Control Data Corporation
Control Data Corporation
Sales: $2.93 billion
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The history of Control Data Corporation might be entitled “The Rise and Fall of William C. Norris.” Although the company is functioning, and its founder, Norris, continues, in his active retirement, to be at corporate headquarters, Control Data bears little resemblance to the computer giant that Norris and his associates created with such astonishing speed and success. Gone are the heady days of supercomputer breakthroughs, victories over industry Goliath IBM, and a 50% share of the vast market for computer peripherals. Gone too is Norris’s unique corporate philosophy, which demanded of business not only profits but a serious commitment to projects for social justice. Although Control Data has not openly repudiated such goals, it is not hard to predict that Norris’s many idealistic ventures—usually labeled by the business press as foolhardy drains on profit—will be quietly wound down.
President and CEO Lawrence Perlman oversees a muchsobered, scaled-back Control Data (CD), one trying desperately to overcome recent losses with a strategy based on selling “data solutions” not the high-powered hardware that made the company famous. In each of the firm’s eight business divisions, ranging from the media researcher Arbitron to military contracts, CD offers to its customers a combination of hardware, software, and consulting services to design the most advantagious data system possible. In an era of standardized computer components and strong price competition, CD will try to stay alive by marketing its most valuable commodity—30 years of experience as one of the leaders in highspeed data processing.
William Norris was born in 1911 in a small Nebraska town. After a childhood largely divided between farm chores and his love for electrical gadgets, Norris got a degree in electrical engineering from the state university, and joined the navy in 1941. There he was assigned to a group of scientists and technicians charged with code breaking and fast analysis of the information thus gained. Such cryptological work required the processing of large amounts of data, and the navy team was soon evolving early examples of what would later be called the computer. At war’s end the navy, anxious to keep together so valuable a group of researchers, helped Norris and a handful of colleagues to form Engineering Research Associates (ERA) in Saint Paul, Minnesota.
ERA was a privately owned company, but nearly all of its work was done for the navy and other branches of the armed forces, and it benefited from access to innovative data research done elsewhere in the military. This unique position made ERA the early leader in computer design. By 1952 the company employed 1,500 people, and had installed about 80% of U.S. computers, as measured in dollars. In that year the company was sold, however, becoming a part of Remington Rand’s already growing computer division. Within a few years Norris was named head of all computer operations at the newly created Sperry Rand, from which vantage point he had an excellent overview of the developing computer industry.
Sperry Rand should have remained on top of that industry, given its sizable technological lead and corporate resources, but poor management and a lack of commitment to computers soon allowed IBM to forge past the confused Sperry. Norris, frustrated by these matters, in July 1957 was one of a dozen Sperry engineers who resigned in order to found Control Data Corporation in Minneapolis. The new partners sold stock to raise $600,000, rented space in a warehouse, and set out to beat IBM in the one area of the market they knew best—large, fast computers used by the military and scientific communities. With no customers, equipment, or track record, Norris’s venture could hardly have seemed a threat to IBM, which by that time had established its absolute domination of the data-processing world. CD had a secret weapon, however: Seymour Cray, age 31, already acknowledged as the brightest computer designer in the world. It was Cray who one day decided to build the fastest computer in the world, an idea Norris took up as CD’s rallying cry.
With typical bravado, Norris in effect sold the new computer before buying a local manufacturing concern, Cedar Engineering, that was to build it. When the first CDC 1604 mainframe computer was delivered to the navy shortly thereafter, Control Data had indeed created the world’s fastest and most powerful computer, and won for itself and Seymour Cray a reputation for technical wizardry. Cray was later to leave CD and found his own Cray Research.
From the beginning, CD grew at a remarkable pace. With few salesmen and no marketing program, CD’s computers virtually sold themselves. They were the best large computers available at any price, but they were also cheaper than IBM’s. Control Data originally sold no software with its machines, as its customers were all sophisticated users best able to design their own programs. In a scant five years the company became the world’s fourth-largest computer maker, on its meteoric rise passing a host of failing giants unable to match IBM in the market for general-purpose computers, where CD wisely chose not to compete. Even as sales mounted and the company expanded, Norris recognized that IBM would soon retaliate with its own “supercomputer,” and he set about diversifying his business.
