Despite Brilliant Staff, Bell Labs Struggles to Create Profitable Products
If there’s a single place that symbolizes America’s scientific brilliance and high-tech ingenuity, it is Bell Laboratories.
Averaging a patent a day since its founding in 1925, Bell Labs has brought forth such fundamental technologies as the transistor, the laser and the communications satellite. No fewer than seven Bell Labs scientists have won Nobel prizes.
“You could offer me the smartest guys from the sharpest research labs in the world, put them together, square them, and I’d still prefer the Bell Labs guy in terms of sheer brilliance,” said Peter Keen, who did consulting work from 1976 to 1979 for the prestigious research and development arm of American Telephone & Telegraph Co.
But if there is a single place that symbolizes the tremendous difficulties in transforming sheer brilliance into profitable products, that place, too, is Bell Labs.
“There are a lot of myths surrounding the divestiture,” said Jack Grubman, a Paine Webber analyst who spent eight years at AT&T.; “One myth was that Bell Labs had all this technology on the shelf just waiting to go out the door and blow away IBM. That is why AT&T; from Day 1 was viewed and valued as a technology company. The reality was that the shelves were bare.”
More than three years ago, then-AT&T; Chairman Charles Brown asserted that one crucial benefit of the impending breakup of the Bell System would be the “unleashing” of Bell Labs and its leading-edge technologies upon the global marketplace.
“I thought it was an unrealistic phrase,” said Edward Goldstein, a 36-year AT&T; veteran who left as corporate vice president for strategy and development in 1985 to become a principal in Management Analysis Center, a consulting group in Cambridge, Mass. “The phrase was based on a parochial view. In fact, top management had never had to test the quality, the marketability, the competitiveness . . . of the Labs technology. The world wasn’t waiting for the Labs’ technology to be unleashed.”
Gordon Bell, a former Digital Equipment Corp. executive who now runs the National Science Foundation’s computer science directorate, extends the metaphor by saying of the unleashed Bell Labs: “The dog doesn’t have any teeth.”
But Bell quickly adds, “I really have empathy for the Labs. They’ve created so many innovations that the world has benefited from. I still view them as a national resource for basic research.”
The problem gnawing at AT&T;’s vitals is how best to take the research, ideas and innovations percolating through the Labs and package them as products and services that can generate meaningful growth for a $35-billion-a-year corporation.
The post-divestiture world has been cruel to AT&T;, with this past year the cruelest. The company announced tens of thousands of layoffs, a multibillion-dollar writedown on equipment and a dramatic scaling back of its pre-divestiture plans to compete in the computer marketplace.
AT&T; had hoped that Bell Labs would be its cutting edge in high-technology markets ranging from semiconductors to software. But while the Labs currently play a vital role in AT&T;’s core telecommunications businesses such as equipment for electronic switching and telephone networking, they have been conspicuous by their absence in the company’s efforts to carve out new markets.
“In the areas in which AT&T; has not traditionally been, the impact of the Labs has yet to be realized,” said Robert Casale, formerly head of AT&T;’s computer efforts and now a vice president of mergers and acquisitions for Kidder, Peabody. “The market is still waiting.”
“As far as impact on the product world is concerned, it almost borders on the shocking,” said Jacob Goldman, a venture capitalist who formerly ran corporate research and development at Xerox Corp. “With deregulation, you’d think the Labs have a wonderful opportunity. But with the door open to them to impact the marketplace, we’re really not seeing much.”
Why?
Goldman sees a painful parallel between AT&T; today and Xerox in the 1970s. Goldman was instrumental in founding Xerox’s Palo Alto Research Center (PARC), perhaps the most vibrant and creative computer research laboratory of the 1970s. Xerox’s PARC did pioneering work in personal computing (Apple’s Macintosh and Microsoft’s Windows products draw heavily on PARC research), laser printing and data communications--all multibillion-dollar markets today.
Yet Xerox never quite succeeded in capitalizing on PARC’s people and technologies. Conflicting corporate priorities and the burdens of “technology transfer”--the process of getting a technology off the workbench and into the field--proved too difficult to surmount. Venture capitalists, entrepreneurs and aggressive younger companies ultimately brought key PARC concepts to market.
The Bell Labs experience thus inspires a sense of corporate deja vu: AT&T; as a company that’s grappling with its own vision of the future and Bell Labs as a collection of intellectual entrepreneurs who understand technology better than markets.
