Creating a Twentieth Century Technical
Frederick Terman‘s Silicon Valley
Department of City and Regional Planning
University of California at Berkeley
Berkeley, CA 94720-1850
Paper prepared for inaugural symposium on The Inventor and the
Innovative Society, The Lemelson Center for the Study of Invention
and Innovation, National Museum of American History, Smithsonian
Institution: November 10-11, 1995.
In the 1940s, Frederick Terman envisioned a "community of
technical scholars" in northern California--a modern counterpart of the
groupings of medieval scholars in famous European centers of learning like Oxford,
Heidelberg, and Paris. From his base as the Dean of Engineering at Stanford
University, he sought to create a technical community like those medieval communities
where there was, in his words, "continuous ferment of new ideas and stimulating
new challenges." By pursuing this vision, Terman, more
than any other individual, laid the foundations for the efflorescence of
Silicon Valley during the latter half of the twentieth century.
Terman was brilliant teacher, he was a member of both the National
Academy of Sciences and the National Academy of Engineering, and he enjoyed
a worldwide reputation for his best-selling text, The Radio Engineer's Handbook.
However his most enduring contributions to Silicon Valley were not those of
an inventor or engineer. Rather, he made his mark on the region as a social
and institutional innovator. Frederick Terman helped to shape the relationships
among individuals, firms, and institutions in Silicon Valley, creating a community
that has encouraged continuous experimentation and technological advance for
more than half a century.
The Industrialization of the Santa Clara Valley
When Terman joined the engineering faculty at Stanford University
in 1927, the Santa Clara Valley was a quiet agricultural region known best for
its prune and apricot orchards. A local poet described it at the time as "the
valley of the heart's delight," a bucolic paradise of blue skies and snowy
fruit blossoms. By 1965 the region
had become one of the fastest growing urban areas in the nation. Today it is
the world's leading center of innovation in electronics and computing--a region
that continues to generate new technologies, products, and applications
as well as tremendous growth of output and wealth.
It is no surprise that nations and regions around the world seek
to replicate the Silicon Valley experience, to capture the economic benefits
of technological advance. Yet most of these efforts have foundered. Planners
and policy-makers typically adopt some variant of the "high tech recipe,"
believing that if they combine a research university, a science park, skilled
labor, and supplies of venture capital in a nice environment they can "grow
the next Silicon Valley." What they fail to recognize is that the relationships
that Terman created in the region are as essential to Silicon Valley's continued
dynamism as the presence of educational institutions or supplies of skill
The fact is that Silicon Valley does not look much like the rest
of the American economy. Most of American industry is organized around self-sufficient,
hierarchical corporations that are largely independent of the surrounding
Silicon Valley, by contrast, has pioneered a decentralized industrial system
in which firm specialize and compete intensely, while collaborating in informal
and formal ways with one another and with local institutions, like universities,
to learn about fast changing markets and technologies. The successes of Silicon
Valley firms thus depend as much on being a part of local social and technical
networks as on their own individual activities.
The dynamism of this network-based industrial system is evident
in the accelerated industrialization of Silicon Valley during the postwar period.
In 1959, the region was home to approximately 100 high technology firms, most
of which produced transistors or instruments for military applications. By 1975,
there were some 840 technology firms in the region, including manufacturers
of semiconductors and semiconductor equipment and materials makers as well as
a few computer companies. And by 1990 the region boasted more than 3,200 technology
firms in sectors ranging from producers of engineering workstations, medical
electronics equipment, and networking hardware to developers of database, electronic
design, and multimedia software.
Today these firms collectively employ close to 300,000 workers and account
for over $110 b. in sales and $25 b. in exports.
Not only has the economy grown and diversified but it has also
expanded geographically. As late as 1975, Silicon Valley could be seen as lying
within the boundaries of Santa Clara County--the area extending from Palo Alto
in the north to San Jose in the south. Today technology activity has spilled
over into large portions of Santa Cruz County to the south, Alameda County to
the east, and San Mateo County to the north. Indeed many people consider the
multimedia firms in San Francisco and the software clusters in the East Bay
and Marin as extensions of the burgeoning Silicon Valley economy.
