Dec Computers example essay topic

Digital Equipment Corporation (DEC) Overview Digital Equipment Corporation (DEC) is one of the most successful computer manufacturers in the world. Throughout its nearly 40-year history, it has struggled through the ups and downs that have plagued virtually every company in the computer industry. Unlike many others, however, DEC has managed to reemerge time and again as a top player in the industry. The Early Years The first 35 years of DEC's history can be tied directly to the history of its founder, Ken Olsen, who was once hailed by Fortune magazine as "America's Most Successful Entrepreneur". In an industry that regularly chewed up and spit out most of its founders and entrepreneurs, it's amazing that he managed to stay at the helm of his company for 35 years. Equally amazing is that DEC has managed to stay intact, as well as successful, for four decades.

In 1957, Ken Olsen and Harlan Anderson were engineers at the Massachusetts Institute of Technology (MIT) Lincoln Laboratory. Both had spent several years working with and on big mainframe computers. As part of his duties, Olsen had served as liaison between MIT and IBM at the IBM plant. Two things were clear to Olsen when he finished this assignment - he wanted to build computers and he believed he could do it better than IBM.

In addition, Olsen believed computers should be brought out from behind the protective glass walls built by IBM and into the main offices where multiple individuals could interact with them. Olsen and Anderson knew engineering, but not much about running a business. Since they needed $70,000 to start up their business, they sought help from American Research & Development (ARD), a venture capital firm. ARD agreed to the loan with the provision that it retain a 70 percent interest in the company and the head of ARD, General Georges Doriot, would be an advisor in all business matters. For the next 30 years, Doriot became Ken Olsen's mentor, counselor, and guide and a key part of DEC's success. One of Doriot's first pieces of advice was for the small company not to draw the attention of companies like IBM until they had established themselves.

To this point, Doriot suggested that the company start out making just printed circuit modules, not full blown computers, and change the company's name from 'Digital Computer Corporation' to 'Digital Equipment Corporation'. When the company opened in August 1957 in the tiny mill town of Maynard, Massachusetts, it was as an electronics company. Conservative by nature, Olsen insisted on one extravagance for the new company's products. His modules would be built using the newly developed and expensive transistors.

In early 1958, DEC shipped its first products - Digital Laboratory Modules and Digital Systems Modules. After one year in business, the company had sold $94,000 worth of logic modules for memory testing. Once Olsen had proven himself and his company, he again approached Doriot and ARD about building computers. This time they gave their blessing. The Origin of the Minicomputer Olsen realized that many of the tasks being performed by the huge mainframe computers could easily be performed by smaller "fundamentalist" computers, and that's what he wanted DEC to produce. To seem less threatening to the computer giants, DEC's first computer came out in 1959 under the innocuous name Programmed Data Processor or PDP-1.

Although it appeared to be just another advanced logic module, it really was a solid-state, general-purpose computer, complete with its own keyboard and a cathode ray tube (CRT) that allowed the users to see what was being entered into and received back from the central processing unit. It was the first commercial machine to use transistors instead of vacuum tubes, which allowed it to fit into a space the size of a refrigerator. Designed for individual interaction, it provided more power than most users expected or needed, and at a price they could afford. Initially, sales of the PDP-1 were slow, primarily because each unit had to be customized for the specialized function it would perform.

The professors and scientists who used it were sufficiently computer literate to develop some of their own software and had enough company support or grant money to afford the modest $125,000 to $150,000 price tag. Then in late 1962, DEC received an order from International Telephone and Telegraph (ITT) for 15 PDP-1 units to control its message switching systems. This large order, and several that followed from ITT, firmly set DEC in the marketplace as a computer company. Meanwhile, Olsen donated a PDP-1 to MIT with the sole purpose of getting engineering students to interact with a computer as soon as possible.

The students were ecstatic and eventually DEC computers became common in universities and schools around the world. After five years in business, DEC reported sales of $6.5 million and net profits of $807,000. But as the company grew, the management style that worked in 1957 was beginning to flounder in 1963. Mismanagement led to a drop in sales and the steady growth of the first five years came to a standstill. The two founders, Olsen and Anderson, were at odds on how to solve the company's problems, which eventually led to Anderson leaving the company. Matrix Management As Olsen agonized over the problems in manufacturing and the divisions in management, he hit upon a concept of organizational structure that would soon become DEC's trademark.

The structure, known as matrix management, although not entirely unique to DEC, became Olsen's baby and the solution that would move his company from chaotic infighting to explosive growth. Simply put, matrix management divided the company and individual responsibilities between product lines. A senior executive took ownership of each product line and was responsible for developing the product, marketing it, and turning a profit. Resources from central functions, such as sales, manufacturing, and marketing, were shared by line managers, thereby opening up communications between all groups.

