I attached the readings needed, read the organizational ecology reading prior to the TI case and answer the question in one page double spaced please. DO NOT use external sources other than the readings attached, plus do not use quotations.3
Death of a Computer
Almost immediately people at Texas
Instruments were calling it Black Friday.
Early in the afternoon of October 28, 1983,
the rumors began to fly, and at the
company’s Lubbock based consumer
products group, the rest of the day was
chaotic. Middle managers called employees
in, a few at a time, to tell them that yes, it
was true and there was nothing that could be
done, and then everyone in Lubbock was on
the phone to friends at all the other TI
facilities, and by four o’clock when the
official corporate announcement was
released to the press, there wasn’t a soul at
the company who hadn’t heard the bad
news. Texas instruments, the company that
had put more computers into American
homes than anyone else, was pulling out of
the home computer business.
Who could have imagined that it
would end this way? Only a year earlier the
consumer products group had been the toast
of Texas Instruments, and the TI home
computer, the 99/4A, its biggest success.
Back then, TI people talked about the 99/4A
with awe. It was destined to dominate the
home computer business, they said. It was
going to reach $1 billion in sales. It was
going to be the biggest winner in the history
of the company. Back then, TI assembly
lines in Lubbock were cranking out 5,000
computers a day, and that still didn’t keep
up with the demand.
The TI Culture
The microprocessor is one of the great
inventions of the age, as seminal a step in
the development of the modern computer as
the invention of the silicon chip was in the
late fifties. The silicon chip made it possible
to put complicated electronic circuitry on a
tiny piece of silicon; the microprocessor
made it possible to compress an entire
computer onto a chip not much larger than a
postage stamp. Today there are any number
of microprocessors inside a personal
computer (different chips control the
graphics and the memory and so on), but the
central microprocessor, called the CPU, is
the computer’s brain, the thing that reads the
bits of information sent to it.
Although selling consumer items like
pocket calculators and computers is what
gives Texas Instruments visibility, the
company’s biggest profits have always been
made in less glamorous ways, chief among
them the manufacture of silicon chips,
which it sells in huge lots at low prices to
other companies. Getting the volume up and
the price down has always been the linchpin
of TI’s sales strategy. And so it was with
microprocessors – the credit for that goes to
a Silicon Valley company named Intel – the
company quickly asserted its superiority in
the marketplace with its first chip,
introduced in 1974, a four-bit chip called the
TMS 1000. (The term “four bits” means that
the circuitry can handle four bits of
information at once. It is a measure of
complexity and also of speed; an eight-bit
chip can work twice as fast as a four-bit
chip.) The TMS 1000 soon became the most
ubiquitous chip in the business, used in
video games, calculators, microwave ovens
and hundreds of other electronic products, to
date, more than 100 million TMS 1000’s
have been sold.
TI’s second-generation
microprocessor was the 9900, but though it
was a quantum leap technologically, it was a
flop in the marketplace. It failed in part
because it was too far ahead of the field,
while Intel and everyone else were just
beginning to make eight-bit
microprocessors, TI leapfrogged them and
made the sixteen-bit 9900. The idea was that
the 9900 would make the eight-bit
competition instantly obsolete and this new
TI microprocessor, like the TMS 1000
before it, would become the industry
standard. Instead, the industry flocked to the
eight-bit microprocessors and left the 9900
dying on the vine. But to back down and
build eight-bit microprocessors like
everyone else was an abhorrent idea for TI,
a company where managerial decisions are
shaped by an internal framework that is a
culture all its own. TI is run by engineers for
engineers. Both Mark Shepherd and J. Fred
Bucey began their TI careers as engineers,
and almost all of its top managers have
engineering backgrounds. Thus, they
understand the needs of engineers – the need
for autonomy, for instance. Despite the
company’s size, the TI chain of command is
quite short, and Bucey and Shepherd try not
to get in the way of managers who are doing
well. The company never skimps on its
research and development budget, no matter
what its cashflow needs might be. R & D,
which is what engineers live for, is at the
heart of Texas Instruments’ technological
success.
