The Art of High-Technology Management

Over the past fifteen years, the world’s perception of the competence of U.S. companies in managing technology has come full circle. In 1967, a Frenchman, J.-J. Servan-Schreiber, expressed with alarm in his book, The American Challenge, that U.S. technology was far ahead of the rest of the industrialized world.1 This “technology gap,” he argued, was continually widening because of the superior ability of Americans to organize and manage technological development.

Today, the situation is perceived to have changed drastically. The concern now is that the gap is reversing: the onslaught of Japanese and/or European challenges is threatening America’s technological leadership. Even such informed Americans as Dr. Simon Ramo express great concern: In his book, America’s Technology Slip, Dr. Ramo notes the apparent inability of U.S. companies to compete technologically with their foreign counterparts.2 Moreover, in the best seller The Art of Japanese Management, the authors use as a basis of comparison two technology-based firms: Matsushita (Japanese) and ITT (American).3 Here, the Japanese firm is depicted as a model for managers, while the management practices of the U.S. firm are sharply criticized.

Nevertheless, a number of U.S. companies appear to be fending off these foreign challenges successfully. These firms are repeatedly included on lists of “America’s best-managed companies.” Many of them are competitors in the R&D intensive industries, a sector of our economy that has come under particular criticism. Ironically, some of them have even served as models for highly successful Japanese and European high-tech firms.

For example, of the forty-three companies that Peters and Waterman, Jr., judged to be “excellent” in In Search of Excellence, almost half were classified as “high technology,” or as containing a substantial high-technology component.4 Similarly, of the five U.S. organizations that William Ouchi described as best prepared to meet the Japanese challenge, three (IBM, Hewlett-Packard, and Kodak) were high-technology companies.5 Indeed, high-technology corporations are among the most admired firms in America. In a Fortune study that ranked the corporate reputation of the 200 largest U.S. corporations, IBM and Hewlett-Packard (HP) ranked first and second, respectively.6 And of the top ten firms, nine compete in such high-technology fields as pharmaceuticals, precision instruments, communications, office equipment, computers, jet engines, and electronics.

The above studies reinforce our own findings, which have led us to conclude that U.S. high-technology firms that seek to improve their management practices to succeed against foreign competitors need not look overseas. The firms mentioned above are not unique. Oh the contrary, they are representative of scores of well-managed small and large U.S. technology-based firms. Moreover, the management practices they have adopted are widely applicable. Thus, perhaps the key to stimulating innovation in our country is not to adopt the managerial practices of the Europeans or the Japanese, but to adapt some of the policies of our own successful high-technology firms.

The Study

Over the past two decades, we have been privileged to work with a host of small and large high-technology firms as participants, advisors, and researchers. We and our assistants interviewed formally and informally over 250 executives, including over 30 CEOs, from a wide cross section of high-tech industries — biotechnology, semiconductors, computers, pharmaceuticals, and aerospace. About 100 of these executives were interviewed in 1983 as part of a large-scale study of product innovation in the electronics industry (which was conducted by one of this article’s authors and his colleagues).7 Our research has been guided by a fundamental question: what are the strategies, policies, practices, and decisions that result in successful management of high-technology enterprises? One of our principal findings was that no company has a monopoly on managerial excellence. Even the best run companies make big mistakes, and many smaller, lesser regarded companies are surprisingly sophisticated about the factors that mediate between success and failure.

It also became apparent from our interviews that the driving force behind the successes of many of these companies was strong leadership. All companies need leaders and visionaries, of course, but leadership is particularly essential when the future is blurry and when the world is changing rapidly. Although few high-tech firms can succeed for long without strong leaders, leadership itself is not the subject of this article. Rather, we accept it as given and seek to understand what strategies and management practices can reinforce strong leadership.

The companies we studied were of different sizes ($10 million to $30 billion in sales); their technologies were at different stages of maturity; their industry growth rates and product mixes were different; and their managers ranged widely in age. But they all had the same unifying thread: a rapid rate of change in the technological base of their products. This common thread, rapid technological change, implies novel products and functions and thus usually rapid growth. But even when growth is slow or moderate, the destruction of the old capital base by new technology results in the need for rapid redeployment of resources to cope with new product designs and new manufacturing processes. Thus, the two dominant characteristics of the high-technology organizations that we focused on were growth and change.