This matrix structure encouraged such concepts as corporate democracy, consensus decision-making, and creativity at all levels. Under the new management scheme, profits again began to climb. The PDP-8 In 1966, the first product to be released under the new management, the PDP-8, was very successful and became a mainstay of the company for years to come. As with all DEC equipment, the PDP-8 included a high-quality video display terminal (VDT), but it was also small enough to sit on a table top. And it was cheap, only $18,000, which was far below any comparable machines being sold in the industry.

Thousands of PDP-8's were installed in small businesses, universities, high schools, newspapers, and book publishers. Many baby boomers got their first taste of computing on one of these machines. When one of DEC's salesmen took the new, small computers to London to try to establish a presence there, he drew a connection between the current craze of miniskirts seen all over that town and the new "mini" computers he was hawking. The phrase caught on and industry publications began referring to the new computers as minicomputers. The PDP-8 was also responsible for opening up a whole new market and new style of selling in the industry.

Original equipment manufacturers (OEMs), such as scientific instrumentation makers or typesetting companies, bought PDP-8 units, attached their own hardware to it, wrote software to support their particular application, and sold the resulting package as their own product. Soon, OEM business accounted for 50 percent of all DEC sales. As DEC recorded more sales and achieved higher profits, other computer manufacturers quickly jumped into the minicomputer business. By 1970, nearly 70 companies were manufacturing minicomputers, but none with as much success as Dec. 8-Bit Words Just as things were starting to look up for the company, the next challenge came. DEC was creating computers that used 12- and 18-bit words.

The industry, though, was moving toward the 8-bit word with its various multiples as an industry standard. In 1967, a group of DEC engineers led by Ed de Castro was assigned the task of designing a 16-bit computer. Their final plan contained a basic 16-bit system that could be grown to 32-bits as well as the development of a series of compatible products that would allow users to upgrade their existing machines rather than replace them. But, what de Castro's group was suggesting amounted to scrapping the entire DEC product line and replacing it with the new 16-bit machines. DEC's management soundly rejected de Castro's computer and his long-range plan. So, in April 1968, de Castro and two other engineers found their own venture capital, left DEC, and started their own company, Data General Corporation, to produce 32-bit computers.

In 1969, Data General was one of the hottest new companies in minicomputer manufacturing, tapping a market that could have been DEC's. The PDP-11 When de Castro's group left, DEC still didn't have a 16-bit computer product and no longer had an engineering team that could develop it. A new engineering team was hired and development began again. It was a slow process for the new engineers, but the result was the PDP-11, which would prove to be the precursor of a new era in DEC computers. The final PDP-11 plan actually encompassed a whole family of minicomputers with larger memories and more processing power than any small machine previously built by Dec. In addition, the PDP-11 was simple to use, while covering a wide range of computing performances. Although it was late arriving on the market, the PDP-11 was a major success.

By 1971, DEC was selling 100 machines per month. DEC quickly brought out two more models and by 1972, DEC was back on top of the minicomputer market. Bad Decisions But all of DEC's decisions weren't good ones. In the spring of 1972, the PDP-11 group at DEC proposed a new concept they called the DEC Datacenter. The Datacenter combined a PDP-11/20 with a VT 05 terminal and a printer on a desk.

The intent was to bring a computer to all people, from scientists and technicians to secretaries and bookkeepers. This "individual" computer never made it to the product line and was eventually scrapped. In a similar story, David Ahl, a DEC employee in the new products division of the company, proposed a small computer that could be sold to individuals such as doctors or engineers and to small businesses as well as to schools. Although they were probably too expensive for most homes, Ahl proposed that the Heath company create a kit version that would make them more affordable.

Olsen and the DEC management didn't think there would be a market for either product. For DEC, these were missed opportunities, but they were also being missed by most of the major computer manufacturers at the time. The VAX Strategy In the spring of 1977, IBM finally came out with its version of the minicomputer, the Series 1. Although IBM was a major competitor, DEC felt secure in its established customer base. In addition, DEC had a new weapon in its arsenal, VAX, short for Virtual Address Extension. Since 1975, DEC had been developing a 32- bit minicomputer designed to provide virtually unlimited address space (memory).

The name VAX-11 was chosen to ensure customers that the VAX was compatible to their PDP-11 units. On October 25, 1977, the first VAX prototype came off the production line. Along with the VAX architecture came a proposal from the designers called the VAX Strategy. Basically, the VAX Strategy revolved around compatible machines being tied together to form a huge network. For years, DEC had been developing its own networking setup, called DECnet.