The other distinguishing feature of the Silicon Valley economy
is its unparalleled rates of new firm formation. Throughout the 1980s and 1990s
local enterprises consistently received one-third of the total venture capital
investments nationwide. In 1992, for example, some $800 million in venture capital
investments went to 152 Silicon Valley start-ups out of a pool of $2.5 billion
invested nationwide. Of course not all of these start-ups succeed. In fact failure is common
in Silicon Valley; but as we shall see, failure is critical to the process of
collective learning that distinguishes the region.
And if some fail, many of these start-ups grow very rapidly. In
1991 Silicon Valley was the home of almost half (48) of the nation's 100 fastest
growing electronics companies (compared to 9 located in Southern California
and 6 in Texas.) There is even evidence
that firm growth rates have accelerated in recent decades. There were 47
companies started in Silicon Valley during the 1980s that had surpassed $100
million in revenues by 1992, compared to 28 started during the 1970s and only
16 in the 1960s. Clearly there is
something about the regional environment that supports innovation and growth.
Silicon Valley today is the home of a continually diversifying
mix of sectors, specializations, and firm sizes. There are well-established,
multi-billion dollar companies like the Hewlett-Packard Co., Intel Semiconductor,
and Apple Computer; and there are the high-fliers that were started during the
1980s and have already surpassed a billion in sales like Sun Microsystems, Conner
Peripherals, and Silicon Graphics. However the vast majority of Silicon Valley's
firms are small and medium-sized enterprises known only within a limited technical
community--firms like Ultratech Stepper (maker of photolithographic steppers
used to manufacture semiconductors), Synopsys (developer of electronic design
software), Acuson (manufacturer of medical imaging equipment), Read-Rite (producer
of specialized disk drive components), Cisco Systems (pioneer of computer networking
products), and so forth.
Creating a Technical Community in Silicon Valley
Frederick Terman, more than any other individual, laid the foundation
for this technologically dynamic industrial system. Many individuals and institutions
shape the trajectory of a regional economy, to be sure. No account of Silicon
Valley's origins can, in particular, overlook the crucial role of military research
and funding in the region's early development.
However it was Frederick Terman who envisioned and encouraged the region's potential
long before anyone else. For that reason he deserves to be called the "Father
of Silicon Valley."
The story of the founding of the Hewlett-Packard Co (HP) in a small
Palo Alto garage in the 1930s is one of the most often repeated founding legends
of Silicon Valley. Less well known, but perhaps equally significant to this
story is the role that Frederick Terman played in the process. As a young member
of the Stanford faculty, Terman encouraged his engineering students, William
Hewlett and David Packard, to start a company based on an audio-oscillator that
Hewlett had developed while working on his master's thesis. Terman not only
assisted with technical development of the product, he also helped Hewlett and
Packard find funds to support their initial experiments, lent them money to
start producing the machine, helped them to sell patent rights, and arranged
a loan from a Palo Alto bank that allowed them to begin commercial production.
Terman's involvement in HP foreshadowed the role he would play
in the region for several decades: actively encouraging entrepreneurship and
collaboration between Stanford and local industry. Largely as a result of Terman's
efforts, a small cluster of technology firms grew up alongside HP during the
1930s in the still agricultural Santa Clara Valley. Most were started by Stanford
graduates and, like HP, received technical and financial support from Terman.
Some, like Litton Industries and Varian Associates, became major electronics
manufacturers during the war.
Terman left his faculty position at Stanford in the early 1940s
to take up a wartime post as director of Harvard's Radio Research Laboratory.
When he returned to Stanford after the war as Dean of Engineering he intensified
his efforts to promote the development of the region's technological and industrial
base. The experience in Boston had convinced him of the weaknesses of west coast
industry and universities relative to their older east coast counterparts. Terman
sought to strengthen both the university and local technology-based industry
by building a "community of technical scholars." In his words: "Such
a community is composed of industries using highly sophisticated technologies,
together with a strong university that is sensitive to the creative activities
of the surrounding industry." In keeping with this vision, Terman built Stanford's
electrical engineering program into one of the best in the country by recruiting
promising faculty and expanding its graduate programs.
