Strong board a hurdle for DEC's new chief?

Electronic News, July 27, 1992 by Craig Stedman

MAYNARD, MASS. -- The emergence of a Digital Equipment Corp. board of directors with the strength to force out founder Kenneth Olsen opens a new era for a company heretofore dominated by a single personality. For president-designate Robert Palmer, who must usher in a new computer architecture, reverse a first-ever year-end operating loss and revitalize upper management, this power shift may present his greatest challenge.

It remains unclear whether the current vice president of manufacturing was the choice of Mr. Olsen, as DEC originally indicated, or of a board which Mr. Olsen now reportedly says deposed him. The board quickly ratified Mr. Palmer in his new post, which he will assume in October, but is expected to look closely over his shoulder as he takes control.

Unwavering support will be necessary if Mr. Palmer is to successfully complete the delicate make-or-break shift from DEC's VAX technology to the new Alpha RISC architecture while at the same time extending cost-cutting actions already taken in manufacturing to other parts of the company.

Any corporate waffling could also cripple his efforts in other areas, including a widely-perceived need to strengthen DEC's marketing and sales organizations and to accelerate its push into markets such as software, services and networking to offset the dwindling margins provided by its core midrange computer business.

His ability to manage those issues is expected to be crucial to DEC's prospects for making a longterm recovery from its recent losses, which continued in the June quarter with a $1.855 billion net deficit, reported last week, that included a restructuring charge of $1.5 billion.

It's uncertain how involved the board will stay once Mr. Palmer is in place, since neither he nor any directors were available for interviews. Asked about the subject, a DEC spokesman said "Who knows?" but added that Mr. Palmer "clearly has got their vote of confidence."

Mr. Palmer was officially elected last week as president and CEO, effective Oct. 1, and was added to the board immediately. Meanwhile, Mr. Olsen reportedly told a gathering of DEC employees that he had been "fired" by the board, contradicting the official company statement that he had chosen to retire on his own initiative.

Mr. Olsen was said to have attributed the board's action in large part to his inability to get managers to fully go along with a recent reorganization. While that was seen as an oversimplification, a revolt of sorts is thought to have taken place recently among executives convinced that Mr. Olsen's policies and strategies were flawed.

"It became increasingly clear over the past year that Ken didn't have buy-in from some of his most important managers," said Wes Melling, a one-time DEC employee who now is an analyst at Gartner Group. "He wasn't able to implement a lot of product strategy ideas, because people gave him lip service but then didn't do it."

The DEC spokesman wouldn't comment on that subject, but acknowledged separately that workers "in large measure" had grown tired of the seemingly endless debates that Mr. Olsen encouraged even after decisions had supposedly been made. He agreed with assessments that Mr. Palmer is more apt to view decisions as final and move quickly to implement them.

One of the most pressing problems thought to face Mr. Palmer, beyond the VAX-to-Alpha transition and the company's losses, is the issue of improving the quality of its marketing and sales units, which Mr. Olsen historically put well below engineering in the corporate echelon.

"Ken's an engineer and had some disdain for marketing, and that showed," noted Forest Baskett, a former DEC executive now at Silicon Graphics as senior vice president of R&D. Mr. Olsen tried in last spring's reorganization to give marketing more control over R&D, but the company is still not seen as having a coherent marketing focus.

"Companies have to do at least two things," pointed out Marge Knox, president of the DECUS user group's U.S. chapter. "You have to have a good product and let everybody know that you have a good product. The message also has to be there."

Sales is even more problematic, remaining "a major sore spot," according to International Data Corp. analyst Chris Christiansen. The last three heads of DEC's U.S. field operation have all come from customer service rather than sales itself, and the salaried force is viewed as improperly prepared and insufficiently motivated.

The ability of Mr. Palmer to shift DEC's revenues even more quickly toward software, services and other high-margin sectors is also seen as critical, since the shrinking margins on computer hardware are no longer large enough to support the company's existing cost structure.

Also a ponderable is whether Mr. Palmer's background may move the company further into the merchant semiconductor market beyond its current program for marketing the upcoming Alpha microprocessors to other system vendors. Mr. Palmer's experience gave him "a leg up" on other candidates to succeed Mr. Olsen due to the growing importance of the microprocessor, a DEC spokesman acknowledged, adding the company's semiconductor strategies aren't expected to "drift very far from where they are today."