Professional Documents
Culture Documents
Art of High Technology Management
Art of High Technology Management
management
Modesto A. Maidique and Robert H. Hayes
SUMMER 1985 43
included on lists of "America's best-managed companies." Many of
tbem are competitors in the R&D-intensive industries, a sector of
the 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.
The above studies reinforce our own findings, wbicb bave led us to
conclude tbat US bigb-tecbnology firms seeking to improve tbeir
management practices to succeed against foreign competitors need
not look overseas. Tbe firms cited above are not unique. On tbe
contrary, tbey are representative of scores of well-managed small
and large US tecbnology-based firms. Moreover, tbe management
practices tbey bave adopted are widely applicable. Tbus, perbaps
tbe key to stimulating innovation in America is not to adopt tbe
managerial practices of the Europeans or Japanese, but to adapt
some of tbe policies of successful American bigb-tecbnology firms.
44 THEMcKINSEYQUARTERLY
CEOs, from a wide cross-section of high-tech industries - biotecb-
nology, semiconductors, computers, pbarmaceuticals and aero-
space. About 100 of tbese executives were interviewed in 1983 as
part of a large-scale study of product innovation in tbe electronics
industry conducted by one of tbe autbors and his colleagues at
Stanford University. Our research has been guided by a fun-
damental question: Wbat are tbe strategies, policies, practices and
decisions tbat result in successful management of bigb-tecbnology
enterprises? One of our principal findings was tbat no company bas
a monopoly on managerial excellence. Even the best-run companies
make big mistakes, and many small, lesser regarded companies are
surprisingly sopbisticated about tbe factors tbat mediate between
success and failure.
It also became apparent from our interviews tbat tbe driving force
bebind tbe successes of many of tbese companies was strong
leadersbip. All companies need leaders and visionaries, of course,
but leadersbip is particularly essential wben tbe future is blurry
and wben tbe world is cbanging rapidly. Altbougb few bigb-tecb
firms can succeed for long witbout strong leaders, leadersbip itself
is not tbe subject of tbis article. Ratber, we accept it as given and
seek to understand wbat strategies and management practices can
reinforce strong leadersbip.
SUMMER 1985 45
Six themes of success
Wben we grouped our findings into general tbemes of success, a
sig^iificant paradox gradually emerged - wbicb is a product of the
unique challenge that high-technology firms face. Some of the
bebavioral patterns tbat tbese companies displayed seemed to favor
promoting disorder and informality, wbile otbers would bave led us
to conclude tbat consistency, continuity, integration and order were
tbe keys to success. As we grappled witb tbis apparent paradox, we
came to realize tbat continued success in a bigb-tecbnology en-
vironment requires periodic sbifts between cbaos and continuity.
Our originally static framework, tberefore, was gradually replaced
by a dynamic framework witbin wbose ebbs and fiows lay tbe
secrets of success.
1. Business focus
Even a superficial analysis of tbe most successful bigb-tecbnology
firms leads one to conclude tbat tbey are bigbly focused. Witb few
exceptions, tbe leaders in bigb-tecbnologyfieldssucb as computers,
aerospace, semiconductors, biotecbnology, cbemicals, pbarma-
ceuticals, electronic instruments and duplicating macbines realize
tbe great bulk of tbeir sales eitber from a single product line or from
a closely related set of product lines. For example, IBM, Boeing,
Intel and Genentecb confine tbemselves almost entirely to compu-
ter products, commercial aircraft, integrated circuits and genetic
engineering, respectively. Similarly, four-fiftbs of Kodak's and
Xerox's sales come from pbotograpbic products and duplicating
macbines, respectively. In general, tbe smaller tbe company, tbe
more bigbly focused it is. Tandon concentrates on disk drives;
Tandem on bigb-reliability computers; Analog Devices on linear
integrated circuits; and Cullinet on software products.
Closely related products. Tbis extraordinary concentration does not
stop witb tbe dominant product line. Wben tbe company grows and
establisbes a secondary product line, it is usually closely related to
tbe first. Hewlett-Packard, for instance, bas two product families.
46 THEMcKINSEYQUARTERLY
eacb accounting for about balf of its sales. Botb families - electronic
instruments and data processors - are focused on tbe same
tecbnical, scientific and process control markets. IBM also makes
two closely related product lines - data processors (approximately
80 percent of sales) and office equipment - botb of wbicb empbasize
the business market.
Companies tbat took tbe opposite patb bave not fared well. Two of
yesterday's tecbnological leaders, ITT and RCA, bave paid dearly
for diversifying away from tbeir strengtbs. Today, botb firms are
trying to divest many of wbat were once bigbly touted acquisitions.
As David Packard, cbairman of tbe board of Hewlett-Packard, once
observed: "No company ever died from starvation, but many bave
died from indigestion."
