Ken Olsen, President of DEC
by Richard Seltzer, from DECWORLD, the company newspaper, September 1982
From modest beginnings in an old mill in Maynard, Massachusetts, DEC (Digital Equipment Corporation) has grown, in just 25 years, to be the second largest manufacturer of computers in the world (according to published surveys of the worldwide industry). Its products -- from tiny microprocessors to large mainframe computers -- have become models of excellence in diverse markets and applications, helping individuals as well as schools, governments, research institutions and large and small companies of all kinds to perform their work more efficiently and effectively.
To respond rapidly to market needs, DEC divides its business into manageable pieces and delegates responsibilities to many individuals, rather than concentrate them in the hands of a few individual initiative, integrity arid accountability are encouraged at all levels. This work environment means that the talents, inspirations and efforts of many different people can quickly be brought into play to meet the shifting challenges of the highly competitive computer business.
In many ways, the most recent year was one of the most challenging and satisfying in the company's history, demonstrating the vigor and flexibility of this large organization and the resourcefulness of its 67,000 employees.
"Our twenty-fifth year was a great one." says Ken Olsen, President. "We grew 20%, invested heavily in new products, were able to offset strategic price decreases by reducing our costs in than ten years. That's not bad in the middle of a worldwide recession. We have reason to be proud.
"We have suffered from having good times for too long." he explains. "People, countries, economies and companies cannot tolerate good times for very long. It's not healthy.
"We had several years when things seemed too easy. Our sales people had to spend most of their time telling customers how long they'd have to wait to get our products. Demand for our existing products made it impossible for us to develop new products. Throughout the company, we developed bad habits.
"Two years ago I was frustrated. It took three years to develop a new product. It took four months to get a printed circuit board. We had committees on top of committees to check everything.
"But now," says Ken, "after a lot of effort and the recession, we are good. Now you can get a printed circuit board in a week; and the new products move so fast, it's hard to keep up with them.
"We did quite well with our old ways of doing things," notes Ken. "Now the way we've started turning things around, we'll be so efficient I don't worry about anybody in the world."
Win Hindle joined DEC in 1962 as assistant to the president. He was promoted to product line manager in 1964 and to vice president and group manager in 1967. He became vice president, Corporate Operations in 1976. (Photo by Peg Blanchet, U.S. Area News)
"When I started at DEC in September of 1962, the company had about about 400 active employees. It was growing well/ That year we did sales of $8 or 9 million. Of course, at that time we were a privately held company, and were not disclosing our sales and earnings information to the outside world.
"My first Job was assistant to Ken Olsen. He gave me a variety of assignments. For instance, I started a formal engineering scheduling system to ensure that engineering got done on time, and I also recruited some engineers and sales people.
"We had a small Personnel Department, but we had very definite ideas about how to handle people and how people should manage. We had a strong feeling for the individual and wanted to be sure our Personnel policies enabled us to provide Jobs that people would be excited about and could accomplish, that had goals and measurements, Many of the same things we talk about today, we were Just as interested in then,
"We recruited mostly in the Massachusetts area. I think at the time I Joined we had only one sales office and that was in Los Angeles, where Ted Johnson was the manager. Then we opened a second one in New Jersey, just outside of New York. A year or so later, when we needed to open a sales office in Chicago, I was sent there to hire someone to open and manage it.
We had a Works Committee that was the chief policy-making body, as the Operations Committee is today. Ken was the chairman and, as his assistant, I was the secretary and had to prepare the agenda and write the minutes. In that committee we decided that we were spending too much time on current issues and not enough on long range planning. So we decided to get away from our usual settings in the Mill and hold a meeting somewhere else. Later we decided we should really get off and away, not Just go to a motel. So we had a meeting at somebody's cottage in the woods. That's where the name "Woods Meeting" came from -- a meeting away from the plant where you consider longer range issues.