In part because of this split focus (growth and change), the companies we studied often appeared to display contradictory behavior over time. Despite these differences, in important respects, they were remarkably similar because they all confronted the same two-headed dilemma: how to unleash the creativity that promotes growth and change without being fragmented by it, and how to control innovation without stifling it. In dealing with this concern, they tended to adopt strikingly similar managerial approaches.

The Paradox: Continuity and Chaos

When we grouped our findings into general themes of success, a significant paradox gradually emerged — which is a product of the unique challenge that high-technology firms face. Some of the behavioral patterns that these companies displayed seemed to favor promoting disorder and informality, while others would have us conclude that it was consistency, continuity, integration, and order that were the keys to success. As we grappled with this apparent paradox, we came to realize that continued success in a high-technology environment requires periodic shifts between chaos and continuity.8 Our originally static framework, therefore, was gradually replaced by a dynamic framework within whose ebbs and flows lay the secrets of success.

Six Themes of Success

The six themes that we grouped our findings into were: (1) business focus; (2) adaptability; (3) organizational cohesion; (4) entrepreneurial culture; (5) sense of integrity; and (6) “hands-on” top management. No one firm exhibits excellence in every one of these categories at any one time, nor are the less successful firms totally lacking in all. Nonetheless, outstanding high-technology firms tend to score high in most of the six categories, while less successful ones usually score low in several.9

Business Focus

Even a superficial analysis of the most successful high-technology firms leads one to conclude that they are highly focused. With few exceptions, the leaders in high-technology fields, such as computers, aerospace, semiconductors, biotechnology, chemicals, Pharmaceuticals, electronic instruments, and duplicating machines, realize the great bulk of their sales either from a single product line or from a closely related set of product lines.10 For example, IBM, Boeing, Intel, and Genentech confine themselves almost entirely to computer products, commercial aircraft, integrated circuits, and genetic engineering, respectively. Similarly, four-fifths of Kodak’s and Xerox’s sales come from photographic products and duplicating machines, respectively. In general, the smaller the company, the more highly focused it is. Tandon concentrates on disk drives; Tandem on high-reliability computers; Analog Devices on linear integrated circuits; and Cul-linet on software products.

Closely Related Products.

This extraordinary concentration does not stop with the dominant product line. When the company grows and establishes a secondary product line, it is usually closely related to the first. Hewlett-Packard, for instance, has two product families, each of which accounts for about half of its sales. Both families — electronic instruments and data processors — are focused on the same technical, scientific, and process control markets. IBM also makes two closely related product lines — data processors (approximately 80 percent of sales) and office equipment — both of which emphasize the business market.

Companies that took the opposite path have not fared well. Two of yesterday’s technological leaders, ITT and RCA, have paid dearly for diversifying away from their strengths. Today, both firms are trying to divest many of what were once highly touted acquisitions. As David Packard, chairman of the board of Hewlett-Packard, once observed, “No company ever died from starvation, but many have died from indigestion.”11

A communications firm that became the world’s largest conglomerate, ITT began to slip in the early 1970s after an acquisition wave orchestrated by Harold Geneen. When Geneen retired in 1977, his successors attempted to redress ITT’s lackluster performance through a far-reaching divestment program.12 So far, forty companies and other assets worth over $1 billion have been sold off — and ITT watchers believe the program is just getting started. Some analysts believe that ITT will ultimately be restructured into three groups, with the communications/electronics group and engineered products (home of ITT semiconductors) forming the core of a “new” ITT.

RCA experienced a similar fate to ITT. When RCA’s architect and longtime chairman, General David Sarnoff, retired in 1966, RCA was internationally respected for its pioneering work in television, electronic components, communications, and radar. But by 1980, the three CEOs who followed Sarnoff had turned a technological leader into a conglomerate with flat sales, declining earnings, and a $2.9 billion debt. This disappointing performance led RCA’s new CEO, Thorton F. Bradshaw, to decide to return RCA to its high-technology origins.13 Brad-shaw’s strategy is to now concentrate on RCA’s traditional strengths — communications and entertainment — by divesting its other businesses.

Focused R&D.

