Route 128: Independence and Hierarchy and thats putting it nicely

1
Route 128 Independence and Hierarchy(and thats
putting it nicely)

• Chapter 3 in Regional Advantage
• Presented by Vadim Shcherbina

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Life on Route 128

• Massachusetts makes sense as a region for growth
• Concentration of capital, skill, and technology.
• Americas Technology Highway.
• Yet, most firms inherit and reproduce previous
  methods.
• Secrecy, territorialism, hierarchy, just like
  their predecessors.
• Departures from previous practices are mostly
  only partial in nature.
• Geographically unlike Silicon Valley expansive
  and scattered.
• Very hard to agglomerate information.
• New England has strong lure of family and
  extra-employment activities.
• Loyalties and identity formations lie not in the
  industry but elsewhere.
• Puritan ethics of self-reliance and
  self-reflection?
• Employee-employer relationship very formal,
  loyalty important.

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Risk-Aversion

• Risk-aversion is self-perpetuating!
• Lack of entrepreneurs or support for innovation
  leads to lack of role models.
• No one to inspire confidence, nobody to teach
  entrepreneurship to others.
• Boston-area venture capitalists are incredibly
  risk-shy.
• Financiers and professional bankers, older and
  have more conservative investment strategies.
• No experience on the ground level.
• Possibly more averse to investments in technology
  in general.
• Probably relatively not as excited about new
  technologies, either.
• Venture capital is also highly obscured, lack of
  confidence about funding.
• Not only discouraging, but fails to provide
  crucial matchmaking role.

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Lack of Help Educational Institutions
Associations

• MIT fails to integrate itself with local
  businesses.
• Already has relationships with large established
  corporations (e.g. Standard Oil).
• MIT Industrial Liaison Program costs 50,000,
  prohibitive for small firms.
• Contrast with Stanford Industrial Affiliates,
  costs 10,000, more perks.
• Recruitment, conferences, advising. Region
  missing out on sources of innovation/problem-solvi
  ng.
• Public colleges and universities in Massachusetts
  underfunded, offer few technology-oriented
  courses.
• Smaller firms find costs of training workers
  prohibitive.
• Firms are unsupportive of local colleges to begin
  with.
• Public relations firms and other service
  providers are lethargic.
• Decisions are made slowly, failure has a much
  higher cost.
• Massachusetts High Technology Council -- business
  association that lobbied mostly for tax cuts.
  Antagonized local government.
• Other business associations poorly facilitate
  networks and information sharing -- too much
  formalism and elitism present.

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Managers of Monoliths

• Overview Route 128 firms aim for
  self-sufficiency and autarky, are self-contained
  and vertically integrated.
• Most managers come from electrical and consumer
  electronics firms, have preconceived notions of
  business plans.
• Experienced managers from these corporations seen
  as key to growth, reinforce these notions.
• Aging managers also hold same risk-averse
  tendencies and cultural viewpoints no infusion
  of new blood in leadership roles.
• For secrecys sake, managers discouraged even
  from participating in community affairs.
• Managers and firm leaders somewhat constrained by
  venture capitalists
• Venture capital will only support firms that
  aspire to be large.
• Only managers that aim to replicate same Route
  128 system will be rewarded with funds.

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The Ideology of Self-Sufficiency

• For many firms, reliance on military contracts
  requires some degree of secrecy.
• DEC-DG split blustering about proprietary
  technology reverberates throughout Route 128.
• Encourages even further secrecy and
  self-containment.
• Digital Equipment Corporation (DEC) thinks of
  itself as national and global enterprise, has no
  role to play solely in Route 128.
• Effectively rejects any possible gains from
  regional cooperation.
• Data General (DG) has obsessive concern with
  corporate secrecy.
• Wouldnt even share information about future
  products with customers.
• Lots of litigation in order to retain rights over
  important information.
• These are two monolithic firms -- not surprising
  that smaller firms emulate these actions.

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The Structure of Self-Sufficiency

• No collaboration, either outright or through
  associations.
• Information about technology and markets does not
  spread out of the firm.
• Tradition of vertical integration -- all firms
  follow suit.
• Design own electronic systems.
• Manufacture own components and parts.
• Write own software.
• Assemble final product.
• Vertical integration acquiesced to as obvious
  corporate model.
• Starting up extremely difficult
• Defense contractors are very insular.
• No specialized suppliers make running a fully
  integrated firm extremely expensive.
• Self-sufficient and autarkic plans are far from
  efficient.