"In those meetings, we would plan the size of the company over the next five years. As it turned out, when we compared our actual performance to the long range plans, we found that we had usually grown faster than anticipated five years before."
PDP-6 and the product line structure
"We did, however, face a very critical problem around the time of the introduction of the PDP-6 in 1964. That machine was larger and more complex than we should have attempted considering how small the company was at the time . We had difficulty finishing the hardware engineering and the software, and all the best engineers in the company were recruited for that project to try to make it work. While they were concentrating on the PDP-6, where we were losing money, no one was working on our other machines -- the PDP-5, PDP-7 and our modules -- that were making money.
"It was at that point that Ken realized that we had to change the organizational structure so that we wouldn't arbitrarily put all of our resources into one product and to make sure that we spread our resources in the same proportion as we were seeing success.
’So it was out of that experience with the PDP-6 that the product line structure in the company came about. Each product line budgeted resources that nobody else could take from them, and those resources had to be planned by the beginning of each fiscal year, and the plans had to show how we were going to make a profit.
"We could have gone out of business because of the PDP-6 if we hadn't made those changes. Fortunately, we were in good shape with our other products and they more than made up for our losses on the P'DP-6, thanks to that change in our organization that protected their resources.
"Most of the first product lines were oriented around hardware products rather than markets or applications, and they each had their own engineering departments. In other words, instead of a central engineering department, we had PDP-4 engineering, PDP-5 engineering, PDP-6 engineering and Modules engineering, along with a few smaller projects.
"We still had Sales, Manufacturing and Field Service as separate functions. The product lines managed the marketing, the engineering and the planning. Each of the product lines asked for a certain amount of resources from Sales, Manufacturing and Service and negotiated their needs with the functional managers.
"Each product line started with Just the resources it had at the time the new structure went into effect. Because the PDP-6 had already taken away many of the engineers, these groups had to rebuild, either by hiring these engineers back from the PDP-6 or by recruiting new ones.
"You could propose adding resources, but we didn't add very many during the first year. It took us a while to get into the new organization.
"In 1965, Ken asked me to become the manager of the PDP-6. I was already product line manager for three small product lines and was asked to add the PDP-6 to what I already had.
"After looking at the situation and seeing how bleak it was, I recommended to the Works Committee and they agreed that we fill current orders, take our losses and get out of that business. When I told the PDP-6 group that, they pushed back, saying, “We think we can build a new computer based on the PDP-6 which will be really super." So I went back to the Works Committee with a proposal to start a new computer to be called the PDP-10. After several attempts to get the project approved, we finally succeeded, and that product became the basis of our very successful DECsystem-10 and DECSYSTEM-20 families of 36-bit computers.
Evolution of the product lines
"Originally, the product lines taught the sales force about each new product as it came along, and every sales person sold every product of the company. Then in the late 60s, some product lines began to feel that their products were getting so complex that they needed sales specialists. This need was particularly true with the large computer, the PDP-10. People felt that it was so big that you couldn't expect a sales person to understand it technically and also understand all the other products of the company. So the PDP-10 product line made a big push to have a specialized sales force concentrating in large computers, and to a large degree that was accomplished.
"Around the same time, the PDP-8 group developed a wide variety of applications for their product -- such as for laboratories, factories, medical departments and schools. So we began to train the sales force on these applications, At first, every sales person had to learn about every one of those applications. Then there started to be some specialization in the sales force by market.
"Not long after the PDP-11 came out in 1970, there was some competition between product groups. The PDP-8 group was pressuring sales people to sell 8s, and the PDP-11 group was pushing them to sell 11s. We became concerned that our sales people were confused as to what they should sell to a given customer. We felt that it was time to specialize our small computer sales force by market area because small computers were such an important and growing part of DEC's business and the number and complexity of applications was also growing. So we kept the Large Computer Group and the Modules Group as separate product-oriented product lines, and we broke down our minicomputer business, the 8s and 11s, into a series of market-oriented product lines. Many of those — Laboratory, Education, Medical, Industrial (which we now call Manufacturing) are still in existence today.