Terman's most extensive efforts went into building ties between
Stanford and local industry. He was convinced that "If western industry
and western industrialists are to serve their own enlightened and long-range
interests effectively, they must cooperate with western universities wherever
possible and strengthen them by financial and other assistance."
Terman encouraged faculty and students to become acquainted with the region's
businesses and learn of opportunities there. He arranged field trips for students
to local electronics firms, and he spoke regularly at industry meetings to encourage
businessmen in the area to learn what Stanford was doing and how its research
might help their companies. He also encouraged members of the local industry
association work together for the common good, reinforcing a spirit of cooperation
among local manufacturers.
A few examples of Terman's institutional innovations illustrate
the relationships he pioneered in the region. In the 1950s, under Terman's guidance,
Stanford opened its classrooms to local companies through the Honors Cooperative
Program. The university encouraged engineers at electronics companies to enroll
in graduate courses directly or through a specialized televised instructional
network which brought Stanford courses into company classrooms. This program--which
had no parallels elsewhere in the nation at the time-- strengthened ties between
firms and the university and it allowed engineers to stay up-to-date technically
and build professional ties. By 1961 there were 32 companies participating in
the program, with about 400 employees pursuing advanced degrees in science and
engineering on a part-time basis. Enrollment increased dramatically in subsequent
decades. The existence of the Honor's program has, over the decades, provided
an important competitive advantage to Silicon Valley firms seeking to recruit
Terman also promoted the development of the Stanford Industrial
Park, one of the first such parks in the country. He referred to it as "our
secret weapon." While initially a source of income to support the growth
of the land-rich but cash-poor university, the park helped to reinforce emerging
patterns of cooperation between the university and local electronics firms.
The first tenant, Varian Associates, chose to move to the park in the late 1940s
in order to "bring the company closer to old friends, ease ongoing collaborations,
and improve access to graduate students."
As the university granted more acreage for industrial use, other
firms followed. The park was located a short walk from Stanford classrooms.
Park companies frequently hired Stanford faculty members as consultants and
graduates as employees, and became involved in research projects that were relevant
to their own activities. Terman described how he used former student David Packard
to help promote the industrial park: "He and I began playing a little game.
People would come to see me about locating a business in the park, and I would
suggest they also talk to Packard to find out what it meant to be close to a
cooperative university. When people came to him first, he would reciprocate.
Our goal was to create a center of high technology." By 1977, the Stanford
Industrial Park housed some 75 companies with more than 19,000 employees collectively--and
it had become a model that was replicated around the world.
Finally, Terman initiated an innovative industrial liaison program
at Stanford. Industrial affiliates who pledged $5000 a year for five years were
granted access to the university's research and its graduate students through
regular reports, guest lectures and seminars at the company, and annual reviews.
The program gave member companies access to both graduate students and research
findings while allowing Stanford researchers to stay on the cutting edge of
industrial developments. The Stanford Industrial Affiliates program continues
to provide opportunities to companies of all sizes to build highly focused and
interactive relationships with the school's laboratories. By all accounts it
builds closer relationships between faculty, graduate students, and local firms
than comparable programs at places like MIT.
In his efforts to build a technological community in northern California
that could compete with the East, Frederick Terman thus promoted more open and
reciprocal ties between Stanford and local industry than existed elsewhere in
the nation at the time. He also fostered collaboration between local companies. Just as Terman's
support of his engineering students far exceeded the traditional limits of professorial
encouragement, former students extended assistance to other firms in the
region, providing new entrepreneurs with encouragement, advice, computer time,
space, and even financing. A San Jose-based journalist later noted that: "As
their company grew, Hewlett and Packard became very involved in the formation
and growth of other companies. They encouraged entrepreneurs, went out of their
way to share what they learned, and were instrumental in getting electronics
companies to work together on common problems. . . Largely because of them,
there's an unusual spirit of cooperation in the local electronics
How Technical Community Supports Industrial Decentralization
By opening up the boundaries between the university and local technology
firms, and between the firms themselves, Frederick Terman created a social and
technical infrastructure in Silicon Valley that supports a highly decentralized
industrial structure. In keeping with Terman's priorities, the Silicon Valley
community glorifies entrepreneurial risk-taking and individual competition,
while simultaneously practicing open information exchange and what one observer
described as "a surprising degree of cooperation."
