The Early Computer Industry

Limitations of Scale and Scope

A. Gandy

• Publisher: Palgrave Macmillan
• Year: 2012
• ISBN:
  9780230389113
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Uses case studies to explore why large scale electronics failed to win a leadership position in the early computer industry and why IBM, a firm with a heritage in the business machines industry, succeeded. The cases cover both the US and the UK industry focusing on electronics giants GE, RCA, English Electric, EMI and Ferranti.

Part I

Theory and Context

1

Historiography

Introduction

This book studies two phenomena. Both ask the same question – why did those seemingly best positioned to exploit a new and rapidly developing industry fail to become dominant in what would be economically and socially one of the greatest developments mankind has seen?

The book focuses on the structures and strategies adopted by large-scale integrated electronics firms as they competed for market share in the early commercial computer industry in the US and the UK. By commercial computers, we mean general purpose computers which were sold on a commercial basis to perform business data processing tasks and/or to perform scientific calculations. This is opposed to the special purpose computer market where systems were generally bespoke to a specific function, such as communications or process control.¹ This book covers the period from approximately 1950 to 1972. This period was chosen as it covers the time when the mainframe general purpose computer became commercialised and computing technology started to embed itself into all forms of large-scale enterprise and government operations. However, most importantly, it is by 1972 that we see the two phenomena studied in this book effectively reach their endgame.

The first, and main, phenomenon studied is how and why the giant electrical and electronics corporations in the US and the UK failed to take their chance to dominate the computer industry into the 1970s. Most of the big electronic corporates targeted this market and tried to deploy the technical and financial strengths that they had developed during the Second World War and Cold War. Yet by 1972 they had all effectively left the industry beaten by smaller corporations with seemingly less technical capability in electronics and systems development. This is the key focus of this book; it uses in-depth case studies to reveal how companies with what seemed like innately strong capabilities to enter this industry, in fact, had structural flaws making the deployment of their capabilities suboptimal.

From this a secondary focus of study draws on the case studies presented to consider how the UK, the only credible competitor to the US in computing technology throughout much of the 1950s and 1960s, failed to build a vibrant computer hardware industry. Success in the computing business is about planning for change, transitioning between generations of technology and spotting new opportunities and threats generated by these transitions. The UK had a preponderance of electrical and electronics firms which benefitted from government sponsorship; arguably these were the wrong firms to support and would eventually lead to government-sponsored consolidations which saddled potentially the only viable British company (a business machines form, not a broadly based electronics manufacturer) with a legacy that would undermine its competitiveness.

The structure of this study

This study is about the enterprise, rather than the technologies of computing. However, as is described later in this chapter, it is the technology which drove everything that the businesses did. In an environment of technical change and innovation, those who might have been expected to have the greatest capability to deal with this change were often the least successful.

This book is based on case studies; together they form a description of the competition between two main groups of companies:

• Concentrically diversified electrical and electronics groups (firms which used their expertise and resources in electronics development and manufacturing as tools to enter the emerging market for commercial electronic data processing systems)
• Business machines companies, primarily from the punched card and accounting machines industries (which were seemingly less technically capable in electronics and with considerably fewer corporate resources)

The book concentrates on the failure of the concentrically diversified electronics companies, comparing them to International Business Machines (IBM) and International Computers and Tabulators (ICT), the leading business machines firms in the US and UK – and a number of other short case studies on smaller business machines survivors. Other firms were active in the market, but are only touched on in this book. What we are interested in are the largest corporate entities and how they locked horns in the computing industry, moving in from two differently related sectors, electronics and business machines.

The chapters are:

Part 1	Theory and Context
Chapter 1	Historiography
Chapter 2	Scope, Scale, Concentric Diversification and the Black Box
Part 2	US Electronics Companies in the Computer Sector 1950–72
Chapter 3	RCA
Chapter 4	General Electric
Part 3	UK Electronics Companies in the Computer Sector 1950–68
Chapter 5	The Ferranti Company
Chapter 6	Electrical and Musical Industries – Computing on a Shoestring
Chapter 7	English Electric – A Failure of Strategy
Part 4	The Business Machines Firms – What Did They Do Differently?
Chapter 8	Strategies and Organisations of IBM and ICT
Chapter 9	The Nimble Survivors: Sperry Rand, NCR, Burroughs, CDC and Honeywell
Chapter 10	Conclusions: Concentric Diversification, Resource Allocation and Government Policy