But engineers have other, psychic
needs, and these too have become a part of
the TI culture. One is the desire to
accomplish things oneself from scratch,
rather than using existing products. At TI
this frame of mind has led to an obsessive
dislike of – and even contempt for – other
companies’ products. A former TI employee
remembers once suggesting in a meeting
that a computer design might be improved
with a common eight-bit microprocessor
called the Z-80. Fred Bucey flung a book
listing the different TI chips in the direction
of the man and said huffily, “Show me
where it’s listed here.” End of discussion.
Given that corporate culture, there
wasn’t much doubt that TI would stand by
its own microprocessor, the 9900, rather
than conform to a marketplace that wanted
eight bits instead of sixteen. Conforming
would be an admission of defeat. The
preferred solution was to find an internal use
for the 9900 that would make it profitable.
One possibility was to build a consumer
product, a computer that would be driven by
the 9900 microprocessor. It was a classic
Texas Instruments solution – TI divisions
have always been able to post profits by
selling components to other TI divisions –
but it also meant that TI would be building a
computer to fit its microprocessor rather
than the other was around. Though no one
could know it at the time, the TI culture had
just led the company into its first big home
computer mistake.
The TI machine was going to be the
first computer designed for Everyman. Did
Everyman need – or even want – a computer
in his home? That was impossible to say
since no such product existed and since most
Americans had no feel for how a computer
might be useful. That’s what made the
venture so risky. In the late seventies
computers still seemed exotic. Yet TI was
unperturbed by the prospect of trying to
create a market from scratch. After all,
hadn’t the company created the market for
the pocket calculator? Hadn’t it made digital
watches popular? Hadn’t it taken a dozen
other inventions and turned them into
commercial successes? The feeling at TI
was that it had a knack for consumer
electronics and that its knack would come to
the fore again with the home computer. TI
would put out a computer that was just
powerful enough to entice the average
person to take the plunge – no word
processing, but plenty of educational
programs for the kids – yet inexpensive
enough that the plunge wouldn’t break the
bank. On the basis of price alone, TI
thought, the machine would sell. Convincing
people that they needed it could come later.
It wasn’t long before events began to
conspire against the consumer division’s
carefully laid plans. First, the man who had
devised the strategy quit in frustration over
the problems he faced in Lubbock –
particularly the inability to hire the outside
engineers he thought he needed. Then his
chief supporter back in the Dallas
headquarters took an overseas assignment.
To make matters even more
complicated, there was another management
shuffle in 1978, and the man put in charge of
developing the home computer was an
engineer whose previous job had been to
design the expensive business computer. He
didn’t see the home computer in quite the
same way that his predecessor had, and by
the time he finished tinkering with the
design, it was no longer a $400 machine but
an $1150 machine. Then, although TI had
announced that the computer would be ready
by the middle of 1979, the engineers didn’t
shake all the bugs out of the system until the
first few months of 1980, thus missing an
opportunity to cash in on the 1979
Christmas season. And finally, when the
new 99/4 hit the computer stores it turned
out that the average American had no idea
what to do with a home computer and
wasn’t interested in paying $1150 for one.
To the great dismay of everyone at Texas
Instruments, the 99/4, four years and $10
million or so in the making, was a bomb.
The keyboard is what computer
people most remember about the TI 99/4
home computer. The keyboard somehow
became the symbol for everything that was
wrong with the machine. It was not modeled
after a typewriter, as most personal
computer keyboards were. Instead, it looked
like an elongated calculator keyboard, with
stubby little keys that popped through the
plastic casing. TI had chosen a calculator
keyboard because most of the engineers who
developed the 99/4 had cut their teeth on
calculators; that was the technology they
knew best and could produce most
inexpensively. But a short time before the
99/4 came out, another company had put a
calculator keyboard on a personal computer.
The keyboard was widely criticized, and out
of their experience grew a belief that
calculator keyboards wouldn’t cut it. Texas
Instruments, so intent on putting out its own
product, scarcely noticed.
The lesson of the calculator
keyboard was not that it was an engineering
mistake – at bottom, it really didn’t matter
what kind of keyboard you used – but that it
was a marketing mistake. And the same
applied to other facets of the machine. Using
the 9900 microprocessor, for instance, was
good for the Texas Instruments division that
made the chip, but it caused far more
problems than it was worth. Because TI’s
chip division had to make a profit despite
the low demand, the cost to the consumer
division was very high – almost $20 a unit
compared to about $4 for most of the
popular eight-bit microprocessors. Because
it had been designed for industrial uses, it
did not adapt well to a consumer system; the
advantage of having a sixteen-bit
microprocessor was negated by the
circuitous way programs had to be written
for it. And because nobody else in the
industry was using it, independent software
companies, the third party vendors, as
they’re called, had no incentive to write
programs for it. The independents liked to
write programs that could be easily adapted
to different computers. They couldn’t do
that with the 99/4.