Every generation in Silicon Valley produces a new crop of entrepreneurial
heroes. These entrepreneurs, who serve as role models for subsequent generations,
are celebrated for their technical achievements and for the often considerable
wealth that success has brought them.
In the 1960s it was the "traitorous eight"--eight engineers
who left Shockley Transistor to start a competing firm. Fairchild Semiconductor
quickly surpassed its parent commercially and pioneered several important breakthroughs
in semiconductor products and processes. It also served as a managerial training
ground for many of the region's engineers.
When Fairchild began to falter, however, many of the original eight founders
went on to start new ventures. Eugene Kleiner went on to become one of the region's
most prominent venture capitalists, while Gordon Moore and Robert Noyce co-founded
Intel Semiconductor in 1968. To this day, a poster of the Fairchild family tree
that traces the genealogy of the many scores of Fairchild spin-offs, hangs on
the walls of many Silicon Valley firms.
During the 1970s many of Silicon Valley's entrepreneurial role
models came out of the computer industry: individuals like Ken Oshman, who started
ROLM Corporation in a prune shed in 1969 and sold it to IBM 15 years later for
more than $1 b.; Gene Amdahl, who started Amdahl in 1970 to manufacture mainframe
computers; James Treybig who started Tandem Computers in 1974 to pioneer fault
tolerant computers and saw it reach the Fortune 500 list within a decade; and
of course, Steve Jobs and Stephan Wozniak, co-founders of Apple Computer. The
heroes of the 1980s include people like T. J. Rodgers of Cypress Semiconductor,
Larry Ellison of Oracle, and Ed McCracken of Silicon Graphics. Women like Sandra
Kurtzig, founder of ASK, became increasingly active in the Silicon Valley community
in the 1980s as well. The heroes of the 1990s will undoubtedly be in the software
and multi-media related arenas.
Many Silicon Valley firms are started by engineers who are frustrated
by unsuccessful attempts to pursue new ideas within the region's established
companies. The typical start-up brings together individuals who may have worked
together or gone to school together, who know one another by reputation or who
are introduced by friends. They begin with a technical idea or a product for
which they seek funding from local venture capitalists, who themselves are often
veterans of local industry and thus can provide hands-on operating experience
and networks of contacts as well as capital to new ventures. And they rely on
the region's rich infrastructure of specialist suppliers and service providers
to get their business off the ground.
The case of Silicon Graphics is instructive. In the early 1980s
two Stanford engineering professors defined a new approach to producing 3-D
graphics workstations that exploited powerful new semiconductor technologies
being developed by other firms in the region. Several local venture capital
funds provided seed funding and helped identify an experienced manager from
HP to serve as CEO. Silicon Graphics purchased many of the specialized inputs
for its systems, including semi-custom integrated circuits and software, from
local producers. Once the firm was started in 1985, its founders encouraged
their venture capitalist to finance MIPS Computer Systems, a venture founded
by a Stanford colleague who was working on the technology that would eventually
provide the central processor for their systems.
Such entrepreneurial experimentation is only possible in Silicon
Valley because of the practices of information exchange and open labor markets
that go back to the days of Frederick Terman. The Wagon Wheel bar in Mountain
View, where the region's semiconductor engineers went during the 1960s to exchange
technical ideas and information and solve problems, has been termed "the
fountainhead of the semiconductor industry." As Tom Wolfe described it:
Every year there was some place, the Wagon Wheel, Chez Yvonne, Rickey's,
the Roundhouse, where members of this esoteric fraternity, the young men and
women of the semiconductor industry, would head after work to have a drink and
gossip and brag and trade war stories about contacts, burst modes, bubble memories,
pulse trains, bounceless modes, slow-death episodes, RAMs, NAKs, MOSes, PCMs,
PROMs, PROM blowers, PROM blasters, and teramagnitudes, meaning multiples of
a million millions.
