DEC Is Dead, Long Live DEC: The Lasting Legacy of Digital Equipment Corporation

Book by Schein Edgar H

Purpose and Overview

The story of Digital Equipment Corporation (DEC) is fundamentally a forty-year saga encompassing the creation of a new technology, the building of a company that became the number two computer company in the United States with $14 billion in sales at its peak, the decline and ultimate sale of that company to the Compaq Corporation in 1998, and the preservation in its many alumni of the values that were the essence of the culture of that company. (The company’s official name was Digital Equipment Corporation, and its logo was “D.I.G.I.T.A.L.” or “Digital,” but common usage around the company was typically “DEC,” so we will adopt that usage throughout this book.) That culture was an almost pure model of what we can think of as a “culture of innovation.” It created the minicomputer revolution and laid the groundwork for the interactive computing that today is taken for granted. The managerial values and processes that were at the heart of that culture produced an almost uniformly positive response in DEC employees throughout its history.

The DEC culture emphasized—to an extraordinary degree—creativity, freedom, responsibility, openness, commitment to truth, and having fun. Not only were these values central in its early formative years but even when it was an organization of 100,000 people and over $10 billion in sales, these values held firm. DEC’s management model empowered the people who worked there, and most of the employees internalized these values and expressed them in their careers with other companies.

In choosing the title of this book, we thought about the British Empire, which disappeared as a major political entity yet instilled its values in the former colonies that eventually became stronger than the parent. DEC disappeared as a company, yet former DEC engineers and managers populated the computer industry and became major contributors to other companies. The DEC culture lived on in the “colonies” that it spawned or helped to develop.

WHAT IS TO BE LEARNED FROM THE DEC STORY?

The lessons to be learned from this story are many. In our effort to learn from it, we will be asking the following questions:

1. How is a culture of product innovation created, and how does it evolve?

2. What are the essential ingredients of such a culture in terms of the managerial values and practices it displays?

3. What contributions did DEC make to the growing technology of computing and to management practices?

4. How did the “genetic structure,” the DNA of such a culture, produce extraordinary results without containing what can be thought of as a pure commercial or “money gene” ?

5. How were the traditional business functions handled in such a culture of innovation?

6. How did success, growth, and age create particular organizational problems that had to be managed?

7. How did technical progress create changes in competition and in the marketplace that required cultural evolution?

8. How was that cultural evolution inhibited by the very success that the organization experienced?

9. How is it that essential elements of a culture survived, while DEC, the economic entity, disappeared?

Why is it important to learn more about these nine issues? Primarily because every organization as it matures goes through developmental stages that require the making of choices, and these choices often involve difficult trade-offs between conflicting values. Yet these choices determine the future of the organization. The DEC story is a unique opportunity to study in some detail how the choices made at various developmental stages had both desirable and undesirable consequences. Entrepreneurs, investors, consultants, managers, and organization theorists can all benefit from seeing how complex these choices can become when one looks at one organization in detail and over a long period of time.

WHY IS DEC AN ORGANIZATION WORTH STUDYING?

DEC as a Classic Case of Entrepreneurial Leadership

One of the key values in the DEC culture was “Do the right thing.” In emphasizing “Doing the right thing,” the DEC culture created a unique climate that stimulated leadership at all levels. The DEC story is therefore also a story about the triumph and, in the end, the “tragedy” of technical, organizational, and social leadership. Warren Bennis, the eminent researcher of leadership, has pointed out that the difference between leadership and management is that managers “do things right,” while leaders “do the right thing.” In DEC “Do the right thing” was a license both to insubordination and to leadership. As we will see, DEC, more than any other company of its size and scale that I am aware of, created leaders at every level of its organization. And, as we will also see, a culture built around leaders creates its own turmoil and difficulties.

