Conference 7.286::digital

    	One other side affect that I've heard of, but have not seen in
    writting, is the product/service avoidance factor. For example, people 
    TFSO'd from DEC are finding their way into positions with other
    companies where they can affect the outcome of a computer purchase.
    
    	Disgruntled employees have the motive to do whatever they possibly
    can to sway the purchase decision away from their ex-companies products
    and services. What do you suppose the chances are that a "right-sized" GM 
    worker will turn around and purchase a GM product ? 
    
    	This is not to say that all "right-sized" employees will react this
    way, only that they are being provided a motive. In the end, it is
    certainly not something that is helping the domestic economy.
    
    	Ray

    I wouldn't think that every laid off DEC employee would be so bitter
    that he/she wouldn't want anything to do with DEC and DEC made
    computers. Infact, having years of experience w/ DEC HW/SW, their best
    bet is to support/promote DEC HW/SW for the good of their careers. Just
    imagine - if you are the one to get laid off, would you rather work in a
    company having DEC stuff or IBM stuff? 

Re .1

I have experienced what you have described first hand.

A former DEC employee was hired as a consultant to one of our very large 
customers.  They had a sizable VAXcluster installed which originally was
made up of and networked by 100% DEC gear.  Once this person came on board
he made sure that all the subsequent purchases for disk and memory upgrades
went elsewhere.  All network components (x25routers, terminal servers, etc)
were also procured from third parties.

Eventually, DEC lost the field service maintenance contract for the system
as well.  Ironically, this person spent most of his years in DEC in Field 
Service.

By the way, this person left on the first TFSO which was very generous compared
to what is offered today.

Never say never.  I estimate this person easily cost Digital a couple of 
million dollars worth of business because his recommendations were taken 
elsewhere in the account as well.

The New Business Game

                                                      by Peter Drucker

American Express, General Motors, Westinghouse, IBM -- all have shaken
up their top management to bring about a "turnaround."

Predictably, their plans also include immediate cuts in the work
force. For a short time, costs are likely to go down and profits and
share prices to go up. But a year or so later each company will be no
better off than it was before, and then it will surely announce
another layoff.

Similarly, every one of these companies now promises a turnaround
through "re-engineering" operations. The re-engineered operations do
indeed improve, often greatly. Yet the company's overall performance
improves little, if at all. Why is this so?

After decades of expansion, many big businesses are indeed overstaffed
-- even more so in Japan and Europe than in the US. And since
companies tended to grow overhead as fast as sales -- and often much
faster -- a good many operations are indeed in need of restructuring.

Research, engineering, customer service, accounting, marketing,
clerical work -- all need to be re-engineered to be freed from
diversions and busy-work, to be focused on their key tasks, to be
organized around the flow of the work and the flow of the information.
Yet, however badly needed, neither layoffs nor re-engineering are
likely to restore an ailing company to health.

A company beset by malaise and steady deterioration suffers from
something far more serious than inefficiencies. Its "business theory"
has become obsolete.

CHANGING BASIC ASSUMPTIONS

Every business, in fact every organization, operates on such a theory
-- that is, on a set of assumptions regarding the outside (customers,
markets, distributive channels, competition) and a set of assumptions
regarding the inside (core competencies, technology, products,
processes). These assumptions are usually taken for holy writ by the
company and its executives. It is on them that they base their
decisions, their actions, their behavior. The longer such a business
theory works, the more it pervades the organization.

But, as an old proverb has it: Whom the gods want to destroy they send
40 years of success. For a business theory is not a law of nature.
Eventually it becomes inappropriate to the realities of the market and
technology.

Then long-successful companies -- especially big ones -- begin to
deteriorate. They lose their bearings. And the only thing that can
effect the needed turnaround is rethinking and reformulating the
company's business theory and repositioning the business on a new set
of assumptions. The diagnosis is fairly simple. Whenever a business
keeps on going downhill despite massive spending and heroic efforts by
its people, the most likely cause is the obsolescence of its business
theory.

This diagnosis becomes a virtual certainty if the malaise follows long
years of unbroken success (GM's case), or if newcomers to the industry
flourish while the long-time leaders are fading.