By all accounts these informal conversations were pervasive and served as important
source of up-to-date information about competitors, customers, markets and technologies.
Entrepreneurs came to see social relationships and even gossip as a crucial
aspect of their businesses. In an industry characterized by rapid technological
change and intense competition, such informal communication was often of more
value than more conventional but less timely forums such as industry journals.
With time, the forums for information exchange in the region multiplied.
The Homebrew Computer Club, for example, was started in 1975 by a group of local
microcomputer enthusiasts who had been influenced by the counterculture ethic
of the sixties. They placed a notice on bulletin boards inviting those interested
in computers to "come to a gathering of people with like-minded interests.
Exchange information, swap ideas, help work on a project, or whatever."
Within months the group's membership had reached some 500 regular members, mostly
young hackers who came to meetings to trade, sell, or give away computer hardware
and software and to get advice. The club became the center of an informal network
of microcomputer experts in the region, and eventually more than 20 computer
companies, including Apple Computer, were started by Homebrew members.
Today there are a great multiplicity of more and less formal gathering
spots in the region--from trade shows to technical conferences to hobbyist clubs
to the local health club--that serve as forums for communications and specialized
information exchange. Moreover, information exchange continues on the job. Competitors
in Silicon Valley firms consult one another on technical matters with a frequency
unheard of in other areas of the country.
Of course, Silicon Valley is no longer the tightly knit community
of technological pioneers that it was in earlier decades. No longer does everyone
in the region "know everyone else" and there is a newfound willingness
among firms to initiate lawsuits against former employees or suspected imitators.
The pressures of intensified international competition during the 1980s interrupted
the feverish pace of innovation and wealth creation of earlier decades. However
the culture of openness, the fast pace of business activity, and the cooperative
practices that characterized the region remain intact.
The region's social and professional networks are not simply conduits
for the dissemination of technical and market information. They also serve as
efficient job search networks. Job information flows freely along with shop
talk, and gathering places serve as informal recruiting centers as well as listening
posts. Such labor market information is essential in Silicon Valley, where engineers
shift between firms so frequently that mobility is not simply socially acceptable,
it is the norm. Unlike other parts of the nation, where the preferred career
path is to move up the job ladder of a stable and established corporation, in
Silicon Valley the most desirable career option is to join a small company or
even a start-up. And it is not unusual to meet engineers who have worked for
more than half a dozen different firms in the course of a twenty-year career.
The geographic proximity of the region's firms facilitates these
high rates of inter-firm mobility. Moving from job to job in Silicon Valley
is not as disruptive of social, personal, or professional ties as it can be
elsewhere in the country. Silicon Valley executives joke that "people can
change jobs here without changing car pools."
As individuals move from firm to firm within Silicon Valley their
paths overlap repeatedly: a colleague might become a customer or a competitor;
today's boss could be tomorrow's subordinate. These relationships transcend
sectoral and occupational boundaries. Individuals move both within and between
industries: from semiconductors to personal computers or from semiconductor
equipment to software. They move from established firms to start-ups, and vice
versa. And they move from manufacturing to service provision such as venture
capital or consulting firms--and back again.
Professional loyalties and friendships generally survive the turmoil.
In fact, the continual shuffling and reshuffling tends to reinforce the value
of personal relationships and networks. Few presume that the long-term relationships
needed for professional success can be found within the four walls of any particular
company. Many rely on trade association meetings, conferences, and informal
social gatherings to maintain and extend their professional networks.
As a result, Silicon Valley's engineers have stronger commitments
to one another and to the cause of advancing technology than to individual companies
or industries. According to one executive who has spent three decades in the
region: "Here in Silicon Valley there's far greater loyalty to one's craft
than to one's company." Or in the words of another senior executive: "There
are a lot of people who come to work in the morning believing they work for
Silicon Valley's social and professional networks operate as a
kind of meta-organization through which engineers, in shifting combinations,
organize technological advance. Individuals move between firms and projects
without the alienation that might be expected with such a high degree of mobility
because these relationships remain intact. In Silicon Valley, the region and
its networks, rather than individual firms, are the locus of economic activity.
