Conference 7.286::digital

_______________________________________________

DIGITAL : turn around ?
Message from the EWC to the shareholders.
_______________________________________________
For the second year in a row, a delegation of the European Workscouncil of
Digital is attending the shareholders meeting in Boston.

Last year, based on the FY94 results and the so-called " go to market "
model, we had warned the shareholders that the strategy implemented by
Management was a dangerous one.


To make a long diagnosis short, our assessment was that " go to market "
boiled down to desinvesting from customer services and consultancy (spin-offs, 
outsourcing, lay-offs) and merely gambling on the ability of ALPHA 
to become the - or one of the - industry standard(s), which was a high risk 
approach, because ;


 gross margin rates on products are now lower and decreasing much faster
than gross  margin rates on services ;


 funding the development of the ALPHA business - and, generally speaking,
volume  products which are the priority of Mr. Palmer - required a " cash cow
" which could only be the so much downsized services ;

 this withdrawal from services, unique in the IT industry, might moreover be
a no-return  move, given that Digital was loosing its critical mass for the
sake of cost cutting ;

 At the same time, Digital remained quite isolated in terms of strategic 
alliances as compared, for instance, with the IBM-APPLE-MOTOROLA group around 
the PowerPC chip.

The bottom line was that there existed a convergence of interests between
shareholders and employees in stopping a far too radical and risky strategic
model.

The results of FY'95 might give the impression of a turn-around, of a
success.

While certainly happy to hear the first good news in quite some years, the
European Workscouncil of Digital remains cautious :

-a large part of the " turn-around " can be technically explained by the fact
that FY95  restructuring expenses had been provisioned in FY94 and that
therefore FY95 was  mechanically bound to be much better than FY94 ;

- if the revenue indeed goes up in FY95, the gross margin keeps going down,
which goes to  show that the change in the products/services mix has a cost.

However, the European Workscouncil of Digital does acknowledge some signals
which seem to go in the right direction, away from cost-centered radical
downsizing, and towards growth-minded search for critical mass and alliances:

 such is the deal with MICROSOFT, clearly reducing the isolation of Digital
even though we do not see why MICROSOFT would not in the future close similar
deals with other  manufacturers stepping in the 64 bits technology ;

 such is the deal with COMPAQ, obviously contributing to restore the critical 
mass required  in services, and which we take as the first big Digital move 
towards third party  maintenance.

Unfortunately, the European Workscouncil of Digital can also see Management
moves which go quite in the opposite direction or which question the whole 
consolidation process:

 throughout Europe, learning services are being spinned-off which is again
endangering the Digital critical mass in services ;

 throughout Europe, the PCBU is being downsized, which is questioning
Digital's ability to be a big player on volume products, even though volume
commodity products are supposed to be the core business of our company ;

 with the Business Units in place inter-BU turf wars are spreading and damaging 
the business, while at the same Digital is lacking a clear vision and strategy 
which keeps the company together ;
 
 the product business (PC, Alpha) is still unprofitable in spite of booming 
markets, and Alpha has failed so far to get the critical mass.

The bottom line question is therefore quite simple : does our CEO want Digital 
to be a major IT player, or is his vision to put Digital into pieces and to turn 
Digital engineering into the R&D department of MICROSOFT ?

We still do believe in our - and your - company, but clarification is
definitely required.

Questions Digital Equipment Annual Shareholders Meeting

o What are the plans to improve the overall performance of Digital? What are the 
perspectives in terms of growth, revenue & profitability for the next two-three 
years? How to earn money with products and not only via milking cash cow MCS? 
The last year was one of the best for computer business in general, and almost 
all computer makers had good years. In spite of this, Digital had flat sales and 
only marginal profits. With a little downturn in economy, Digital's recovery is 
at risk.

o What is the differentiating factor for Digital in the IT market?
As shareholders & employees we feel that Digital is still lacking a well 
articulated vision and strategy for our customers and for the employees. 
Each company is cutting costs. Reducing staff is easy. Decimating consultancy is 
easy. Efficiently producing & selling commodity products is now common for the 
IT industry.  Everyone in IT business is now out for networking, connectivity, 
client/server ... 

o How Digital wants to keep its technological 64 bit-leadership against the 
cash-rich and mighty alliances Intel/HP & PowerPC, and at which price (further 
investments)?  
Why Digital has failed so far to establish Alpha as a standard? Which actions 
are being taken to reverse the "splendid isolation" before the window of 
opportunity has been closed? 
Are there alternative scenarios to withdraw from the chip business?  

