One day about a dozen years ago, Glen Penisten figured out a way to build a laser-guided missile. But it was just an idea. He needed $100,000 and several months of company time to prove his idea could fly.
Gingerly, Penisten approached his boss -- soft-spoken, pokerfaced J. Fred Bucy, then manager of the equipment division at Texas Instruments Inc., the electronics giant whose headquarters sprawl across a hillside along the beltway north of Dallas. Bucy liked Penisten's idea, and he liked Penisten, but he doubted the missile could be made cheaply enough even for the Pentagon's budget.
Still, he okayed Penisten's request for funding -- and bet a case of Jack Daniels that Penisten would never get anyone in Washington to buy the missile even if he could make it work.
Two years later, Penisten walked in with an Air Force contract for full-scale production of the laser-guided missile. And Bucy delivered to his star engineer a case of Tennessee's finest.
It wasn't the first or the last time at TI (as the company is called) that high technology had been advanced by the lure of high spirits. Bucy, now president of the $2 billion company, likes to talk about his whiskey wagers (though he takes pains to note that the money for the booze he bets comes out of his own pocket, not the company's, and the liquor gets delivered off company premises).
The challenge to stay innovative in the wonderworld of electronic systems involves much more, of course, than a simple bet now and then. At TI, it takes money, market sense, lots of focus and lots of pressure from the top. A look at what goes on inside TI today reveals a highly-systems-oriented company where teams of engineers are continually pressed for ideas, managers are constantly on the line and top [WORDS ILLEGIBLE] involved in operations.
This pressure-cooker approach to innovation has paid off. In its postwar history as one of the darlings of the electronics industry, Texas Instruments has scored a number of startling firsts: the first commercial pocket radio (1954), the first silicon transistor (1954), the first integrated circuit (1958), the "calculator-on-a-chip" (1971), a $20 electronic watch (1975) and, this year, commercial development of so-called "bubble memories" for computers.
In its management, too, TI has been original. It generally is credited with introducing and promoting zero-based budgeting. Peter Phyrr, the person former Georgia governor Jimmy Carter called in to institute ZBB in state government and who in 1973 wrote the basic book on the subject, started as a "control administrator" at TI. But zero-based budgeting is only a part of a much larger and more sophisticated planning system that TI lives by -- a system that probably only a group of engineers could have devised and a system that company officials concede one has to grow up with to understand fully.
"We've exposed this system to others," Robert Pearson, TI's controller, said in an interview. "They've been aghast at the intensity, the detail. We showed it last year to a group from U.S. Steel. They were flabbergasted."
Just where does an idea spring from at TI? Most of the time it comes from necessity. The company scouts a market, figures out what the next breakthrough has to be, then puts as many researchers, engineers and managers on the projects as required. This happened, for instance, in 1975 when, deadset on coming out with a cheap electronic watch, TI introduced a $20 model, while most of the competition was still charging several times that.
In addition to the practical, TI also encourages the far-out. Lots of imaginative schemes percolate up from the ranks each year. The most exotic of these are tagged "wild hares," and money is set aside to pursue those selected by a committee of top executives. Less exotic proposals are simply called "ideas," and there's money available for these, too.
But for all their emphasis on innovation, company officials fret that bigness is posing a threat to their old way of doing things. The company has tried desperately to maintain the same tone of cool discipline, soft manners, informality and modesty it had when much smaller.
The problem is that with growth has come the need for systems, and with systems has come the rise of the administrator. The vice president has eclipsed the engineer.
"The problem with this system is that it emphasizes the manager over the technical person," said Mark Shepherd, TI's chairman.To compensate somewhat for this, the company has begun a special fellows program, hoping that a bright engineer will be as satisfied being named a "fellow" as a vice president.
TI's rise to wizardry began during World War II, when the Navy commissioned the company (which until then had been involved basically in oil and gas exploration) to build a sub-hunting device. After the war, several ex-Navymen, seeing the potential gold mine in military contracts, joined TI and transformed it from a surveying company to a manufacturer of sonar, radar and other detection devices. In 1951, it bought a license from Bell Labs for the transistor (invented by Bell in 1948 to replace the vacuum tube) and was off and running into the electronics age.
Today, Texas Instruments is the world's leading producer of semiconductor components and a powerful competitor in a broad range of industries from calculators and digital watches to oil exploration devices and military navigation systems. This sweeping assortment of gadgets is part of the company's calculated strategy to spread itself into every profitable electronic market it can.
