Seven principles for an innovative enterprise, from the journey of Control Data
Robert M. Price took innovation to a higher level while he was the CEO and chairman of Control Data Corp., a company renowned for years as a hotbed of creativity. It was also an organization that defined the computer revolution while excelling in electronic digital technology; management practices; employee and community relations; and the innovative use of business techniques, products and services. In The Eye for Innovation, Price draws on his nearly 30 years of experience at Control Data as well as his later work to describe the principles that generate and support innovation.
He explains that Control Data prized freedom of thought and action. “From the start, we well understood that it would be impossible to thrive if we weren’t creative,” he writes, “and that we would remain creative only if we tried.” Innovation was an active process as well as a way of thinking at the company, he adds.
The Eye for Innovation turns the experiences of a brilliant technology pioneer, who spent 40 years developing and practicing the innovation principles that his company forged in the crucible of the computer industry, into a valuable guide for leaders and entrepreneurs in both large and small organizations.
Technology Is Know-How
Although technology is often misunderstood and avoided by many who fear its complexity, Price points out that technology is simply “the know-how we apply to basic science or to already existing products, tools, processes, and services to fashion a solution to some problem.” Looking at technology in this way, it becomes clear that the lessons learned from a technology pioneer can be applied to any problem in any industry.
Similarly, innovation is nothing more than problem solving. Price writes that creating an innovative company begins with a belief system that embraces the following seven principles:
- Innovators are made, not born.
- Strategy is a journey of sequential steps toward an objective. Each step involves innovation in some combination of process, product, and targeted market.
- Strategy must co-evolve with technological change and the changing nature of the world it addresses.
- Technology is the strategic manager’s best friend.
- Collaboration, especially technological collaboration, is a powerful strategic tool.
- Crisis is inevitable. Crisis can result in chaos, Price explains, but innovative leaders can use crises to galvanize people for positive change.
- Public-private partnerships present important but frequently overlooked strategic possibilities.
Price writes, “The thread of innovation should be cohesively entwined in all that constitutes the corporate infrastructure in a manner that is consistent with the corporate strategy.” At Control Data, he adds, infrastructure meant values, human resource policies, compensation and benefits, employment practices and governance.
While the first half of The Eye for Innovation focuses on innovation and the ways it was nurtured at Control Data, its second half looks at the strategies that can help it succeed. Price points out that strategy is simply a commonsense process of solving the problem of how to reach an objective with a defined set of resources.
Price writes that strategy is a step-by-step journey of innovation in processes, products, and targeted markets. He adds that it must co-evolve with technological change and the changing nature of the world it addresses.
The final two parts of The Eye for Innovation address the details that must be studied on a strategic journey toward greater innovation. Price explains that each strategic move that is made entails choosing among three choices: Make, buy or collaborate. Through the lessons that were learned at Control Data, Price describes how strategic alliances, acquisitions and internal growth can be used to increase the effectiveness of any organization.
Why We Like This Book
Competitive advantage relies on innovation, and Price presents an extended case study that shows how a company on the cutting edge of innovation put solutions into action and helped to change the world. By presenting its lessons in broad terms and universal basics, Price transforms the experiences of a startup that challenged the likes of IBM and other industry leaders into action items that can be applied by any company in any industry. Copyright © 2006 Soundview Executive Book Summaries
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The Eye for InnovationRecognizing Possibilities and Managing the Creative Enterprise
By Robert Price
Yale University PressCopyright © 2005 Robert Price
All right reserved.
Chapter OneThe Once and Future Company
The Corporation was organized to engage in the design, development, manufacture and sale of systems, equipment and components used in electronic data processing and automatic control for industrial, scientific and military uses. -Initial prospectus for Control Data Corporation common stock at $1.00/share, July 8, 1957.
On October 4, 1957, the Soviet Union launched Sputnik, the first space satellite. Physically it was a rather insignificant, 183-pound orbiting sphere the size of a basketball, but its impact on global politics and economics was destined to assume colossal proportions.