Examples: Wal-Mart's prospering while Sears declines...discount
"clubs" prospering while department stores founder...regional banks
prospering while Citibank lurches from one "unpleasant surprise" to
the next... Japanese and Koreans steadily gaining market share while
Dutch electronics giant Philips slides ever deeper into the hole
despite brilliant technological achievements.

To start the turnaround thus requires a willingness to rethink and to
re-examine the company's business theory. It requires stopping saying
"we know" and instead saying "let's ask." And there are two sets of
questions that need to be asked.

First: Who are the customers and who are the noncustomers? What is of
value to them? What do they pay for?

Second: What do the successes -- the Wal-Marts, the regional banks,
and so on -- do that we do not do? What do they not do that we know is
essential? What do they assume that we know to be wrong?

These are always very unpopular questions, particularly in a business
that has had long years of success, which may explain why so many of
the successful turnarounds are initiated by new top managements
recruited from outside the company, if not from outside the industry.
Yet, unless these questions are asked -- and asked seriously -- there
will be no turnaround.

It may take a good long time -- sometimes years -- until the new
business theory has been formulated, tested, accepted and made fully
effective. But as soon as the questions I just described are being
asked, the turnaround has begun. And then it often proceeds with
stunning speed.

Asking these questions immediately makes possible effective action.
Re-examining an ailing company's business theory almost always shows
right away that the best resources are misinvested. People, knowledge,
money are committed to things that should be stopped or sharply
curtailed. Some of these will be things that should be done -- but by
other people and by another company.

Other things have outlived their validity and productivity. Yet others
should never have been done at all -- typically, things into which the
company rushed in reaction to malaise and decline.

Getting rid of these things will not, by itself, generate new growth.
But unless they are gotten out of the way, the company will have
neither the vision nor the energy nor the resources to do the right
things, the things that will produce results and growth.

The next step in a turnaround is to find what works in the business
and to build on it. Even in a very sick company there are islands of
strength.

Of 29 stores in an ailing department store chain, for instance, 25
were hemorrhaging. Four stores, however, were doing well. But no one
had paid attention to them. Everyone dismissed their performance as an
"accident" or an "exception." Everybody was desperately busy working
on the "problems." But the four stores performed because they had --
half-knowingly -- repositioned themselves on a new business theory
that was in line with market realities. These stores did not have the
answers. But they had answers. And answers of this kind are exactly
what an ailing company needs to become success-focused again instead
of problem-focused. They enable the company to take chances again, to
be innovative, to take leadership.

In the typical turnaround situation the central challenges are,
however, neither things to be abandoned nor successes to be exploited.
They are "almost successes:" Activities that aim at building a
different tomorrow but are instead misused to keep yesterday alive a
little longer. But tomorrow is then always being sacrificed on the
altar of yesterday.

The best example is an old one: The attempt of the founder of IBM,
Thomas Watson, Sr., in the early 1950s to keep the punch card alive by
selling it as an accessory to the then-new computer --  with strict
injunctions to his salespeople never to push computers if doing so
would endanger getting a single punch card order. Fortunately for IBM,
the Justice Department at that very instant filed an antitrust suit
that forced the company out of the punch-card business. Otherwise IBM
would surely have gone the way of the punch card.

GAMBLING ON THE NEW

Typically -- as was the case with IBM's punch card -- yesterday's
product, technology or customer service is the "cash cow." But hanging
on to it invariably stunts the new, promising business or product that
is alive and growing. The: turnaround thus always involves a big
gamble.

But while hanging onto the old will soon destroy the company, gambling
on the new is a rational risk, based on a valid business theory and
justified by the successes (e.g., the four performing stores in the
department-store chain) that are already basing their practice on the
new theory.

The years ahead will be years of rapid changes -- in technology, in
markets and market segmentation, in consumer values and consumer
behavior, in finance, in political and geographic realities, in
economic and trade policies.

They will, therefore, steadily make existing theories of the business
obsolete. In fact, the most probable assumption is that no currently
working business theory will be valid in 10 years hence -- at least
not without major modifications. And yet few executives accept that
turning a company requires fundamental changes in the assumptions on
which the business is being run.

It requires a different business.

And it is not only businesses that will have to learn to turn
themselves around. Almost any large organization will find itself
stagnating, frustrated, ailing -- none more than government.