The geographic concentration of skill and know how in the region
enhances the viability of local start-ups. Moreover, several decades of entrepreneurial
experimentation has generated a rich and highly diversified technological infrastructure.
Silicon Valley‘s infrastructure of specialist suppliers, subcontractors, and
service providers that is unsurpassed in U.S., if not in the world. A 1988 study
conducted by Massachusetts-based Digital Equipment Corporation assessing the
region‘s technical and engineering strengths concluded:
The region possesses a special kind of infrastructure that has in effect
institutionalized innovation in technical fields across the board . . .The area
is unrivaled in sheer variety of companies and level of formal and informal
networking among companies in technical fields. Hardware and software are closely
aligned. Prototype development and engineering is particularly strong. It is
this cross-cutting strength--an economic infrastructure comprising strong technology,
human resource, capital inputs, and numerous industrial synergies--that makes
Northern California a magnet for top engineering talent, innovative start-ups,
and major breakthroughs in technical fields across the board.
It is no surprise that technology companies from all over the globe have located
research labs or manufacturing facilities in Silicon Valley.
How Technical Community Generates Learning and Adaptation
Outsiders sometimes view the intensity of competition and the frenzy
of entrepreneurial activity in Silicon Valley as "pathological"--judging
the formation of multiple ventures in the same technology and the proliferation
of start-ups as a wasteful drain of resources. But it is precisely the competitive
rivalries among local producers that force new firms to define and defend their
markets and to find distinctive ways to innovate. Many firms do not survive
these competitive struggles, however the region as a whole continues to flourish.
There are many failures in Silicon Valley; some are spectacular.
But failure is viewed in the region as an opportunity for learning. The existence
of a strong technical community allows local entrepreneurs learn both from their
own experience and from those of their colleagues and predecessors. An accumulation
of local knowledge allows them to experiment with new strategies and organizational
forms as well as with new technologies. This phenomenon of succeeding by learning
from failure has undoubtedly enhanced the region's competitiveness. According
to one observer: "tolerance of failure is absolutely critical to the success
of Silicon Valley. If you don't tolerate failure, you can't permit success.
The successful people have a lot more failures than the failures do."
Silicon Valley is best viewed a technical community that generates
multiple parallel and competing experiments with new technologies, applications,
products, and markets. The ease of new firm formation ensures that many more
technical paths are pursued in Silicon Valley than would be possible in either
a traditional large firm or even within a region with less fluid social and
industrial structures. A network-based regional economy like Silicon Valley
generates and pursues a rich array of technological and organizational alternatives.
This dynamism is not simply the product of start-ups and small
firms. Silicon Valley's largest corporations--which are global firms with operations
all over the world--have integrated into the region's technical community as
well. By internally decentralizing their operations into semi-autonomous teams
or divisions, and by relying on networks of local suppliers and subcontractors
rather than trying to do everything internally, companies like HP and Sun Microsystems
can respond far more rapidly to changing markets and technologies than the traditional,
vertically integrated American corporation.
Moreover, by remaining part of the local technical community rather than
withdrawing from it as they grow, large firms in Silicon Valley both learn quickly
about technical and market trends while also contributing to the regeneration
of the region‘s technical infrastructure. Former HP executives, for example,
are responsible for starting more than 18 new firms in Silicon Valley during
1974-1984, including such successes as Rolm, Tandem, and Pyramid Technology.
The large firms in Silicon Valley have organized themselves to
exploit the regional advantage provided by location in a rich technological
infrastructure. By focusing on what they do best and purchasing the remainder
from other specialists they have created a network system that spreads the costs
of developing new technologies, reduces product-development times, and fosters
reciprocal innovation. These inter-firm production networks, which allow them
to innovate and learn collectively with other firms in the region, reduce the
differences between large and small firms, while also transcending distinctions
of corporate age, size, and sector.
