leadership
technology that we can translate into market success.
A second opportunity is the mainframe downsizing market. Customers
have huge investments in mainframes and data, but mainframes are often
no longer cost efficient nor responsive to changing information technology
demands. However, moving from the mainframe environment to a distributed
computing environment is quite complex. Customers want to gain the
advantages of distributed computing without losing those of the
centralized mainframe world like security and high reliability. Digital
is making major investments in creating the hardware, software,
networking and services to make downsizing to distributed computing work.
Third, we believe that Alpha AXP computing has given us a real
opportunity to regain the lead in the scientific and technical
market that was once the very foundation of our success.
In parallel with the restructuring of engineering, we have also made
great progress on the restructuring of our supply and delivering
mechanisms. The purpose of our supply chain work is to ensure that
we are thoroughly satisfying the needs of our customers. We must
increase customer satisfaction by reducing the cost and time of
getting products and services to the customer and delivering quality.
Every interaction with the customer, from the time the customer places
an order until they have the product or service in hand and are
completely satisfied, must achieve benchmark excellence.
The senior leadership team has decided to expand the re-engineering
of the process beyond manufacturing and logistics to product and
service creation and the process of engagement with customers. These
are the core processes of the corporation, and central to what we have
called the supply chain.
As we re-engineer our processes for creating products and services
and for interacting with customers, we will need your experience,
imagination, thinking and cooperation. Those of you who do the work
understand what needs to be done. There is no limit to how much we
can improve with your help.
For example, as part of improving asset management during the
last quarter, we focused all areas and all accounts on improving
our collection time from customers of accounts receivable. The
focus and teamwork paid off in a very short time. Last week, we
announced that we have reduced our Day of Sales Outstanding
figure by 14 days. This means that customers paid us sooner.
The result was an increease in cash flow of $184 million dollars
that we would otherwise not have had.
That is a tremendous achievement and shows the power of our
supply chain efforts. It is a demonstration of what we can do
when we work together as a team across functions, accounts and
areas in a focused manner.
There is no reason we can't make our core processes best-in-class
by the end of fiscal year 1995.
But achieving leadership or benchmark levels of satisfaction, and
speed and simplicity in customer engagements is going to require
massive change. We have no choice. Time has become a major
competitive differentiator in its own right. We must engineer
substantial reductions in time-to-market for products and services,
response time to customer requirements, time in delivering products,
and time to effective service.
Time is a major competitive weapon that we must learn to use more
effectively than our competition if we are going to survive and
prosper.
Good things are beginning to happen at Digital. Change is
creating opportunities, and releasing energy, enthusiasm, and
excitement. It is the kind of change that is necessary for
Digital to be successful in a very competitive global marketplace.
But I understand that change takes a toll as well. One inevitable
result of our ongoing restructuring has been a significant reduction
in our workforce.
This reduction has come from every level, and includes a large
number of senior managers and vice presidents. It is a necessary
process if we are to be profitable, but a painful one for all concerned.
We are trying to do this in as rational and thoughtful a manner as we
can, and we would like to put this restructuring behind us as soon as
possible.
Having to reduce staff, cancel projects, close facilities and say
good-bye to loyal, hard-working Digital employees is the most
difficult task any manager can be asked to do. Unfortunately, it
must be done if Digital is going to survive. Our objective is to
become competitive, and by doing so, save jobs.
Most of you understand that. I hear that from you through the
mail or as I visit our facilities and speak to small groups of
employees. I'm impressed by the number of you who tell me that
you understand what we're doing, support it, but wish we were
through it, as I do.
We have made substantial progress toward our goal of returning our
company to profitable growth and a leadership position in our
industry. In the last three months we have:
o sharply reduced the rate at which we have been losing money and
market share.
o consolidated all engineering and begun to rationalize our
engineering investment.
o introduced leadership price performance Alpha AXP systems.
o redesigned our company focus and organizational structure, and
established Business Units to ensure we become customer focused.
o brought in new talent to provide additional leadership and
experience to our management team, and
o we've begun to restore confidence in our company among our customers,
partners and shareholders.
But we are just beginning.
The transformation of Digital can not be done by a single individual
or even a leadership team. It requires the full participation of all
of you.
Each employee must place what is best for Digital above their
parochial self interest, and each of you must be willing to work
collaboratively with others for the well being of the entire
enterprise.
You understand best what makes your work more efficient, effective and
valuable to customers. Examine all of the activities you are
responsible for and ask yourselves whether or not that activity is
truly necessary and adds real value to the customer. You have the
opportunity to make a difference, and together, we can turn this
company around.
By working together, as a team, the future at Digital will be an
enduring and profitable one.
Thank you again for joining me.
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