The DEC story is about leadership not only in technical innovation but also in management practice, manufacturing, community relations, affirmative action, sales and service practices, and, perhaps most important, human development. Ken Olsen, DEC’s founder, articulated values that are frequently touted as being the essence of what a good organization should be, and it maintained those values for thirty-five years. Those same values created in the end an economic problem that led to disaster for the company. But the DEC story leaves us with two huge questions. Would it have been possible to save the economic entity without giving up those values, that is, without destroying the culture? And, in the end, what is more valuable—the culture or the company?

Fundamental questions also arise as to whether DEC’s ultimate contribution was to technology or to management practice. Did the technological vision dictate a certain management style, or did a certain management style enable extraordinary technical achievements? Was it Ken Olsen’s technical vision that created DEC’s successes, or was it his organizational genius that fostered what came to be known as a world-class engineering organization under the leadership of Gordon Bell? Was it the culture that Olsen created that attracted talents like Gordon Bell and made possible the building of an organization in which world-class engineers wanted to work? Or was DEC’s success the product of the interaction of Ken Olsen’s and Gordon Bell’s visions and management practices?

A Classic Example of Organizational Culture Dynamics

Why focus on culture? Culture creation and culture change are a constant source of preoccupation these days for entrepreneurs and executives. Hardly a day goes by without seeing a newspaper story or a book announcement about an executive who is “changing the culture” or “creating a new culture” in his or her company, usually to stimulate innovation in a rapidly changing technical environment. We see calls for “service cultures,” “cultures of empowerment,” “teamwork cultures,” “cultures of openness,” “trust cultures,” and, most recently and emphatically, “cultures of innovation.” Everyone seems to want to know how to create innovation, especially in older companies that seem to have lost their innovative edge. And it is increasingly recognized that culture creation and culture management are the essence of leadership.

One of the main preoccupations of entrepreneurs and company founders is how to “create the right culture” or “preserve the culture that they have created.” Yet little is known about creating or preserving a culture. Leaders in more mature companies seem to believe that announcing a culture of innovation from a position of influence is sufficient to make it happen or that they can “change” culture to fit the new requirements of the market. Few of these executives question whether cultures of innovation formed around products, processes, or management systems would actually solve the particular business problems that they are encountering. Few of them question whether certain cultures should be retained even if they produce economic difficulties.

We don’t have a coherent theory or set of concepts for culture “process.” We don’t understand well enough how culture works—how it is created; how it evolves; how it changes; and how it influences strategy, structure, and business processes. It is precisely this absence of knowledge that makes executives nervous about culture as a concept. Culture appears to be something that is difficult to control; hence, it is often avoided when strategy and process are discussed. Yet as we will see, in a mature organization culture pervades everything, even the most fundamental economic decisions that the board and senior executives make. A better understanding of cultural dynamics in relationship to technology and organizational evolution is therefore not a choice; it is a necessity.

One can write about how culture and leadership work in the abstract, providing case illustrations as one goes. I have done this in two of my previous books, Organizational Culture and Leadership (1992) and The Corporate Culture Survival Guide (1999). What remains to be done is to look at one or more of these cases in greater depth to appreciate the subtle dynamic processes that are at work in organizational cultures and to show how these processes explain the rise and fall of organizations, particularly ones that seemed to be on the road to success yet could not sustain themselves. And it is especially important to understand better the role of leadership in the creation, maintenance, evolution, and ultimately destruction of a given organizational culture.

One of the most dramatic of these cases is DEC, an organization my contributing authors and I came to know intimately as consultants or employees or both from 1966 to 1992. DEC virtually transformed the computing landscape and rose to be the number two computer maker with a $14 billion sales volume in 1992, which put it in the top fifty corporations in the United States. Ed Roberts in his seminal book on high tech entrepreneurs calls DEC “the most successful MIT [Massachusetts Institute of Technology] spin-off company” (Roberts 1991, p. 12). Ken Olsen was called by Fortune magazine in 1986 “arguably the most successful entrepreneur in the history of American business.” DEC’s economic rise was accompanied by a myriad of contributions to technology, to management theory and practice, to production processes, to the utilization of women and minorities in industry, and to community relations. Common to all of these contributions was a set of cultural dynamics that made extraordinary things possible. What can these cultural dynamics teach us?

