Ken Olsen Remembered: Lessons of a Great American Entrepreneur
Ken Olsen, the MIT-educated inventor who started Digital Equipment Corp. with $70,000 in venture capital in the 1950s and built it into a company with billions of dollars in sales and more than 100,000 employees, died on Sunday. In addition to inventing the minicomputer, which introduced computing to people outside the mainframe temple, Olsen was a great manager who delegated authority to his workers and created new organizational structures to get work done.
But Olsen's business insight had a significant blind spot: He suffered from Not-Invented-Here syndrome -- the idea that if a product wasn't invented by DEC, it wasn't worth buying. It was this flaw that led him to quip that he didn't know why anyone would need a personal computer. DEC's slow response to the rising popularity of the PC doomed the company, and it ultimately was sold to Compaq in 1998 -- which was in turn bought by Hewlett-Packard (HPQ) for $25 billion in 2002.
Olsen started DEC in 1957 after earning both his bachelor's and master's degrees in electrical engineering from MIT and working at defense contractor Lincoln Labs. One of DEC's first products was the PDP-8, a desktop minicomputer that I first used when I was 13 through a device known as a teletype, which used a noisy typewriter ball to print on long rolls of yellow paper.
The PC Did to DEC What DEC Did to Mainframes
DEC's invention of the minicomputer seriously disrupted International Business Machines' (IBM) dominant position in the mainframe computer business. Because minicomputers were relatively inexpensive, companies started buying them for their engineering departments, freeing the engineers from their reliance on the priestly caste of central data processing staff who had tightly controlled access to mainframes.
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DEC peaked in the late 1980s, employing 120,000 people and operating in 95 countries with $14 billion in sales and enormous profits. But that's when things started to fall apart. Olsen was known as both paternal and autocratic, and when the PC came along in the 1980s, he denounced it, proclaiming, "The personal computer will fall flat on its face in business."
The irony is that the PC did the same thing to minicomputers that the minicomputer had done to mainframes. Unfortunately, Olsen had only one major industry disruption in him. While DEC eventually did produce a line of PCs -- known as Rainbows -- it never adapted effectively to the corporate shift from minicomputers to PCs. In July 1992, DEC's board forced Olsen to resign, and in 1998, Compaq bought his company for $9.6 billion.
Master of the Matrix
Olsen wasn't just an innovator when it came to technology -- he also had some good ideas about how to manage his employees. He attracted great people and let them do what they thought was right. In an interview with the Boston Globe, Peter Zotto, a 23-year DEC employee who was vice president of its European operations, said of Olsen: "The one word I would use would be empowering. Every chance I had to listen to him and work with him was a special treat." Mnicomputer designer Gordon Bell said Olsen "generated creativity and fierce loyalty."
Olsen was also a pioneer of a management structure known as a matrix organization. The matrix would give an engineer two or three bosses -- one in her discipline, such as computer design, a second in a particular industry, such as financial services, and a third in a particular geography, such as North America. While the matrix encouraged creative tension, it had some drawbacks as well -- it pulled people in many directions and slowed decision-making.
Ultimately, DEC's rise and fall was an inspiration for my first book, The Technology Leaders: How America's Most Profitable High-Tech Companies Innovate Their Way to Success. I was looking for companies that had figured out how to do something DEC couldn't -- succeed when new technology came along that undermined their established businesses. I found that such technology leaders enjoy four sources of advantage, one of which is being open to new technologies that their customers want to buy -- and that they're willing to acquire or license such technologies if they aren't invented in-house.
Olsen's company created many great products, but when the PC came along, his Not-Invented-Here blinders kept DEC from adapting. Nevertheless, Olsen was a technical and management pioneer who built a high-tech giant, and he leaves behind a great legacy -- and a large number of people who admired him tremendously.
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