Almost every large organization will have to rethink its business
theory.

----------------------------------------------------------------------

Peter F. Drucker, Ph.D., is the preeminent international management
consultant. Dr. Drucker's latest book, Post- Capitalist Society, will
he published in April by HarperBusiness, 10 E. 53 St., New York 10022.

Reprinted without permission of The Wall Street Joumal.
�l993 Dow Jones and Company, Inc. All rights reserved.

    re .2
    
    I agree.  Some of the biggest DEC supporters at the customer site where
    I am a resident are the TFSO'ed ex-DECies.  They realize that their 
    security and future is where their experience is.  The voluntary
    ex-DECies are the ones that are not so 'hot' on DEC products.  Probably
    the reason they quit in the first place was that they did not believe
    in Digital.
    
    bk

    They forgot one factor around 'remaining employee morale' - the
    'Am I next?' factor. That does more damage than having to pick
    up the work of the departed.

    Thanks for including these two articles.    It feels re-assuring that
    what you are telling higher management that will happen is not only 
    your view-point but experts are saying the same thing.   Though, these
    two sources did not handle the question: What will happen when the
    economy gets back in track and orders begin to increased on 'cost
    reduced' companies.  My guess, they won't have the flexibility to
    react.   Why, they will have lost the talent, experience, education and
    they employees left will have very low morale to give the extra mile.
    Therefore, the worst is yet to come and maybe in the 'good times' that
    all of us are for so long waiting for.   So, it is not over until is
    over !

    The comment in the Times article about loyalty slipping?  It has fallen
    flat on it's face in terms of a supported & nurtured value. It seems to
    exist in some of us but the tide of the river has turned and to
    maintain it, we have to swim against the current for the 1st time.
    Others - like most of us - are not so much loyal as now looking over
    our shoulder's at what is very often a highly illogical process coming
    straight at us, regardless of how well we do our jobs. If you're in the
    wrong place - watch out for the random number generator TSFO machine!
    Loyalty? What loyalty gives is what it gets. It has been tossed out the
    window as a value cherished by corporate America, only to be lauded if
    it happens to serve the bottom line philosphy at the time, which these
    days seems to be extremely myopic.                  

    
    I think there are ways to help Digital succeed, and at the same time
    create (for lack of a better term) a "skills-parachute" for yourself.
    
    As we continually move to open systems and slowly learn to use tools
    and processes that other companies also need (instead of DECentric
    tools and processes), we can effectively kill two birds with one
    stone.  I'll give you an example:
    
    It seems pretty clear that one of the operating systems of choice in the
    1990s will be NT (ok, maybe Win32c).  To both help Digital now, and to
    prepare myself for the future, I ordered the SDK (after taking
    advantage of the short-lived EPP 0% loan to buy a PC).  In my current
    project, I have been working 70-75 hours per week for the last 8 weeks
    because I really want the project to be a success.  The extra hours,
    though, are spent on learning tools that will be able to be applied to
    the Microsoft environment later, in case Digital makes an immensely
    stupid decision and lays me off.  The work I am generating in the extra
    hours will be used by the project, but I, personally, get the benefit
    of the skills developed.
    
    I am doing the above not because I am a glutton for punishment, nor
    because I am stupid.  It is, pure and simple, a calculated decision to
    increase the probability that I will a) succeed at the new Digital, or
    b) be able to find employment elsewhere.
    
    Comments on my approach?
    
    Glenn

re: .9

Sounds very similar to what I'm doing.

Bob

    re: .9
    
    That's what I'm doing.  I even had to upgrade my DEC system (long story) 
    so that I now have a Windows NT system.  It's up and stable at home.  It's
    being used to run new software for my group and will be used for further 
    software development.  And, I'm using my home system to do nearly all of 
    the work for preparation of a technical paper that I'm presenting at a 
    conference (IEA/AIE-93) on Digital's behalf in Scotland at my own expense 
    (travel, per diem, postage, slides and so forth) and on my own vacation 
    time this summer.  Things being as tight as they are, I had to agree to 
    covering all my own expenses without reimbursement in order to get approval 
    from Digial to publish.  But, I'm doing it because I think it's what's best 
    both for Digital and for my career.
    