"At first the OEM (Original Equipment Manufacturer) business was a part of the PDP-8 group, of which Bill Long was the manager. When we divided the PDP-8 group by markets, Bill became the OEM product line manager. That group handled both 8s and 11s, as did the other market-oriented product lines.
'These market-oriented product lines determined the marketing thrust for the PDP-8 and the PDP-11 in their area, and would then educate the sales force and the customers as to which machines were appropriate for which applications.
"That change in the product line structure raised the Question of what we should do about engineering. People who were working on PDP-8 and PDP-11 engineering were brought together into a central engineering organization, under Gordon Bell, and the Large Computer Group continued to do its own engineering as a more traditional product-oriented product line.
"I think the whole idea of managing the business through our product lines was a stroke of genius. I don't believe we could have ever grown as a company nearly as rapidly as we did if we hadn't formed product lines, if we'd tried to manage it as one whole business.
I believe you just can't manage a fast growing, fast moving organization in detail from the top. It limits the growth if you try to do it that way. So we've continuously tried to push decision-making functions down inside the organizations to product lines, to engineers.
"One of the concepts that hasn't changed from the beginning of the company is that people are responsible for the success of the projects they propose. 'He who proposes does.' When they propose projects and get acceptance, then they go ahead and carry them out and are Judged on the results. That fundamental philosophy hasn't changed. I hope it never does.
"But the complexity of things has changed. It's very easy for a company of our size to get so locked up in bureaucratic decision-making processes that people feel like they go from committee to committee making proposals and never getting anywhere. So we have to keep working to make sure engineers feel they can propose things and can, once they get acceptance, go out and do them, that they aren't powerless, that they can get decisions made.
"One of the thi9ngs you do as a company grows is try to beat down the hierarchy and the red tape so people can get their jobs done easily. A lot of what we do, certainly a lot of what Ken Olsen does, is to tear away the red tape and allow people to do their jobs. We spend a lot of time trying to make it fun to work here, make it challenging, make you feel as though you can make important contributions.
"As for the future, I'd like to see a company where each individual really feels that he or she has a role to play and has the freedom to succeed or fail based
on their own ingenuity. One of the horrors of modern society is 'group-think' or 'group-do,' where you're never singled out as an individual and don't have an opportunity to show what you can do all by yourself, based on sour own drive and ingenuity. I hope 25 years from now we will have a company where individuals feel challenged and feel that they can really live up to their full potential.
"My vision of a beautiful company is one where individuals when they go home at night feel that they really made an impact, that they've been able to accomplish something, and they feel proud of themselves and proud of the company they work for."
Jack Smith came to DEC in 1958 as a technician. He was involved in building and testing the company's first logic modules and its first computer, the PDP-1. Later he was responsible for the development and growth of the Systems Manufacturing operation. He was promoted to vice president, Systems Manufacturing, in 1976 and to vice president, manufacturing, in 1977. In 1982 he took on additional responsibilities as associate head of Engineering (Photo by Peg Blanchet, U.S. Area News)
"In 1958 when I started at DEC there were only 12 people in the company. I was hired as a technician. Sometimes I did engineering work. sometimes manufacturing. I also spent a lot of time painting system modules and sweeping the floor. There wasn't any formal structure. You Just pitched in and did whatever had to be done.
"As we grew to around a hundred people, about I960, we started organizing departments.
"At first we produced one narrow product line — systems modules, and served one market — the engineering lab area. So our Manufacturing Department was small and uncomplicated. Somebody supervised the people putting the product together, and somebody else was in charge of buying material, and all the manufacturing disciplines reported to the same manager.
"Then with our first computer, the PDP-1, manufacturing became much more complex. We had several products that we were selling to different markets.
"The first few PDP-ls were handcrafted. We had non-technical people stuffing the modules, but then technicians and engineers had to take those modules and the frames and plug them together and wire them, one by one.
