Hatsopoulos offers two explanations. First, he says, he founded the company to exploit an entire discipline -- mechanical engineering -- not any particular technology. Second, he created an organizational structure that promotes creative thinking and encourages risk taking. On these two points, as others, Hatsopoulos's experience with Thermo Electron is rich in lessons for other companies and entrepreneurs.
Hatsopoulos started Thermo Electron as soon as he got his doctoral degree from MIT. "My idea," he says, "was a broad-based technology company that would work simultaneously on lots of ideas that were risky but, if any one of them worked out, would be profitable." It's the venture capital investment theory applied to product R&D: if one of 20 pays off, the rest don't matter. And the product mix only appears strange to someone looking at Thermo Electron from the outside, Hatsopoulos says. "They all have a certain relationship with mechanical engineers -- people who deal with metallurgy, thermodynamics, fluids, etc." That is to say that insofar as they both present similar mechanical engineering challenges, the large industrial cogeneration systems and tiny human heart assists that Thermo Electron designed and manufactures aren't so different from each other. The Thermo Electron engineer who developed the company's bomb-detection device started on air pollution instruments, then went to blood gas analysis, and figured that if he could measure nitroglycerine in such tiny amounts there, maybe he could measure it in the air as well. "Our products," says Hatsopoulos, "are based on the broad capabilities of the people we have." And, he adds, on the company's strategic orientation. A company focusing on making computers, for instance, will produce different products from a company that's interested in process logic. Thermo Electron is more like the latter.
Organizationally, Thermo Electron may be -- it's a dangerous word to use because it's so abused -- unique. The company's form and function are closely related. They would have to be, Hatsopoulos says, with so many people working on so many R&D projects, and so many different commercial products going out the door. Engineers may see the connection between industrial process equipment and biomedical devices, but salespeople do not, and neither do investors.
"This," says executive vice-president Robert Howard, "is a very complicated company for its size. Analysts have a hard time understanding what business we're in. And we're not a pure play." That was one reason why, in 1983, Hatsopoulos and his executive team started the process of breaking Thermo Electron into smaller subsidiary companies, many of them publicly traded in their own right. In every case, to be sure, Thermo Electron is the majority shareholder and dominates the board. Yes, it's complicated, but the advantages of such a structure compensate for the drawbacks.
It does, for instance, allow investors to buy a piece of a biomedical products business without at the same time having to put money into a company that provides industrial heat-treating services. Furthermore, it lets Hatsopoulos fund expensive R&D without demolishing the profits, and thus the stock price, of Thermo Electron itself or its other subsidiaries. And it exerts pressure on and provides incentives to the entrepreneuring managers heading up these spin-offs. The incentives are easy to understand and appreciate. If the new company does well, the people who started it will grow wealthy on their stock options. But Hatsopoulos says there's another, subtler reason for taking the subsidiaries public. If they weren't, the performance of the people running them would be judged solely by corporate line managers, who may have personal axes to grind and their own career interests at heart. "Investors," he says, on the other hand, "have no ax to grind. They just want to make a lot of money." And, of course, Thermo Electron start-ups don't have to reinvent their own wheels -- accounting systems, public relations, personnel manuals. That's all done and easily adaptable. "I believe in small companies and in big," Hatsopoulos says, "and I'm trying to create something that has the advantages of both."
To keep the innovation flowing, Hatsopoulos says, there are no a priori rules about what projects the company will fund -- no quantitative hurdle rates an idea must promise to meet. "People," he allows, "can always cheat on numbers; intuition is better." All he asks is that the potential market be large, which itself is a subjective measure, and that the engineers at Thermo Electron be better equipped than anyone else to develop the product or service.
Hatsopoulos and Leslie Otten of Sunday River Ski Resort (see page 52) share something that explains their persistence and longevity at one firm. Both began with a dream, but neither defined it in terms of company size or dollar value. It was, rather, a quality of process they wanted to build; their dreams were to do, not to have done.
A few years ago, Hatsopoulos got an attractive offer to sell out, according to his brother John, the company's CFO. The suitor told George he could stay on to run the business. "But if I sell," said George, "it'll be your company and dream I'm fulfilling, not mine." Hatsopoulos has created a organization and a process for perpetuating innovation. At age 62, he still has his dream, as long as he wants it.
George N. Hatsopoulos
Company Name Thermo Electron Corp.
Founded 1956
Product Or Service Company and its spin-off subsidiaries develop and manufacture biomedical, process control, environmental, instrumentation, and power-generation products; provide metallurgical heat-treating, water quality engineering, and analytical laboratory services; and perform contract R&D
Location Headquarters in Waltham, Mass.; locations in 17 other states and Canada, United Kingdom, France, Japan, West Germany, Holland, and Hong Kong
Equity Capital IPO 1967; several of Thermo Electron's majority-owned spin-off subsidiaries have also gone public, bringing additional equity into the company
