Lehman Brothers Collection - Contemporary Business Archives

Harvard Business School Baker Library Historical Collections

Lehman Brothers Collection

Twentieth-Century Business Archives

Digital Equipment Overseas Finance N.V. - Lehman Brothers Collection

Digital Equipment Overseas Finance N.V.

List of Deals

Ken Olsen founded Digital Equipment Corporation in 1957, with his partner Harlan Anderson. In 1958 the company shipped its first products, the Digital Laboratory Module and the Digital Systems Module. Digital sold $94,000 worth of these modules to research facilities and turned a profit at the end of its first year. The company's focus was on creating interactive minicomputers.

In 1960 Digital introduced its first computer, the PDP-1 (Programmed Data Processor), which came with a cathode-ray tube, a screen that allowed the user to see what was being entered and received from the central processing unit. Three years later, the company designed the PDP-5, a forerunner of the PDP-8, the first minicomputer. The company's revenues and profit growth averaged 30 percent annually for almost two decades.

There was virtually no organizational structure in the early years of the company's existence. Olsen wanted to create an environment like that of the research labs at Massachusetts Institute of Technology (MIT), where he was educated. Also unusual for computer companies at the time, Digital did not lease its computers. It did not create software for its products or offer maintenance services. This policy cut down on the company's costs, which in turn caused its products to be cheaper than those of competitors. By 1964 the company required some organizational structure, as various engineering groups were not coordinating well with other functions of the company. Olsen structured the company in a matrix framework, which involved product line managers. Each manager had complete responsibility for a product line, from conceptualization to sales, and was accountable for its performance. Using this structure, the company had developed over twenty new product lines by the mid-1970s.

Digital introduced the PDP-8 in 1965, which triggered the minicomputer industry. The company grew from a small technical company into a major computer manufacturer. Digital's versatile and accessible computers inspired a market new to the computer industry known as OEM, original-equipment manufacturer. Other companies bought Digital's computers, integrated their own hardware and software programs for specific applications, and sold the packages as their own products. This arrangement saved Digital from the costly, labor-intensive job of writing software and servicing its machines.

In 1970 the company introduced the PDP-11, which was named one of the most significant technical products of the year by Industrial Research. By 1972 Digital was still on top of the minicomputer market.

While making innovations in the computing field, Digital was also a pioneer in human resources. To stimulate growth in depressed communities, the company established plants in places hit hard by recessions, such as Maynard and Springfield, Massachusetts. The company also maintained a no-layoff policy. During the recession of 1970, Digital had its employees work in other areas of the company rather than lay them off. 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 miscarriage; despite its potentially negative consequences, Digital publicized the study. The company also did not make its salespeople work on commission, as commissions were thought to be unfair to the employees.

Digital introduced digital network architecture, a means of linking computers to LANs and WANs, in 1974. In 1979 the company introduced the VAX line of computers. VAX architecture evolved into a range of computers from small desktop machines to computer clusters. Olsen recognized that the company's sales and marketing force was not ready for the potential success of the VAX systems and began to transform Digital into a unified marketing organization by redirecting its product lines into a market-oriented scheme. Digital began to identify markets to target and assigned product lines to each area.

In 1982 the company entered the personal computer market. It introduced the Rainbow 100, the DEC-mate II, and the Professional 325 and 350. Internal competition had drained the company's resources, and Digital was unable to develop and market the products effectively. By 1984 the company was completely reorganized, shifting profit and loss responsibility away from product-line managers.

Harvard Business School Harvard Business School Baker Library Histrorical Collections