| DIGITAL'S OLSEN LOOKS CANDIDLY TOWARD THE FUTURE
================================================
State's computer grandfather says fundamental changes are in store
------------------------------------------------------------------
by Jane Meredith Adams, Globe Staff
Maynard -- Kenneth H. Olsen, 59, is a lumbering man of Norwegian descent.
He sits uncomfortably in an office chair, even when it is his own chair at
Digital Equipment Corporation, where he is president. Twisted up on one
haunch, he looks cramped; he shifts his weight, but the chair, any chair,
remains inadequate. The tremendous energy that has driven Olsen for 28
years, long enough to build the second-largest computer company in the
world, resists confinement.
However ill-seated, Olsen is an imposing figure. He is the granddaddy
of the computer industry in the state, an engineer who left Massachusetts
Institute of Technology in 1957 to start a computer company, and an entre-
preneur who has nurtured that company through good times and bad. When he
speaks of the current slowdown in the computer industry, as he did in an
interview last week, it is always in the context of Ken Olsen and Digital
the survivors, the man and the company that have made it through other
recessions, other hard times.
History is important to Olsen; his office, in a renovated woolen mill
dating to the Civil War, is a relic of changing times and technology. He
litters the room with computer artifacts -- a core memory board, a 1938
cathode-ray tube -- and is gleeful right down to his plain black engineer's
shoes when talking about new technology. That is where his heart is, and
what makes sense to him; the progress in technology will go on. The rest
of it -- the economic and political gyrations that Olsen feels impede the
industry and contribute to the slowdown -- can't be controlled as easily
with an engineer's rational analysis.
Of the slowdown, he says, "It is not unlikely that things will get
quite a bit tougher."
When will an upturn come?
"We don't care. We don't see any upturn. It might get worse, it might
get better," he says. "It's like the weather." He is a man in love with
his technology; he believes Digital's computers are superior and, conse-
quently, the company can survive any turn of events.
For Digital and its competitors, International Business Machines
Corp., Data General Corp. and Wang Laboratories Inc., this summer of
the slowdown has been difficult. Industry expectations have sunk so
low that a 23 percent decline in Digital's fourth-quarter earnings
pleased analysts, who had been expecting much worse.
Nonetheless, Digital ended the year with a balance sheet observers
considered quite healthy in any economy, cash and marketable securities
totaled more than $1 billion, and inventories were relatively low.
What follows are Olsen's thoughts on the slowdown that began early
this year, and other matters effecting high tech:
Q: What about a layoff at Digital?
A: If the faith we have in the future is there at all, we'd be foolish
to have a layoff. We don't want to lose all those talented people.
If we made any mistakes that caused our problem, we shouldn't take
it out on people. They have great loyalty to us because we have
loyalty to them.
We never claimed to never let people go. Sometimes you just have
to. We at times encourage people to go gently one at a time,
sometimes because they should go and sometimes otherwise.
Q: What does the slowdown say about the future for Massachusetts?
A: I'm not saying that Massachusetts is going to collapse, but you
can't assume it's going to go on as it has.
Q: What job growth do you see from Digital in the future for Massachusetts?
A: It won't be significant job growth like it has been. The nature of
the business is changing. All of the things we promised with computers
to make manufacturing more efficient have really happened. We're
just smarter, doing it all over again. We doubled our size dollar
volume in the last three years with a decrease in manufacturing people.
The number of manufacturing people will not increase, totally. The
jobs will change, we will move people around, but the number of jobs
will probably stay roughly the same.
Q: When did you first notice the slowdown?
A: I think the economists and some of the people in Washington weren't
unduly observant over the year because so much of this was really
obvious a long time ago. A year or so ago I had a meeting with the
governor, and I told the governor: Massachusetts is in trouble. I
don't know if I had any influence. He was a little more conservative
afterward, but that could be my imagination.
It's been clear for an awful long time the world doesn't need 1,000
personal-computer makers. Quite suddenly, the number went from 1,000,
I estimated, to just a small handful.
So much of the business in Massachusetts involves many people doing
close to the same thing. On one side, it's great -- out of that comes
good things. But as the state of Massachusetts, we can't count on them
all being successful.
With modern technology Digital could very well make all the minicom-
puters the world needs. We won't, but that shows the problem. It
doesn't take many companies to satisfy all the world's needs.
Q: What are the causes of the slowdown?
A: The thing that initiated it to a large degree was the high price of
the dollar, and the fact that manufacturing went overseas.