Studying the electronics and computer industries

This book is a historical study, based on archival research. The aim is to understand the influences which determined the strategies of the enterprises involved. Many books have looked at the computer industry in its early phase, but have either focused on the personalities involved in innovation, or taken a broad view of the firms. Many of these works, a number of which are outlined later, provide incredible insight into the innovative atmosphere which dominated the sector. This book takes an enterprise view of the firm, focusing on capabilities and resources and the interaction between these and the environment in which the computer division was competing.

To achieve this goal, an insight into the internal operations of the firms is required.

Sources: Electrical/Electronics Companies in the UK Computer Industry:

The case study chapters do not pretend to be complete histories of the companies outlined. They focus on the interactions of the commercial computer division of each firm with the rest of the enterprise. This can be seen as the competitive advantage held by these firms in the sector; the huge technical and financial resources available to these firms were the leverage which would prise open the lid of success in the commercial computer sector.

Therefore, the cases slice through the vertical and horizontal structures of the firms and explain why the firms targeted the commercial computer industry and why their seemingly large corporate resources and capabilities did not deliver that success. Full histories of these firms are available in other studies.

As explained in the Preface, much of the research undertaken for this book began twenty-five years before the publication of this book. An awareness of the limits of a naïve PhD student’s abilities was enough to stop turning a PhD thesis into a book before gaining any experience of business and strategic decision making in the real world.

In the intervening years many more papers and books on the sector have offered new knowledge, and this is to be applauded. However, in the UK, the inner workings of the companies involved in the sector are not quite so easy to find. It is the availability of a major source in the US that really gives us an insight into the strategy of the firms and provides enough information to understand the competitive model which the firms were aspiring towards.

The sources of information available in the UK and the US vary a great deal. In the UK, 20 years ago the information on the computer sector was dispersed and fragmentary, although the establishment of the National Archive for the History of Computing (NAHC) in Manchester University, set up just as the original research commenced has improved the situation. Since I originally researched there, it has now expanded to include more papers covering the period of this research.

The starting point for studying these companies was the company annual reports and the business and trade press, the aim being to ascertain which firms were active in the industry and what they were marketing. However, these sources only give an external view. Importantly, the NAHC has brought together material on a number of companies which at the time of the initial research were distributed around a number of locations and were only partially open because those firms were not keen to expose their less-than-successful activities in the computer industry. The NAHC now has papers from firms such as ICL, English Electric (EE), LEO and Ferranti. However, the inner strategic decision making cannot necessarily be seen, as the company archives, consisting of internal strategy notes, market research, senior management discussions and decision making records, are very limited in quantity and quality. Nevertheless, there is much there which gives a real insight into the success, and sadly the failure, of the industry.

The NAHC also holds a number of personal papers and memoirs. One that has been used substantially is a copy of a private paper written by the computer sales manager of Ferranti, a hugely interesting source. This forms a nearly complete history of the Ferranti computer department. However, this vital paper has to be treated with some caution as the Ferranti computer departments was riddled with schisms, and Swann was clearly aligned with one of the interest groups within that operation.²

However, the most important resource at the NAHC which is used in this book and which directly relates to two of the case studies, Ferranti and Electrical and Musical Industries (EMI), and to a lesser degree the other UK firms is the NAHC’s holding of the archive of the National Research and Development Corporation (NRDC). This was previously held by the Institution of Electrical Engineers, which is where I originally researched this resource.

The NRDC helped to fund many of the computer activities of the British electronics companies. Its aim was to underpin the UK’s technological and industrial base by encouraging the development of new technology-based products. The NRDC’s relationship with the companies that it funded, and its involvement with the industry, can be studied through these archives. This gives some insight into how the firms that were supported operated. An excellent history of the NRDC’s involvement in the computer industry was written by John Hendry (1989).

The study of the Ferranti Company could be a full-time career, especially with the transfer of the Ferranti Archive to Manchester’s Museum of Science and Industry (MoSI). This is a major change from when this research was started. At that time, the Ferranti Company still existed and was going through something of a renaissance – sadly Ferranti would, at the very time of this research, purchase International Signal in the US. The accounts of International Signal were fraudulent and this combined with a lack of effective due diligence would lead to the collapse of Ferranti.³ Luckily the archive has been saved and these files are available in the MoSI collection.

