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Digital Equipment Corporation

Digital Equipment Corporation

146 Main Street
Maynard, Massachusetts 01754
U.S.A.
(508) 493-5111
Fax: (508) 493-8780

Public Company
Incorporated:
1957
Employees: 113,800
Sales: $13.9 billion
Stock Exchanges: Midwest New York Pacific Zürich Geneva Basel Frankfurt Munich Berlin

Digital Equipment Corporation is a leading worldwide supplier of networked computer systems, software, and services. Its products serve a variety of applications, such as scientific analysis, industrial control, time-sharing, commercial data processing, graphic arts, word processing, office automation, health care, instrumentation, engineering, and simulation.

Digital is best known for introducing the minicomputer to the information processing industry, a development that altered the way potential customers perceived the computer. In addition to being more accessible to non-specialists than traditional mainframes, the minicomputer was smaller, faster, and less expensive. In defining the needs of a new generation of computer users, Digital set the stage for the development of the personal computer and the workstation in the mid-1980s. Content with its dominance in the core minicomputer market, however, Digital was slow to adapt its product line to these new markets. The companys entry into the personal computer arena in 1982 was a failure, and later PC collaborations with Olivetti and Intel achieved mixed results. In the early 1990s, after several years of indecision, Digitals focus shifted to a new series of machines, primarily workstations, based on the companys own ultra-fast Alpha microprocessor.

Digital is noted for its entrepreneurial style of management. For that reason, it was much watched during the 1970s and early 1980s when it experienced its fastest growth. In 1982 the companys management structure was praised in Thomas J. Peterss and Robert H. Watermans In Search of Excellence, but Digitals success was not without turbulence. After a period of phenomenal growth in the 1970s, Digital began to outgrow the unique entrepreneurial structure that had made it a serious challenger to the industrial computer giants.

In the summer of 1957, Ken Olsen asked American Research & Development (ARD), a venture capital firm in Boston, for $70,000 to establish a computer company. Olsen and his partner, Harland Anderson, were 31 and 28 years old respectively and had just come out of the Digital Computer Laboratory at the Massachusetts Institute of Technology (MIT). General Georges Doriot, the head of ARD and a professor at the Harvard Business School, encouraged them to write a business proposal but advised them not to use the word computer, since large corporations like General Electric and RCA were already failing in the nascent industry. Doriot, who later joined Digitals board of directors and influenced Olsens leadership style, was concerned also that a proposal from the young, inexperienced engineers would not be well received.

Heeding Doriots advice, Olsen and Anderson proposed the production of printed circuit modules instead of computers, and promised to turn a profit in their first year. ARD offered them $70,000, and the two engineers located their company in the small mill town of Maynard, Massachusetts.

In early 1958 Digital shipped its first products, the Digital Laboratory Module and the Digital Systems Module. The company sold $94,000 worth of these modules to research facilities. Despite the recession of the late 1950s, Digital turned a profit at the end of its first year.

The Whirlwind and Sage computers which Olsen and Anderson had worked on at MIT influenced Olsens commitment to producing interactive and interlinked computers. The Whirlwind was used to power a cockpit flight simulator for the navy. While other universities were designing computers to calculate complex equations, MIT designed the Whirlwind for immediate interaction with the user. The SAGE (Semi-Automatic Ground Environment Defense System), a U.S. Air Force project during the Cold War, was a massive network of computers and radar systems used to detect enemy aircraft in the nations airspace.

When Olsen and Anderson established Digital, the only computers commercially available were million-dollar mainframes from companies such as IBM, Univac, and Burroughs. The people who worked with these computers were programmers provided or trained by the company. Olsen had observed students waiting in line to use Whirlwinds interactive offspring, the TX-O, an early transistorized system at MITs Lincoln Laboratory, while an IBM machine was virtually ignored. Seeing the need for more interactive machines, Olsen sought to wean computers away from programmers.

In 1960 the company introduced its first computer, the PDP-1 (Program Data Processor). The PDP-1 came with a cathode-ray tube (CRT), a screen which allowed the user to see what was being entered and received from the central processing unit. This novel addition demonstrated Olsens commitment to making computers accessible to users. Unlike the room-sized mainframe computers of the day, the PDP-1 was no larger than a refrigerator. It cost $120,000 at a time when comparable machines by rival manufacturers were selling for $1 million.

In 1963 Gordon Bell, who would become Digitals most eminent engineer, designed the PDP-5. The PDP-5 was the forerunner of the PDP-8, the industrys first minicomputer. That same year, Bell also designed a large-scale computer, the PDP-6. Together, the PDP-5 and the PDP-8 illustrated the companys versatility and creativity. By 1964 the PDP-5 was Digitals cheapest computer at $27,000, while the PDP-6 was the most expensive at $300,000.