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Hierarchies - DECs Dissent

• Traditional East Coast style involves bureaucracy
  and regulations
• Formal decisionmaking procedures
• Loyal, long-haul employees
• Modesty and conservatism in the workplace
• DEC attempts to avoid such a strong hierarchy,
  replaces it with decentralization and
  participatory culture.
• Very informal atmosphere, reminiscent of Silicon
  Valley.
• Advertised bottom-up decisionmaking.
• However, Ken Olsen (founder) is a benevolent
  patriarch, no pretensions of equality.
• In-firm autonomy, specialization, and
  competition.
• Loyalty, no layoffs, but still stifling.
• Promotions came from internal relations only.
• Rough attitude towards those departing denies
  potential resource.
• Uneasy compromise
• Informal communication and new ideas.
• Still direct supervision by superiors, ideas had
  to be debated and sold up the food chain.
• Still incredibly centralized Olsen 8-10 senior
  managers oversee every important decision.

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Hierarchies - The Others

• Other Route 128 firms stick to more traditional
  and hierarchical models.
• Deliberate and centralized quantitative
  decision-making.
• Long-term strategic planning.
• Decisions made vertically, all communication is
  formal.
• Central office controls everything.
• e.g. DG -- all sectors separated, each
  communicates only with its VP
• Age and even dress are visible markers of
  position.
• Little intermingling between senior managers and
  other employees.
• Stock options are incentives for firms top
  employees
• Pensions are rewards for loyalty in contrast with
  stock options of Silicon Valley.
• Rigid and conservative environment stonewalls
  young and brilliant innovators and precludes
  aspirations.

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Route 128 Boom or Bust?

• Potential reasons for success
• Center of semiconductor and electric operations
  even before 1950s,
• Established technical and financial
  infrastructure.
• Proximity to ATTs Bell Labs.
• Military and aerospace contracts.
• Outcompeted by manufacturers of components in
  Silicon Valley.
• Smaller, more flexible and specialized.
• Traditional system is stable and has its place.
• Excellent when competition focuses on volume
  markets and price-cutting.
• Yet, new technological system focuses on
  innovation and rapid changes traditional system
  wholly unsuited for this competition.
• 1959 Route 128 has over double the employees of
  Silicon Valley.
• 1975 Employment in Silicon Valley triples, now
  more than double that of Route 128.
• Route 128s employment falls by half over this
  time period.

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Specific Rigidities

• Production of receiving tubes was still highly
  demanded.
• No good reason to jump into semiconductors until
  too late (remember risk-aversion!).
• Manufacturing of receiving tubes is
  capital-intensive and automated -- assembly lines
  cost at least 12 million to create.
• Semiconductors, by contrast, had low start-up
  costs of under 1 million because production was
  unautomated.
• Route 128 firms were large, mature, and competed
  in markets where the key was to reduce production
  costs.
• Semiconductor research was tightly controlled and
  information flow was limited.
• Slowed down innovation immensely. Innovation, not
  marginally-lower costs brought profits in new
  markets. Traditionally-organized firms simply
  could not compete.
• Talented engineers lured away by challenges and
  rewards of Silicon Valley industry.
• Even Route 128 semiconductor start-ups focused on
  the wrong thing.
• Transitron kept trying to cut costs rather than
  foster innovation engineers left and the firm
  fell behind technologically.
• Because of information flow, failure helpful in
  Silicon Valley, not so along Route 128.

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Points of Discussion

• What should the role of government be in relation
  to such regions?
• Did Silicon Valley require Route 128s rigidities
  to take off and flourish?
• Should Saxenian have granted more discussion to
  MITs Technology Square and the hacker culture
  that arose?
• Is Saxenians bias too strong? Are there aspects
  of the Route 128 system that she should credit
  but doesnt? Are there aspects of the Silicon
  Valley system that are worthy of criticism?
• Does the fact that the bubble burst around the
  turn of the century complicate her analysis?
• How can we forecast using such idiosyncratic
  discussion? Is there a way to model any of the
  points raised in these chapters?
• Why did anyone follow the DeCastro when DG split
  from DEC if DG seems to be the most egregious
  utilizer of hierarchy and covertness?