o Why corporate management has failed so far to establish a system of metrics 
and cooperation that puts the business units together in their efforts towards 
the customers? 
For example, why SBU sales don't get rewards for promoting Digital PCs? Why is 
it impossible for customer to get a Turbolaser & affiliated storage products via 
the same partner and with the same discount? Why each BU fights each other?

o Software strategy: After establishing a focussed business unit what are the 
market plans & opportunities? After the Microsoft alliance and the Lotus Notes 
announcement what is Digital's future in workgroup computing? Teamlinks vs. 
Exchange Server vs. Notes vs. Linkworks? 

o Why do the CEO & the VPs of Digital deserve an extra bonus while most Digital 
employees didn't get any pay rise for about five years?
This destroys credibility & motivation.

o Downsizing: Why has the hierarchy gotten so much steeper the last few years?
Why the number of VPs is increasing month by month?

    Who pays for these delegates to stay at an expensive hotel like
    the Park Plaza?
    
    Sue

    ..and why are the delegates expressing worry about the health of the
    Company, layoffs and strategy? Are not these the same questions we
    had 1 year ago? Or has nothing happened in the mean time? 
    
    Al
     

    I personally feel that the questions being asked by the EWC are
    pertinent.  Let's face it, everyone in the company is concerned about
    margins and product positioning, both through strengthening our lines
    as well as strategic alliances (by the way, the "splendid isolation"
    remark regarding Alpha was good.)  And the renumeration that the top
    executives receive, in a year that was hugely successful for many of
    our competitors, is a sore point for many employees, based upon the
    responses I have seen on the wire.  And lastly, during a time when most
    competitors of Digital are shrinking their management ranks, the
    ever-increasing # of VPs in Digital is a mystery.
    
    Look at what the EWC members are asking.  Wouldn't you like a clear
    vision of Digital's directions to be articulated to you?  I for one
    would like to see it, so I choose not to harp on who is paying for
    their stay at the local Boston hotel, but rather on both the questions
    and the hoped for answers.
    
    Chuck

    But, if perks for upper management is one point of contention for
    the delegates, shouldn't these same delegates set an example for
    upper management by staying in a more modest hotel?  
    
    Also, by doing so, wouldn't they gain more credibility in the eyes
    of "the workers" they represent?  
    
    Sue 
    

    re .3, .6: Maybe Wolfgang can correct me if I'm wrong, but as far as I
    know the delegates are their not on DEC expenses.
    

    It would seem to me that the EW is asking for one of two things (maybe
    both):
    
    1. A "no layoff" policy 
    2. Change the strategy of the company as set forth by senior management
    and the Board of Directors.
    
    Based on what I have read in many different publications, this type of
    thinking by worker groups and unions in Europe has led to
    "institutionalized" unemployment in Europe.  Digital management may not
    be perfect, but I will put my faith in their decisions before I would
    the EW.  I believe management's goals are to:
    
    1. Maximaize shareholder values (after all, they own the company)
    2. Make money
    3. Grow revenue
    4. Increase market share in certain segments
    
    I cannot help but think that the number one goal of the EW is:
    
    1. No layoffs
    
    It is a tough, competitive world out there, but I prefer management's
    goals.
    
    Sorry if this offends someone.
    	

    Many managers behaviour today seems to be driven by maximising their
    "business unit" goal. The evidence of current business practices in
    Digital is that this is not at all the same as maximising the value to
    Digital Equipment Co. stakeholders (shareholders, employees, business
    associates).
    
    Two examples: 
    
    1) Differential pricing of identical Alpha chips depending on whether
    the SBU buys them or someone outside buys them
    2) SBU value added resellers in this country get no credit for selling
    Networks Product Business Unit networks kit but _DO_ get credit for
    selling 3COM (etc) as part of their "added value". (So they tell me).
    
    How do either of those management behaviours help Digital _as a whole_?
    
    bye
    jw

       (Sound of hotbutton being hit & momentary rathole being started)
    
    Anent maximizing business unit goals at the expense of the Corporation
    as a whole -- you mean "let's cut our {comms, copycenter, foobar}
    support & let the rest of the Corporation absorb whatever impact that
    entails while WE look good" -- Yep, I've heard THAT song before...
    

    
    [at risk of starting transatlantic socio-economic difference debate].
    
    Please note that in Europe there are *4* different models of capitalism
    alive and kicking in the various parts of the continent [ex eastern
    Europe excluded]. The most succesful model , by far is the German
    model. The UK model (slightly toned down US model) has not helped the
    Uk much these last 17 years (no, I am no socialist before y'all
    start..). We have *huge* unemployment, and social problems that
    continue to worsen.
    