There was virtually no organizational structure during Digitals early years because Olsen was committed to creating an environment much like the research labs at MIT. A temporary position as liaison between MIT and IBM in 1959 convinced Olsen that the hierarchy at companies like IBM did not allow for creativity and the flow of ideas. Unlike other computer companies at the time, Digital did not lease its computers. Leasing computers, with a contract for support and services, kept customers in a dependent relationship. Since Digitals customers, mostly scientists and engineers, did not require technical support, the company provided virtually none of the software and maintenance services offered by its giant competitors. Digital did not spend its capital on software design and maintenance services, and passed its savings along to customers. Olsen also felt that leasing hindered technical development by creating a reluctance to allow a product to become obsolete.

Digital survived without an organizational structure for seven years. By 1964 various engineering groups were no longer coordinating with the companys other divisions, causing bottlenecks in certain areas of manufacturing and order processing. As a result, product shipments were often delayed. That year, Digitals revenues dropped to $900,000, down from $1.2 million in 1963.

As a result, Olsen decided to structure the company into a team of product line managers. In this model, the product line manager became an entrepreneur within the company and competed with other teams for centralized manufacturing and sales forces. Each manager had complete responsibility for a product line from conceptualization to sales, and was accountable for its performance. This matrix organization, as it was called, was responsible for an abundance of products developed over the next 15 years. By the mid-1970s the company developed more than 20 new product lines. While the matrix organization resulted in dynamic growth, it also created uncertainty among some of Digitals employees, and in 1966 Olsens partner, Anderson, resigned.

In the fall of 1965 Digital unveiled the PDP-8. This machine triggered the explosive growth of the minicomputer industry, and the company grew from a small technical company to a major computer manufacturer. The PDP-8 was small and attracted users who wanted to integrate it into their larger mainframe systems. It sold for $18,000, which at the time was a very low price for a high-performance general-purpose computer. Digital sold 50,000 PDP-8s over the machines 15-year life span; the model contributed significantly to growth in revenues and profits of between 25 percent and 40 percent per year. Between 1965 and 1967 alone, revenues multiplied sixfold to $4.5 million.

Because Digitals computers were versatile and accessible, they attracted an entirely new class of customer: the OEM, or Original-Equipment Manufacturer. Under this system, outside companies bought Digitals computers and integrated their own hardware and software programs for specific applications, such as scientific instrumentation. They then sold the package as their own product. This unique arrangement saved Digital the costly, labor-intensive job of writing software and servicing its machines. As a result, overhead costs remained stable while revenues poured in. OEMs also opened up new markets to Digital. Because of their adaptable nature, Digitals computers were used for a wide variety of applications, from calculating scientific problems to running electronic scoreboards in sports stadiums.

The business world now began to view computers as a viable industry. Attempts by larger companies to buy Digital were rebuffed; Olsen firmly refused to sell out, and for many years Digital in turn resisted the trend to buy out smaller, dynamic companies. By the early 1990s, Digitals outside holdings were still modest by industry standards.

As Digitals entrepreneurial style permeated the industry and the availability of investment capital increased, engineers began to dream about starting their own companies. In 1968 Edson de Castro, an engineer who had worked on the design of the PDP-8, left Digital to start his own company. Data General would become Digitals first serious competitor in the minicomputer market.

In January 1970 Digital announced plans to build the PDP-11, to be sold for $10,800. It was the first time that Digital had announced a machine still in the design stage. Data General had already announced a machine in the same class of computers a year earlier and was beginning to encroach upon Digitals customer base. When Industrial Research named the PDP-11 one of the most significant technical products introduced in 1970, sales increased. Eventually, 600,000 PDP-11s were sold. By 1972, Digital was back on top of the minicomputer market.

Digital has been a pioneer in community and labor relations. To bring growth to otherwise depressed communities, the company established plants in cities hard hit by recessions, such as Maynard and Springfield, both in Massachusetts. Until the late 1980s, Digital was especially known for its no-layoff tradition. During the recession of 1970, while the rest of the industry was laying off hundreds of people, Digital put its employees to work in other areas of the company, from sweeping the parking lot to sales. Digital also funded a study of the reproductive health of women who worked in one of its semiconductor plants. The study found a correlation between high exposure to semiconductor material and miscarriages, and Digital publicized the study despite the potentially negative consequences. Digitals lack of rigid hierarchy during this period was much-admired, as was the ability of employees to directly influence decision making. Decisions were made by a consensus of engineering, marketing, design, and review committees. Olsens fundamental corporate values, which he summarized as honesty, integrity, doing the right thing, became formalized policy in 1974.