Three months earlier, on July 8, there was another launch. In the dry language of legal business documents, the "Nature of Business" statement noted above was at first glance unimpressive. But that business launch also proved to be historic and, indeed, would soon cross paths with that of U.S. space programs and the historical path of the Soviet Union. Control Data built its influence through an awesome array of products and services, corporate and industry initiatives, and national and international policy initiativeswithin a new but aspiring industry. That journey offers many lessons in innovation that are applicable to any business at any time. Companies change, but the inherent nature of innovation does not.
The wellspring of Control Data's successes was a reservoir of creative energy supplied by an extraordinary group of people and beginning with its 1957 launch and lasting more than thirty years. In the initial 1957 prospectus, the official beginning of Control Data listed the founding stockholders as: W. C. Norris, 70,000 shares; A. J. Ryden, 20,000 shares; Fremont Fletcher, 5,000 shares. The balance sheet showed total assets of $25,000 and no liabilities.
During World War II, W. C. (Bill) Norris and Howard Engstrom were key members of the U.S. Navy's Communications Supplementary Activity-Washington (CSAW, pronounced "seesaw"), a group that focused on code-breaking. At the end of the war, when the group's members returned to civilian life, the navy wanted to continue its research and development of electronic tools and techniques for cryptanalysis. In 1945, with the navy's encouragement, Norris founded Engineering Research Associates (ERA), along with John E. Parker, the principal stockholder of ERA, Engstrom, and Ralph Meader. ERA's story is a fascinating one and is most interestingly documented in David L. Boslaugh's book When ComputersWent to Sea.
Engineers founded ERA. Its innovation was nurtured and encouraged by one of the most technologically forward-looking units of the mighty World War II U.S. military. The navy insisted on reliability as well as performance, and kept an on-site presence to monitor developments at ERA. The results were impressive. ERA finished the construction and delivery of its first large-scale digital computer, the Atlas, by the end of 1950. After a remarkably short installation time for that period of eight days, CSAW's cryptologists began using the computer as soon as it was "powered up." The machine immediately demonstrated remarkable reliability, requiring only sixteen hours of unscheduled maintenance in its first five hundred hours of operation.
As the company grew, ERA had the typical startup's need for capital, and in 1951 it was acquired for $1.7 million by Remington Rand. The previous year Remington Rand had bought another computer startup-the Eckert-Mauchly Computer Corporation-for $538,000 plus 50 percent of the net profit from its patents for eight years. With those two acquisitions, Remington Rand had both a formidable technological lead and ready access to the most accomplished computer minds in the young industry. But over the next few years it proceeded to fritter away that lead to IBM and its hard-as-diamonds marketing machine. ERA was rightly referred to as an "engineer's paradise." That paradise, however, became "paradise lost" after the acquisition by Remington Rand. The struggles of ERA's innovative and energetic young engineers against a highly bureaucratic and unimaginative culture shaped by decades of selling typewriters, was like watching a powerful young horse caught in quicksand. To make matters worse there were technical rivalry and management conflict between ERA and Eckert-Mauchly. The top management of Remington Rand and, later, Sperry-Rand had little skill and less stomach for managing such intensity. Far less equipped were they to devise successful strategies to compete with IBM.
By 1957, Bill Norris, Frank Mullaney, and Willis K. (Bill) Drake had had enough. Finding common ground with Arnold Ryden, they decided to start anew. They began with a novel financing idea that became an oft-told story in Minnesota lore: this upstart startup with no products and no revenues-not even a contract-sold stock to the public at a dollar a share. This unconventional beginning included selling stock at coffee parties in kitchens and living rooms. As a consequence, a wave of entrepreneurial startups in Minnesota was launched.
The company was incorporated on July 8, 1957, and opened its doors for business in September of that year with $600,000 in proceeds from its public stock sales. The assets consisted of hard cash and the determination to build computers at the leading edge of technology. Control Data's saga is first and foremost a collection of stories about innovation and, especially, the courageous individuals who recognized need and took the risks.
To better appreciate the stories of the protagonists, it will be useful to summarize a few facts and figures of the company's history. A detailed history of the company and the leading figures would require volumes; the abbreviated history that follows is intended only to provide a frame of reference for the events and strategies described in the rest of this book.