The partnership between Hewlett-Packard and local semiconductor
design specialist, Weitek, illustrates the potential for complementary innovation
in Silicon Valley. Tiny Weitek, which has no manufacturing capacity of its own,
is a leading designer of high-speed number-crunching chips for complex engineering
problems. In the late 1980s, HP, which had long purchased Weitek co-processors,
needed faster chips for a new model workstation. In order to fully optimize
Weitek's advanced designs, HP engineers offered to open up its state-of-the-art
fabrication facility--which had historically been closed to outside firms--to
Weitek for use as a foundry. A three-year agreement insured that HP would manufacture
Weitek chip sets in its foundry and purchase at least $10 million worth, and
it gave Weitek the option to purchase an additional $20 million of chip sets
from the foundry to sell to outside customers.
The arrangement assured HP of a steady supply of Weitek's sophisticated
chips and allowed it to introduce its new workstation faster than if it had
designed the chip internally. It provided Weitek with a market and the legitimacy
of a close association with HP as well as access to a state-of-the-art foundry.
And the final product itself represented a significant advance over what either
firm could have produced independently. A more traditionally organized computer
company would most likely have designed and produced the chip set internally.
This relationship had longer-term payoffs as well: it allowed each
firm to draw on the other's distinctive and complementary expertise. HP enjoyed
greater access to Weitek's design talent and could influence the direction of
future chip designs. Weitek acquired first-hand access to the needs and plans
of a key customer as well as assured access to HP's sophisticated manufacturing
In short, Silicon Valley is far more than an agglomeration of individual
firms, skilled workers, capital and technology. Rather it is a technical community
that promotes collective learning and flexible adjustment among specialist producers
of a complex of related technologies. The region's dense social networks and
open labor markets encourage experimentation and entrepreneurship. Companies
compete intensely while at the same time learning from one another about changing
markets and technologies through informal exchange as well as more formal collaboration.
And loosely-linked team structures within firms encourage horizontal communications
internally and with outside producers and institutions.
Frederick Terman's technical community has proven remarkably resilient.
Silicon Valley, with its decentralized, network-based industrial system, has
not simply survived, but flourished, for more than four decades. It was Terman's
community that during the 1950s and 1960s seized the lead in semiconductor innovation
and manufacturing from the well established east-coast producers who once dominated
the industry. It was the same technical community that allowed the region to
recover and reinvent itself after losing the market for semiconductor memories
to Japanese competitors in the mid-1980s--a time when most observers predicted
that Silicon Valley would follow Pittsburgh and Detroit into industrial decline.
And it was Terman's technical community that allowed Silicon Valley to triumph
over Boston's Route 128 in micro-computers and networks during the 1990s, despite
the latter's long-standing strengths in computing.
This decentralized industrial system is particularly well adapted
to the current competitive environment--an environment in which speed is of
the essence. Producers who must meet ever shorter times-to-market and accelerating
product cycles benefit immensely from being part of a localized technical community
that facilitates rapid communication and collective learning. This decentralized
system has allowed Silicon Valley to surpass both domestic and foreign competitors
during the 1990s.
Innovation in Silicon Valley is thus an inherently social process:
it is only through participating in a community that entrepreneurs pioneer the
technological and commercial breakthroughs that have fueled rapid regional growth.
And yet without opportunities for intensely competitive and single-minded individuals
to achieve personal status and wealth, this self-organizing and technologically
dynamic industrial system would simply grind to a halt. Frederick Terman's brilliance
lay in his ability to envision and foster a technical community that transcends
the boundaries between individuals, firms, and other local institutions--and
one that balances the ongoing tension between individual autonomy and collective
1. Sandra Blakeslee, "Want to develop a world center
of innovative technology? Its simple. Get yourself a Fred Terman." The
Stanford Observer November 1977, pp. 3, 8.
2. Clara Louise Laurence, "The Valley of the Heart's Delight"
3. AnnaLee Saxenian, "The Cheshire Cat's Grin: Innovation,
Regional Development, and the Cambridge Case" Economy and Society
Vol 18, No 4 (Winter 1989). See also "The Cheshire Cat's Grin: Innovation
and Regional Development in England" Technology Review Feb/March
4. For a description of the evolution and organization
of the classic American corporation, see Alfred Chandler, Jr. The Visible
Hand: The Managerial Revolution in American Business (Cambridge, MA: Belknap,
5. Silicon Valley and Route 128 are typically regarded as comparable
regions located on opposite coasts. They share similar origins in WWII and
postwar military funding of university-based research, and today both boast
world class engineering universities, ample supplies of skilled labor and venture
capital, and a mix of small and large technology firms. Yet Silicon Valley has
consistently outperformed Route 128 technologically and commercially. In Regional
Advantage I argue that during the 1980s the Route 128 region came to be
dominated by a small number of vertically integrated minicomputer corporations.