"What we're trying to do is have a broad business," TI President Bucy said. "This gives us flexibility and a greater chance of attaining our goal size."
Goals are what drives TI.In a major strategy session held every March, product and division managers get up on a stage, make sales and profit projections and commit themselves to the projections in front of their peers. They constantly are reminded of these goals every month by computerized reports that show how each product line is doing.
"The system is driven by Bucy going [WORD ILLEGIBLE] the world saying, 'How're you doing?'" said Pearson, the company controller. TI has 47 plants in 19 countries, and at any one of them a manager can plug into a worldwide communications system to see how he's doing and how he should be doing. It is all on record in a massive computer sitting in Dallas.
TI's targeting process actually starts at the top with the board of directors, which every 12 years or so fixes a long run target. The latest goal, set in 1974, calls for billings of $10 billion by 1990.
To reach this, the company will have to grow at about 16 percent each year through the next decade. The electronics market is expected to expand by something less than that (TI predicts about 11.5 percent). The question is: Can TI pick and choose enough fast-growing segments within the larger market to meet its goal?
Part of TI's success formula so far has been a canniness for sensing potentially explosive markets. "Their forecasting is excellent," said Anthony Langham, a securities analyst for Blyth Eastman Dillon and Co. in New York. "I'll call them sometimes to find out what's happening."
The other key to success has been an impressive ability to innovate continually and to capitalize on these innovations. The company's fundamental strategy has been to be both innovator and mass producer in its field -- a difficult strategy because it requires large investments in both research and production.
The trick in taking this approach is to make sure daily operating costs don't starve planning and development activities. To this end, TI has arranged its management tree as a matrix -- people having clearcut operating functions overlap with people having responsibility for strategy. With everyone rubbing up against everyone else, ideally a sort of equilibrium should be reached.
That is, if tempers and egos don't get the better of everyone. But company chiefs claim to have the system under control. "There isn't much, if any, cutting off at the knees," said Chairman Shepherd.
Even so, there are times when TI's best laid plans don't pan out. Most notable, perhaps, is the company's sluggish performance in the manufacture of minicomputers and microprocessors (a mini, minicomputer), two of the fastest growing segments in the electronics market. In 1971, TI invented the single chip microcomputer, which is much of the basis for this market but has not capitalized as successfully on it as two primary competitors, Digital Equipment and Data General.
Asked to comment, Bucy voiced disappointment in the company's performance here, but added that it is not TI's intention to be a leader in every market it is in.
Given its size and diversity, TI is unusual for keeping all divisions under one tightly structured corporate umbrella. In contrast, some competitors, through acquisitions and expansions, have become collections of loosely held subsidiaries under corporate holding companies. TI puts a premium on internal growth. It has refused to merge with other companies since 1959.
Day-to-day operational responsibility is decentralized in units known around the company as "PCCs" (for product customer centers). There are about 80 of these "little businesses" within TI --for example, there is one for watches, another for calculators and one for radar. A PCC is a small, relatively autonomous chunk of business, combining the engineering, manufacturing and marketing of a product, so far as this combination makes sense. Their advantage is that they can be expanded and contracted quickly as markets change, without jarring the whole organization.
Looking to the future, TI is geared for further growth. It is profitable (earning $117 million last year on sales of $2 billion) and it has room on its balance sheet to borrow for expansion if it needs to. Currently, 47 percent of the company's sales come from its components segment (including semi-conductors and electronic control devices), 27 percent comes from digital products (including minicomputers, data terminals, calculators and watches), 19 percent comes from government electronics, 7 percent from metallurgy and 9 percent from services (primarily oil exploration).
The most growth is expected in digital products, which TI plans to revolutionize through commercial development of bubble memories. The bubble memory was first announced by Bell Labs in 1969, but TI has been the first to develop it commercially. Basically, it is a technology that should make the rotating disks and magnetic tapes now used on computers obsolete. It consists of a one-inch-square package that stores about six times the information existing devices do. The bits of information are stored in the form of magnetic bubbles which move in thin films of magnetic materials.
TI has spent the past two decades learning how to cope with size, trying to preserve a spirit of innovation. The company's greatest asset still may be its youth. Only three of the top officers are over 50 years old. And in hiring, the company prefers to take people fresh out of school. It has been bringing them on board at the rate of about 1,000 annually. About 80 percent of last year's crop had backgrounds in science.
"We train them," said Bucy, "from the ground up."