A communications firm tbat became tbe world's largest conglomer-
ate, ITT began to slip in tbe early 1970s after an acquisition wave
orcbestrated by Harold Geneen. Wben Geneen retired in 1977, bis
successors attempted to redress ITT's lackluster performance
tbrougb a far-reacbing divestment program.^ So far, 40 companies
and otber assets wortb over $1 billion bave been sold off- and ITT
watcbers believe tbe program is just getting started. Some analysts
believe tbat ITT will ultimately be restructured into three groups,
with the communications/electronics group and engineered prod-
ucts (home of ITT semiconductors) forming the core of a "new" ITT.
SUMMER 1985 47
leadersbip. It is not unusual for a leading firm's R&D investment to
be one-and-a-balf to two times tbe industry's average as a percen-
tage of sales (8 to 15 percent) and several times more tban
any individual competitor on an absolute basis.^
48 THEMcKINSEYQUARTERLY
2. Adaptability
Successful firms balance a well-defined business focus witb tbe
willingness, and tbe will, to undertake major and rapid cbange
wben necessary. Concentration, in sbort, does not mean stagnation.
Immobility is tbe most dangerous bebavioral pattern a bigb-
tecbnology firm can develop; tecbnology can cbange rapidly, and
witb it tbe markets and customers served. Tberefore, a high-
technology firm must be able to track and exploit tbe rapid sbifts
and twists in market boundaries as tbey are redefined by new
tecbnological, market and competitive developments.
SUMMER 1985 49
move tbe company obsoleted botb product lines (as well as otbers)
and redefined tbe rules of competition for decades to come by
simultaneously introducing six compatible models of tbe "System
360," based on proprietary bybrid integrated circuits.
During tbe same period, GM, wbose dominance of tbe US auto
industry approacbed IBM's dominance of tbe computer mainframe
industry, stoutly resisted sucb a rejuvenation. Instead, it became
more and more centralized and infiexible. Yet, GM was also once a
bigb-tecbnology company. In its early days wben Alfred P. Sloan
ran tbe company, engines were viewed as bigb-tecbnology products.
One day, Cbarles F. Kettering told Sloan be believed tbe bigb
efficiency of tbe diesel engine could be engineered into a compact
power plant. Sloan's response was: "Very well - we are now in tbe
diesel engine business. Y^ou tell us bow tbe engine sbould run, and I
will ... capitalize tbe program."^ Two years later, Kettering
acbieved a major breaktbrougb in diesel tecbnology. Tbis paved tbe
way for a revolution in tbe railroad industry and led to GM's
preeminence in tbe diesel locomotive markets.
3. Organizational cohesion
Tbe key to success for a bigb-tecb firm is not simply periodic
renewal. Tbere must also be cooperation in tbe translation of new
ideas into new products and processes. As Ken Fisber, tbe arcbitect
of Prime Computer's extraordinary growtb, puts it: "If you bave tbe
driving function, tbe most important success factor is tbe ability to
integrate. It's also tbe most difficult part of tbe task."
50 THEMcKINSEYQUARTERLY
given to sucb mecbanisms as organizational cbarts: quite often tbey
simply don't exist.
SUMMER 1985 51
excbange views on tbeir respective projects. Tbis empbasis on
communication is not restricted to internal operations. Sucb a firm
supports and often sponsors industry-wide tecbnical conferences,
sabbaticals for staff members and cooperative projects witb tecbni-
cal universities.
4. Entrepreneurial culture
Wbile continuously striving to pull tbe organization togetber,
successful bigb-tecb firms also display fierce activism in promoting
internal agents of cbange. Indeed, it bas long been recognized tbat
one of tbe most important cbaracteristics of a successful bigb-
tecbnology firm is an entrepreneurial culture.
SUMMER1985 53
ial firm's innovativeness is straigbtforward, yet it is difficult for a
largefirmto replicate its spirit.
54 THEMcKINSEYQUARTERLY
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 & 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. 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 tbe best
course to follow.
IBM, for instance, bas found tbat rebellion can be good business.
Artbur K. Watson, tbe founder's son and a long-time senior
manager, once described tbe way tbe disk memory, a core element of
modern computers, was developed: "[It was] not tbe 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 bandful of men . . . broke tbe rules. Tbey risked tbeir jobs
to work on a project tbey believed in."^
At Northrop the head of aircraft design usually has at any one time
several projects in progress without the awareness of top manage-
ment. A lot can happen before tbe decision reacbes even a couple of
levels below tbe cbairman. "We like it tbat way," explains Nortbrop
Cbairman Tom Jones.
SUMMER 1985 55
5. Sense of integrity
Wbile committed to individualism and entrepreneursbip, at tbe
same time successful bigb-tecb firms tend to exbibit a commitment
to long-term relationsbips. Tbe firms view tbemselves as part of an
enduring community tbat includes employees, stockbolders, cus-
tomers, suppliers and local communities: tbeir objective is to
maintain stable associations witb all of tbese interest groups.
56 THEMcKINSEYQUARTERLY
disagree and to be beard. Tben, even if tbey lose, you can still
marshal them behind you."
