Can Hughes Advance GM Car Building? : Others Failed in Bids to Blend Commercial, Defense Technology
Rockwell International, which emerged in the 1960s as a world leader in aerospace technology, thought that it had seized the ideal opportunity to commercialize its know-how when it acquired Admiral Corp. in 1973.
Compared to Rockwell’s Apollo spaceships that were sending U.S. astronauts to the moon and its electronic guidance systems on nuclear missiles, Admiral’s television and household appliance business seemed like technical child’s play.
When Rockwell developed the “electronic Cadillac” of televisions, however, nobody wanted to buy it. The firm quickly discovered how little household appliances have in common with spacecraft. By 1979, it had dropped its strategy and sold off the last of Admiral’s product lines.
Rockwell’s dismal experience with Admiral is representative of the difficulties other firms have encountered in their attempts to tap California’s bustling weapons industry for commercial technology. While a few diversified firms have successfully interchanged military and commercial technologies, a history of glaring failures attests to the difficulty of the undertaking.
Similar Strategy
Now comes General Motors with a similar strategy and even greater aspirations for its $5.2-billion acquisition of Hughes Aircraft, announced earlier this month.
GM Chairman Roger Smith said Hughes’ engineering capabilities will lead to “redefining the basic car or truck from a mechanical product, which includes a few electrical sub-systems, to one with major electromechanical and electronic elements.”
Will Hughes technology enable GM to build higher quality cars or introduce new automotive gadgets that will win consumers’ enthusiasm, as Smith hopes? Will GM outperform foreign competition by tapping the best of America’s weapons technology?
While GM’s vision wins kudos from many aerospace executives, scientific leaders and financial analysts, the strategy also has generated widespread skepticism among the experts who have seen such strategies come apart before.
“There is no easy way of doing it and many times people underestimate the requirements it takes to accomplish synergy,” said Arden L. Bement Jr., vice president of technical resources at TRW Corp. “Technology transfer sometimes gives you a head start, but it isn’t a panacea. And it might be just as difficult to accomplish as obtaining the technology (from) outside the company.”
Bement should know. Of all the diversified defense companies that have attempted technological synergy--a functioning blend of separate parts--TRW has been as successful as any. And yet the firm is still trying to perfect its ability to interchange technology some 27 years after it was created by merger.
May Take Decades
Although GM may also succeed with Hughes, the blending of the two diverse corporate cultures will not be completed in fiscal quarters or years, but in decades, experts say.
“The biggest flaw with aerospace going commercial has been impatience,” says Wolfgang Demisch, aerospace analyst at First Boston Corp. “The translation of technology from aerospace to commercial products will take at a minimum one decade, and probably more like 15 to 20 years.”
Simon Ramo, who co-founded TRW after leaving Hughes Aircraft in 1953, agrees that GM faces a long and difficult job in converting Hughes technology to commercial use.
“You would think that a company as large as GM and a company with the technology that Hughes has would be able to develop a capability that neither one would have alone,” says Ramo. “But it would be naive to say something general about a situation that is going to depend on very detailed planning by GM.”
That’s the optimistic view. Many aerospace experts believe that GM is looking in the wrong direction if it truly wants to improve its product and not simply diversify its operations.
“All GM needs to do to build a better car is learn how to spell quality,” says retired Air Force General William Henry, who, as the former commander of the Air Force Space Division in Los Angeles, was directly responsible for managing many of Hughes’ highest technology programs.
“I look at the service records of all the automobile manufacturers and I have to admit that I bite my lip and buy a Toyota,” Henry adds. “Maybe one thing that GM can learn from Hughes is how to build a quality product--but then Hughes doesn’t have such a great reputation in that area either.”
Far Down the Road
GM has given no hint of how soon it expects Hughes to begin making concrete contributions to GM’s automobiles. Hughes Chairman Allen Puckett said in a recent interview that he knows very little about building cars and any contributions from Hughes are very far down the road.
“The defense industry is very, very different from commercial business,” Puckett said. “We will have to continue to run our defense business in the same way as we have in the past.”
Puckett’s observation strikes at the very heart of why commercializing military technology has been so difficult in the past: It exists in a different world.
Aerospace technology is so far advanced from commercial needs that it often doesn’t appear in civilian products for years after its first use by the government. Microelectronics is the most notable example. Infrared technology, composite materials and nuclear energy are other prime examples.
“I feel that the vast majority of Hughes Aircraft technology is far more exotic than will ever be useful to General Motors,” says a manufacturing expert at Booze Allen & Hamilton, one of the largest industrial consulting firms in the nation. “I have seen numerous attempts to do it, but very few ever make any great success.”
Aerospace technology, in addition to being far ahead of civilian needs, is usually expensive to apply and often irrelevant to the commercial world, experts say.
“A lot of aerospace technology is for products that are yet to be developed,” acknowledges Bement, the TRW executive. “I would say it is upstream from commercialization.”
Other Firms Profit
Such consumer products as remote controls for televisions, graphite tennis rackets and solar-powered calculators are all direct results of aerospace technology. But significantly, the firms that profit today from those products generally aren’t the aerospace companies that developed the technology years ago. Hughes Aircraft, for example, invented the laser and hasn’t derived a fraction of commercial benefit from its work.
Even when technology is successfully exchanged, the benefits are often temporary. TRW successfully tapped its defense electronics business for advanced computers in the 1950s that assisted its automobile parts manufacturing business, said Ramo, the TRW founder. The computers enabled TRW to have better cost-accounting than competitors, which in turn permitted the firm to outbid rivals. Today, however, such computers are common.