Q: Is the computer industry different from any other? Or is it difficult
for you like everybody else to function in an economy with 1 percent
GNP growth?
A: We never said the computer industry was different. We're saying it's
like any other industry. It's not a bad life. We don't need the
glamour. We enjoy good times, bad times.
Q: What about our nation's trade imbalance? How big a problem is it?
A: If we want to encourage exports we should so what the competition is
does. The competitive governments, they work hard and make it easy...
We have a government that really has an interest in destroying industry
rather than helping it. If we really set about to solve the export
problem, we'd do things differently.
Q: Like what?
A: The Japanese forgive all the taxes that go on their products that
are shipped overseas. Our politicians in the state and the federal
government see all that money American business is doing overseas
and say: Let's tax it more. The more we try to tax what we do
overseas the less we do overseas.
Q: What else should the government do?
A: Doing things isn't enough. You have to have it in your heart to try.
If the press and the government and everybody else has it in their
heart to "get" business and to tax it every way it can, particularly
those big things we do overseas, hey, we're not going to export
overseas.
Until you're motivated to solve the problem or try, you'll get no-
where. Try and you will solve the problem.
K.O. - On D.E.C.
The overstuffed armchair in the corner of the corporate interview lounge is
wasted on Ken Olsen. The 59-year-old founder and president of the world's
second largest computer company is usually on the chair's edge, stridently
defending Digital Equipment Corp.'s microcomputer strategy or attempting to
quash the latest rumors of a marriage between DEC and AT&T. When someone is as
supremely confident of the future success of his company as Olsen is and wants
the world to know it, it is not easy to relax.
In an interview with Computerworld last week that touched on many topics,
Olsen disclosed that he has set a date when he will relinquish the DEC helm,
but he would not divulge the details. "Without a date, one never leaves,"
Olsen said, adding only that the date is still not imminent. When it does
arrive, he predicted, DEC will have sailed through a minicomputer shakeout to
strengthen further its position as the leading vendor of mid-range computer
systems.
"Right now or very soon, we might be able to make all the minicomputers the
world needs," Olsen said. "There is not room for many manufacturers in that
market. That means there are going to be exciting changes in this world of
ours. There will be some things that we want nothing to do with because
they're too easy for others. But there are some things that take size and
technology to do, but boy, once we get going with ours...That [Microvax II],
when we get orders and start pouring those out, we're going to pour them out
in huge quantities."
Olsen predicted the minicomputer industry will soon follow the pattern
micro vendors experienced, in which those vendors saw their overcrowded ranks
thinned drastically largely due to plummeting demand and bloodletting price
wars.
"Even if it was 500 [micro vendors] down to 12, that's a major 1,000
change, and it's probably a thousand down to five," he said. "We're going
through the same sort of change in many other areas; it's clear the world
doesn't want a hundred different general ledger software systems."
One thing the world definitely does want, in Olsen's view, is networking.
Corporate users need the means to link micros, minis, mainframes and
communications, Olsen said, and the shortage of solutions is partly to blame
for buyer hesitation in the current computer industry slump.
"DEC may have helped cause this computer depression," Olsen said, "because I
finally convinced people that they need networking and that a bunch of
independent computers won't really solve the problem. People, once they get a
hint of what networking can do, are afraid to make a move."
DEC's challenge, Olsen said, is to convince users that the minicomputer
pioneer can also be the networking solution vendor of the 1980s and beyond. He
regales listeners with tales of DEC executives linking VAXs, Decmates,
Microvaxs and workstations together over Ethernet but admits the technology
will not sell itself. The company's No. 1 priority in 1985 is not to batten
down using cost cuts to weather the slump, but to master the hard sell of
networking, he said.
"Things people have been looking for, we've got, and no one else will have
them for a while," Olsen said. "We've got a message to get across; it just
takes time, it takes work. We're not doing too badly, considering the economy.
Cutting back is not the challenge. People expect us to cut back, just because
everyone else does. With everyone else cutting back, we should go the other
way."
DEC is not out rescuing laid-off production line employees from Wang
Laboratories, Inc. or Data General Corp., however. Olsen admitted that DEC has
scaled back its manufacturing work force, attributing the drop to increasingly
automated and streamlined production as well as to the industry slump.
The DEC sales force has grown, but Olsen stressed that all future staffing
positions, including one that would break from the DEC no-layoff tradition,
will depend on the business climate.