THE FORMATIVE YEARS-1957-1966
For the first decade of the company's existence, the computer systems business was the focus and driving force of its success. Its accomplishments in that regard were astounding. Before the company was a year old, the U.S. Navy had ordered the first model of Control Data's computers. This wasn't blind luck, but rather the result of the proven track record of the company's people, especially premier computer designers Seymour Cray and Jim Thornton. Its first computer, the Model 1604, was the first fully transistorized electronic digital computer to be a commercial success. It was delivered to the U.S. Naval Post-graduate School in Monterey, California, in 1960. By 1964 some fifty systems worth more than $75 million had been delivered, and the total revenues exceeded $100 million that year-a spectacular start for a company whose founder, Bill Norris, had remarked shortly after it began operations, "We're aiming at sales of $25 million a year within five years."
The rapid growth put a strain on financial resources. The young company also faced serious competitive threats, particularly from IBM, which aggressively sought to squash challengers. Tough as these problems were, they all the more stimulated the excitement felt by employees. There was a palpable feeling of predestined greatness instilled by the leaders who were giving shape to the company. The desire to excel, to be best, was an intrinsic trait of employees throughout the organization-a quality that was relentlessly reinforced.
One particularly defining characteristic of this young company was manifest in the lifeblood of all who worked there. Control Data's people had a history of working closely with customers, going back to the early days of ERA. The company's major customer, the U.S. Navy, continuously challenged the leading edge of technology. The Naval Computing Machine Laboratory (NCML), CSAW, and customers that followed over the next decade were faced with increasingly complex, intransigent tasks. The digital electronic tools needed to help solve their problems were essentially undefined and, consequently, undeveloped. As a result, mutual problem solving between supplier and customer became a way of life. Success requires more than a lifeless statement of specifications. It requires an intuitive, deep-rooted understanding of the daily operational challenges faced by customers. This kind of partnership between Control Data and customers became an ingrained part of the company culture. That relationship with customers said, in effect: "We're in this together. Technology has answers. Together we can discover the best answer if we are asking the right questions in order to find it." Contrast that with the more traditional mode of a company doing its R&D under wraps-often in operational isolation-then unveiling the resulting product with fanfare, promoting its features, advantages, and benefits to a public who does not fully understand its usefulness.
Seymour Cray was, without doubt, a brilliant conceptual designer and architect of powerful digital electronic circuits. But the unheralded key to the success of his computer designs was his fundamental understanding of what his customers faced in trying to solve their complex mathematical and physical problems. This was not the pandering we all too often find today under the banner of "being close to your customer." Instead, his was a deep and passionate concern for, and understanding of, the problems customers faced every day.
During the early years, Bill Norris assembled executive leaders to guide this fledgling company: Frank Mullaney, who headed the Computer Division; Bob Kisch, who directed engineering operations in that division; Bill Keye, in charge of Research and Engineering; Jim Harris, who had the responsibility for bringing some administrative order to this ferment of design engineers; and Seymour Cray, already a shining star in the design of digital electronic circuitry. They were bright and energetic and had had a taste of heady success at ERA. The company likewise was fortunate in having a wise and gifted corporate counsel-Bob Leach of the law firm Oppenheimer, Brown, Wolff and Leach.
A host of talented people worked under their leadership, and I will have more to tell about them later. For now it is enough to say that the innovative designs of those individuals provided a spectacular beginning for this upstart computer company. By 1961 the original $1 stock had reached $29 a share and split three for one. Still it continued its meteoric rise. It began trading on the New York Stock Exchange (NYSE) on March 6, 1963. It split three for two in 1964, and by August 1968 had reached $140 per share. An initial investment of $10,000 was now worth $6.3 million. Not bad.
The equity created was quickly reinvested. Acquisitions, beginning with Cedar Engineering in 1957, were an integral part of the company's actions to augment its computer technology and its people skills. Control Data's notable success with its computer designs obscured the fact that in these earliest years the company started two new lines of business that would play major roles in its future: the original equipment manufacturing (OEM) peripherals business and the data services business.
