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Subject: GARTNER REPORT ON DEC and PALMER


GartnerGroup RAS Services

Copyright (C) 1992      MCS : K-902-1214

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Midrange Computing

Key Issues, K-902-1214

W. Melling      Research Note

August 17, 1992

Reprint

Can Bob Palmer Fix DEC's Marketing Problems?

DEC's most critical problems are in marketing and sales, which are
not a part of Bob Palmer's track record. What the record does show
is a willingness to go outside DEC for fresh talent to solve
long-standing problems.


    Machiavelli's The Prince makes several comments on effective management,
    one of which can be roughly summarized as : "CEOs can succeed if they
    know how to solve problems; CEOs can also succeed if they know how to
    recognize, recruit and retain people who know how to solve problems."

    Robert Palmer, DEC's new CEO, has demonstrated an ability to solve
    problems in engineering and manufacturing. His critical challenges,
    however, are in sales and marketing. It is not obvious from his
    background that he can solve DEC's problems in sales and marketing
    himself. The question is whether he can and will recruit people who can
    solve those problems.

    What kind of company did Palmer inherit? DEC is a study in contradiction
    on the one hand a strong product set and a respected global service
    capability; on the other, a P & L that is frightening. Most of the
    foundation functions of the company are solid. Engineering has had its
    share of problems. The VAX 9000 shipped too late to succeed. DEC's time
    advantage in porting middleware to competitive systems has now been lost
    (see accompanying Research Note T-450-1217). Both Unix and office
    software have struggled through years of strategic confusion.
    Nevertheless, for the past two years, VAX has held a leadership position
    in commercial data processing (highest functionality in our Midrange
    Systems Evaluation Model, best price/performance as measured by the
    Midrange Model and TPC-A and a growing openness now certified by XPG3
    branding). Alpha is among the leading new RISC technologies and will
    propel DEC back into scientific computing. DEC middleware is as strong as
    any in the industry and DEC continues to lead in network technology.
    Manufacturing is competitive and capable of building the 200 mHz Alpha
    chip in volume, and is showing dramatic reductions in cost over the past
    five years. Distribution has reduced floor space 80 percent, reduced head
    count 70 percent, increased turns from three per year to 11 per year and
    improved response from three days to same day since the mid-'80s. Service
    is profitable, growing in revenue, successfully moving into the systems
    integration business and displaying remarkable imagination in its
    business approaches. With all this, product revenues have fallen, clearly
    pointing to failures in Marketing and Sales. (Given HP's and Unisys'
    financial results, the "soft economy" explanation doesn't wash.) The most
    damaging marketing error is DEC's public support for open systems, which
    took place five years too late. It left DEC with a worst case scenario of
    having spent the engineering funds to achieve openness while at the same
    time, building a pervasive reputation for opposition to the open systems
    concept. A second critical failure is the absence of an articulated
    computing vision for large enterprises, abdicating leadership just when
    users are in the process of fundamental IT architectural re-engineering.




    Can reorganization solve the marketing problem? We do not think so. DEC
    has historically relied on home-grown "marketeers" who have lacked either
    formal marketing training or apprenticeship in companies with first-rate
    marketing programs, and have repeatedly tried reorganizations in which
    the same people are reshuffled and then produce the same results.

    Opportunities : Mr. Palmer has a chance to establish new attitudes toward
    sales and marketing, heretofore considered inherently unprofessional. The
    old attitudes showed up in a variety of ways, from explicit executive
    slurs, to the rationale for not having sales commissions, to the
    exclusion from senior management of anyone with a sales background. Mr.
    Palmer's early staff selections and public statements will be crucial to
    correcting the attitudinal dysfunction. Derivatively, Mr. Palmer has a
    chance to recruit senior marketing talent which might previously have
    been kept away by DEC's attitudes.

    Will DEC go outside for talent? We think there is a better than even
    chance (0.6 probability). In the past, Mr. Palmer has gone outside DEC to
    get talent to solve key problems. The danger is that Mr. Palmer could be
    handicapped by his own success in semiconductors. History is full of
    examples of semiconductor companies attempting to move into systems
    marketing without changing semiconductor headsets and failing.