"The nature of the whole business is [such that] we're always reshuffling
things," he said. "Things change, so we have some products we're not making
anymore and some we're not selling anymore. We never promised there will be no
lay-offs, but we see an increasing demand for our products, and the summer's
going better than it went last summer. We feel our job is to get that
[product] message out, so we're not planning any lay-offs."
DEC's next moves on the networking chessboard will probably be on the
microcomputer end. "I am not going to announce anything, but we obviously have
to have small desktop Microvax workstations, and it's obvious which two we
need," Olsen said. "We need one that has got a lot of industry software and
one to keep what we have in word processing....The Decmate we have, we still
believe, is the best [for] word processing. We've got to integrate that for
other things, but we're not quite ready to announce how we'll do that."
Any talk of the future of networking invariably evokes a long shadow
emanating from Armonk, N.Y. - and most everyone not wearing blue pinstripes
castigates IBM for aiding and abetting the confusion over standards. Olsen,
whose suit bears a gray stripe, is obviously among them.
"I don't understand what [IBM is] doing, and I don't think [it has] told
anybody completely what [it is] doing," he said. "If you look at what [IBM
has] brought out, it's kind of a messy thing, all kinds of wires. I suspect
[IBM is] going to go Ethernet because I don't think there's any other really
nice way of doing it. That's my guess, I don't know; I shouldn't even say it
publicly."
"When we picked Ethernet, we and a number of others tried to make it
industry standard," Olsen continued. "Now, there are two companies [IBM and
AT&T] that want to get a monopoly, so they didn't join in. I suspect that IBM
will join into that, because I don't think [its] ever going to get [its
system] to work....Well, we'll see what happens."
Deflecting recent industry rumors, Olsen stressed that DEC is categorically
not interested in reaching out and touching AT&T - in the form of a merger
that is. "We have no interest in the telephone business, and we would be of no
value to them if we're not interested," he said. "There have been very few, if
any,.... high technology unfriendly mergers that have worked out."
Olsen called DEC's recent decision to resume production of the Rainbow
micro "absolutely unimportant," and denied any corporate frustration in the
world of the IBM Personal Computer standard that DEC belatedly and
begrudgingly accepted. "We made our mistakes that we shouldn't have made, but
that's not frustrating, that's part of the computer business," he said.
"We'd probably be dead if we were that successful," Olsen added with a grin.
"I'd hate to have that much production and have it disappear suddenly, too. We
don't do to well with too much success. You know, after many years of success,
it's awfully hard to cover."
{Computerworld 19-Aug-1985}
{Contributed by Bill Keefe}
|
|
When I left MIT 30 years ago to start a business, I'm not sure I
could pronounce the word entrepreneur. Today, entrepreneur is a hot word.
It's a challenging word, a fascinating word.
I'll try to tell you in a few minutes all that I learned in 30
years about entrepreneurship.
We received a good education at MIT, a surprisingly pertinent
education. I can even say I learned double entry bookkeeping from
Samuelson's economics book. But there was one thing missing: we were
never taught any theory of work, any philosophy of work, anything about job
satisfaction or what to look for. Ed Schein, industrial psychologist at
the Sloan School once said that work is the most important thing in a
person's life. Yet the job was the one thing we very rarely talked about.
I can't in 20 minutes answer that need, but entrepreneurship does give an
interesting vehicle around which to think about one's job and one's goals
in a job.
The place of entrepreneurship in our society is obvious. The
traditional enterprises do not or will not, or are reluctant to try new
ideas and new approaches, and to gamble, to risk, to pay the price for
competition. It is the place of the entrepreneur to introduce new ideas,
new products, and new approaches. Few entrepreneurs survive very long,
either because of success or because of failure. But out of many
approaches comes good as with evolution, improvements come with many
attempts, better things arrive.
When I left MIT 30 years ago, I had attained just about everything
I had dreamed of. I had an opportunity to do much more research, much more
elegant research with much more resources than I had ever dreamed. At
$12,000 a year I was able to feed my family. I had everything that I
wanted. But one thing was missing. Nobody cared. The industrial world
didn't care, they said we were too academic. I'm afraid that's what we say
about MIT today. We felt we had to prove something to the world and we
wanted to try our dream out. We had a dream at that time which was
demonstrated by MIT, and that was the place of interactive computing.
Normal computing at the time was considered big, expensive, awesome, beyond
ordinary people. Interactive computing was exciting and fun, and people
could interact directly with the computer. We had demonstrated the
usefulness of this at MIT. It was our dream to show the world what it
could do.