Another policy that strengthens the focus of leading high-technology firms is concentrating R&D on one or two areas. Such a strategy enables these businesses to dominate the research, particularly the more risky, leading edge explorations. By spending a higher proportion of their sales dollars on R&D than their competitors do, or through their sheer size (as in the case of IBM, Kodak, and Xerox), such companies maintain their technological leadership. It is not unusual for a leading firm’s R&D investment to be one and a half to two times the industry’s average as a percent of sales (8-15 percent) and several times more than any individual competitor on an absolute basis.14

Moreover, their commitment to R&D is both enduring and consistent. It is maintained through slack periods and recessions because it is believed to be in the best, long-term interest of the stockholders. As the CEO of Analog Devices, a leading linear integrated circuit manufacturer, explained in a quarterly report which noted that profits had declined 30 percent, “We are sharply constraining the growth of fixed expenses, but we do not feel it is in the best interest of shareholders to cut back further on product development … in order to relieve short-term pressure on earnings.”15 Similarly, when sales, as a result of a recession, flattened and profit margins plummeted at Intel, its management invested a record-breaking $130 million in R&D, and another $150 million in plant and equipment.16

Consistent Priorities.

Still, another way that a company demonstrates a strong business focus is through a set of priorities and a pattern of behavior that is continually reinforced by top management: for example, planned manufacturing improvement at Texas Instruments (TI); customer service at IBM; the concept of the entrepreneurial product champion at 3M; and the new products at HP. Belief in the competitive effectiveness of their chosen theme runs deep in each of these companies.

A business focus that is maintained over extended periods of time has fundamental consequences. By concentrating on what it does well, a company develops an intimate knowledge of its markets, competitors, technologies, employees, and of the future needs and opportunities of its customers.17 The Stanford Innovation Project recently completed a three-year study of 224 U.S. high-technology products (half of which were successes, half of which were failures) and concluded that a continuous, in-depth, informal interaction with leading customers throughout the product development process was the principal factor behind successful new products. In short, this coupling is the cornerstone of effective high-technology progress. Such an interaction is greatly facilitated by the longstanding and close customer relationships that are fostered by concentrating on closely related product-market choices.18 “Customer needs,” explains Tom Jones, chairman of Northrop Corporation, “must be understood way ahead of time” (authors’ emphasis).19

Adaptability

Successful firms balance a well-defined business focus with the willingness, and the will, to undertake major and rapid change when necessary. Concentration, in short, does not mean stagnation. Immobility is the most dangerous behavioral pattern a high-technology firm can develop: technology can change rapidly, and with it the markets and customers served. Therefore, a high-technology firm must be able to track and exploit the rapid shifts and twists in market boundaries as they are redefined by new technological, market, and competitive developments.

The cost of strategic stagnation can be great, as General Radio (GR) found out. Once the proud leader of the electronic instruments business, GR almost single-handedly created many sectors of the market. Its engineering excellence and its progressive human relations policies were models for the industry. But when its founder, Melville East-ham, retired in 1950, GR’s strategy ossified. In the next two decades, the company failed to take advantage of two major opportunities for growth that were closely related to the company’s strengths: microwave instruments and minicomputers. Meanwhile, its traditional product line withered away. Now all that remains of GR’s once dominant instruments line, which is less than 10 percent of sales, is a small assembly area where a handful of technicians assemble batches of the old instruments.

It wasn’t until William Thurston, in the wake of mounting losses, assumed the presidency at the end of 1972 that GR began to refocus its engineering creativity and couple it to its new marketing strategies. Using the failure of the old policies as his mandate, Thurston deemphasized the aging product lines, focused GR’s attention on automated test equipment, balanced its traditional engineering excellence with an increased sensitivity to market needs, and gave the firm a new name — GenRad. Since then, GenRad has resumed rapid growth and has won a leadership position in the automatic test equipment market.

The GenRad story is a classic example of a firm making a strategic change because it perceived that its existing strategy was not working. But even successful high-technology firms sometimes feel the need to be rejuvenated periodically to avoid technological stagnation. In the mid-1960s, for example, IBM appeared to have little reason for major change. The company had a near monopoly in the computer mainframe industry. Its two principal products — the 1401 at the low end of the market and the 7090 at the high end — accounted for over two-thirds of its industry’s sales. Yet, in one move the company obsoleted both product lines (as well as others) and redefined the rules of competition for decades to come by simultaneously introducing six compatible models of the “System 360,” based on proprietary hybrid integrated circuits.21

During the same period, GM, whose dominance of the U.S. auto industry approached IBM’s dominance of the computer mainframe industry, stoutly resisted such a rejuvenation. Instead, it became more and more centralized and inflexible. Yet, GM was also once a high-technology company. In its early days when Alfred P. Sloan ran the company, engines were viewed as high-technology products. One day, Charles F. Kettering told Sloan he believed the high efficiency of the diesel engine could be engineered into a compact power plant. Sloan’s response was: “Very well — we are now in the diesel engine business. You tell us how the engine should run, and I will . . . capitalize the program.”22 Two years later,

Kettering achieved a major breakthrough in diesel technology. This paved the way for a revolution in the railroad industry and led to GM’s preeminence in the diesel locomotive markets.