“Everyone underestimates how difficult technology transfer is at a large company,” Goldman said. “I did then and Bell Labs is now.”
Neither AT&T; nor Bell Labs sees it quite that way.
“I’ve been very pleased by the Bell Labs responsiveness to the new environment,” AT&T; President Robert Allen said. “It’s responded better than I expected . . . but that doesn’t mean they’re perfect. That doesn’t mean that they’ve done enough.”
“Fair people would conclude that we have done a very good job,” said Sol Buchsbaum, Bell Labs executive vice president, “but I’d be the first to say we still have a long way to go.”
Allen said he would grade the Bell Labs efforts at technology transfer a “solid B.”
“I call that grade inflation,” the National Science Foundation’s Bell said. “I’d have a hard time giving them a B. Besides, this is really a pass-fail marketplace.”
The Labs are still adjusting to that marketplace. Regulatory restrictions in the wake of the breakup actually prevented researchers and development people in different parts of the company from communicating with each other. Similarly, hundreds of people left the Labs after divestiture to join BellCore, the research arm of the seven regional Bell operating companies.
“The several years we couldn’t talk with each other sowed the seeds of some problems,” said John Mayo, executive vice president of Network Systems at Bell Labs, adding that those problems are gradually disappearing as regulatory barriers have eroded.
AT&T; and Bell Labs say they are working aggressively together to bring high quality ideas to market far more rapidly and cost effectively.
“We realize that we work for a company that isn’t a monopoly and that we don’t have the luxury of time we once did,” Bell Labs’ Buchsbaum said. “We’re working to reduce the product development cycle. We used to do things in a serial process; we have to telescope things into a much shorter time frame. An important difference in the way we have approached this is in methodology.”
AT&T; Bell Labs calls the troublesome technology-transfer problem the “product-realization process” and has dramatically changed the way it measures performance to encourage the Labs to work with AT&T;’s marketing and manufacturing people.
Like the scientists and engineers they are, Bell Labs employees have approached the product realization process as a problem that can be solved given the time, resources and brainpower.
“I think this management system is getting progressively better,” said Wayne Weeks, president of AT&T; Network Systems. “The development groups are better integrated into the business planning groups. But clearly the biggest problem we have is the product realization process: We are not conceiving, designing, developing and introducing products nearly as fast as I’d like.”
One way AT&T; and the Labs have tried to accelerate the process is by encouraging the designers to be on the product team all the way through to production and sales.
“We’ve tried very successfully in some cases to let the designer keep some sense of ownership,” Weeks said, “but some of the experiments we have been trying have failed. I wouldn’t kid you about that.”
The transfer from the laboratory to the factory floor “remains the single biggest bottleneck,” Weeks said.
One reason breaking that bottleneck is so hard, AT&T; and Bell Labs people acknowledge, is that, for the most part, people didn’t join Bell Labs to create marketable technologies--they joined to create new technologies. The two are not synonymous.
“Bell Labs people had the narrowest psychological profiles I’d ever seen,” said Keen, the former Bell Labs consultant who is now affiliated with MCI Communications Corp. “Their Meyers-Briggs (a psychological test) showed that they had the highest morale and were most resistant to change at AT&T.; There was nothing in the Bell Labs culture that led to a dialogue. It’s a culture of experts that remains remarkably customer innocent.”
“You have to ask what traits of the old culture need to be changed,” MAC’s Goldstein said. “Speed of response is clearly one area; arrogance--these are things that are very difficult to change because they’re part of what made Bell Labs what it was.
“My doubts go to management and culture rather than technology and product. The measure of success is not the number of patents, it’s in the marketplace.”
Buchsbaum and other Bell Labs managers insist that the culture is changing, that a new Bell Labs is emerging that will give AT&T; both high quality research and high quality innovations.
Bell’s Mayo predicts that the technologies Bell Labs is developing in fiber optics, software and high-speed data communications will create a product “revolution” for AT&T.;
AT&T; President Allen expects nothing less.
“The marketplace is going to change very dramatically over the next five years just as it has over the last five years,” he said. “The R and D budget line will be a function of success in the marketplace and what is competitively required. We will try to reduce the percentage of cost that relates to R and D.” The Bell Labs annual budget is $2.5 billion.
Allen added: “We’re placing a hell of a lot of effort in the Labs and we’re expecting a hell of a lot out of them.”
But until those expectations are met, Paine Webber’s Grubman notes: “Bell Labs is more of an asset to the general scientific community than it is to AT&T.;”