Between 1960 and 1979 Norris bought up some 88 other companies in three related fields. The first and most important of these was computer peripherals. Creating a new corporate division in 1961, Norris stocked it with manufacturers of disc drives, controllers, and other components for use with CD’s own computers as well as for sale to rival companies. Norris was criticized widely for this move into original-equipment manufacturing, but it proved to be a complete success. The expertise gained in designing peripherals for its own high-performance computers gave CD a crucial technological advantage in what became an increasingly important field, and soon many other computer makers found it easier to buy components from CD than to make their own. In addition, by the late 1960s CD was offering a line of disc drives for IBM and IBM-compatible computers, tapping a vast if somewhat risky market. Peripherals became one of CD’s largest and most profitable divisions, in 1983 reaching $1.5 billion in sales and controlling 50% of the overall market.
The second area into which Norris diversified was data services. He recognized that most computer users could neither afford nor make use of a machine as large as the 1604, but they might very well be willing to pay for a few hours of its time. He accordingly began selling timeshares of CD’s inhouse 1604 in the early 1960s, also offering to substantial customers the programming experience of CD’s own engineers. Such timesharing originally involved sending material back and forth from CD headquarters in Minneapolis, but by 1967 telephone lines linked each client with one of a number of computing facilities around the country. While Norris was busy building CYBERNET, as this data service came to be called, he also set in motion a 1968 lawsuit that would result, unexpectedly, in a huge expansion of CD’s service capabilities.
In past skirmishes with IBM, Norris believed that his giant opponent had thwarted CD sales by promising customers the imminent arrival of a new IBM machine said to be both better and cheaper that CD’s model. This phantom machine never materialized, but the resulting drop in CD sales threatened to exhaust the company’s limited resources. To prevent a repetition of this strategy, when CD rolled out its new 7600 supercomputer, Norris filed an antitrust suit against IBM in December 1968, charging that IBM had promoted a nonexistent computer solely in the hope of forcing CD out of business. The complex case was resolved five years later, when in settlement of the suit IBM gave to CD its Service Bureau Corporation, a data-services firm similar to CYBERNET with about 20,000 customers worldwide. The lawsuit was vintage Norris—an audacious attack upon the industry’s undisputed leader, vigorously pursued to a settlement that amounted to a complete victory for CD. Not only had Norris prevented a second predatory marketing campaign by IBM, he had doubled the size of his data-services division while incidentally demonstrating that IBM was not unbeatable.
The third area of Norris’s balanced diversification was the 1968 purchase of Commercial Credit Corporation of Baltimore, Maryland. CD needed extra financial resources to fund the leasing of its equipment, and when Commercial Credit, a well-established financial-services company with about $3.4 billion in assets, became the object of an unwanted takeover bid Norris stepped in and bought it. Analysts doubted the wisdom of the move, noting that the two firms could not have been less alike in corporate philosophy and products; but Commercial Credit performed admirably for Norris, both as CD’s leasing company and as a profit center in its own right. It never became the dynamic international powerhouse Norris hoped that it would, but few projects ever met the CD chairman’s demanding expectations.
From the late 1960s Norris’s expectations included a role for CD in making the United States a better and more equitable nation. CD was an outstanding success from the day it opened its doors, within eight years employing 10,000 people, and reaching $160 million in annual sales. By 1970 CD revenue topped the $1 billion mark, and with 30,000 employees Norris might well have been satisfied with his contribution to U.S. society. The race riots of 1967, however, opened his eyes to deeper problems facing this country, and with his usual confidence Norris set about solving them. He initiated CD’s corporate activism with the construction of a new plant in the middle of Minneapolis’s northside ghetto in 1967, and soon afterward decreed that all future plants would be similarly located to provide jobs for the chronically unemployed. Control Data purposely sought out one of the most depressed rural areas in the country, Crampton, Kentucky, and built a manufacturing facility there. In Saint Paul, Minnesota, CD provided employment in part-time shifts for working mothers and poor students. It opened a factory in San Antonio, Texas because Norris was concerned about the low percentage of Hispanic employees in the company. In each case, CD provided day-care centers, counseling services, and even bail bonds for its new workers, whom in many instances were hired specifically because they had little education or a poor employment history. In each case the new plants were a success.
