Note: I recently re-read this book and was amazed by how relevant its author’s insights continue to be.
MIT Sloan School of Management Professor Edgar Schein does a marvelous job telling the story of the rise and fall of Digital Equipment Corporation, the former #2 computer maker in the world behind IBM. The business reasons behind DEC’s economic failure have been widely reported (missing the advent of the PC, having too many projects going at once, failure to market products effectively, etc.) However, the big question to be answered is why did these failures occur? To quote one passage, “Why did an organization that was wildly successful for thirty-five years, filled with intelligent, articulate powerful engineers and managers, fail to act effectively to deal with problems that were highly visible to everyone, both inside and outside the organization?”
Schein looks at DEC’s failure through the lens of its corporate culture, and how it prohibited their executives from making the decisions, and taking the actions necessary to survive. Fans of Ed Schein will know his famous “Three Cultures of Management” paper, in which he describes the “Executive,” “Line Manager,” and “Engineering” cultures, all of which must exist and be balanced against one another for an organization to survive. Schein argues that DEC was dominated by the engineering culture, which valued innovation and “elegant” design, over profits and operational efficiency. This engineering culture dominated even the top levels of DEC, where proposals to build PCs out of off the shelf parts that were readily available in the marketplace, were shot down because the machines were thought to be junk compared to the ones DEC could build themselves.
That DEC was able to survive for as long as it did was largely attributable to its ability to innovate in a field that was so new it had not yet coalesced around certain standard systems, software and networks. However, as the computer industry became in effect a commodity market, and the buyers began to value price over innovation, DEC found itself increasingly unable, and in fact, unwilling to compete. The engineering culture which valued innovation and required creative freedom, did not want to subject itself to the requirements of being a commodity player which demanded autocratic operational efficiency and control over how resources were allocated.
Although DEC is now long gone, even readers who were too young to use computers at the time of its demise will find familiar truths in this book. As the old saying goes, the fish in the tank does not see the water it is in. Neither do we often see the cultures in which we are ourselves embedded. The real lesson of this wonderful book is to show us how our corporate cultures often prohibit us from doing the right things, even when we can see them clearly. Sometimes culture is most easily visible in the things you need to discuss, but that are simply “not on the table” for discussion.
There are many lessons here too, for companies that seek to innovate new products and services, and how to balance the creative freedom desired by the engineering culture with the “money gene” culture of sound executive management. The names of companies that have failed to realize the full financial benefits of their technical innovations is too long to list here. But the DEC story is a must read for anyone who seeks to balance innovation with sustainable economic success in any organization.