What’s This Thing For, Anyway?
By the fall of 1980, with Texas Instruments
selling fewer than a thousand computers a
month, the people in the consumer products
group had come to the not unexpected
conclusion that it was time to go back to the
drawing board. Peter Bonfield, then the head
of the home computer division, felt that the
most critical flaws in the 99/4 were its price
and its 9900 microprocessor, so he asked his
engineers to design a computer that used a
different microprocessor and that cut the
cost in half.
The new design had been slapped
together by a small group of engineers. The
engineers’ new design kept the 9900
microprocessor (there wasn’t any getting
around that) and the main circuitry of the
machine but changed the way the computer
looked. Now the computer had a typewriter
keyboard. The keyboard had also been
separated from the screen – unbundling the
system, it’s called – so that the screen
became optional. (The keyboard could be
attached to a television set.) They also drew
up proposals for cutting down the number of
chips needed to run the computer, which had
the effect of dramatically cutting costs.
By summer of 1981, after months of
working up prototypes, getting the kinks out
of the system, and passing the various
radiation tests mandated by the Federal
Communications Commission, the 99/4A
was ready. The basic cost of the computer to
the retailer was $340 – and the price to the
consumer, without peripherals, was going to
be $550. Don Bynum had done his job. But
would it sell?
Why do you need a home computer?
It is hard to imagine a more basic question,
but no one in the home computer business
has come up with a compelling answer. It is
hard to sell a product when you can’t tell
people why they need it.
For years now, we’ve been hearing
that the day will come when the computer
will revolutionize the way we live. There’s a
feeling among computer people that they are
not only on the frontier of the American
economy but also on the frontier of
American life itself. Scratch a computer
engineer, and you’ll most likely find a
visionary, someone who foresees the day
when computers will do everything but
prepare dinner.
The man whose job it was to answer
that question at TI was William J. Turner,
and he was that rarest of birds at Texas
Instruments, and outsider. He had been hired
away from Digital Equipment Corporation,
an important maker of minicomputers, in
May 1980 and had been named marketing
manager for TI’s consumer products group.
Although he had a degree in mathematics,
he had gotten his job precisely because he
wasn’t an engineer. Turner had spent his
career marketing computers. At 36, he was
the same age as his counterpart in
engineering, Don Bynum, but he was shorter
and thinner, almost completely bald, with
sharp features and a sharp New England
accent.
He brought to the home computer
division something it hadn’t had before: a
sales mentality. Bill Turner was gung ho
about whatever product he was selling,
upbeat and enthusiastic no matter what the
actual state of affairs. He was great with
numbers and projections. In meetings he
always had a chart that proved beyond all
doubt that the home computer was about to
turn the corner.
He came to his job with two crucial
theories. First, he believed that you couldn’t
sell a home computer in a computer store.
Computer stores were meant for people who
already knew something about computers or
who were serious enough about them to
spend several thousand dollars on one.
Those people were not likely to wind up
buying a home computer. Turner wanted to
get the 99/4A placed in the kind of retail
stores that already carried the company’s
pocket calculator, stores like Penney’s and
Sears and Montgomery Ward. From the day
he walked in the door, Turner spent much of
his time building up this retail network, and
he was good at it. Every month he would
report new successes. Toys R Us had signed
up, K Mart had signed up; even 7-Eleven
was on the verge of signing up before the
roof fell in at T1. The engineers hated the
thought of their machines being sold in
stores like 7-Eleven, and they complained
about it, but it was mostly their pride that
was hurt. Turner was right.
Turner’s second theory was that the
price of the 99/4A had to be a lot lower. If
the price was low enough, it wouldn’t matter
that the home computer was more toy than
tool. People would buy it on a lark. Bill
Turner wanted to sell price, and that became
the cornerstone of his marketing strategy. It
didn’t hurt his standing in the company that
he was advocating the one strategy that TI’s
management had always felt most
comfortable with.