Networking was something IBM's machines could not do. Although DECnet worked well enough internally, Ethernet, a system developed by Bob Metcalfe at Xerox's Palo Alto Research Center (PARC), was more encompassing. The designers of the VAX Strategy chose Intel Corporation, a leading Silicon Valley chip maker, to manufacture the semiconductor chip on which to base Ethernet. In May 1980, DEC, Xerox, and Intel announced their Ethernet plans to the world. The Personal Computer Problem Also in 1980, virtually every product-line manager at DEC was pitching some type of personal computer for DEC to begin manufacturing. DEC had the beginnings of a personal computer in the Components Group's PDT (Programmable Data Terminal), which included a computer terminal with built-in intelligence, a CRT screen, and a keyboard.

Olsen finally agreed to develop a small, individual computer. However, the new product was called an "applications terminal and small system" - the label "personal computer" was not allowed at Dec. Unfortunately, Olsen and DEC still didn't quite understand the PC concept. Instead of constructing an affordable, quickly-produced machine that would appeal to a large market of new users, DEC spent 18 months coming up with an elegant computer terminal that would not only stand alone but could also be networked with other DEC systems. To complicate things further, DEC continued its corporate policy of manufacturing all the component parts itself. In contrast, IBM was purchasing MS-DOS from Microsoft and drives, monitors and circuit boards from the Far East. Then, DEC made another tactical error.

Instead of throwing all of its support behind one product, it hit the market with three products. In May 1982, DEC unveiled the Professional (its original PC concept), the Rainbow (a low-end backup product that used MS-DOS), and DEC mate II (the latest version of its dedicated word processor). Although the Pro was a high quality product, its high price took it out of most users' range and it sold poorly. The Rainbow, though more reasonably priced, didn't offer anything not already available from IBM. Although the Rainbow had decent sales, most were to DEC's already established customer base. Reorganization By 1983, DEC was struggling.

It was now a very large company with several products and was having trouble managing itself. In response to all of the internal problems, Olsen reorganized the company. Many upper and middle managers left the company, and employees floundered as they tried to fit into new jobs with new bosses and new procedures. Schedules weren't met, orders were incorrect, and billing wasn't accurate.

Earnings were dropping significantly. But even DEC was taken by surprise when it realized that its third quarter earnings for 1984 were down 72 percent from the year before. The next day, October 18, DEC's stock plunged 21 points. This day became known as "Black Tuesday" in DEC's history. Although things were bleak, most of DEC's customers had so much invested in their computer systems that they couldn't do much but stay with the company.

But new customers were leery and DEC's already limited success in the PC market quickly dissipated. DEC quietly pulled out of the competition as IBM and Apple fought for domination of that area. However, there was one positive result. By moving away from PCs, DEC again refocused its time, energy, and money on the VAX product line.

In May 1983, DEC had unveiled the VAX-cluster, a means of hooking several VAX minicomputers together in a proprietary local-area network, in essence allowing them to become the equivalent of a mainframe. In October 1984, DEC finally released its flagship VAX product, the VAX 8600. The 8600 marked the beginning of the second generation of VAX machines, with four times as much power as DEC's top-of-the-line machines. As DEC brought out more and more components for its VAX system, it kept preaching the benefits of the Ethernet and quietly built links to other vendors' equipment, including IBM, which landed them important new big accounts.

By 1985, DEC's star was on the rise again, but this time it wasn't with a single product like the minicomputer in the 1960's, but rather a concept - networking. Corporations were beginning to see that computers could do much more for them than just crunch numbers or write letters, and networking allowed several individuals to share the same information and computing capabilities. DEC immediately shipped every 8600 made. While sales at DEC climbed, other manufacturers like IBM, Wang, Data General, and Hewlett-Packard were recording slumps.

Over the next 18 months, DEC released ten additional VAX system components, with each one able to communicate with its brothers and sisters as soon as it was installed. Again, the Personal Computer Problem One problem still plagued Dec. It still didn't have a competitive low-end PC product. Based on its success with the VAX machines, DEC decided to create its own low-end desktop model, called the VAXmate, that would incorporate the best of DEC's networking capabilities, including a connection to Ethernet. But by the time VAXmate hit the market, most of the potential users had already bought IBM PCs, and those that hadn't were turned off by the $5000 price tag. Although many individuals at DEC understood the PC market, they could never convince the company and Olsen what should be done. Many ended up leaving after years of fighting the system.

Even with its ongoing problems in the low-end PC market, DEC was successful, and in October 1986, Fortune magazine put Ken Olsen on the cover and declared him to be "America's Most Successful Entrepreneur". Record profits were still being received, with no visible end in sight. 1987 proved to be the most successful year ever for Dec. In January 1988, Apple negotiated an agreement with DEC to integrate its Macintosh es into VAX networks. This was profitable to both companies - it gave Apple an opening to corporate environments where it had previously been weak and, by endorsing the Macintosh, it gave DEC the desktop machine that had eluded it for so long. Then in 1988, Sun Microsystems began inundating the market with powerful workstations running AT&T Bell Labs' UNIX operating system. These desktop systems were priced well below DEC's minicomputers and were able to give individual users a lot of computing power.