"At that time, there was a strong belief in the industry that you had to understand how a computer operates to put one were going to get our costs low enough to be successful at this business, we couldn't afford to have highly paid technicians and engineers doing assembly work.
"The most complex part of assembling a computer was stringing the wires. We reasoned that to do a good job of that, you just have to know which wire goes from where to where. So we hired non-technical people with basic manufacturing skills.
"At first we had no automated equipment at all. We simply gave a person a wiring diagram that said, "Take the wire from point A and bring it over to point Z.“ The person who strung the wires also had to solder them. Then someone else would go through and check the work against the diagram, wire by wire, with over five thousand wires in each computer.
"As it turned out, technical people were not needed for that kind of work and, in fact, did a far worse job of it than people with physical dexterity and the ability to pay attention to detail and concentrate on repetitive tasks.
"Since the product was successful, we had to hire lots of people to string wires. That also meant we had to manage and supervise them.
I didn't have any significant role in the company up until the PDP-l. Then my Job was to supervise the people who put the machines together and to develop ways to make sure that they went together right.
"Although my title changed a number of times and I had various additional responsibilities over the years, up until I took over as vice president of Manufacturing in 1977, I was the person responsible for putting together all of the company's computers, a function that came to be known as ‘systems manufacturing'.
"We made about forty PDP-1s, which for our size, was a lot of business. Then we went to the PDP-4, PDP-5, PDP-6 and PDP-7, still making computers one at a time -- wiring things together and connecting them.
"The PDP-8, introduced in 1965, was our first volume computer. We were going to make thousands of them. So to get the costs low enough to sell them for a low price and open up new markets, we set up assembly lines. Instead of having three to five people working on a single computer from start to finish, we divided the job into a series of separate tasks that different people could work on at the same time. A computer went through various stages of assembly, and came out the other end complete.
"With the success of the PDP-8, growth became the most important issue in manufacturing -- being able to expand our capacity fast enough to keep up with demand. To speed up growth, we formed manufacturing groups. Instead of having a single manufacturing group with a single manager, there was a group dealing with tape units and another group dealing with central processors and another group building power supplies.
"To manage all those separate groups, when there were about 300-1000 people in Manufacturing, we adopted what is known as 'matrix management.' In other words, we built a strong central staff, with high levels of expertise in all the various manufacturing management specialties, such as materials, production and inventory. These experts were available to help the individual groups manage their business. For instance, the materials manager was expected to oversee all the material functions in all of the individual manufacturing groups. Even though the materials manager didn't directly supervise the materials managers in the various operations, that person (the 'matrix manager') was expected to know what was going on in each one of groups and feel responsible for it.
"We set up this way because we had to grow very rapidly, and there simply were not enough qualified people, and we couldn't give people experience fast enough for each group to have its own set of experts.
"While most manufacturing operations were in the Mill in Maynard, a matrix manager could easily walk from floor to floor and talk to people and get things done. Also, back in the 1960s and the early 1970s, the products were mostly based on modules and central processors, so the different manufacturing groups faced very much the same kinds of problems and it made sense to have a strong central staff.
Plants throughout the world
"In the late 1960s and early 1970s, manufacturing spread throughout Massachusetts and then the world. We opened plants in new areas because we couldn't hire enough people in Maynard.
"When locking for another site in Massachusetts, we first chose Westminster because we wanted to be as close to Maynard as possible and still tap a significant new labor supply. Westfield was the next step beyond that, and so on.
"When we started a new plant, we would send out a team -- typically about five people -- from one of our existing plants. Everyone else was hired locally.
"Often the plan was to get 50-75 people in the first year, and by the end of the second year to have 400 people, all used to the DEC way of doing things. After that was done, then they could worry about questions of further growth. That was the pattern not only in the U.S., but also in Canada, Puerto Rico and Europe.