So in the months after the 99/4A was
introduced, Turner began bringing the list
price of the 99/4A down, from $550 to $450
to $375. He did this partly by making what
seemed to be outrageous volume projections
and then hustling up new retail outlets to
absorb that volume. He also pushed
Bynum’s engineers to find ways to lower the
cost of the machine, by simplifying the
design, eliminating chips, and so on. That
way the profit margin on each computer
remained steady – 10 per cent – while the
price went down. With each new round of
cost cutting, the engineers became
increasingly unhappy with Turner, for they
felt he was pushing them to do too much too
fast. But no one could argue with the results.
TI had once produced fewer than eight
thousand 99/4A’s a month; it was now
producing that many 99/4A’s in a good
week. That wasn’t enough for the consumer
products group, with its large overhead and
R & D budget, to turn a profit, but it was
more than enough to make people believe
Turner when he pulled out his latest chart
and said the 99/4A was about to take off.
By then, however, Texas Instruments
was not the only company in the home
computer business. Atari, the video game
maker, had had a computer out for some
time that was under $1000 – the Atari 400.
Several toy companies, particularly Mattel
and Coleco, were trying to get out of video
game consoles (which wouldn’t have a
chance if home computers really hit) and
into home computers. Timex had a home
computer in development, which it hoped
would establish an entirely new market, the
under $100 computer. And then there was
Commodore. Nine months after TI put the
99/4A on the retail shelves of America, the
Commodore Corporation, of King of
Prussia, Pennsylvania, introduced its first
home computer. It was called the Vic 20,
and it came on the market at $299.
Launching the Great Price War
Talk to anyone who ever worked on the
99/4A and you’ll get the same story. The
Vic 20 couldn’t compare with the 99/4A. It
was true. While the 99/4A didn’t measure up
to the more expensive small business
computers, it looked spectacular next to the
Vic 20. The Vic 20 had a measly 4K of
memory, while the 99/4A had 16K. The Vic
20 used an old-style eight-bit
microprocessor, while the 99/4A had the
sixteen-bit 9900. The Vic 20 had only about
forty chips in its entire system; the 99/4A
had sixty. There was no question that the TI
computer was a far more powerful, far more
sophisticated system, “a Cadillac competing
against Chevys,” as Don Bynum used to say.
The 99/4A’s advantages, however,
didn’t necessarily translate into sales. The
computer business didn’t work that way
anymore and hadn’t for some time – and
nobody understood that better than Jack
Tramiel, the president of Commodore.
Although he has recently resigned from his
position, Tramiel remains a near mythic
figure in the computer business. He has a
reputation as a tough, driven entrepreneur
who through shrewd dealing and brilliant
marketing single-handedly built
Commodore into a major force in the
computer business. When Tramiel set out to
conquer the home computer market he knew
as well as anyone that the Vic 20 was no
match for the TI 99/4A on the basis of
performance. He also knew that the 99/4A
was no match for the Vic 20 on the basis of
price. Once before, Commodore had put out
a product in a market where its chief
competitor was TI: a line of digital watches.
TI started a price war and drove
Commodore out of the market. Tramiel was
not about to let that happen again. No matter
how low the 99/4A went in price. Tramiel’s
machine could go lower. It simply cost less
to build.
In retrospect Bill Turner’s great
mistake, as big a mistake as the original
decision to use the 9900 microprocessor,
was creating a marketing strategy that lived
and died on price alone. He had other
options. He could have promoted the
99/4A’s superiority to the Vic 20 and
justified a higher price on that basis. He
could have tried harder to answer the
question of why consumers needed to buy
his home computer. But it is not just in
retrospect that this is obvious, it should have
been clear at the time. As soon as the Vic 20
came on the market, some Texas
Instruments engineers took it apart and
analyzed its insides. They poked fun at what
they found, but it was apparent that it was
cheaper to make. The Vic 20’s cost
advantage was no deep, dark secret.
In meetings Turner would rage about
the Vic 20, talk about “destroying
Commodore,” but out there on the retail
shelves, it was Commodore that was
winning.
And why not? Most customers didn’t
know the difference between eight bits and
sixteen bits. Neither did most of the peo…
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