    The German model emphasises *medium to longer term* goals. The naive
    belief that maximising shareholder value is the sole goal(which in US/UK
    model terms is almost exclusively short term) forces short term action
    onto management (notice that Wall street watches us by Quarter.... ever
    wondered what the time period is in Germany ?). 
    
    The Euro Works council 'thing' is no big deal over here - and forces
    management (in most companies..) to extend the horizon, even if just
    slightly. 'Institutionalised Unemployment..' gimme a break....
    
    Oh, and before y'all start, the capitalist model that broke the back of
    the Soviet Union wasn't the American one - it was the one closest to
    their border. Er.... that's right.... the German one.
    
    Right, now I've got that off my chest, can someone tell me just how
    expensive that Hotel that they are staying in is.. lets focus on the
    real issues here after all.
    
    
    AW
    
    
    
    
     
    

    sounds alot like what U.S. employees were saying 2 years ago.  Maybe
    the turnaround in Europe is also just around the corner?
    
    Mark

    The Park Plaza would probably be a two-star hotel in Europe. Depending
    on the rate you got, a room could go for $50-125 US.   It's not the
    least expensive hotel in the city, nor is it (by far) the most
    expensive.

    re .13

    >The Park Plaza would probably be a two-star hotel in Europe. Depending
    >on the rate you got, a room could go for $50-125 US.   It's not the
    >least expensive hotel in the city, nor is it (by far) the most
    >expensive.

    We've got a Digital corporate rate there ($93), so you *know* it can't
    be that great (though their recycling program is cool).

    Lisa

    Ooh, nice reverse slam!! (re: "We've got a Digital corporate rate
                              there ($93), so you *know*...")
    :-)
    

    
    	I believe the Workscouncil can ask all the questions they want.
    Whether or not they get the answers they are seeking is another thing
    altogether.
    
    	BTW, RP in his speech at Decathlon made a very big todo about
    Digital's relationships with its employees. Give the guy a chance.
    
    	And as soon as anyone out there discovers how to eliminate VPs
    playing $$$ games to make their numbers look better than their peers,
    let the HBR know. You could become a very famous management guru...
    
    		the Greyhawk

    
    	For the management-impaired HBR=Harvard Business Review
    
    	Back to the books...
    
    
    		the Greyhawk

    It's typical of this forum that the early replies would focus on some
    totally off-the-wall nit, like how much the council members are
    spending on their hotel rooms. It's that small, short-sighted thinking
    that the council is reflecting on in their questions and the general
    view of the US short-term returns mentality. It is also unfortunately
    typical that cultural differences and differences in ther ecomonic
    cycle between the US and Europe are not better understood or
    appreciated.
    
    I, for one, was fascinated by the councils questions and wish we had a
    similar vechicle for representation at the board meetings. I suspect
    that the questions would be slightly different, but some of the
    background points, ie. no raised for years, would be similar. I suspect
    that we are 1-2 years ahead of Europe, in terms of our ecomonic
    recovery from the recession that still has some grip on them. So, while
    we still have many of the same issues/problems the generally better
    economic climate masks much of it out for us. Still, one could wonder
    out loud when the US salary plans will allow for raises again for the
    worker-bees.
    
    It would certainly be interesting to see the council post the replies,
    if any, that they get to their questions.
    
    -OFWAMI-                                 

    Hotels mm?
    I'll start to complain about the EWC hotels when RP and crew start
    setting an example by staying in the same hotels as the rest of us.
    The questions they pose will not be answered but at least they are
    asked.I would like to see the EWC produce their own business plan
    for the company and try to get voted onto the board with it.I'll give
    you a hand if you want but I don't think you will like the results
    since the 'no layoffs' has no chance in the current market with our
    current positioning.I mean-no layoffs means employing people,people
    aren't needed to build technology(not too many anyway),people are 
    needed to consult and sell and support.One of the current strategies
    involves using partners for everything,even things we could and should
    do ourselves.QED,until this is tempered,no layoffs is a dream.
    imnho..

    re .19:
    
    �for the company and try to get voted onto the board with it.
    
    Well, here in Germany, half of the board members _are_ elected employee
    representatives (don't remember if any one of them is also an EWC
    member).
    