Smith, the GM chairman, has cited two specific examples of areas in which Hughes might make contributions to automobile products--a radar-based system that would automatically take over control of the car in emergencies to prevent collisions and a computerized dashboard map system that would help drivers navigate highways.
A number of financial analysts and aerospace executives are concerned that Smith’s suggestion already indicates a misguided approach.
“Hughes can do a lot of fancy things in the laboratory, but applying them at an affordable price is something else,” says aerospace analyst Larry Lytton at Drexel Burnham Lambert.
“You are not going to take a Hughes Phoenix missile and make it an option on a Cadillac.”
Systems Engineering
GM also is seeking access to Hughes so-called “systems engineering,” an aerospace approach to designing complex products with many parts that permit the sum of the parts to operate as coordinated system. The Hughes Aircraft Co. is one of the few organizations that has extensive experience in systems engineering,” Smith said.
In the broadest terms, the engineers of the defense industry are oriented to building products that will destroy enemies and win wars, goals that put the ultimate premium on product performance. It’s a mind-set that has been a consistent stumbling block in past attempts to commercialize the technology.
“First of all, you really have a performance envelope in aerospace products that is far more demanding than anything in commercial industry,” says the consultant from Booze Allen. “The types of technical solutions to problems you come up with in aerospace do not transfer.”
Even TRW has approached technology exchange with a large measure of caution. While the firm has assigned top priority to internal exchanges, it is also seeking to increase the amount of technology that it acquires through outside deals, such as licensing, joint ventures and taking minority interests in smaller companies.
“The technology you acquire from the outside is lower-risk,” Bement says. “A lot of the high cost and risks of early technology occurs when development programs fall out of bed.”
Workers May Balk
Moreover, the most technically talented workers at aerospace companies often resist abandoning the work that brought them into the industry in the first place. Designing a missile or satellite generally poses greater challenges than designing televisions, refrigerators or automobiles.
“You are diverting the time and effort of the top technical person from something that is of greater interest to him,” says Bement. “The difficult part (of technology transfer) is working the negotiations to get the parties to agree to commit the resources. There has to be a benefit to both parties.”
GM believes the benefit to Hughes will be assistance in high-volume manufacturing, which has been a weakness of Hughes. The firm was plagued during much of 1984 with manufacturing quality control problems at its various groups.
“Hughes is assembling very high-technology electronics and I am not sure that is at all the same as automobile electronics assembly,” says the Booze Allen expert. “Parts of it are the same, but the most important parts aren’t the same.”
Grumman Corp. learned that expertise in aerospace manufacturing isn’t any guarantee of success in new ventures. The Long Island, N.Y.-based manufacturer of military aircraft made a disastrous foray into building urban buses when it acquired the Flxible Co. in 1978.
Flxible had been building buses for 20 years. Grumman hoped that its knowledge of structural fabrication would help it to improve Flxible, but its reputation was badly damaged by a national recall of 2,650 buses when the undercarriages began to crack in use.
System Failed
Grumman also attempted to apply new technology to an acquisition when it started a new operation called Dormavac, which was supposed to allow the shipping of perishable foods by sea without freezing. When the system was tested, it failed in rough seas.
The twin failures pinned Grumman with an $85 million loss. The company sold Flxible in 1983 and has since refocused on the business that it knows best, building jet fighters for the Navy.
McDonnell Douglas also has made a number of unsuccessful forays into the commercial world. Perhaps the most notable was its effort to build a jet-powered fire-fighting platform in the 1970s.
The unusual device, designed to carry a crew of four firefighters and to be controlled by a hand stick similar to that in a jet fighter, was made to be suspended from a crane or helicopter at a disaster sight.
The technology for the unusual device came out of the firm’s Huntington Beach-based Astronautics unit, which had been built the Mercury capsule that housed the first U.S. astronauts in space.
Despite an aggressive marketing effort that included sales demonstrations to fire departments around the nation, McDonnell Douglas never sold a single platform.
Perhaps the pitfalls of commercializing aerospace technology are best illustrated by Rockwell’s ambitious efforts at Admiral, which were
Unwanted Product
Rockwell promply set about applying its advanced science to Admiral’s flagging television line in 1973. In only two years, it had developed a television set that its own executives called “an electronic Cadillac.” The firm quickly found that the U.S. market didn’t want a “Cadillac” chock full of new features.
“Admiral’s market would not support the price,” a Rockwell executive was quoted as saying in 1978. So, the firm cut its product “back to a Chevrolet.” That was scarcely more successful.
Although Rockwell appeared to have developed a good product, it wasn’t a commercial product that appealed to a mass market and Rockwell’s strength wasn’t in distributing products to such a market.
“The primary reason that Rockwell didn’t show up well with Admiral is that we didn’t stick with it long enough,” says Peter Cannon, Rockwell’s vice president for research and its chief scientist. “Our people had been raised in a different environment in aerospace, where you have business cycles, but it doesn’t require the iron stomach you need for the cycles in a commercial market.”
Rockwell has been more successful in other areas of transferring technology between its divisions, Cannon says. Automotive engineers, for example, were able to provide important advice in the manufacturing of heat-resistant tiles for the space shuttle.
“I think what GM has done is laudable,” Cannon says. “I think it is very gutsy for GM to lay out a $5 billion investment for what is totally a North American corporation.
“All of our lives depend on how successful GM is with Hughes. They are such a large part of the total economy that their success will affect everyone.”
