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 and capital.
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 environment. 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 employees.
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 industry."
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."
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 capacity.
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 endeavor.
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" 1931
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 1988.
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, 1977).
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 1990) 55-60.
14. Blakeslee, "Fred Terman" 8.
15. Cited 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.
16. Blakeslee, "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, 1976) 67.
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 Press/Doubleday: 1984).
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.
25. "Assessing Northern California's Engineering Strength in Selected Technical Fields" Center for Economic Competitiveness, SRI International, Menlo Park, CA (Sept 1988).
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 Equipment Corporation.