Organizational Flexibility.

To undertake such wrenching shifts in direction requires both agility and daring. Organizational agility seems to be associated with organizational flexibility — frequent realignments of people and responsibilities as the firm attempts to maintain its balance on shifting competitive sands. The daring and the willingness to take “you bet your company” kind of risks is a product of both the inner confidence of its members and a powerful top management — one that either has effective shareholder control or the full support of its board.

Organizational Cohesion

The key to success for a high-tech firm is not simply periodic renewal. There must also be cooperation in the translation of new ideas into new products and processes. As Ken Fisher, the architect of Prime Computer’s extraordinary growth, puts it, “If you have the driving function, the most important success factor is the ability to integrate. It’s also the most difficult part of the task.”23

To succeed, the energy and creativity of the whole organization must be tapped. Anything that restricts the flow of ideas, or undermines the trust, respect, and sense of a commonality of purpose among individuals is a potential danger. This is why high-tech firms fight so vigorously against the usual organizational accoutrements of seniority, rank, and functional specialization. Little attention is given to organizational charts: often they don’t exist.

Younger people in a rapidly evolving technological field are often as good — and sometimes even better — a source of new ideas as are older ones. In some high-tech firms, in fact, the notion of a “halflife of knowledge” is used; that is, the amount of time that has to elapse before half of what one knows is obsolete. In semiconductor engineering, for example, it is estimated that the halflife of a newly minted Ph.D. is about seven years. Therefore, any practice that relegates younger engineers to secondary, nonpartnership roles is considered counterproductive.

Similarly, product design, marketing, and manufacturing personnel must collaborate in a common cause rather than compete with one another, as happens in many organizations. Any policies that appear to elevate one of these functions above the others — either in prestige or in rewards — can poison the atmosphere for collaboration and cooperation.

A source of division, and one which distracts the attention of people from the needs of the firm to their own aggrandizement, are the executive “perks” that are found in many mature organizations: pretentious job titles, separate dining rooms and restrooms for executives, larger and more luxurious offices (often separated in some way from the rest of the organization), and even separate or reserved places in the company parking lot all tend to establish “distance” between managers and doers and substitute artificial goals for the crucial real ones of creating successful new products and customers. The appearance of an executive dining room, in fact, is one of the clearest danger signals.

Good Communication.

One way to combat the development of such distance is by making top executives more visible and accessible. IBM, for instance, has an open-door policy that encourages managers at different levels of the organization to talk to department heads and vice-presidents. According to senior IBM executives, it was not unusual for a project manager to drop in and talk to Frank Cary (IBM’s chairman) or John Opel (IBM’s president) until Cary’s recent retirement. Likewise, an office with transparent walls and no door, such as that of John Young, CEO at HP, encourages communication. In fact, open-style offices are common in many high-tech firms.

A regular feature of 3M’s management process is the monthly Technical Forum where technical staff members from the firm exchange views on their respective projects. This emphasis on communication is not restricted to internal operations. Such a firm supports and often sponsors industry-wide technical conferences, sabbaticals for staff members, and cooperative projects with technical universities.

Technical Forums serve to compensate partially for the loss of visibility that technologists usually experience when an organization becomes more complex and when production, marketing, and finance staffs swell. So does the concept of the dual-career ladder that is used in most of these firms; that is, a job hierarchy through which technical personnel can attain the status, compensation, and recognition that is accorded to a division general manager or a corporate vice-president. By using this strategy, companies try to retain the spirit of the early days of the industry when scientists played a dominant role, often even serving as members of the board of directors.24

Again, a strategic business focus contributes to organizational cohesion. Managers of firms that have a strong theme/culture and that concentrate on closely related markets and technologies generally display a sophisticated understanding of their businesses. Someone who understands where the firm is going and why is more likely to be willing to subordinate the interests of his or her own unit or function in the interest of promoting the common goal.

Job Rotation.

A policy of conscious job rotation also facilitates this sense of communal-ity. In the small firm, everyone is involved in everyone else’s job: specialization tends to creep in as size increases and boundary lines between functions appear. If left unchecked, these boundaries can become rigid and impermeable. Rotating managers in temporary assignments across these boundaries helps keep the lines fluid and informal, however. When a new process is developed at TI, for example, the process developers are sent to the production unit where the process will be implemented. They are allowed to return to their usual posts only after that unit’s operations manager is convinced that the process is working properly.