    Of course, the company wouldn't volutarily let that happen; it's
    required by German law.
    

    re .3,6:
    The delegates are in Boston at their own expenses (some get some
    support from local unions). The hotel isn't that expensive with the
    special Digital discount. Our colleagues have tried to get a cheaper
    one but without success. 
    By the way, why you bother about it?
    
    re .8, .19: 
    A no-layoffs policy is a dream given the current market conditions and
    the state of the company. 
    The reason to attend the Shareholders Meeting is simply to talk about
    business issues and their impact on profits AND on jobs.
    It's better to criticise now (and perhaps change something) than to
    wait for another round of layoffs within the next 12-24 months.
    
    re .12:
    I don't think that Digital Europe is way behind US in terms of
    turnaround. The figures I know (also from the Annual report) tell
    another story.
    Perhaps we don't take for granted that some quarters with meagre
    profits have already solved the structural problems of our company. How
    healthy is the turnaround given the situation that the economic climate
    in the US and also in Europe is cooling down a little bit?
    
    last remark:
    Sometimes I feel a workscouncil-like structure within Digital US could
    help a lot - for employees & the business.
    
    ciao
    
    Wolfgang
     

    Do you think, the big shareholders stay in cheaper hotels?
    
    They are paid by the profit you are working for, and what do you get?
    
    Volker

    The shareholders can do whatever they want to.  Certainly you are not
    suggesting that Digital shareholders be required to live some kind of
    "EWC" specified lifestlye.  They put up their money, take the risk, and
    enjoy the profits (if any).  They can stay wherever they want and spend
    their money however they want.  If shareholders are earning profits
    from Digital stock, what's stopping you from doing the same thing? 
    Risk and opportunity go hand-in-hand.

And I hope everything got clarified at the meeting.

The Q2 DVN I saw today sure did clarify things for me.

I think things are so crystal clear about the stated direction of this
company, the positioning of Alpha, where we expect to grow, et. al.

It's a matter of whether you agree or disagree in my mind at this point.

I agree.  And will support the inititive and stick around.

If I didn't, I'd be gone.  The EWC comments IMO have a dark undertone,
and reek of complete dissatisfaction with the corporation's direction...

I sincerely hope that this is addressed.  Because frankly, to me, it's a
little scary...but no different than the blatant skepticism that has been
evident even in this notes file until very recently.  I have noticed a change of
attitude in US employees and in the trade press about Digital's direction,
and I am happy to be a part of this optimistic and excited group of employees
and analysts.

BP...keep on truckin' dude.

-Stephen

    
    ref -1
    since I missed the DVN, how about short bullettized sumamry?
    
    The EWC are asking pertinent questions, but I also believe (as some
    of you have noted) that the EWC itself has its own agenda.
    
    I am concern that Digital still cannot operate without pendulum
    swings, as though it is totally incapable of balance. For example,
    now that it is divisionalized, the division rivalry is incredible!
    The most important metric is seems is to make the BU VP "happy" which
    means marching to his/her own agenda, which does not necessarily 
    benefits the corporation itself. 
    
    Another example, now that Digital is into "Open Systems" (finally...), 
    the pendulum has swung to UNIX bigotry (quasi fanaticism?) which is 
    refreshing on one hand, but is it necessary to clobber OpenVMS on the 
    other, or Windows NT. Each has its own goodness and benefits to 
    the corporation.
    
    Would anyone care to explain why Digital has SO many VPs - in fact
    the number is growing all the time? Are we a bank? 
    

    
    	Many folks certainly would like us to be one :-)
    
    
    		the Greyhawk

    
    Here in Milan, Italy, we could not see last Friday's DVN, allegedly
    because the room and/or the equipment were already booked. Can anybody
    please post here a transcript of BP's speech + Q&A?
    
    BTW, I don't know if this is just a coincidence, but Italian trade
    unions had explicitely invited employees to see this DVN...
    
    - Maurizio
    

    A little late perhaps, but as a EWC member who attended the annual
    shareholders meeting in Boston, I want to put a few things straight.
    
    At first, the rather irrelevant issues, but since they were criticized
    here are my comments :
    
    1. We stayed in the 57 (FIFTY-SEVEN) Park Plaza hotel, at 200 Stuart
       Street. Daily rate 109.70 $ taxes included. Very moderate
       accommodation.
    
    2. It didn't cost DEC a cent. We had to look ourselves for financing
       I got partial contribution from my union after tough negociations
       and on condition that the cheapest means possible had to be used.
       One of the consequences for example was that some of us had to
       stay till Sunday night for their return flight in order to get the
       cheapest ticket (APEX). I arrived in Brussels at 9am on Monday and
       went straight to work.
    