Reacting to market pressure and the enthusiasm of its engineers, Digital entered the personal computer market. On May 10, 1982 Digital announced three personal computer products, the Rainbow 100, the DECmate II, and the Professional 350, but internal competition to build a personal computer had drained the companys marketing resources. While Digital hesitated and its engineers warred internally over competing products, other companies had already entered the market.

The failure of the personal computer project foreshadowed other problems resulting from Digitals once vaunted matrix management system. The consensus required to initiate product lines made it difficult for Digital to respond quickly in an increasingly fast-paced market. Another problem was the existence of too many independent product domains within the company. While Digital had an array of new products and established itself in a number of different markets, customer territories became unclear and intense competition between the domains drained Digitals resources. Furthermore, the companys growth in new market areas overwhelmed sales and service forces as they tried to meet the demands of new customers. With nearly 70 minicomputer manufacturers to compete with, DECs sales force was also busy defending its lead in the minicomputer market.

Other product line teams developed technologies which brought Digital successfully into the new decade. In the late 1970s the engineering group headed by Gordon Bell developed the VAX line of computers. The VAX architecture evolved into a range of computers from small desktop machines to computer clusters which could compete with mainframes. Interlinked, these machines gave companies complete automation throughout their various divisions.

Olsen had the foresight to realize that Digitals sales and marketing force was not ready for the potential success of the VAX systems and the more businesslike customers that it would attract. Thus, Olsen began to transform Digital into a unified marketing organization by redirecting its product lines into a market-oriented scheme. Rather than simply allowing the product line teams to develop and sell any product, Digital identified markets to target, assigning product lines to each area.

By 1984 Olsen had completely reorganized Digital. This change shifted profit and loss responsibility away from product line managers. It took five years to dismantle the matrix organization, which had existed for 19 years and was a symbol of Digitals growth and success. Due to the shift in power, more than 50 managers left to start their own companies or to join others.

The timing of Digitals new direction could not have been better. By the early 1980s the corporate world had become a multivendor environment where machines of different sizes and applications could not communicate or share information. Over the next 18 months ten new VAX minicomputers were unveiled. These machines could network not only among themselves, but with other vendors products as well. Consequently, Digital lured an estimated $2 billion in sales away from IBM. In 1986 Digitals profits rose 38 percent in an industry which was declining, and by 1987 the company was threatening IBMs number one position in the computer industry. The trend was, however, short-lived. By the late 1980s, it became clear that Digitals commitment to producing a wide range of consummately-engineered and competitively-priced machines was being compromised by problems with timing and with a confusing management structure. This was reflected in plummeting sales and revenues, culminating in a fiscal-year loss of $617 million in July 1991, Digitals first. Digital was also forced to abandon its longstanding no-layoff strategy and cut its work force by 6,000 in fiscal year 1991 through a combination of layoffs and voluntary retirement packages.

The companys difficulties were exemplified by the introduction of a new mainframe in 1990. Ignoring predictions from industry analysts on Wall Street that the market for large, expensive mainframes was dead, the company embarked on a $1 billion research and development program to extend its VAX technology to a mainframe environment. The result was a series of machines, including the flagship VAX 9000, which were more powerful and complex than any in the companys history. Due to last-minute design modifications and production delays, however, the VAX 9000 line was not introduced until 1990, two years later than originally planned, and first-year sales fell far short of the $1 billion goal which had been established. Sluggish mainframe sales were not Digitals only miscalculation. Undaunted by its failure in the PC market in the early 1980s, in 1991 the company introduced a new line of personal computers based on the powerful Intel 486 microprocessor. Once again sales failed to live up to expectations.

In April 1991 Digital joined Compaq Computer Corporation, Microsoft Corporation, and 18 other computer companies in endorsing the development of a new computer standard, the Advanced Computing Environment (ACE) initiative. Although the system would have enabled machines of all sizes and configurations to communicate with each other through the use of the same software, attempts to agree on a single operating system failed. By early 1992, three ACE operating systems had been proposed, and only the simplest software packages were capable of running on all machines. IBMs PC design remained unchallenged. Nevertheless, Digitals joint ventures with such companies as Intel, Italys Olivetti, and Microsoft Corporation represent a growing trend toward standardization and cooperation among manufacturers.