Integration of Roles.

Other ways that high-tech companies try to prevent organizational, and particularly hierarchical, barriers from rising is through multidisciplinary project teams, “special venture groups,” and matrixlike organizational structures. Such structures, which require functional specialists and product/market managers to interact in a variety of relatively short-term problem-solving assignments, both inject a certain ambiguity into organizational relationships and require each individual to play a variety of organizational roles.

For example, AT&T uses a combination of organizational and physical mechanisms to promote integration. The Advanced Development sections of Bell Labs are physically located on the sites of the Western Electric plants. This location creates an organizational bond between Development and Bell’s basic research and an equally important spatial bond between Development and the manufacturing engineering groups at the plants. In this way, communication is encouraged among Development and the other two groups.25

Long-term Employment.

Long-term employment and intensive training are also important integrative mechanisms. Managers and technologists are more likely to develop satisfactory working relationships if they know they will be harnessed to each other for a good part of their working lives. Moreover, their loyalty and commitment to the firm is increased if they know the firm is continuously investing in upgrading their capabilities.

At Tandem, technologists regularly train administrators on the performance and function of the firm’s products and, in turn, administrators train the technologists on personnel policies and financial operations.26 Such a firm also tends to select college graduates who have excellent academic records, which suggest self-discipline and stability, and then encourages them to stay with the firm for most, if not all, of their careers.

Entrepreneurial Culture

While continuously striving to pull the organization together, successful high-tech firms also display fierce activism in promoting internal agents of change. Indeed, it has long been recognized that one of the most important characteristics of a successful high-technology firm is an entrepreneurial culture.27

Indeed, the ease with which small entrepreneurial firms innovate has always inspired a mixture of puzzlement and jealousy in larger firms. When new ventures and small firms fail, they usually do so because of capital shortages and managerial errors.28 Nonetheless, time and again they develop remarkably innovative products, processes, and services with a speed and efficiency that baffle the managers of large companies. The success of the Apple II, which created a new industry, and Genentech’s genetically engineered insulin are of this genre. The explanation for a small entrepreneurial firm’s innovativeness is straightforward, yet it is difficult for a large firm to replicate its spirit.

Entrepreneurial Characteristics.

First, the small firm is typically blessed with excellent communication. Its technical people are in continuous contact (and oftentimes in cramped quarters). They have lunch together, and they call each other outside of working hours. Thus, they come to understand and appreciate the difficulties and challenges facing one another. Sometimes they will change jobs or double up to break a critical bottleneck; often the same person plays multiple roles. This overlapping of responsibilities results in a second blessing: a dissolving of the classic organizational barriers that are major impediments to the innovating process. Third, key decisions can be made immediately by the people who first recognize a problem, not later by top management or by someone who barely understands the issue. Fourth, the concentration of power in the leader/entrepreneurs makes it possible to deploy the firm’s resources very rapidly. Lastly, the small firm has access to multiple funding channels, from the family dentist to a formal public offering. In contrast, the manager of an R&D project in a large firm has effectively only one source, the “corporate bank.”

Small Divisions.

In order to recreate the entrepreneurial climate of the small firm, successful large high-technology firms often employ a variety of organizational devices and personnel policies. First, they divide and subdivide. Hewlett-Packard, for example, is subdivided into fifty divisions: the company has a policy of splitting divisions soon after they exceed 1,000 employees. Texas Instruments is subdivided into over thirty divisions and 250 “tactical action programs.” Until recently, 3M’s business was split into forty divisions. Although these divisions sometimes reach $100 million or more in sales, by Fortune 500 standards they are still relatively small companies.

Variety of Funding Channels.

Second, such high-tech firms employ a variety of funding channels to encourage risk taking. At Texas Instruments managers have three distinct options in funding a new R&D project. If their proposal is rejected by the centralized Strategic Planning (OST) System because it is not expected to yield acceptable economic gains, they can seek a “Wild Hare Grant.” The Wild Hare program was instituted by Patrick Haggerty, while he was TI’s chairman, to insure that good ideas with long-term potential were not systematically turned down. Alternatively, if the project is outside the mainstream of the OST System managers or engineers can contact one of dozens of individuals who hold “IDEA” grant purse strings and who can authorize up to $25,000 for prototype development. It was an IDEA grant that resulted in TI’s highly successful “Speak and Spell” learning aid.