Norris dreamed of going much further. Something of an industrial visionary, Norris spent much of the 1960s and 1970s trying to address social problems in a way that would also profit CD. Such a unique formula alienated both the social activists, who depicted CD as profiting from human misery, and Norris’s business colleagues, who at best thought him a dreamer with excess cash in his pocket. None of that disparagement discouraged Norris, who pushed ahead with job-training programs, prison education, small-business consulting services, inner-city industrial parks, and financial help for the small farmer. Above all, Norris spent heavily to develop a computer-based educational system called PLATO, which he saw as the answer to America’s widespread failure in the schoolroom. In each of these ventures Norris expected to make a profit; he was not interested in philanthropy but in addressing the problems of society with the energy generated by a healthy capitalist economy. The results have been mixed. PLATO has been largely unsuccessful, but inner-city employment has been far more successful, and if CD’s efforts have not revolutionized prison education or created a raft of new small businesses, it did set a remarkable example of corporate ethics and determination.
In the early 1980s CD developed grave problems of its own, and many observers thought Norris and his idealistic projects were the cause. The company had continued its prodigious growth throughout the 1970s and reached an earnings peak of $289 million in 1981, at which time nearly 60,000 people around the world worked for CD. Data services, peripherals, mainframes, Commercial Credit Corporation, and military contracts were all doing well—with all cylinders firing, CD appeared poised for another decade of success. Profits slipped in each of the next three years, however, dropping to $140 million in 1984; and then, to the astonishment of the computer industry, CD virtually collapsed. The following year, 1985, ended with a catastrophic loss of $567 million on sales of $3.7 billion, followed by another $265 million deficit in 1986. The following two years showed a slight profit, but in 1989 the company again staggered under a massive loss of $680 million, this time on sales of less than $3 billion. Industry analysts were not suprised by William Norris’s longexpected fall, and the Utopian businessman formally retired in 1986 at the age of 75.
In retrospect, it is clear that CD’s troubles lay elsewhere. In peripherals, the company’s bread-and-butter division, its share of the world market dropped from 50% to 23% between 1980 and 1984. This was due to a number of factors. Stiff Japanese competition and a sudden flurry of technological innovation left CD behind, and when the cost of manufacturing IBM-compatible discs grew prohibitive CD gave up that market entirely, taking a $130 million write-off. In addition, 1984 and 1985 saw a severe recession in the computer industry as a whole; sales of CD peripherals and the profit margin fell together, plunging the division deeply into the red. In other areas, remote data processing and mainframes were also suffering, the former due to the emergence of the microcomputer, the latter hurt by renewed competition from Digital Equipment Corporation, IBM, and Cray Research, the latter a company formed by CD’s former illustrious employee. In the sea of red ink only Commercial Credit managed to keep its head above water.
A crisis was reached in the fall of 1985 when CD was unable to pay its short-term bank loans. From that point Norris and Robert Price, his successor, embarked on an emergency program of asset sales and employee cuts that continued for the rest of the decade. CD was forced to toss out its valuables along with excess baggage, resulting in what amounts to a new company. Commercial Credit, remote data processing, the ETA supercomputer division, training and educational programs, and even peripherals were all sold to raise cash to keep the parent company afloat, leaving mainframe and data services as the only survivors of the business Norris had built. Robert Price and new CEO Lawrence Perlman now preside over a company that is determined to avoid the kind of head-to-head commodity competition that nearly destroyed CD in the 1980s.
Thus, although it remains in the mainframe business, CD has developed a complex network of agreements with other manufacturers to incorporate their products into the CD line of computers. Data services is inherently free of straight price competition, as are the media-monitoring work of Arbitron, the on-line wagering systems supplied by Automated Wagering Systems, and the many military contracts handled by the government-systems division. In each of these fields, CD seeks to provide customers with a systemic solution to complex data problems, rather than selling standard products like disc drives, mainframes, or even supercomputers. Such a strategy is now universal among the world’s computer leaders.
The Service Bureau Corp.; The Arbitron Corp.; AUTOCON Industries; Computer Peripherals, Inc. (80%); Kerotest Manufacturing Corp.; Magnetic Peripherals (67%); Data Services, Far East, Inc.; Communications Solutions, Inc.; United School Services of America; Dataven Inc.; Financial & Human Resources Venture Fund, Inc.; VTC Incorporated.
Worthy, Ford S., “Does Control Data Have a Future?,” Fortune, December 23, 1985; Gullo, Karen, “The Long View,” Datamation, July 1, 1986; Worthy, James C., William C. Norris: Portrait of a Maverick, Cambridge, Massachusetts, Ballinger Publishing Company, 1987.