Meanwhile, Digital turned its attention to workstations, a market it had long neglected. The key design element in the new series was the companys own Alpha chip, based on a new technology called Reduced Instruction Set Computing, or RISC, which had already catapulted Sun Microsystems ahead of all competitors in the workstation sector. The new workstations were scheduled for release in 1993. During the same period, Digital turned increasingly to the sale of services and consulting as a means of shoring up flagging computer sales.

By this time, the personal computer market had become intensely competitive, and as hardware prices fell, companies found it increasingly difficult to recoup the tremendous research and development costs associated with introducing a new product. Much higher margins were forthcoming in the software market, an area that had never been Digitals strength. Traditional companies such as Digital and IBM, with large bureaucracies and entrenched cultures, were compared unfavorably with smaller, less hierarchical organizations which seemed to be more successful at adapting quickly to changes in technology and customer needs.

In an attempt to reorganize along leaner lines, Ken Olsen restructured his company three times between 1988 and 1991. The result was confusion and a lack of direction at all levels of Digital, for which many industry-watchers held Olsen personally responsible. Amid the turmoil, some top managers resigned, including the chief financial officer and the president of Digitals European operations. In April 1992 Digital announced a shocking $294 million quarterly loss, and critics commented that only a massive cost-cutting initiative could save the company. Under increasing pressure from the board to improve performance, Ken Olsen surprised outsiders by announcing that he would step down as president and chief executive officer of the company effective October 1992. His successor was Robert B. Palmer, vice president of worldwide manufacturing, logistics, and component engineering.

With a new chief executive at the helm, Digital faced the challenge of maintaining its status as a major computer corporation in a quickly changing environment. Like other large manufacturers, it downsized its operations and became more flexible in order to remain competitive. The companys strengths continue to be its dedication to engineering excellence and willingness to take risks with new technologies. Its future success depends on its ability to pursue the timely introduction of new products.

Principal Subsidiaries

Computer Insurance Company of Rhode Island; Computer Insurance Company Limited (Bermuda); Digital Computer Taiwan Limited; Digital Equipment Aktiebolag (Sweden); Digital Equipment B.V. (Netherlands); Digital Equipment Betriebliche Altersversorgungsgesellschaft m.b.H. (Germany); Digital Equipment of Canada Limited; Digital Equipment Caribbean, Inc.; Digital Equipment Centre Technique (Europe); S.A.R.L. (France); Digital Equipment China Limited; Digital Equipment do Brasil Ltd.; Digital Equipment Co. Ltd. (U.K.); Digital Equipment Corporation A/S (Norway); Digital Equipment Corporation A/S (Denmark); Digital Equipment Corporation (Australia) Pty. Ltd.; Digital Equipment Corporation (Consultancy) Ltd. (U.K.); Digital Equipment Corporation Espana, S.A. (Spain); Digital Equipment Corporation Finance B.V. (Netherlands); Digital Equipment Corporation GmbH (Austria); Digital Equipment Corporation International (Switzerland); Digital Equipment Distribution (Ireland) Limited; Digital Equipment Corporation OY (Finland); Digital Equipment Corporation (New Zealand) Limited; DEC Digital Equipment Corporation S.A./A.G. (Switzerland); Digital Equipment (DEC) Limited (Israel); Digital Equipment (DEC) Technical Center Limited (Israel); Digital Equipment Filipinas Incorporated (Philippines); Digital Equipment Foreign Sales Corporation B.V. (Netherlands); Digital Equipment France; Digital Equipment GmbH (Germany); Digital Equipment Hellas S.A. (Greece); Digital Equipment (Holdings) B.V. (Netherlands); Digital Equipment Hong Kong Limited; Digital Equipment International B.V. (Netherlands); Digital Equipment International Betriebliche Altersversorgungsgesellschaft m.b.H. (Germany); Digital Equipment International GmbH. (Germany); Digital Equipment International Limited (Switzerland); Digital Equipment (Korea) Inc.; Digital Equipment (Malaysia) Sdn. Bhd.; Digital Equipment de Mexico, S.A. de C.V.; Digital Equipment N.V./S.A. (Belgium); Digital Equipment Panama, Inc.; Digital Equipment Parts Center B.V. (Netherlands); Digital Equipment Portugal, Limitada; Digital Equipment PRC Limited (Hong Kong); Digital Equipment S.p.A. (Italy); Digital Equipment Scotland Limited; Digital Equipment Services, Inc.; Digital Equipment Singapore (PTE) Limited; Digital Equipment (Thailand) Ltd.; Digital Growth Inc.; Digital Incorporated; Digital International Sales Corporation; Old Colony Insurance Limited (Bermuda); Cascade Computing AB (Sweden); Digital Equipment Beteiligungen GmbH (Germany); Digital-Kienzle Computersysteme GmbH & Co. K.G. (Germany); Digital Equipment Corporation International (Europe); Digital Equipment Corporation Japan; Digital Equipment Corporation de Puerto Rico; Digital Equipment Corporation Services-Europe; Digital Equipment China Incorporated; Digital Equipment Czechoslovakia, spol. s.r.o.; Digital Equipment Export (India) Ltd.; Digital Equipment Finance Corporation; Digital Equipment (India) Ltd.; Digital Equipment (Hungary) Ltd.; Digital Equipment International Limited; Digital Equipment Maroc S.A.R.L. (Morocco); Digital Equipment Properties Limited; Digital Equipment Service Industries Solutions Company Limited; Digital Equipment (Small Medium) Enterprise B.V. i.o. (Netherlands); Digital Equipment Turkiye A.S. (Turkey); Digital Realty Corporation; EA Systems, Inc.; KienzleMiete GmbH (Germany); PCS Computersysteme GmbH (Germany); Procad GmbH Rechnerunterstutzte Konstruktionssysteme; Société Civile Immobiliere (SCI) Parc du Boids Briard (France).