3M managers also have three choices: they can request funds from (1) their own division, (2) corporate R&D, or (3) the new ventures division.29 This willingness to allow a variety of funding channels has an important consequence: it encourages the pursuit of alternative technological approaches, particularly during the early stages of a technology’s development, when no one can be sure of the best course to follow.

IBM, for instance, has found that rebellion can be good business. Arthur K. Watson, the founder’s son and a longtime senior manager, once described the way the disk memory, a core element of modern computers, was developed:

[It was] not the logical outcome of a decision made by IBM management; [Because of budget difficulties] it was developed in one of our laboratories as a bootleg project. A handful of men . . . broke the rules. They risked their jobs to work on a project they believed in.30

At Northrop the head of aircraft design usually has at any one time several projects in progress without the awareness of top management. A lot can happen before the decision reaches even a couple of levels below the chairman. “We like it that way,” explains Northrop Chairman Tom Jones.31

Tolerance of Failure.

Moreover, the successful high-technology firms tend to be very tolerant of technological failure. “At HP,” Bob Hungate, general manager of the Medical Supplies Division, explains, “it’s understood that when you try something new you will sometimes fail.”32 Similarly, at 3M, those who fail to turn their pet project into a commercial success almost always get another chance. Richard Frankel, the president of the Kevex Corporation, a $20 million instrument manufacturer, puts it this way, “You need to encourage people to make mistakes. You have to let them fly in spite of aerodynamic limitations.”33

Opportunity to Pursue Outside Projects.

Finally, these firms provide ample time to pursue speculative projects. Typically, as much as 20 percent of a productive scientist’s or engineer’s time is “unprogrammed,” during which he or she is free to pursue interests that may not lie in the mainstream of the firm. IBM Technical Fellows are given up to five years to work on projects of their own choosing, from high speed memories to astronomy.

Sense of Integrity

While committed to individualism and en-trepreneurship, at the same time successful high-tech firms tend to exhibit a commitment to long-term relationships. The firms view themselves as part of an enduring community that includes employees, stockholders, customers, suppliers, and local communities: their objective is to maintain stable associations with all of these interest groups.

Although these firms have clearcut business objectives, such as growth, profits, and market share, they consider them subordinate to higher order ethical values. Honesty, fairness, and openness — that is, integrity — are not to be sacrificed for short-term gain. Such companies don’t knowingly promise what they can’t deliver to customers, stockholders, or employees. They don’t misrepresent company plans and performance. They tend to be tough but forthright competitors. As Herb Dwight — president of Spectra-Physics, one of the world’s leading laser manufacturers — says, “The managers that succeed here go out of their way to be ethical.”34 And Alexander d’Arbeloff, cofounder and president of Teradyne, states bluntly, “Integrity comes first. If you don’t have that, nothing else matters.”35

These policies may seem Utopian, even puritanical, but in a high-tech firm they also make good business sense. Technological change can be dazzlingly rapid; therefore, uncertainty is high, risks are difficult to assess, and market opportunities and profits are hard to predict. It is almost impossible to get a complex product into production, for example, without solid trust between functions, between workers and managers, and between managers and stockholders (who must be willing to see the company through the possible dips in sales growth and earnings that often accompany major technological shifts). Without integrity the risks multiply and the probability of failure (in an already difficult enterprise) rises unaccepta-bly. In such a context, Ray Stata, cofounder of the Massachusetts High Technology Council, states categorically, “You need an environment of mutual trust.”36

This commitment to ethical values must start at the top, otherwise it is ineffective. Most of the CEOs we interviewed consider it to be a cardinal dimension of their role. As Bernie Gordon, president of Analogic explains, “The things that make leaders are their philosophy, ethics, and psychology.”37 Nowhere is this dimension more important than in dealing with the company’s employees. Paul Rizzo, IBM’s vice chairman, puts it this way, “At IBM we have a fundamental respect for the individual. . . people must be free to disagree and to be heard. Then, even if they lose, you can still marshall them behind you.”38

Self-understanding.

This sense of integrity manifests itself in a second, not unrelated, way — self-understanding. The pride, almost arrogance, of these firms in their ability to compete in their chosen fields is tempered by a surprising acknowledgment of their limitations. One has only to read Hewlett-Packard’s corporate objectives or interview one of its top managers to sense this extraordinary blend of strength and humility. Successful high-tech companies are able to reconcile their “dream” with what they can realistically achieve. This is one of the reasons why they are extemely reticent to diversify into unknown territories.