    3. in 4256.5 somebody wondered about the fast growing number of VPs
       at DEC. 
       Today there are 185 VPs at DEC for a population of 61.700
    
    4. Those who criticized us for what we did, I would like to recommend
       them to re-read the messages in this 4256 note, sent by Wolfgang
       Mueller, our EWC secretary.
    
    Second, the real and relevant issues
    
    1. I read in one of the replies : "...... and gain more credibility in
       the eyes of workers. "
    
       I'm proud to let this person know that I DO HAVE the credibility
       of our workers/colleagues because THEY ELECTED me, they have given
       me and other WC delegates the authority to negociate on their behalf
    
    2. I also noticed doubts about the relevancy of the questions we raised
       I leave that for individual judgement but have the following remarks
    
       a) We were promised that the Q2 DVN broadcast would show the Q&A
          session of the shareholders meeting. When we were watching it
    	  we found out that some important questions and BP's evasive
          answers were CUT OUT !!!
    
       b) After the meeting we were being congratulated by (non-Digital)
          shareholders for the questions we brought forward. They also
          regretted that BP didn't give clearer answers.
    
    Hope to have made things a little bit clearer.
    Best regards,
    
    Frans
                                                                 

>    1. We stayed in the 57 (FIFTY-SEVEN) Park Plaza hotel, at 200 Stuart
>       Street. Daily rate 109.70 $ taxes included. Very moderate
>       accommodation.

Moderate?  Maybe.  But it's over the DEC limit of $99 for downtown Boston.

/john

    What kind of questions and answers got censored ?

    RE. 29

>>    1. We stayed in the 57 (FIFTY-SEVEN) Park Plaza hotel, at 200 Stuart
>>       Street. Daily rate 109.70 $ taxes included. Very moderate
>>       accommodation.
>
>Moderate?  Maybe.  But it's over the DEC limit of $99 for downtown Boston.
>
>/john

    What's your point?

Andy

    re: .29
    
    Do the daily rates in VTX TRAVEL include tax or is that the room rate
    and you add tax on top of that?
    
    Bob

    re .29: What's the point? It wasn't paid for by DEC, so any DEC limits
    are pretty irrelevant (besides it's still quite close).

    Daily rate for hotels listed in VTX TRAVEL are for quoted rates before
    tax is added.
    
    Larry
    

    How much is the tax in Boston?

    So, who promised that the Q&A would be shown?
    
    Mark

    <<< 4256.30    What kind of questions got censored ?
    
    One of the questions I raised was why Digital hadn't found a partner
    sofar to share development and manufacturing costs of the Alpha.
    
    Bob Palmer answered that this issue was insignificant but that they 
    wouldn't say no to a partner who would be willing to invest a lot.
    
    This is one Q+A that was cut out of the DVN broadcast.
    
    Now, look at the new note 4331. 
    
    Regards,
    
    Frans   

    RE: .37, after looking at the note you reference, I can see why the
    question was cut.
    
    I think your question could have been about a partner to share
    our chip facilities and manufacturing costs, of which Alpha chips are a
    subset.
    
    If your point was about reducing the costs of producing Alpha,
    who would be interested, what would they get out of it, what would it
    cost us in terms of controling the end result?
    
    Part of the reason Apple is in trouble, even though they have the
    largest sales of any individual PC company (but dwarfed by PC
    compatible makers as a whole), is the high cost they pay for being
    propetary in both hardware and operating system.  Do you feel we carry
    some of the same burden with Alpha?

> RE: .37, after looking at the note you reference, I can see why the
> question was cut.
    
  I can't. The question was asked and answered in a public forum,
  and the *INVESTORS, PRESS, and ANALYSTS* got to hear the answer,
  no matter how obfuscating it was. Only the employees didn't get
  to hear it.

  This smacks of the lying that went on when we edited the trans-
  cript of the Microsoft joint announcement, changing all of Bill
  Gates' "DECs" to "Digitals".

  The doublespeak ("DS") around here is getting *REALLY* deep.

                                   Atlant

I don't expect every question asked to be broadcast to the world.  If someone
had asked Bob if it was raining outside, I can see that you would expect that to
be included too.

You can argue if changing DEC to Digital is lying or copyright protection, but
does it change anything.

> You can argue if changing DEC to Digital is lying or copyright
> protection, but does it change anything.

  It only changes [some] peoples' perceptions of whether or not
  Digital is a company that values honesty.

  And the excision of the Works Council question amplifies that
  perception.
                                   Atlant