Further Reading

Olsen, Kenneth H., Digital Equipment Corporation: The First Twenty-Five Years, New York, The Newcomen Society in North America, 1983; Americas Most Successful Entrepreneur, Fortune, October 27, 1986; Rifkin, Glenn, and George Harrar, The Ultimate Entrepreneur, Chicago, Contemporary Books, 1988; Where is DEC Going?, Forbes, January 7, 1991; Crunch Time at DEC, Business Week, May 4, 1992; Did DEC Move Too Late?, Business Week, August 3, 1992; Pearson, Jamie, Digital at Work: Snapshots from the First Thirty-Five Years, Burlingtion Digital Press, 1992.

Lynn Hall

update by Moya Verzhbinsky

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Digital Equipment Corporation

Digital Equipment Corporation

146 Main Street
Maynard, Massachusetts 01754
U.S.A.
(508) 493-5111
Fax: (508) 493-8780

Public Company
Incorporated: 1957
Employees: 124,000
Sales: $12.94 billion
Stock Exchanges: Midwest New York Pacific Zürich Geneva Basel Frankfurt Munich Berlin

Digital Equipment Corporation is a leading designer and manufacturer of networked computer products and services. Its products serve a variety of applications, such as scientific research, computation, communications, education, data analysis, industrial control, time-sharing, commercial data processing, graphic arts, word processing, office automation, health care, instrumentation, engineering, and simulation.

Digital is best known for launching the minicomputer industry. Its introduction of the minicomputer sparked a revolution which altered the way people perceived the computer. Digital brought the computer out of the hands of computer programmers by making computers that people could interact with and that were smaller, faster, and less expensive than competitors. The companys minicomputers set the stage for the development of the personal computer in the mid-1980s. Digitals own entry into the personal computer market, however, in the early 1980s was a failure.

Digital was distinguished by its entrepreneurial style of management. For that reason it was much-watched during the 1970s and early 1980s when it experienced its fastest growth. In 1982 the companys management structure was praised in Thomas J. Peterss and Robert H. Watermans In Search of Excellence, but Digitals success was not without turbulence. After a period of phenomenal growth in the 1970s, Digital began to outgrow its unique entrepreneurial structure which had made it a serious challenger to the industrial computer giants.

In the summer of 1957, Ken Olsen asked American Research & Development (ARD), a venture capital firm in Boston, for $100,000 to establish a company to build computers. Olsen and his partner, Harlan Anderson, were 31 and 28 years old, respectively. They had just come out of Massachusetts Institute of Technologys (MIT) Digital Computer Laboratory. General Georges Doriot, the head of ARD and a professor at the Harvard Business School, advised them to write a business proposal. Doriot encouraged them not to use the word computer, since large corporations like General Electric and RCA were already failing in the nascent industry. Doriot, who later jointed Digitals board of directors and influenced Olsens leadership style, was concerned that a proposal from the young, inexperienced engineers would not be readily received.

Heeding Doriots advice, Olsen and Anderson proposed to produce printed circuit modules instead of computers, and promised to turn a profit in their first year. ARD offered them $70,000, and the two engineers located their company in the small mill town of Maynard, Massachusetts.

In early 1958 Digital shipped its first products, the Digital Laboratory Module and the Digital Systems Module. The company sold $94,000 worth of these modules to research facilities. Despite the recession of the late 1950s, Digital turned a profit at the end of its first year.