6. “Hands-on” Top Management

Notwithstanding their deep sense of respect and trust for individuals, CEOs of successful high-technology firms are usually actively involved in the innovation process to such an extent that they are sometimes accused of meddling. Tom McAvoy, Coming’s president, sifts through hundreds of project proposals each year trying to identify those that can have a “significant strategic impact on the company” — the potential to restructure the company’s business. Not surprisingly, most of these projects deal with new technologies. For one or two of the most salient ones, he adopts the role of “field general”: he frequently visits the line operations, receives direct updates from those working on the project, and assures himself that the required resources are being provided.39

Such direct involvement of the top executive at Corning sounds more characteristic of vibrant entrepreneurial firms, such as Tan-don, Activision, and Seagate, but Corning is far from unique. Similar patterns can be identified in many larger high-technology firms. Milt Greenberg, president of GCA, a $180 million semiconductor process equipment manufacturer, stated: “Sometimes you just have to short-circuit the organization to achieve major change.”40 Tom Watson, Jr. (IBM’s chairman) and Vince Learson (IBM’s president) were doing just that when they met with programmers and designers and other executives in Watson’s ski cabin in Vermont to finalize software design concepts for the System 360 — at a point in time when IBM was already a $4 billion firm.”41

Good high-tech managers not only understand how organizations, and in particular engineers, work, they understand the fundamentals of their technology and can interact directly with their people about it. This does not imply that it is necessary for the senior managers of such firms to be technologists (although they usually are in the early stages of growth): neither Watson nor Learson were technical people. What appears to be more important is the ability to ask lots of questions, even “dumb” questions, and dogged patience in order to understand in-depth such core questions as: (1) how the technology works; (2) its limits, as well as its potential (together with the limits and potential of competitors’ technologies); (3) what these various technologies require in terms of technical and economic resources; (4) the direction and speed of change; and (5) the available technological options, their cost, probability of failure, and potential benefits if they prove successful.

This depth of understanding is difficult enough to achieve for one set of related technologies and markets; it is virtually impossible for one person to master many different sets. This is another reason why business focus appears to be so important in high-tech firms. It matters little if one or more perceptive scientists or technologists foresees the impact of new technologies on the firm’s markets, if its top management doesn’t internalize these risks and make the major changes in organization and resource allocation that are usually necessitated by a technological transition.

The Paradox of High-Technology Management

The six themes around which we arranged our findings can be organized into two, apparently paradoxical groupings: business focus, organizational cohesion, and a sense of integrity fall into one group; adaptability, entrepreneurial culture, and hands-on management fall into the other group. On the one hand, business focus, organizational cohesion, and integrity imply stability and conservatism. On the other hand, adaptability, entrepreneurial culture, and hands-on top management are synonymous with rapid, sometimes precipitous change. The fundamental tension is between order and disorder. Half of the success factors pull in one direction; the other half tug the other way. This paradox has frustrated many academicians who seek to identify rational processes and stable cause-effect relationships in high-tech firms and managers. Such relationships are not easily observable unless a certain constancy exists. But in most high-tech firms, the only constant is continual change. As one insightful student of the innovation process phrased it, “Advanced technology requires the collaboration of diverse professions and organizations, often with ambiguous or highly interdependent jurisdictions. In such situations, many of our highly touted rational management techniques break down.”42 One recent researcher, however, proposed a new model of the firm that attempts to rationalize the conflict between stability and change by splitting the strategic process into two loops, one that extends the past, the other that periodically attempts to break with it.43

Established organizations are, by their very nature, innovation resisting. By defining jobs and responsibilities and arranging them in serial reporting relationships, organizations encourage the performance of a restricted set of tasks in a programmed, predictable way. Not only do formal organizations resist innovation, they often act in ways that stamp it out. Overcoming such behavior — which is analogous to the way the human body mobilizes antibodies to attack foreign cells — is, therefore, a core job of high-tech management.

The Paradoxical Challenge.

