Dec Tries To Learn New Tricks In The Old WorldGary Mcwilliams
Since spring, Digital Equipment Corp. has trumpeted a new sales strategy to combat shrinking profits: no-frills for the price-conscious, and lots of pricey service for clients who can afford it. So where's DEC giving the plan its stiffest test? The same turf staked out by Japan's big-computer makers for their first export drive -- Europe.
The U. S. minicomputer maker's Nov. 11 acquisition of Philips Electronics'$ 1 billion minicomputer business is the new strategy's linchpin. The $160 million deal promises some big new bank customers and a much-needed outlet for DEC's low-priced machines. Small businesses that own Philips' minis will now find themselves getting pitched hard on DEC's.
TWO-PARTER. DEC now gets more than half of its $13.9 billion in sales from Europe (charts). The company plans to split the Philips business into two equal parts. Its current European sales force will pick up Philips' banking clients, including such hefty names as Holland's Rabobank.
More intriguingly, the other half of Philips' mini business will form the core of a new unit focusing on sales to small business. DEC will be trying to form a "mean and lean, dynamic" sales operation, says Wolfgang Jaeger, a director of the new unit, Digital Equipment Enterprise.
If all goes according to plan, DEC says DEE will serve as a model for how it will sell workstations, personal computers, and other low-profit machines around the world. DEE will be run with fewer managers and sell mainly through small companies that tailor computers for business customers. Says Peter J. Smith, DEC's European vice-president of sales and marketing: "The way we're handling the DEE business offers substantial growth for us."
DEC's sales have advanced steadily, but profitability -- especially in the U. S. -- has suffered because DEC hasn't been able to match its rivals' lower operating costs. President Kenneth H. Olsen, 65, earlier this year told managers he would pay personal attention to finding a way to succeed where DEC hadn't before. "Before I retire," Olsen said, "I want to prove we can be in the commodity business and be very profitable."
LABOR DAZE. DEE figures to serve as more than just a test vehicle toward that goal. It starts with a respectable 17% stake in Europe's $7 billion market for small computers. By combining DEC's existing small-business operation with the Philips business, the subsidiary immediately boasts a work force of 5,500 and annual revenues of about $1.2 billion. That makes sales per employee nearly double DEC's current rate of $120,000.
Analysts don't expect DEC to break even on the Philips deal before 1993. For one thing, Philips piled up years of losses on minis. Then there are the unions, a new challenge for nonunion DEC. Many of DEC's new workers are covered by strong job guarantees, so eliminating jobs will have to come through negotiation, not fiat. "Otherwise they will fail," says Jos Hermus, a Dutch union organizer. Jaeger vows that the company will abide by whatever choice its new workers make.
Learning to deal with unions may prove as tricky as the vagaries of selling low-cost computers. But if DEC's European managers succeed with the low-cost approach, they'll be teaching a lot of folks back in the U. S. about how to compete with the ultimate low-cost suppliers, the Japanese.