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The Demise of Digital Equipment Corporation: Downsizing - Cause or Cure

Digital Equipment Corporation (DEC) was founded in 1957 by two MIT engineers who had worked on the Whirlwind program, Kenneth Olsen and Harlan Andersen. By 1988 it had grown to be the world’s second largest computer corporation. From this heady height it took a mere ten years for the company to disappear completely. Olsen implemented a corporate culture of benevolence to its employees creating a family atmosphere and as such it was generally considered to be a job for life with a no redundancy policy. In an unprecedented action for the company, it began to lay off people in the early 90’s and followed this with a number of rounds of downsizing over the next few years. Downsizing was introduced as a reaction to the perceived problems the company had in terms of income per employee and an unfavourable stock market valuation. It had always been able to charge a premium for its products and, as computer hardware moved towards commodity pricing, was caught unawares and had to react to counteract excessive costs. This paper looks at the way the downsizing activity was handled at DEC both in manufacturing and in the field organisations and asks whether this activity had a positive or negative impact on the future of the company. It argues that the downsizing caused anxiety amongst those employees that remained and created an air of tension and resentment within the company. Many of those who were left were dazed but often managed to get alternative employment with competitors and took with them essential skills and, even worse, customers. Those that stayed were always fearful of the next ‘round’ of cuts essentially causing stagnation of innovation. Downsizing, in effect, communicated to potential customers that the company was in trouble and so sales were lost as a result. David T. Goodwin/Roger G. Johnson