The Whirlwind and SAGE computers which Olsen and Anderson had worked on at MIT, influenced Olsens commitment to producing computers which are interactive and interlinked. The Whirlwind was used to power a cockpit flight simulator for the navy; while other universities were designing computers to calculate complex equations, MIT designed the Whirlwind for immediate interaction with the user. The SAGE (Semi-Automatic Ground Environment Defense System), a U.S. Air Force project during the cold war, was a massive network of computers and radar systems used to detect enemy aircraft in the nations airspace.

When Olsen and Anderson established Digital, the only computers commercially available were million-dollar mainframes from companies such as IBM, Univac, and Burroughs. The people who worked with these computers were programmers provided or trained by the company. Olsen had observed students waiting in line to use Whirlwinds interactive offspring, the TX-O, an early transistorized system at MITs Lincoln Laboratory, while an IBM machine was virtually ignored. Seeing the need for more interactive computers, Olsen sought to wean computers away from programmers.

In 1960, the company introduced its first computer, the PDP-1 (Programmed Data Processor). The PDP-1 came with a cathode-ray tube (CRT), a screen which allowed the user to see what was being entered and received from the central processing unit. This novel addition to computers demonstrated Olsens commitment to making computers accessible to users. Unlike the room-sized mainframe computers of the day, the PDP-1 was no larger than a refrigerator. It cost $120,000, when comparable machines by other manufacturers were selling for $1 million.

In 1963 Gordon Bell, who would become Digitals most eminent engineer, designed the PDP-5. The PDP-5 was the forerunner of Digitals PDP-8, the first minicomputer. That same year, Bell also designed a large-scale computer, the PDP-6. These two computers illustrated the companys ability to build a wide range of computers. In 1964 the price for Digitals products ranged from $27,000, for the PDP-5, to $300,000, for the PDP-6.

There was virtually no organizational structure during the early stages at Digital. Olsen was committed to creating an environment much like the research labs at MIT. A temporary position as liaison between MIT and IBM in 1959 convinced Olsen that the hierarchy at companies like IBM did not allow for creativity and the flow of ideas. Unlike other computer companies at the time, Digital did not lease its computers. Leasing computers, with a contract for support and services, kept customers dependent on the companies. Since Digitals customers, mostly scientists and engineers, did not require technical support, the company provided virtually none of the software and maintenance services offered by its giant competitors. Digital did not spend its capital on software design and maintenance services, and passed its savings along to customers. Olsen also felt that leasing hindered technical development by creating a reluctance to allow a product to become obsolete.

Digital survived without an organizational structure for seven years. By 1964 various engineering groups were not coordinating with other functions of the company, causing bottlenecks in certain areas of manufacturing and order processing. As a result, product shipments were often delayed. That year, Digitals profits dropped to $900,000 from $1.2 million in 1963.

It was then that Olsen decided to structure the company into a team of product line managers. Under this structure, the product line manager became an entrepreneur within the company competing with other teams for its centralized manufacturing and sales forces. Each manager had complete responsibility for a product line, from conceptualization to sales, and was accountable for its performance. This matrix organization, as it was called, was responsible for an abundance of products developed over the next 15 years. By the mid-1970s, the company developed more than 20 new product lines. While the matrix organization resulted in dynamic growth, it also created uncertainty among some of Digitals employees, and in 1966 Olsens partner, Anderson, left.

In the fall of 1965 Digital unveiled the PDP-8. This machine triggered the minicomputer industry, and the company grew from a small technical company into a major computer manufacturer. The PDP-8 was small and attracted users who wanted to integrate it into their larger mainframe systems. It sold for $18,000, at that time a very low price for a highperformance general-purpose computer. Digital sold 50,000 PDP-8s over the machines 15-year life span, and the PDP-8 contributed to growth in revenues and profits of between 25% and 40% per year. Between 1965 and 1967 alone, profits multiplied sixfold to $4.5 million.

Because Digitals computers were versatile and accessible, they inspired a market new to the computer industry known as OEM, or original-equipment manufacturer. Other companies bought Digitals computers and integrated their own hardware and software programs for specific applications, such as scientific instrumentation, and sold the package as their own product. This unique arrangement saved Digital the costly, labor-intensive job of writing software and servicing its machines that decreased overhead costs while revenues poured in. OEMs also opened up new markets to Digital. Because of their adaptable nature, Digitals computers were used for a wide variety of applications, from calculating scientific problems to running electronic scoreboards in sports stadiums.

The business world now began to view computers as a viable industry. Attempts by larger companies to buy Digital were rebuffed; Olsen firmly refused to sell out, and Digital itself has never acquired another company. This position has distinguished Digital from most other computer companies.