    Steve

    
    re: .9
    
    	Anyone who is not preparing for the future, as you highlight, is
    making a BIG mistake.
    
    
    			fred deady

    Re; Base question.
    
    I personally question whether the recent layoffs in many of these
    American comanpies have laid off the right people.  In any large 
    organization, decision makers have to rely on data that comes from 
    others.  My experience in government (prior to Digital) has shown me
    that many managers forward reports using "situational strategies"
    rather than plain truth.  I saw productive and/or necessary people so 
    busy working that they weren't represented at the meetings where the 
    future budgets were planned.  At the same time, unproductive and/or 
    un-necessary people had all the time in the world to write impressive
    justifications of their jobs and next year's budget increases.
    
    I'm surprized I haven't seen the term dumb-size associated with
    laid-off the wrong people.
    
                                       Kurt

    Relax, by the time we get to 50000 we're bound to have gotten some of
    the "right"people.

	re .2:

>    I wouldn't think that every laid off DEC employee would be so bitter
>    that he/she wouldn't want anything to do with DEC and DEC made
>    computers.

	Bitter? They wouldn't have to be bitter.

	A friend of mine once worked as a waiter in a Swiss restaurant
	during a summer vacation from college. Since then, he has never
	eaten anything in a restaurant. You see, he saw what went on in
	the kitchen.

	Just imagine giving some of our presentations to an audience
	of important customers, one of whom used to work for us and knows
	the reality that lies behind the carefully constructed facade.

	To do it, you'd need to be more than usually hardbitten.

	/Tom

RE: -1
> Just imagine giving some of our presentations to an audience
> of important customers, one of whom used to work for us and knows
> the reality that lies behind the carefully constructed facade.

  All the more reason for us to "get real" and stop constructing
  facades. Yes?

    /se


    

I was at a Market Research company this morning - one run by an ex FMCG guy -
and he has a database of every IBM Mainframe user in the UK Geography (it
also has the contents of the Top 7500 IT user accounts - who all get surveyed
every 4 months - hence he has excellent data on the VMS base, the UNIX base,
the ICL base and all the related software/technology changes underway as well).

He said that 10% of all IBM mainframe sites are "rightsizing" - consolidating 
into fewer datacentres - year on year. 5% are downsizing onto other platforms,
primarily for new applications (either UNIX or PC LANs in sorta equal amounts).

PC LANs?? I guess this says a lot more about the fundamental weakness of IBM's
base and the vulnerability of key software applications running on their 
mainframes - far from all of them are traditional, mission critical, database
dependant legacy business apps.

We should have a quality marketing database like this. In the meantime, this
one is available to us for less than $60K/year with regular updates.

								- Ian W.

    Along with Downsizing comes the moving of fixed cost to variable costs.
    This means having fewer permanent employees and many more temporary
    people.  

    It's relatively easy to see the logic of this at a micro level, ie a
    single company.  The problems occur at a macro level.  When a recession
    comes, many people lose their temporary jobs and their spending power. 
    The same people will be financially insecure, even when working, hence
    less spending when in work as well.
    
    Maybe this leads us to the thinking that moving too many fixed costs to
    variable costs ould just be shooting ourselves in the foot.

    re .18
    
    Reminds me of a possibly apocryphal story where Henry Ford was showing
    the automobile union president a fancy new, heavily automated (for the
    day) factory.  Pointing to the machines, Henry grinned at the union
    pres. and said: "How're you going to get THEM to pay union dues?"
    
    The union guy looked at the machines a bit and replied: "How are you
    going to get them to buy cars?"
    
    /Butch

Some words for thought from the Economist, April 3, 1993


The Death of Corporate Loyalty

Even as big companies cut thousands of white-collar jobs, they are demanding more 
commitment from the professional workers who remain. Will they it it?

The job losses among the world's largest companies continue to mount: 2,000
at Eastman Kodak, 13,000 at Siemens, 27,000 at Daimler-Benz, 40,000 at Philips 
since 1990, 25,000 at IBM this year, after 40,000 in 1992. Hard times have always
focused firms of every size to but costs - and the biggest cost in most firms
is the payroll. But recent job cuts have been at companies earning healthy 
profits, as well as at those that are struggling. Jobs are going no just on 
the factory  floor, as so often in the past, but among the managers and 
professionals who have traditionally comprised the hear and soul of large firms.
And big firms are shedding jobs not merely to cut costs, but also to change the
very way they are managed.

