Grace & Company Finds Digital PBX System Pays Its Own Way on Bottom-Line Figures.
"This is about 30 feet long," says Norian, who's director of telecommunications for W. R. Grace & Company, as he flips through the remaining pages. "What you're looking at is the spreadsheet for the purchase of communications equipment for Grace's New York corporate headquarters. This is W. R. Grace & Company's style of laying out a financial story."
"We're talking about asset management," Norian adds. "That's what the company's executives are interested in. How we're using our money. they want to know what the rate of return will be on the capital that we're investing. What do they care if the data is first digital and then analog and then digital again? What do they care if you can pass voice and data through the same system with equal ease? Those kinds of things don't mean very much to them. But asset management does."
The company's decision to purchase a digital business communications system is an example of the Grace approach. Back in 1980, Grace was using a Centrex system to provide telephone service for its New York corporate office. Three Digital Equipment Corporation (DEC) computers recently had been installed. All-Digital Environment
The new DEC systems required a great deal of communication between the three host computers and terminals. Norian explains: "The traditional way of doing that was to use a modem and our Centrex system. That meant that the data would go from a terminal user back to the telephone company central office over an analog trunk. Then it would come back over another analog trunk and end up terminating in another modem that was front-ending the computer port. One of the things that I wanted to do was to have the capability of handling all of our information digitally. I didn't want to have to go from the digital world back to the analog world and then back to the digital world."
Explaining the decision to buy a Northern Telecom SL system Norian says, "We wanted to be positioned properly to take advantage of digital technology."
For Grace, however, new technology is a good buy only if it is a cost-effective investment. The company spent more than $2.5 million on its SL digital system, but its spreadsheets showed a return on capital of 28.5 percent a payout over 2.8 years. "Those are the kinds of numbers that we like to see," Norian says. "They essentially sold the system."
Grace recently began taking advantage of SL digital technology by adding Northern Telecom's Asynchronous Interface Modules (AIMs) as modem replacements. "We're using about 40 of them now," Norian says. "The advantage is that they provide a greater reliability and speed. They're operating at 4800 bit per second. Before we were operating at 1200 bits per second. So it's a significant improvement. What happens is that the information you need comes up on a video display a lot faster."
An AIM is much easier to use, according to Norian. "If you have an AIM attached to your terminal, all you have to do is push a button to auto-dial. With a modem, you have to dial a number, listen for the distant-end modem to return a tone and then flip a switch to change the phone from voice to a data mode." An Individual Decision
At Grace, where autonomy is essential to the corporate culture, an individual user makes the decision whether or not to switch to an AIM. "I have to sell the the product," Norian says. "It has to be easy for the individual to switch from one type of technology to another. And the change has to be not only technologically useful, it also has to be cost-effective."
When Norian prepares to sell a user on an AIM, he designs a mini-version of the Grace spreadsheet. "I prepare a financial picture that shows a model with a modem hardware configuration," he says. "The total cost would be $2400. That's for all of the elements. Then I have another chart that shows an AIM hardware configuration. The total cost would be $1300. It's obvious to someone that there's a difference in dollars. What we're talking about is a saving of about $1,000 per user." Intangible Benefits
the AIM definitely saves money and increases productivity, says Norian. "But it's much easier to prove cost savings than it is to prove productivity improvements. What we're talking about are the intangibles of productivity. How do you prove that someone is more productive after you've made a change? That can be very difficult to measure. No one has come out with a measurement tool that is multi-faceted. You just have to be flexible and open enough to realize that a fast-changing technological world is aiding and abetting the productivity process. Once that's understood then you make decisions on whether you want to invest capital in new technologies on a case-by-case basis."
Communications systems are just another tool that can be used to improve productivity. Norian says. "If someone decides that he is going to put in a robotics system to increase production, then that is a cost that's going to improve productivity. Whether a tool is a robotics tool or a communications tool is irrelevant. It's the same thing. Someone is spending money to improve productivity."
Increasing productivity can require considerable investments. J. Peter Grace, chairman and chief executive officer of W. R. Grace, explains that well, So President Ronal Reagan Asked him to head the Private Sector Survey on Cost Control to "search out waste and inefficiency" in government.