As Digitals entrepreneurial style permeated the industry and the availability of investment capital increased, dreams of starting companies abounded among engineers. In 1968 Edson de Castro, an engineer who worked on the design of the PDP-8, left Digital to start his own company. Data General would become Digitals first serious competitor in the minicomputer market.

In January 1970 Digital announced plans to build the PDP-11, to be sold for $10,800. It was the first time that Digital had announced a machine still in the design stage. Data General had already announced a machine in the same class of computers a year earlier and was beginning to encroach upon Digitals customer base. When Industrial Research named the PDP-11 one of the most significant technical products introduced in 1970, sales increased. Eventually, 500,000 PDP-11s were sold. By 1972 Digital was back on top of the minicomputer market.

Digital has been a pioneer in human resource activities. To bring growth to otherwise depressed communities, the company established plants in places hard hit by recessions, such as Maynard, and Springfield, Massachusetts. Digital is also known for its no-layoff tradition. During the recession of 1970, while the rest of the industry was laying off hundreds of people, Digital put its employees to work in other areas of the company, from sweeping the parking lot to sales. Digital also funded a study of the reproductive health of women who worked in one of its semiconductor plants. The study found a correlation between high exposure to semiconductor material and miscarriages, and Digital publicized the study despite the potentially negative consequences. Digitals lack of rigid hierarchy is also unique as is the ability of employees to directly influence decision making. Decisions are made by consensus of engineering, marketing, design, and review committees.

Digitals salesmen do not work on commission. Digital believes that commissions are unfair to salespeople and that they stand in the way of customer satisfaction. Olsens fundamental corporate values became formalized policy in 1974. His basic tenets, were honesty, integrity, doing the right thing.

Digital entered the personal computer market due to market pressure from the outside and the eagerness of its engineers from the inside. On May 10, 1982, Digital announced three personal computer products, the Rainbow 100, the DECmate II, and the Professional 325 and 350, but internal competition to build a personal computer had drained Digitals resources to develop and market the products effectively. While Digital hesitated and its engineers battled out their varied personal computer products, other companies had already entered the market.

The failure of the personal computer project was one example of the problems beginning to surface as a result of Digitals matrix organization. The consensus required to initiate product lines made it difficult for Digital to respond quickly to market needs. Another problem was the existence of too many independent product domains within the company. While Digital produced many products and established itself in a number of different markets, customer territories became unclear and intense competition between the domains drained Digitals resources. Furthermore, the companys growth and new market areas overwhelmed sales and service forces as they tried to meet the demands of new customers. Further, with nearly 70 minicomputer manufacturers to compete with, DECs sales force was also busy defending its lead in the minicomputer market.

Other product line teams developed technologies which brought Digital successfully into the new decade. In 1979 the engineering group headed by Gordon Bell developed the VAX line of computers. VAX architecture evolved into a range of computers from small desktop machines to computer clusters, which could compete with mainframes. Interlinked, these machines gave companies complete automation throughout their varied divisions.

Olsen had the foresight to realize that Digitals sales and marketing force was not ready for the potential success of the VAX systems, and the more businesslike customers that it would attract. Thus, Olsen began to transform Digital into a unified marketing organization by redirecting its product lines into a market-oriented scheme. Rather than simply allowing the product line teams to develop and sell any product, Digital identified markets to target, assigning product lines to each area.

By 1984 Olsen had completely reorganized Digital. This change shifted profit and loss responsibility away from product line managers. It took five years to dismantle the matrix organization, which had existed for 19 years and was a symbol of Digitals growth and success. Due to the shift in power, more than 50 managers left to start their own companies or to join others.

The timing of Digitals new direction could not have been better. By the early 1980s the corporate world had become a multivendor environment where machines of different sizes and applications, and sometimes from different manufacturers, could not communicate or share information. Over the next 18 months ten new VAX computers were unveiled. These machines could network not only among themselves, but with other vendors products as well. Consequently, Digital lured an estimated $2 billion in sales away from IBM. In 1986 Digitals profits rose 38% in an industry which was declining.

By introducing the minicomputer, Digital established a market for itself. It made small, interactive computers when the industry giants were producing large, expensive computers. Digitals growth is a result of its ability to enter, and develop, new markets with quality machines. Through its matrix organization and OEM agreements, Digital achieved very fast growth, steadily increasing its share of different markets, and responding more quickly and more aggressively than others to the demands and specific problems of its customers. As Digital entered the 1990s, it continued its dedication to multivendor networking and to delivering quick solutions to customers.