    Conclusion : In an industry that will have to sell increasingly complex
    technology through increasingly lean channels, marketing is so critical
    that without basic fixes in that function, DEC will fail no matter what
    its engineers do.



DEC's Next Five Years A Dialectic

Any optimistic prognosis for DEC is gated on the introduction of
fresh attitudes and talent into the marketing function. Without
basic marketing fixes, DEC will fail no matter what engineering
does.



    We see two general directions in which DEC can move during the first five
    years of the "Palmer era" :

    Scenario 1 : DEC strengthens sales and marketing so that it can
    effectively function as an enterprise computing vendor. It then
    successfully builds new channels and business models so that it can make
    money selling commodity products and becomes a strong competitor at every
    level of integration (0.4 probability).

    Key Issue

    Which midrange vendors have the highest potential for success and
    survival in the 1990s?

    Figure 1

    An Enterprise Computing Portfolio

    DEC now competes in every fundamental area of computing in a large
    enterprise :

    o traditional data processing,

    o engineering/scientific computing,

    o personal/work-group computing, and

    o mission-critical systems.

    Rationale : DEC is already an enterprise computing vendor (see Figures 1
    and 2) and has a net product advantage, but is operating well below
    potential. The accession of a new CEO provides an opportunity for a
    fundamental shift in the company's attitudes about marketing. With
    marketing issues resolved, synergies between the multiple levels of
    integration commodity hardware and software, emerging technologies,
    complex systems, systems integration and information utility services
    generate optimum profit.

    Assumptions :

    o      DEC articulates a strategic vision for enterprise computing. (In
           an era of fundamental IT architectural change, there needs to be a
           lodestone for engineering, sales and users.)

    o      DEC entrusts the management of the sales force to an executive
           with a proven sales record. (DEC has never had an executive
           managing the sales function who came from the sales function
           sending a powerful negative signal which impacts morale,
           performance and recruiting.)

    o      DEC recruits senior marketing executives from companies with
           proven marketing excellence (0.6 probability). (This single action
           gates DEC's ability to thrive long term and, if taken, would
           upgrade our probability on this scenario.)

    Figure 2

    System Functionality vs. Vendor Differentiation


    DEC currently plans to compete at every level of integration, from the
    hardware component level up through the software layers to systems
    integration and ultimately to the information utility.

    o      DEC continues to assign senior account relationship managers,
           primarily funded by the service/systems integration businesses,
           but pares the size of sales teams as more products are delivered
           through commodity channels. Direct sales focuses on strategic
           software, complex systems and systems integration sales.

    o      Engineering prunes the product set by at least 20 percent.

    o      Alpha ships on time and on spec (0.8 probability), generating
           enough revenue during 1993 and 1H94 to give DEC time for its
           marketing reforms to take effect (0.7 probability).

    Scenario 2 : DEC fails to correct its sales and marketing deficiencies
    for either the "enterprise computing vendor" or the "commodity product
    manufacturer" model, and ends up selling to a shrinking installed base.
    Attempts to "cost-cut-to-profitability" do not keep up with the revenue
    decline, and DEC becomes a takeover target in the 1993 to 1995 time frame
    (0.6 probability).

    Rationale : The notion that engineers can and should manage anything
    turns out to be so ingrained at DEC that the company fails to recruit
    marketing talent from the outside. DEC remains neither fish nor fowl, not
    doing the sophisticated conceptual marketing necessary to be a successful
    enterprise computing vendor (but staying in the market) and carrying too
    much overhead for a pure low-cost producer.

    Assumptions :

    o      Alpha ships on time and on spec, generating enough revenue in 1993
           and 1H94 to convince DEC management that reorganization has solved
           the marketing problems.

    o      DEC continues to assign senior account relationship managers, but
           pares the size of sales teams as more products are delivered
           through commodity channels.

    Summary : The prognosis for DEC hinges on its willingness to introduce
    fresh attitudes, fresh talent and fresh thinking to its marketing
    function. The last two years have proven that it really does not matter
    if you build a better product if you can't explain it to potential
    buyers. We believe that there is a better than even chance that DEC will
    introduce fresh thinking (see accompanying Research Note K-902-1214), but
    unless and until it happens, our overall forecast for the company is
    pessimistic.