Many firms, confronted with international competition and technological change,
have had little choice but to slim down. Though accelerated by recession,
this trend is likely to continue even after economic growth returns. Whether
it is called "re-engineering", "Downsizing" or "delayering", the goals are the
same: to eliminate tiers of middle managers in order to delegate responsibility
to those actually running factories, designing products or dealing with customers. 
Ideally big firms should emerge from such reorganisations able to be as flexible, 
entrepreneurial and nimble as their smaller rivals. But, unless they find ways 
to motivate those who have survived the repeated purges of professional ranks, 
most big firms may never achieve the gains that are supposed to justify such 
wrenching changes.

That is because they are tearing up the implicit contract they have always had 
with managers and other professionals: security of long-term employment in 
exchange for dogged loyalty. "Those assumptions are gone forever in almost
every big American company, and they are now being undermined in Europe as
well," says David Nadler, an American management consultant who advises firms 
on how to restructure their businesses. "The problem is that many companies
have given no indication of what the new psychological contract is."

Japan's biggest firms have always been famous for their policy of "lifetime" 
employment. But job security has been one of the main reasons people choose to 
work for big European and American firms as well. Even in America, where job
mobility had been highest, many employees expect to spend their entire working
life with a single company. Studies in the early 1980s showed that, on the
basis of past behaviour, 25% of American workers were in jobs that would last
20 years or more. For workers over 30 years old, that figure was 40%. Long-term
job tenure was probably much higher for the employees of the country's biggest
and most stable companies.

Letting loyalty go

Today such expectations are fading quickly everywhere except Japan, where the
commitment to lifetime employment in big firms has yet to be broken (despite
much recent publicity about job cuts). In America a wave of mergers, hostile
take overs and leveraged buy-outs during the 1980s threatened mangers' jobs
at hundreds of firms. Now big firms themselves have decided that job security
is more of a liability than an asset. They want to replace complex corporate
bureaucracies with autonomous business units whose financial performance can be
measure accurately by a tiny headquarters staff. This approach, long the practice
of conglomerates such as Britain's Hanson, is being embraced in one form or 
another by most big firms, including those whose business is concentrated in a 
single industry.

This trend draws on the work of innumerable management thinkers, who champion
the idea of cutting corporate flab and "empowering" teams of employees, which
can then be judged by their performance. Some, like America's Tom Peters and
Britain's Charles Handy, sketch a future in which big firms will become little
more than "networks" of independent businesses. Most such gurus assume that
employees will respond to their new responsibility with enthusiasm, even if
their firm has just sacked thousands of workers and declared that no one's
job is safe.

This seems naive. Even if many big companies sorely needed a shake-up, scrapping
corporate cultures which evolved over decades is likely to be far more costly 
than many firms, or management theorists, imagine. The short-term costs are most 
visible where the commitment to long-term employment has been the most explicit.
Job cuts as Eastman Kodak, IBM and Philips have shattered morale and embittered
many of those who remain, despite lavish redundancy payments. Massive job-cuts
have also led to an exodus of the most talented employees. Confident of finding
work as a firm with brighter prospects, the best people are often the first to 
take the payments that go with voluntary redundancy.

Sometimes the damage to a firm's reputation and morale inflicted by large-scale
redundancies will be hard to gauge. Most employees at hard-hit firms are simply
praying that they survive the cuts. Few will complain openly about having more 
responsibility and risk thrust upon them

Yet, with their fate now tied so directly to the performance of a specific
business unit, it would be odd if most survivors ever fell the loyalty to the
corporate whole that they once did. Judging teams of managers primarily on the
unit's financial performance may engender more entrepreneurial behaviour. But 
it may also make it more difficult for big firms to disguise that fact that
they are appropriating the surpluses generated by their cash-cow business for
investment elsewhere, or to cover other unit's losses.