Culture works its influences in many ways. First of all, DEC was created at a time in U.S. society when social values were moving toward more individualism and where technology was facilitating this trend. Not only was Ken Olsen, the key architect of the company, brought up at a time when certain postwar values were salient, but the whole design thrust of DEC’s products toward distributed interactive computing reflected decentralization, rejection of formal authority, empowerment of the individual, and, at the same time, the networking of individuals for greater efficiency. Peter DeLisi, coming from IBM, noted immediately that the IBM mainframe was symbolic of authority and centralization, while DEC’s time-shared and networked computers were symbolic of individualism and freedom (DeLisi 1998). In other words, product design does not occur in a vacuum; it reflects social trends and social issues. When DEC appeared on the scene, social norms supported and stimulated the kinds of products that were designed.

DEC as One of the First Dot-Coms: A Knowledge Company before Its Time

As the world gets more complex, organizations are more than ever dependent on knowledge workers and knowledge management. Many observers and analysts of DEC saw it as one of the first and most vivid examples of a knowledge-based company with a culture in which knowledge creation and management were highly valued and in which networking and open exchange of knowledge was a central management principle. (Debra Rogers Amidon noted this in a 1991 management memo that is reproduced in appendix C. Two of the first books on networking as a business organization concept were published by DEC employees Jessica Lipnack and Jeffrey Stamps [1993, 1994]. Debra Amidon has also published two books on the “knowledge economy,” based on insights first gained at DEC [Amidon 1997, 2003]). Several alumni have pointed out that because of DEC’s early use of networking, it was one of the first companies ever to be assigned a “dot-com” address by the U.S. government. As we will see, there are many lessons to be learned from DEC, both about how one creates an effective knowledge-based company and what managerial dilemmas and dysfunctions can arise in such an organization as it gets larger and more differentiated. Even though DEC failed as a business, the management systems and principles it instituted around networks and knowledge management are seen by many as a blueprint for how future organizations will have to be designed and managed. In particular there are lessons for decision-making theory. Knowledge workers operate from different premises when they have to reach consensus in a network in the absence of hierarchical authority.

DEC as a Classic Case ofValues-Based Management

Much is written these days about values-based management and the need for management to clearly articulate its values. DEC is a classic case of an organization that was built on its founder’s very clear set of values. Ken Olsen’s values were written down, articulated throughout DEC’s history, used explicitly in the training and socialization of new employees, restated explicitly in company documents of all sorts, and adhered to with a passion right to the end. In most organizations there is a disconnect between articulated values and actual management practices. In DEC, to a surprising degree, the values were reflected in actual work practices and became thoroughly embedded in the culture. Many DEC values had a strong moral imperative, which gave them stability and which makes it possible to see both the strengths and weaknesses of this degree of values-based management.

DEC created what would, by any definition, be thought of as a strong corporate culture. The basic question then is to what extent such a culture can evolve as technology and organizational requirements change. An even more fundamental question is whether such highly valued managerial practices should evolve and change. Should values change to support organizations, or are organizations an expression of human values? And if they cannot sustain those values, should organizations die?

DEC as a Classic Case of Technological Evolution to Commodification

The DEC story illustrates clearly the difficult challenge of modifying an organization to adapt to changing market conditions as its own technological innovations create new markets. Especially difficult is the move from a culture of innovation, based on one set of managerial values, to an organization geared to producing commodity products that typically require a different set of managerial values and practices. As Paul Kampas’s analysis in chapter 9 shows, the failure of DEC’s culture of innovation to coevolve with changing market conditions lead to inefficiencies and ultimately to economic failure. The very success of the early innovation created competitive forces that changed the nature of the innovation, stimulated disruptive technologies and market demands, and therefore created a need for organizational transformation. That transformation may have been beyond the organization’s ability or will to manage, ...