When Peter Grace assumed leadership of his company nearly 40 years ago, it was a small steamship company. Today, it's the world's largest producer of specialty chemicals. It also has expanded into natural resources, consumer services and general business operations.
Grace companies produce more than 90 different chemical product lines. They sell food as such restaurants as El Torito for Mexican-style fare, Coco's coffee shops and Reuben's dinnerhouses. They sell cowboy hats at Sheplers and lumber at Handy Dan's. They mine for coal and supply drilling mud products and services to the petroleum industry. Playing By the Numbers
During the past 39 years, Peter Grace has purchased more than 100 companies. No matter if he's buying telecommunications equipment or a new company, he studies the numbers on a spreadsheet to ensure that he's making a wise investment. "Numbers are facts," he says. "Numbers are reality."
But Grace's Fascination with numbers is not based on frugality. It's based on a commitment to spend money effectively and efficiently. It's an approach that considers good investments in technology as a way to improve productivity.
The Grace Commission, for example, made recommendations that would save the United States government $424.4 billion over a three-year period. But it also recommended spending millions of dollars. That's because it discovered that many of the government's computers are obsolete. Refurbising them will cost enormous sums, but the cost will be realized in savings in just a few years.
The spreadsheet approach is only part of the story, however. It's just a glimpse of how grace practices what Peter Grace preaches about productivity. It doesn't show, for example, how the company compared Northern Telecom and other vendors products on a technology matrix before purchasing the SL system. Keeping Firm Productive
Norian's job is to make the long-term investments in communications equipment that will keep W.R. Grace productive. His department was established in 1976, he explains, "to make sure that the corporation is spending its dollars in telecommunications appropriately. We review programs that our various units have in place. Whenever they're going to make a purchase, depending on the level of capital, we review the expenditure. Essentially, we're interested in spending our dollars efficiently. We're interested in cost-effectiveness." Hub for Data and Voice
One expenditure that has proven to be cost-effective is Grace's investment in the digital communications system. Now the company is planning to use the SL system as the hub for connecting all of its data and voice communications. "As the cost of computing power continues to decrease, you can do a lot of things on a personal computer that previously you had to do on a large computer that you shared with others, "Norian says. "However, if you're sitting at your personal computer, occasionally you'll have to go to a larger data base to pull out information. To get to it, you'll have to have some kind of transport medium. That makes a network vital. And the reliability of the network is very important. It must be able to communicate information effectively and efficiently--and at high volumes." Ready for Advances
Bob Norian is working closely with Northern Telecom so that Grace will be ready to take advantage of new advances in technology as soon as they become available.
"If you're sitting at your terminal and it's a Wang workstation and you want to talk to someone at the workstation of another vendor, right now you have to go through a lot of mechanisms to get the two systems to transfer information," Norian says. "You have to connect them physically and logically. Once you have the two systems logically connected, you have to make sure that you're talking the right protocols. Then you have to make sure that the characters imbedded in a format in one system, such as page control, can be interpreted by the other. You want to make sure that a page of copy in one sytem will look like a page of copy in the other. That's not a very easy task." Terminal Simplicity
Norian wants to make it as easy for two computer terminal users to communicate with one another as it is for two telephone users to communicate with each other. "Imagine that you want to communicate a file to another system," he says. "And imagine that the system knows your capabilities because you have stored that information. It knows the speeds to communicate. And it knows the protocols. It knows all of the differences. It even knows where the other terminal is. All you have to do is type in the name of the person who uses the terminal."
W. R. Grace is making plans for such a system now, and it's planning to use its SL digital system as the link between all computing devices.
The company plans to retain its SL system after the 2.8-year payout period is completed, too, since it's designed to integrate with newer equipment as technology evolves, says Norian. "We knew that one of the strengths of Northern Telecom's products is the ability to be upwardly compatible. And Northern Telecom has provided continuity by introducing double density on some boards, by increasing the speed of its processors, and by improving the speed that data can move over twisted-pair wires." Evolutionary Growth
How long will Grace continue to use its system? "It could be 10 years," Norian says. "It could be longer. We may eventually change the entire design and the cards and everything else in the system--which will make it a different system. The evolution aspects allow us to move gracefully into a new system."
That means Bob Norian may not have to prepare another 30-foot spreadsheet for many years to come.
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|Date:||Jul 1, 1984|
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