Although superficial damage will eventually fade, the institutional costs of
forsaking the old links between employees and their companies could take 
even longer to emerge. True, no business expert any longer defends the managerial
hierarchies or long-term employment policies which characterised most big
firms for decades. Nevertheless, such structures had strengths, as well as
weaknesses.

Hierarchies offered employees a clear career progression within a single firm.
They enabled firms to reward outstanding employees with promotions to higher-
paid posts - a powerful management incentive - without disrupting the pay
differentials among their fellow workers. And the promise of job security
allowed big firms to demand such sacrifices from long-term employees, such
as uprooting their families every few years for job moves, which smaller
firms always found difficult to elicit.

Most important of all, big firms could invest in the education and training 
of professional employees, reasonably confident that their newly acquired skills
would not immediately be lost to another firm. Equally, employees could make the
considerable effort needed to master their firm's products, operations and
management methods, reasonably certain that such knowledge would be useful to
them, as well as the firm, in the future.

At a growing number of big firms these aspects of hierarchy and job security have
now been forgotten. Peter Herriot, the director of research at Sundridge Park
Management Centre, near London, has studied attitudes among managers and 
technical specialists. "The expectation of promotion and the whole notion of
careers as a direct upward movement is going by the board," he says. In the 
future, he predicts, big firms will have to offer the best professional workers
regular opportunities to add to their marketable credentials in order to recruit 
or retain them, even though this will also increase their ability to jump to
another firm.

Managers "empowered" in this way are likely to flex their muscles at every 
opportunity. Told to act like risk-taking entrepreneurs, they will expect 
entrepreneurial rewards as well. If they have attracted the attention of 
rivals, their demands may have to me met. The defection last month of Jos� 
Ignacio Lopez de Arriortua, General Motor's flamboyant purchasing boss, to 
Volkswagen along with six of his subordinates, could just be the beginning. 
Small firms have always thrived by poaching good employees and sharing success,
as well as failure, with their own workers. Whether the world's largest
firms can do the same remains to be seen.

    .20 Hear! Hear!
    
    I wish I could remember the source, but there was one writer who
    pointed out about a year-and-a-half ago that those who force massive
    change on extremely large organizations - he was referring to Akers at
    IBM - don't realize that the effects of that change will be greater
    than they expect, far different than what they expect and well beyond
    their control.  His example of note was Gorbachev.  Now he can use
    Akers too.  Next year Bob Palmer?
    
    
    Don
    

    Any manager that will do anything -- ANYTHING to keep the job isn't
    going to give a tinker's flatus about helping employee morale.  I would
    not be surprised if a common attitude among upper managers is that bad 
    employee morale among the ranks actually helps.  Demoralized employees 
    will either "straighten up" or leave without the need for TFSO (or
    whatever it's called in any given company).  The metric du jour for 
    successful management (reduced headcount) will make (short-term) heroes 
    of those willing to make "the difficult decisions."  The time for even 
    considering employee morale will only be when "the economy improves"
    and they can rehire from a cheap labor force.  I think the problem pointed 
    out by the article in .20 is endemic to upper-level managers across different
    companies partly because they compare against each other to prove that 
    they aren't doing anything stupid.  This is all IMHO, of course ...
    
    Steve

    There was an item on the CBS Evening News tonight about how downsizing
    has backfired on corporate America.  Many companies have discovered
    that repeated layoffs have left them without the workforce to do the
    work and achieved only short term gains for the bottom line.
    
    A recent study by Arthur D. Little found that, of the management
    surveyed, 40% were "unhappy" with the results, and 45% were 
    "really unhappy" with the results.
    

    
    
    	That ok.. By the time we (Digital) get through selling off 80% 
    	of the company, there will not be too many jobs to go around.
    
    	And those of us who are left will be busting our humps from the
    	the time we get in, to the time we leave at night.
    
    	There are STILL too many employees (not all) out there comfortably
    	coasting through an 8 hr (maybe!) day. With (maybe!) 2 hrs of
    	real work to do...
    	

    Last wek's "The Economist" had three articles on corprate downsizing
    under the title "Corporate Anorexia".
    
    Makes for some interesting reading.
    
    (Maybe someone with as canner can scan the text... it's rather
    lengthy).

    something about how the work is still there with less people to do it
    and those 'left' are demoralized, etc...