Another interesting source is the collection of seminar papers held by the London School of Economics, from the Edwards and Townsend series of talks given by leading industrialists on the organisational history of their companies.⁴ A number of electronics companies were included in this series. Useful information on specific points can also be gleaned from the archives of Ferranti and Marconi.

The final British electrical/electronics company studied is English Electric. The Bodleian Library has now acquired many papers from the Marconi archive. These do include papers on English Electric’s computer operations, but they are limited and only through the eyes of the Marconi part of English Electric. These papers were originally researched at the offices of General Electric Company (GEC) in Chelmsford.

In addition to UK archives, the Charles Babbage Institute (CBI), at the University of Minnesota, greatly adds to our understanding of competition and strategy in the UK computer industry. Apart from many important sources of information on the US industry (see later), the CBI has a collection of product data on British computers. In common with the NAHC in Manchester, it has copies of the computer sales statistics compiled by Computer Consultants Ltd in the 1960s. It also has a collection of American investment appraisal documents that cover the computer industry. Of these, the biweekly publications of International Data Publishing (published from 1964)⁵ prove a useful source of information on the UK as well as the US.

A real bonus in analysing the UK computer industry is the CBI’s copy of a large and comprehensive evaluation document prepared by the London Branch of the United States Navy’s Office of Naval Research.⁶ This document seems to have been an assessment of the British industry carried out to evaluate competition to the US industry, though this is not explicitly stated.

Sources: Electrical/Electronics Companies in the US Computer Industry:

The US computer industry offers an opportunity to triangulate the UK research with both examples of larger-scale diversified electronics groups (in this study, General Electric (GE) and Radio Corporation of America (RCA)) and to companies which not only survived in the sector (NCR, Burroughs, Sperry Rand and Honeywell) but also prospered (IBM). Indeed the study of IBM is essential as it gives us insight into the firm which effectively created the competitive environment in which other firms operated. It is because of the availability of archival materials relating to these firms that insight into the strategy of the electrical/electronics combines can be really understood in the context of their competition against the ever present IBM.

Compared to the UK industry, the pulling together of various sources is not such a problem in the US. The CBI has been in existence for a number of years and has acquired a wide-ranging collection. The trade press, regularly published investment reviews, and product literature are all readily available. In addition to aforementioned IDC publications, Moody’s industry appraisals are useful,⁷ much more so than the standard trade press. The CBI also has a large oral history collection, which also covers the establishment of the UK’s ICL.

However, the gem which the CBI had when the original research was conducted was its near-complete copy of the evidence and transcripts of the 1970s anti-trust case US vs. IBM which they hold as a part of their Computer and Communications Industry Association Collection of Antitrust Records, ca. 1940–1980 collection. This is a vast body of information, some of which has already been drawn on by researchers of the case, and researchers studying the IBM company (Fisher, McKie and Mancke 1983; Fishman 1981; Malik 1975).

The case commenced in 1969 and was terminated in 1982. For historians it represents the creation of the world’s greatest repository of business strategy papers on the early computer industry coupled with in-depth cross examinations of the authors of those documents. Employees of IBM’s rivals may have regretted the failure of anti-trust; it may be of little comfort to them but the records created are a goldmine of information on the early computer market.

The evidence from this trial can be used in a number of ways. This book concentrates on the evidence and transcripts which were submitted during discussions of the roles played by the RCA and GE in the computer industry. A significant proportion of the business records of these companies were submitted to the court, both from the corporate level and the operational level. These records were used in the trial to argue that RCA and GE had been forced out of the computer industry by unfair competition from IBM. This information allows a very detailed study of their history in the computer industry and substantially improves our ability to understand why broad-based electrical/electronics companies were inherently fragile in the computer market.

As in the UK, in the past twenty year...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgements
• A Note On Referencing Styles
• Part I Theory and Context
• Part II US Electronics Companies in the Computer Sector 1950–72
• Part III UK Electronics Companies in the Computer Sector 1950–68
• Part IV The Business Machines Firms – What Did They Do Differently?
• Notes
• References
• Index