Although the Model 1604 computer was a performance whiz, there was a problem in the total system. Getting external data into the machine was difficult because of the limitations of input-output devices. In addition, the available products poorly met the need for large, reliable, external auxiliary storage. Data input and storage devices that were available at the time were punched paper tape and punched cards-both unacceptably slow-and magnetic tape.
Magnetic tape had been around for some years when the first 1604 was delivered in 1960. It was used extensively in analog recording for audio and in the young TV business. Tape was adopted as both a digital input-output medium and an auxiliary data storage medium for digital computers. Except for IBM's magnetic tape transports, however, the input-output devices were unreliable and slow. But IBM would sell to other computer manufacturers only at the full end-user retail prices. They offered no OEM price breaks. Because magnetic tape transports and other data handling and printing devices represented as much as 30 percent of the total price of a computer installation, this was a major competitive disadvantage in terms of total profitability of the system.
There was considerable imperative, then, for a company such as Control Data to design and build its own magnetic tape transports. The barrier, of course, was cost-both research and development cost and manufacturing cost. These costs dictated the need for high volume. In Bill Norris's mind there was an obvious answer to this dilemma, and that was to make Control Data magnetic tape transports and sell them to competitors-in other words, to any computer company that wished to buy them. Almost fifty years ago Bill Norris well understood the dynamics of this burgeoning industry and the basic sources of competitive advantage. He practiced "co-opetition" long before it became a catchword in business. Fortunately, the company had the technical talent and sales skills for such a business. Veterans Bob Perkins, Paul Bulver, and Lloyd Thorndyke eagerly undertook the task. Tom Kamp, plant manager of that first acquisition, Cedar Engineering, became the chief cheerleader of Control Data's OEM peripherals business and its chief executive as well.
Thus it was in 1960 that Control Data's OEM peripherals business was born. The model 606 magnetic tape transport was developed and with it the start of this new enterprise. The OEM peripherals business provided Control Data the economies of scale required to build cost-effective, high-performance peripherals for its powerful computers. The lineup of peripheral products began with magnetic tape transports. Soon printers, magnetic disk drives, computer terminals, and other devices followed.
While OEM peripherals were getting their start in 1960, the Data Centers business was launched that same year. Data Centers sprang from a basic cultural premise in Control Data: "If you have to have it for yourself, you might as well sell it to everyone else, because it'll be cheaper (economies of scale), and it'll be better because you'll learn a lot from why and how other people use computers."
Control Data used its computers in its internal design and development processes. That cost money. Why not turn that internal cost center into an external revenue producer? To make that happen, Bill Norris didn't turn to one of the company's many gifted design engineers, or even to the marketing and sales organization. No, he chose Jim Harris, the company's vice president of administration who had proved his tenacity and organizing abilities. There was plenty of technical talent around with whom Jim Harris could confer. Bill Norris understood the task at hand and the personal traits that would be required to pull it off. Jim Harris was the man for the job.
The Data Centers Division was the cornerstone of what ultimately became the major strategic thrust of Control Data's business: computing, education, consulting, and information services. For example, in 1967, the acquisition of C-E-I-R added commercially oriented data centers and an initial entry into so-called time-shared computing. C-E-I-R also brought with it Control Data's first true database information services business, American Research Bureau, the leading provider of audience measurement services for radio and local TV broadcasting. That business changed its name to its initials, ARB, and later to Arbitron. It competed with the Nielsen Company, which dominated network TV audience measurement, but Arbitron was the leader in measuring local marketTV advertising. By the 1980s, Arbitron had become the company's most profitable business unit. ARB's transformation from a struggling, purely research-oriented backwater of the information industry into a dynamic marketing and service-oriented company was the work of Theodore F. Shaker, a former group vice president at ABC-TV.
Excerpted from The Eye for Innovation by Robert Price Copyright © 2005 by Robert Price . Excerpted by permission.
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Meet the Author
Robert M. Price is president of PSV, Inc., a consortium of consultants specializing in technology commercialization and corporate strategy. He is former CEO of Control Data, one of the major computer companies in the world at the time of his tenure.
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