"But as we spread out geographically, communication with matrix managers back in Maynard became increasingly difficult. Also, as we got into new businesses, like printers and terminals and disks, manufacturing operations became diverse, requiring different kinds of expertise. At the same time the need for increased volume intensified. Gradually, central control became more of a hindrance than a help.
"A matrix organization gives you the ability to grow rapidly with a limited number of experienced managers, but it also tends to make responsibility fuzzy and to make decision paths very long. Who is really responsible? Is it the line manager or the matrix manager?
“By 1977 matrix management had outlived its usefulness; so we reorganized Manufacturing into standalone groups that were responsible for their own products.
"Up until then we had one group producing all the modules for everyone, another producing power supplies for everyone. We divided and shifted those resources so, for instance, Storage Systems could make its own modules and its own power supplies, do its own assembly work, its own testing, its own systems work. It took a few years to arrive at the point that each group had under its own control the capacity it needed to get its job done.
"Meanwhile, during the rapid growth of the 1960s and 1970s, each of the company's organizations, such as Engineering and Manufacturing were structured and chartered to operate independently. There was very little interaction between Manufacturing and the rest of the company when it came to choosing plant sites or making other decisions, and there was no formal process for deciding how much of what product we should build. That was a good thing when the main goal was to grow as fast as possible. But now there is more benefit to be gained from working efficiently and doing what we need to do to win now. So the emphasis has shifted toward close cooperation between the various parts of the company.
"For the future, I believe that we have to continue to reinforce our strong standalone manufacturing groups. They have to build their own capacities to the point that they feel they control and are responsible for their own destiny. We're still shifting capacity to help reach that goal.
"Our basic strength has always been the attitude and commitment of our people. I think the most important thing Manufacturing can do is to continue to provide challenging opportunities for personal and professional growth while we reinforce our commitment to achieve manufacturing leadership in our industry."
Jack Shields joined DEC in 1961 and was named manager of Field Service in 1964. He was promoted to vice president, Field Service and Training in 1974 and vice president, Sales, Services and International in 1981. (Photo by Peg Blanchet U.S. Area News)
’If you think about what's happened in computer technology in the last 25 years, it's like future shock. Each year more and more events take place which bring us further into the technological future. If you think of the millions of years man has been on earth, 25 is so short a time it's almost not worth talking about. But in that time incredible progress has been made in the field of computers that has had far-reaching effects on many aspects of life — from education and entertainment to medicine and space travel. A lot of this has been captured in the Digital Computer Museum. It's been exciting to live in the time of these developments as well as participate in some of them.
"Twenty-one years ago when I started at DEC, I was twenty-one years old. The company was young too; it had only shipped two computer systems. There was a PDP-1 at Bolt, Beranek and Newman and another at the Itek Corporation. Then in August or September, 1961, we delivered the third to MIT.
"I worked in Engineering, but back then, with less than a hundred employees in the whole company, the few dozen of us in Engineering did a bit of everything. Maybe you'd work on design one day and test the next, and then you might be called on to do installation or servicing. People in Manufacturing helped out in Engineering and vice versa. It was a closely knit group, and everybody wore a lot of hats. In fact, the only functional differentiation was based on who you worked for.
"As it turned out, I and a few others ended up handling more service calls than the rest of the people did. After a while our names naturally came up when customers called needing help.
"So when someone was hired to set up a training and field service facility, I was asked to So on loan for three months to set up the service organization. At the end of the three months, I was asked to stay in the Job. So Bill Newell and I started and developed the DEC Field Service organization.
"We installed and maintained the equipment, designed and built our own logistics system, and developed techniques for handling calls. From time to time, we would have our trainees work in Manufacturing so they could get on-the-Job training while helping to test and build the products and get them shipped on time.