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 tbeir cbosen
fields is tempered by a surprising acknowledgement of tbeir
limitations. One bas only to read Hewlett-Packard's corporate
objectives or interview one of its top managers to sense tbis
extraordinary blend of strengtb and bumility. Successful bigb-tecb
companies are able to reconcile tbeir "dream" witb what they can
realistically achieve. This is one of the reasons why they are
extremely reluctant to diversify into unknown territories.
SUMMER 1985 57
people about it. Tbis does not imply tbat it is necessary for tbe senior
managers of sucb firms to be tecbnologists (altbougb tbey usually
are in tbe early stages of growtb): neitber Watson nor Learson were
tecbnical people. Wbat appears to be more important is tbe ability
to ask lots of questions, even "dumb" questions, and dogged patience
in order to understand in-depth such core issues as: (1) how the
technology works; (2) its limits, as well as its potential (together
with the limits and potential of competitors' technologies); (3) wbat
tbese various tecbnologies require in terms of tecbnical and
economic resources; (4) tbe direction and speed of cbange; and (5)
the available tecbnoiogical options, tbeir cost, tbe probability of
failure and the potential benefits if they prove successful.
58 THEMcKINSEYQUARTERLY
model of tbe firm tbat attempts to rationalize tbe confiict between
stability and cbange by splitting tbe strategic process into two
loops, one tbat extends tbe past, tbe otber tbat periodically
attempts to break witb it. ^°
SUMMER 1985 59
from a position of relative strengtb - not, as is far more common, in
response to financial difficulties. As Lewis Lebr, 3M's president
explained: "We can cbange now because we're not in trouble."
Ambivalent management
Tbe successful bigb-tecbnology firm, tben, 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 bave found tbat
alternating periods of relaxation and control appear to meet tbis
dual need. Surprisingly, sucb ambiguity does not necessarily lead to
frustration and discontent. In fact, interspersing periods of tension,
action and excitement witb periods of refiection, evaluation and
revitalization is tbe same sort of irregular rbytbm tbat cbaracter-
izes many favorite pastimes - including sailing, wbicb bas been
described as "long periods of total boredom punctuated witb
moments of stark terror."
Knowing wben and wbere to cbange from one stance to tbe otber,
and baving tbe power to make tbe sbift, is tbe core of tbe art of
bigb-tecbnology management. James E. Webb, administrator of
tbe National Aeronautics and Space Administration (NASA) dur-
ing tbe successful Apollo ("man on tbe moon") program, recalled
tbat "we were required to fiy our administrative macbine in a
turbulent environment, and . . . a certain level of organizational
instability was essential if NASA was not to lose control."^^
SUMMER 1985 61
REFERENCES
CE. Makin, "Ranking corporate reputations," Fortune, January 10, 1983, pp. 33-44.
Corporate reputation was subdivided into eight attributes; quality of management,
quality of products and services, innovativeness, long-term investment value, financial
soundness, ability to develop and keep talented people, community and environmental
responsibility, and use of corporate assets.
' After only eighteen months as Geneen's successor as president, Lyman Hamilton was
summarily dismissed by Geneen for reversing Geneen's way of doing business. See G,
Colvin, "The re-GeneeningofITT,"Forturae, January 11,1982, pp. 34-39.
' "RCA; still another m&ster"Business Week, August 17,1981, pp. 80-86.
"R&D scoreboard,''Busmess Week, July 6,1981, pp. 60-75.
' R. Stata, Analog Devices, Qaarter/y/feport, 1st Quarter, 1981.
' "Why they are jumping ship at Intel," Busmess Week, February 14, 1983, p. 107; and M.
Chase, "Problem-plagued Intel bets on new products, IBM's financial help," Wall Street
Journal, February 4,1983.
A.P. Sloan, My Years with General Motors, New York, Anchor Books, 1972, p. 401.
' Quoted by D.A. Shon, "Champions for radical new inventions," Harvard Business Review,
March-April 1963, p. 85.
' L.R. Sales and M.K. Chandler, Managing Large Systems: Organizations for the Future,
New York, Harper & Row, 1971.
R.A. Burgelman, "A model ofthe interaction of strategic behavior, corporate context and
the concept of corporate strategy," Acactemj' ofManagement Review, 1983, p.61-70.
S. Zipper, "TI unscrambling matrix management to cope with gridlock in major profit
centers,".Efec(roreicAfeu)s, April 26,1982,p. 1.
M. Barnfather, "Can 3M find happiness in the 1980s?", Forbes, March 11, 1982, pp.
113-116.
Quoted in "Exxon's $600-million mistake,"/'ortane, October 19,1981.
See, for example, W.J. Abernathy and J.M. Utterback, "Patterns of industrial innovation,"
Technology Review, June-July 1978, pp. 40-47.
Quoted in a presentation by Elmer B. Staats before the annual meeting ofthe Academy of
Management in August 1978.
62 THEMcKINSEYQUARTERLY