A look at how companies are shaped by the business and social cultures around them.
How much are companies shaped by the business and social cultures around them? A lot, judging by the divergent fates of the nation's two great high-tech centers
During the 1970s northern California's Silicon Valley and Boston's Route 128 attracted international acclaim as the world's leading centers of electronics innovation. Both regions were widely celebrated for their technological vitality, their entrepreneurship, and their extraordinary economic growth.
The enchantment waned in the early 1980s, when the leading producers in both regions experienced crises. Silicon Valley chip makers relinquished the semiconductor market to Japan, while Route 128 minicomputer companies watched their customers shift to workstations and personal computers.
The performance of these two regional economies diverged, however, later in the decade. In Silicon Valley a new generation of semiconductor and computer companies, such as Sun Microsystems, Conner Peripherals, and Cypress Semiconductor, as well as the region's established companies, such as Intel and Hewlett-Packard, experienced dynamic growth. The Route 128 region, by contrast, showed few signs of reversing its decline. The "Massachusetts Miracle" ended abruptly, and start-ups failed to compensate for continuing layoffs at the region's established minicomputer companies.
Why has Silicon Valley adapted successfully to changing patterns of international competition, while Route 128 is losing its competitive edge? Because, despite similar origins and technologies, the two regions have evolved distinct industrial systems since World War II. Their responses to the crises of the '80s revealed variations in local economic structure and organizational philosophy whose significance was unrecognized during the rapid growth of earlier decades. Far from superficial, those variations illustrate that local factors play an important role in determining how well a company will adapt to changes in an industry. And it's possible to pinpoint the factors that enable one region to capture and nurture the entrepreneurial spirit -- and allow another to let it slip.
Silicon Valley has a regional-network-based industrial system -- that is, it promotes collective learning and flexible adjustment among companies that make specialty products within a broad range of related technologies. The region's dense social networks and open labor market encourage entrepreneurship and experimentation. Companies compete intensely while learning from one another about changing markets and technologies through informal communication and collaboration. In a network-based system, the organizational boundaries within companies are porous, as are the boundaries between companies themselves and between companies and local institutions such as trade associations and universities.
The Route 128 region is dominated by a small number of relatively vertically integrated corporations. Its industrial system is based on independent companies that keep largely to themselves. Secrecy and corporate loyalty govern relations between companies and their customers, suppliers, and competitors, reinforcing a regional culture that encourages stability and self-reliance. Corporate hierarchies ensure that authority remains centralized, and information tends to flow vertically. The boundaries between and within companies, and between companies and local institutions, thus remain distinct in the independent-company-based system.
The performance of Silicon Valley and Route 128 in the past few decades provides insights into regional sources of competitiveness. Far from being isolated from what's outside them, companies are embedded in a social and institutional setting -- an industrial system -- that shapes, and is shaped by, their strategies and structures.
Understanding regional economies as industrial systems rather than as clusters of producers, and thinking of Silicon Valley and Route 128 as examples of the two models of industrial systems -- the regional-network-based system and the independent-company-based system -- illuminate the different fates of the two economies.
Consider two pairs of comparable companies, one pair located in Silicon Valley, the other on Route 128. The comparison of Apollo Computer and Sun Microsystems -- start-ups in the same market, the former on Route 128 and the latter in Silicon Valley -- shows how small companies benefit from external sources of information, technology, and know-how in a decentralized network-based industrial system. And the case of Route 128's Digital Equipment Corp. (DEC) and Silicon Valley's Hewlett-Packard -- the leading computer-systems producers in the two regions -- shows how regional networks facilitate the reorganization of large companies.
The experiences of Apollo and Sun show how the isolating structures and practices of Route 128's independent-company-based system put start-ups at a disadvantage in a fast-paced industry. Apollo pioneered the engineering workstation in 1980 and was enormously successful. By most accounts, the company had a product that was superior to that of Sun (which was started two years after Apollo, in 1982). The two companies competed neck and neck during the mid-'80s, but in 1987 Apollo fell behind the faster-moving, more responsive Sun and never regained its lead. By the time it was purchased by Hewlett-Packard, in 1989, Apollo had fallen to fourth place in the industry, while Sun was number one.
Apollo's initial strategy and structure reflected the model of corporate self-sufficiency that had been followed by its region's large minicomputer companies. In spite of its pioneering workstation design, for example, the company adopted proprietary standards that made its products incompatible with other machines, and it chose to design and fabricate its own central processor and specialized integrated circuits.