Jack Smith used to run a piece of Manufacturing. He and I sometimes had to get together to work out shipment schedules because the service organization couldn't handle all the products he could build and ship, or because he needed some help from my people to get more systems tested. Once the systems were tested, manufacturing people would go out with us in the field and help install them. Then, having given the manufacturing people a taste of the field life, it was easier to recruit some of them. All in all, the reciprocity was great, and our size made it much easier to work together on common company goals.
"The organization became international around 1963. Ted Johnson transferred from California to Germany, and our first Canadian sales office opened that year. I remember having booth duty with Ted at a trade show in Basle, Switzerland, showing the PDP-4. That was my first business trip to Europe.
"We were primarily selling modules and logic kits, and then we started to sell our computers and memory testers. Customers were more sophisticated then than they are today, but they still required support.
"Originally, we hired local people for service in Europe. Then we transferred Ken Senior to run our European Field Service organization out of the United Kingdom. As I recall, in 1964 we had about 11 field service people in Europe.
“Today we have nearly 20,000 people in Customer Services worldwide, and everything is highly specialized to reduce cost per repair arid increase productivity. We have specialists for call handling. We do a lot of remote diagnosis. But in the early days of DEC, the technician in the field had to be a generalist, able to handle all aspects of diagnosis arid repair of hardware and software. Many times you didn't have all the modules with you, but you did have the components, so you would trouble-shoot and repair down to capacitor and transistor level. (Today those components are buried -- tens of thousands of them on a single integrated circuit -- and you can't get at them.)
"Back then you had relatively few diagnostics to work with, and they were relatively unsophisticated. Generally, it was a customer's program that failed, and you had to figure out what that program was doing and trace the problem from there. A lot of the programming was done in machine language rather than in higher level languages, and the programs you would use to exercise the product were written by the customers. Our techniques for checking the circuitry were marginal. We would vary the voltages applied to the various gates to try to induce or reproduce the failure. Also we had to cope with a lot of design problems that couldn't be eliminated because testing was nowhere near as sophisticated as today.
"To me the tremendous growth of DEC over the last 25 years presented experiences that I don't think many people will ever have again. You needed technical skills and had to keep those finely honed, and at the same time you had to build an organization and therefore develop the people and organizational skills which were required, and then add to that the business skills and the ability to create a new function and a new way of providing a service. I'm extremely grateful for the opportunity to face those challenges and to grow. Personally, it's been an incredibly rewarding and rich experience.
"Quietly, without a lot of fanfare, DEC changed the way companies view service. We took an activity that companies had always thought of as a nuisance and a problem, a necessary evil, and we made it into a profitable business. We started showing a profit way back in the early 60s, and over the years we were able not only to provide high quality service, but also to develop new techniques which allowed us to become more productive and cost effective and pass those savings on to our customers. We created a new way of approaching service that today the rest of the computer industry is trying to emulate.
We have done similar things in Educational Services and Software Services, in parallel with the company growing, the technology changing, and our people maturing.
"To me the most remarkable thing is the stability of the services organization over the years. I recently looked at a memo that was written in 1964. It listed the 35 or so people who were in Field Service at that time. There are 20 of them who are still with DEC today. I think that speaks for the stability, the commitment and the performance of the organization.
"From a business performance point of view, it's been an unprecedented success story. We continue to meet or exceed our fiscal goals for the twentieth successive year, and in the Just completed annual customer opinion survey -- the real test of our performance -- the improvements were dramatic. On a scale of 1 to 10, we're well above 8 on average. No other company that I am aware of can point to that kind of balanced performance.
"The future looks even more promising. The Software Services organization is a tremendous asset that will not only provide a source of revenue but a tremendous competitive advantage for DEC well into the 90s. Educational Services has tremendous areas of untapped potential. For instance, the latest computer-interactive video disk technology that they developed with our Small Systems Group (IMIS) and the courseware that goes with it will put us in a leadership position in computer-aided instruction. The Field Service organization will continue to innovate, continue to find new methods, new services and new sources of revenue. I'm betting that they'll continue to be the best in the industry, and they'll still grow at an unprecedented rate."