We saw at MIT a trusting, generous attitude, and at the same time,
a tremendously competitive intellectual atmosphere which was very
productive and a great deal of fun. There was a team spirit which meant
everyone knew the goals and everyone worked towards them. We had technical
ideas to demonstrate but also wanted to prove that this environment could
work outside MIT.
When we decided to start a company we went to the American Research
and Development Corporation which was just across the river. That was not
the right time for starting a company. A recession had started.
Electronic companies started during the Korean War were not doing well.
They did invite us to make a proposal to their board of directors, but they
gave us three pieces of advice.
First, they suggested that we don't use the word computer because
Fortune Magazine said no one was making money at it, nor was about to. So
we took the word computer out of our proposal. The lesson there of course
is that you have to be adaptable and you have to sell your ideas.
Secondly they suggested that the promise of five per cent profit
on sales was not high enough for someone to risk their capital on. We had
studied in the Lexington Library that all good companies seemed to make
five per cent profits so we promised 10 per cent. And we made 10 per cent
most of the time. The lesson there, of course, is obvious: If you aim for
the high number, you might not make it, but if you aim for a low number, you
were surely not going to make a high goal.
We were told that we should promise fast results because most of
the board was over 80. We promised to make a profit in one year. The
lesson was that, like a home budget, a business budget without short term
goals, encourages spending more money than is coming in.
They bought our plan, and they gave us $70,000 in capital. The
nice thing about $70,000 is that you can watch every dollar. With that,
they owned more than 70 per cent of the company, but with that, they gave
us freedom, and they didn't interfere. They didn't interfere to straighten
out things when things were going poorly, and they didn't interfere to
exploit things when they were going well, and and American Research
definitely had a long term interest and wanted to produce something useful
for society.
We never finished our business plan. We didn't have a big volume
of spread sheets and dozens of colored graphs. We did have simple profit
and loss statements and simple balance sheets, and when American Research
could see that these financial plans were in our head and in our heart,
that we made them, understood them, remembered them, and they were simple
enough to be a model for us to run the company daily and weekly and monthly
using them as the model. They committed to invest in us without waiting
for a final beautifully bound proposal.
Today, when plans are done by computer or by staff, they have more
detail than one can keep in his head. I sometimes fear that the elegant
mathematics of a P&L and balance sheet loses its usefulness when people put
too much detail into it.
When people leave us today to become entrepreneurs, I advise them
to, when they say their prayers at night, pray about your P&L statement.
If your P&L is not so simple you can remember every line, or if it's not
yours and not in your heart, you don't know what you want and you don't
know what your plans are. So far, few people have taken that advice.
We learned a lot in those early years. We moved into an old mill
and paid 25 cents a square foot per year for space with watchman service
and heat. We did everything ourselves, from building the offices to moving
the equipment. We did the photography in my basement, and printed our
circuits with real silk on wooden frames and etched them in aquarium tanks
we bought from the five and ten. We sometimes spilled the etch solution
onto the furniture store below. I think we bought the same set of
furniture several times. We had the opportunity to learn accounting, and
all the steps in manufacturing, things which, in time, became very valuable
because we became sensitive to people in many different jobs.
When we met with our accountants, we said we wanted big company
accounting. In our very humble offices, with lawn furniture and a leftover
rolltop desk, it took a little bit of convincing to let them know that we
really wanted big company accounting. When they set up this system we
discovered it cost us more to do the accounting than it did to do the
manufacturing.
After we were in business 12 months, we indeed made a profit, not
much, but a profit. We very proudly went down to show it to General
Doriot, president of American Research. he looked it over and looked up
and scowled and he said no one ever has succeeded this soon and survived.
The challenge was obvious. He had watched many people start companies and
success almost completely destroys entrepreneurial spirit. It stops one
from taking risks; one delegates the P&L statement to staff or to a
computer, and one loses the humility necessary to learn.
Traditions of science and of the church are that humility is
necessary to learn, to explore, to search for truth, and knowledge. So much
of science and religion today feel that any show of humility or lack of
self-confidence makes it hard to get money, and without money, there is no
religion and no science. However, it does seem to me that humility that
comes with the spirit of learning, probing, experimenting, trying, doing,
redoing, and redoing again, is the only way to keep improving most things,
particularly in the world of elegant technology.
After a small number of years, we had to face the question of how to
introduce entrepreneurship throughout the company. We were doing well. We
had become a $14 million company. No one wanted to make changes. We had
become a company of people who were full of ideas of what other people
should do, full of ideas of where we should spend money, what products we
should do but with only one entrepreneur at the top.