Many in the industry began to speculate that UNIX could become the industry standard since it worked across different machines. And in June, IBM released the Application System/400, a mid-range system that tied together two key IBM minicomputers. The Final Decade In the latter part of 1988, DEC countered some of these moves by releasing networking products that allowed VAX computers to connect and share files with computers made by IBM. It also created an updated version of its Ultrix operating system that was compatible with UNIX and complied with all the major UNIX standards. For the next few years, DEC maintained its position as one of the primary manufacturers of computer equipment. But in the 1990's, things began to go downhill again.

A recession had hit the country and the computer industry was shifting its emphasis to software and services. Sales were moving from institutions to individuals and from proprietary mini and mainframe computers to PCs, networks, and open systems. DEC was on the wrong side of almost all of those trends and was simply not responding well to the changes. By 1992, it was clear that DEC was in trouble.

The fiscal year ended with DEC carrying a $2.8 billion debt following losses of $617 million in 1991. The company's operating expenses were eating up 44 percent of its revenues and company management agreed that DEC had to downsize. But Ken Olsen could not bring himself to let thousands of workers go and, eventually, the board of directors asked Olsen to step down. After 35 years, the man who had forever epitomized the heart and soul of DEC was gone. But he had lasted far longer than most of the entrepreneurs in the computer industry and had carried his company through many highs and lows. After Olsen's departure, the new management under CEO Robert Palmer began cutting expenses.

Factories were shut down and over 30,000 workers were let go. By mid-1993 the downward spiral was slowed and, although the company was still in the red, it appeared to be recovering. Internally the reorganization brought confusion, and even though DEC brought in new managers who knew the high-volume, low-margin market, they were simply unable to shift to high commodity products quickly enough. On April 15, 1994, the company and the world were stunned to learn that DEC had recorded a $183 million dollar third-quarter loss. At DEC, the day became known as Black Friday. The job of turning the company around was given to Enrico Pesatori, a DEC vice-president who had come from Zenith Data Systems in February 1993.

Starting in July of 1994, Pesatori put the company on a new path that included shifting sales from DEC's sales force to hundreds of resellers, scrapping the confusing and time-consuming matrix management, dropping unprofitable ventures, and reorganizing the company into a series of product-oriented mini-DECs, each responsible for its own success. Additional jobs were cut, and the company that once employed 126,000 soon consisted of about 63,000, a third of whom were in Europe. The company refocused on its strengths, primarily networking and video servers, and moved into the high-volume, low-margin commercial markets that were necessary to ensure continued revenues. In 1994 DEC came out with a line of desktop computers called the Celebres, and in 1995 introduced its new ultra small laptop product called the Hi Note. This time, the company had management in place that understood how to sell to this market, and in May 1995, DEC posted its first back-to-back profitable quarters in four years.

In addition, DEC has produced its own super-fast microprocessor called the Alpha. DEC is using the Intel chip in PCs and large servers being built for the commercial market, while using its much faster Alpha chip in DEC products for its existent customers. DEC has also struck a deal with Microsoft's Windows NT group to use the Alpha chip in its operating system for network servers. DEC's video server computers are also being used by cable companies to insert local advertising digitally onto their networks. This switch to digital ads is expected to open an extremely lucrative market for specialized servers. In 1996, DEC announced it would discontinue marketing residential PCs and concentrate on the business PC market.

Digital Equipment Corporation is one of the few original manufacturers to have survived the early years in the computer industry. The company has suffered the ups and downs that have plagued this high-growth industry to become one of the most recognizable names in computer manufacturing. In 1998, Digital Equipment announced that it was being sold to the Compaq Computer Corporation for $9.6 billion, thus ending its long, strange economic journey of ebbs, flows and surges. Sources Bon giorno, Lori; "A Well-oiled Profit Machine"; Business Week; May 15, 1995 Byrne, John; "The Futurists Who Fathered the Ideas"; Business Week; February 8, 1993 "Digital in China Agreement"; The New York Times; November 24, 1993; p D 12 (L) "Finger Out: Digital Equipment Corporation"; The Economist; April 17, 1993 F lisi, Claudia; "Revitalized Digital On Line for a Return to Profitability"; The European; June 23, 1995 Freed, Les; The History of Computers; Ziff-Davis Press; Emeryville, California; 1995 Freiberg er, Paul and Michael Swain e; Fire in the Valley; Osborne / McGraw-Hill; Berkeley, California; 1984 Gli tman, Russell and Lauri anne McLaughlin; "Test Drive"; PC World; April 1995 Judge, Paul C. ; "DEC's Man from Big Blue"; Business Week; November 13, 1995 Hoover's Company Profile Database; The Reference Press, Inc.

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