These firms internalized a wide range of productive activities and their relationships
with one another and with and local institutions (like universities) were governed
by practices of practices of secrecy and corporate loyalty. Corporate hierarchies
within the firm in turn ensured that authority remained centralized and information
flowed vertically. See Regional Advantage: Culture and Competition in Silicon
Valley and Route 128 (Cambridge, MA: Harvard University Press. 1994).
6. Technology firms are defined in the data to include
producers of computers and office equipment, communications equipment, electronic
components, guided missiles and space vehicles, instruments, and software and
data processing. Data from County Business Patterns (Washington, D.C.:
US Government Printing Office, 1959, 1975, 1990)
7. "Business Bulletin San Jose" San Jose Office of
Economic Development, January 1994.
8. These numbers do not simply include small firms growing
on a small base: the list of Silicon Valley fast growing companies always
includes a handful of billion dollar corporations as well as firms with under
$100 million in sales. The data comes from Electronic Business magazine's "100
Fastest Growing Electronics Companies" list, which is calculated on the
basis of five-year compounded average annual sales growth rate for U.S. electronics
companies. Electronic Business May 18, 1992.
9. Corporate Technology Information Service, 1993.
10. See Stuart
W. Leslie, The Cold War and American Science: The Military-Industrial-Academic
Complex at MIT and Stanford (1993) and the account of Silicon Valley's origins
in Regional Advantage.
11. See David
Packard, The HP Way: How Bill Hewlett and I Built Our Company (New
York: Harper Business, 1995) and Tony Perkins and Rich Kaarlgard, "Inside
Upside" Upside 3, 5 (June 1991).
12. Alan Bernstein
et. al., Silicon Valley: Paradise or Paradox? (Mountain View, CA:
Pacific Studies Center, 1977)
13. Stuart W.
Leslie, "From Backwater to Powerhouse" Stanford (March
"Fred Terman" 8.
in Michael I. Luger and Harvey A. Goldstein, Technology in the Garden: Research
Parks in Regional Economic Development (Chapel Hill: University of North
Carolina Press, 1991) 125.
"Fred Terman" 8.
17. See Regional
Advantage for the comparison with Boston's Route 128 and the relationship
between MIT and local industry.
18. James J.
Mitchell, "H-P Set the Tone for Business in the Valley" San
Jose Mercury News Jan 9, 1989, 1D-2D.
19. Gene Bylinsky,
The Innovation Millionaires: How They Succeed (New York: Scribner,
20. During the
1960s it seemed as if every engineer in Silicon Valley had worked for Fairchild:
fewer than two dozen of the four hundred men present at a 1969 semiconductor
industry conference had never worked for Fairchild. Many Silicon Valley entrepreneurs
and managers still speak of Fairchild as an important managerial training ground
and applaud the education they got at "Fairchild University."
21. See Tom Wolfe's
brilliant description of the conversations at the Wagon Wheel and other comparable
watering holes: "The Tinkerings of Robert Noyce: How the Sun Rose on
the Silicon Valley" Esquire (Dec. 1983) 346-374.
22. See Stephen
Levy, Hackers: Heroes of the Computer Revolution (Garden City: Anchor
23. Rob Walker,
LSI Logic Corporation, interview by author, May 2, 1988.
24. Wilf Corrigan,
quoted in John Markoff "Silicon Valley Faces a Mid-Life Crisis" New
York Times Sept 28, 1992, C1, C5.
Northern California's Engineering Strength in Selected Technical Fields"
Center for Economic Competitiveness, SRI International, Menlo Park, CA (Sept
26. Richard Kaarlgard,
"George Gilder Interview" Upside Oct 1990, 52.
27. See Regional
Advantage for a comparison of HP and the more traditionally-organized Digital