We then broke the company up into a number of entrepreneurial
product lines. Each one had a manager with complete responsibility for his
segment of the business and everyone else served him. This went over like
a lead balloon. Many quit; some of the board quit. Everybody thought they
were demoted. You can't mathematically demote everyone. But the results
were magnificent. Within a year we had doubled our profit without hiring
anybody. For many years afterwards we grew 20, 30, 40 per cent a year and
made very good profit. The reason is obvious. When people have complete
responsibility for their part they do very well. When they make mistakes
they correct them. And the effectiveness of people in charge feeling
responsible, feeling creative, is truly impressive.
One of the warnings that we had was with entrepreneurial attitude
when people were competing with the outside world and competing with those
inside there would be a tendency to sacrifice ethics in order to succeed. I
was somewhat surprised, I must admit, to find that, to an overwhelming
degree, most people want to be ethical and work for an ethical company if
the standards were clear and honesty and ethical activity were expected.
People are honest with the company when the company is honest with them,
and people are honest with the suppliers and the customers when they
realize that the company is not interested in any short-term goals and with
any other activity that might take place.
When given the opportunity people are willing to sacrifice the
short-term pressures, which the financial community puts on so strongly, in
order to look for the long-term good of the company and for society.
Now no one told me about the long-term problems with
entrepreneurship. And they're kind of obvious.
First, humility does not come easily with the successful
entrepreneur. It is almost contrary to his nature. Without humility it is
hard to learn new things and hard to grow with the job.
Secondly, with success and with growth, it is easy to let the
planning, the P&L statement be done by staff. An entrepreneur without the
P&L in his head and his heart has no power. The frustrations put on other
non-teamwork activities.
Thirdly, and entrepreneur is that last person on earth to give
entrepreneurship to someone else.
The challenge I face today is to have more than 100,000 people
working together in one direction and still maintain the entrepreneurial
spirit.
The challenge we as a society have is to do that in all our
organizations. For a number of years now we in the western world have been
in competition with communism. Our economic freedom versus their
controlled economy. We won the contest hands down. No thinking person
will argue for the communist approach. But yet we've won the contest and
yet we're in disarray. Can you imagine someone arguing with Congress that
they want to take risk, to tolerate duplication, to pay the price of
competition, to allow people to try new ways? Can you imagine newspapers
allowing this to go on without terrible criticism? When American business
people get together it's quite common to snicker and laugh at the failure
of communism -- their central planning, their absolute intolerance of
duplication, or competition, their fear of risk-taking, their lack of
motivation and no direct rewards devastate the communists. But back in the
American company, within the company itself there is central planning,
aversion to risk-taking, no duplication, no competition and rewards are not
directly tied to risk-taking.
Many of us, as we read, like to think that Gorbachev would like to
explore economic freedom for his country. We realize that he has
limitations. He has to convince his staff first. We wish he had more
freedom. The American business leader sometimes would like to try
duplication and competition internally. But as you can guess he, too, has
staff who are very well educated, taught all the analytical skills, know
how to use computers, taught to be brilliant in the conclusion they come
to, but are absolutely adverse to risk-taking, internal competition or any
of the entrepreneurial activities that are so fruitful.
A few weeks ago I was sitting between a minister and a translator
in the Great Hall in China and none of the conversation was done without
going through the translator except when I asked one question. How is it
that China has gotten so quickly from having a shortage of food to having a
surplus of food? And with that question the minister came back and said.
"We have reforms." He knew how much a farmer got for a chicken, how much a
farmer got for an egg and how many chickens he needed to make more than a
minister made.
We have very little of that spirit in our country which claims
economic freedom.
I think many of you have demonstrated that many people who don't
want to run their own businesses will often jump at the chance to take
responsibility for a segment of a business or a school if the goals are
clear and they can take part in planning and are given he freedom to take
risks.
I would like to say that running a business is not the important
thing but making a commitment to do the whole job, making a commitment to
improve things, to influence the world is. I'd also suggest that one of
the most satisfying things is to pass on the others, to help others to be
creative, to take responsibility, to be challenged in their jobs and to be
successful in the thing which, if not the most important, is almost the
most important.
Sometime, hopefully a long time from now, when I have to tell
people that I'm leaving, they will say to me, "Ken, why don't you stay
another year, it has been so much fun, so challenging working for you." My
ambition is to leave when they are still saying that and I can be
remembered as someone who challenged them, who influenced them to be
creative and enjoy work and have fun for a long time.
|