Digital faces the challenge of maintaining its status as a major computer corporation. The minicomputer market is losing out to smaller and more powerful microcomputers, and critics question Digitals ability to continue its transition into a large corporation under the direction of its founder and president, Ken Olsen. Digitals consistent product philosophy and expert engineering of networking a wide range of computer sizes and applications may make it one of the most successful computer companies in the 21st century.

Principal Subsidiaries

Computer Insurance Company of Rhode Island; Computer Insurance Company Limited (Bermuda); Digital Computer Taiwan Limited; Digital Equipment Aktiebolag (Sweden); Digital Equipment B.V. (Netherlands); Digital Equipment Bertriebliche Altersversorgungsgesellschaft m.b.H. (Germany); Digital Equipment of Canada Limited; Digital Equipment Caribbean, Inc.; Digital Equipment Centre Technique (Europe) S.A.R.L. (France); Digital Equipment China Ltd.; Digital Equipment do Brazil Ltda.; Digital Equipment Co. Limited (U.K.); Digital Equipment Corporation A/S (Norway); Digital Equipment Corporation A/S (Denmark); Digital Equipment Corporation (Australia) Pty. Ltd.; Digital Equipment Corporation (Consultancy) Ltd. (U.K.); Digital Equipment Corporation Espana, S.A. (Spain); Digital Equipment Corporation Finance B.V. (Netherlands); Digital Equipment Corporation Gesellschaft m.b.H. (Austria); Digital Equipment Corporation International; Digital Equipment Corporation International (Europe) (Switzerland); Digital Equipment Ireland Limited; Digital Equipment Corporation OY (Finland); Digital Equipment Corporation de Puerto Rico; Digital Equipment Corporation (New Zealand) Limited; Digital Equipment Corporation S.A./A.G. (Switzerland); Digital Equipment (DEC) Limited (Israel); Digital Equipment (DEC) Technical Center (Israel) Limited; Digital Equipment Filipinas Incorporated (Philippines); Digital Equipment Finance Corporation; Digital Equipment Foreign Sales Corporation B.V. (Netherlands); Digital Equipment France; Digital Equipment GmbH (Germany); Digital Equipment Hellas Ltd. (Greece); Digital Equipment (Holdings) B.V. (Netherlands); Digital Equipment Hong Kong Limited; Digital Equipment International B.V. (Netherlands); Digital Equipment International Betriebliche Altersverorgungsgesellschaft m.b.H. (Germany); Digital Equipment International GmbH (Germany); Digital Equipment International Ltd. (Switzerland); Digital Equipment (Korea) Inc.; Digital Equipment (Malaysia) Sdn. Bhd.; Digital Equipment de Mexico, S.A. de C.V.; Digital Equipment N.V./S.A. (Belgium); Digital Equipment Overseas Finance N.V. (Netherlands Antilles); Digital Equipment Panama, Inc.; Digital Equipment Part Center B.V. (Netherlands); Digital Equipment Portugal; Digital Equipment PRC Limited (Hong Kong); Digital Equipment S.p.A. (Italy); Digital Equipment Scotland Limited; Digital Equipment Services, Inc.; Digital Equipment Singapore (PTE) Limited; Digital Equipment Taiwan Limited; Digital Equipment (Thailand) Ltd.; Digital Growth Inc.; Digital Incorporated; Digital International Sales Corporation; Kam Hon Development Company, Limited (Hong Kong); Nihon Digital Equipment Corporation KK (Japan); Old Colony Insurance Limited (Bermuda).

Further Reading

Olsen, Kenneth H., Digital Equipment Corporation: The First Twenty-five Years, New York, The Newcomen Society in North America, 1983; Petre, Peter, Americas Most Successful Entrepreneur, Fortune, October 27, 1986; Rifkin, Glenn, and George Harrar, The Ultimate Entrepreneur, Chicago, Contemporary Books, 1988.

Lynn Hall

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Digital Equipment Corporation

Digital Equipment Corporation (DEC) A US computer manufacturer, founded by Ken Olsen and Harlan Anderson in 1956 to exploit the research work that had led to the development of the Whirlwind computer at the Massachusetts Institute of Technology. It is one of the most famous and spectacular examples of the commercial exploitation of university research. Digital's PDP8 and PDP11 computers were the archetypal minicomputers of the late 1960s to the early 1980s; they were followed by the VAX range of midrange machines and, in 1992, by the Alpha line. Digital's VMS operating system for the VAX was much admired but Digital realised that the future lay with open systems and committed itself to this approach through its OSF/1 operating system (see OSF). At the end of the 1980s Digital was the second largest computer company in the world but it failed to accommodate itself to the changes that were taking place in the world of computing and its sales fell dramatically. In 1998 it was bought by Compaq.

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