High-tech firms deal with this challenge in different ways. Texas Instruments, long renowned for the complex, interdependent matrix structure it used in managing dozens of product-customer centers (PCCs), recently consolidated groups of PCCs and made them into more autonomous units. “The manager of a PCC controls the resources and operations for his entire family … in the simplest terms, the PCC manager is to be an entrepreneur,” explained Fred Bucy, TI’s president.44

Meanwhile, a different trend is evident at 3M, where entrepreneurs have been given a free rein for decades. A recent major reorganization was designed to arrest snowballing diversity by concentrating its sprawling structure of autonomous divisions into four market groups. “We were becoming too fragmented,” explained Vincent Ruane, vice-president of 3M’s electronics division.45

Similarly, HP recently reorganized into five groups, each with its own strategic responsibilities. Although this simply changes some of its reporting relationships, it does give HP, for the first time, a means for integrating product and market development across generally autonomous units.46

These reorganizations do not mean that organizational integration is dead at Texas Instruments, or that 3M’s and HP’s entrepreneurial cultures are being dismantled. They signify first, that these firms recognize that both (organizational integration and entrepreneurial cultures) are important, and second, that periodic change is required for environmental adaptability. These three firms are demonstrating remarkable adaptability by reorganizing from a position of relative strength — not, as is far more common, in response to financial difficulties. As Lewis Lehr, 3M’s president explained, “We can change now because we’re not in trouble.”47

Such reversals are essentially antibureau-cratic, in the same spirit as Mao’s admonition to “let a hundred flowers blossom and a hundred schools of thought contend.”48 At IBM, in 1963, Tom Watson, Jr., temporarily abolished the corporate management committee in an attempt to push decisions downward and thus facilitate the changes necessary for IBM’s great leap forward to the System 360.49 Disorder, slack, and ambiguity are necessary for innovation, since they provide the porosity that facilitates entrepreneurial behavior — just as do geographically separated, relatively autonomous organizational subunits.

But the corporate management committee is alive and well at IBM today. As it should be. The process of innovation, once begun, is both self-perpetuating and potentially self-destructive: although the top managers of high-tech firms must sometimes espouse organizational disorder, for the most part they must preserve order.

Winnowing Old Products.

Not all new product ideas can be pursued. As Charles Ames, former president of Reliance Electric, states, “An enthusiastic inventor is a menace to practical businessmen.”50 Older products, upon which the current success of the firm was built, at some point have to be abandoned: just as the long-term success of the firm requires the planting and nurturing of new products, it also requires the conscious, even ruthless, pruning of other products so that the resources they consume can be used elsewhere.

This attitude demands hard-nosed managers who are continually managing the functional and divisional interfaces of their firms. They cannot be swayed by nostalgia, or by the fear of disappointing the many committed people who are involved in the development and production of discontinued products. They must also overcome the natural resistance of their subordinates, and even their peers, who often have a vested interest in the products that brought them early personal success in the organization.

Yet, firms also need a certain amount of continuity because major change often emerges from the accretion of a number of smaller, less visible improvements. Studies of petroleum refining, rayon, and rail transportation, for example, show that half or more of the productivity gains ultimately achieved within these technologies were the result of the accumulation of minor improvements.51 Indeed, most engineers, managers, technologists, and manufacturing and marketing specialists work on what Thomas Kuhn might have called “normal innovation,”52 the little steps that improve or extend existing product lines and processes.

Managing Ambivalently.

The successful high-technology firm, then, must be managed ambivalently. A steady commitment to order and organization will produce one color Model T Fords. Continuous revolution will bar incremental productivity gains. Many companies have found that alternating periods of relaxation and control appear to meet this dual need. Surprisingly, such ambiguity does not necessarily lead to frustration and discontent.53 In fact, interspersing periods of tension, action, and excitement with periods of reflection, evaluation, and revitalization is the same sort of irregular rhythm that characterizes many favorite pastimes — including sailing, which has been described as “long periods of total boredom punctuated with moments of stark terror.”

Knowing when and where to change from one stance to the other, and having the power to make the shift, is the core of the art of high-technology management. James E. Webb, administrator of the National Aeronautics and Space Administration during the successful Apollo (“man on the moon”) program, recalled that “we were required to fly our administrative machine in a turbulent environment, and … a certain level of organizational instability was essential if NASA was not to lose control” (authors’ emphasis).54

In summary, the central dilemma of the high-technology firm is that it must succeed in managing two conflicting trends: continuity and rapid change. There are two ways to resolve this dilemma. One is an old idea: managing different parts of the firm differently — some business units for innovation, others for efficiency.

A second way — a way which we believe is more powerful and pervasive — is to manage differently at different times in the evolutionary cycle of the firm. The successful high-technology firm alternates periods of consolidation and continuity with sharp reorientations that can lead to dramatic changes in the firm’s strategies, structure, controls, and distribution of power, followed by a period of consolidation.55 Thomas Jefferson knew this secret when he wrote 200 years ago, “A little revolution now and then is a good thing.”56