Network for Success by Rachael Lehmann-Haupt

It's entrepreneurial culture, not the climate, that has meant success for Silicon Valley.

In the midst of a profound technical revolution, Silicon Valley has raced ahead of its East Coast rival--the corridor along Route 128 near Boston--and become the reigning center of the electronics industry. And nearly 15 years after her thesis, AnnaLee Saxenian wrote a book detailing just how incorrect her prediction had been. Saxenian, associate professor of City and Regional Planning, uncovers Silicon Valley's secret to success in her book Regional Advantage: Culture and Competition in Silicon Valley and Route 128 [Harvard University Press, 1994].

"Most people look at the regions as comparable--just located on opposite coasts," she explained in a recent interview at her San Francisco home. Then why in the late 1980s was there a mass exodus of engineers from the East Coast to the golden West? And why in 1994 did 20 of Silicon Valley's technology companies boast more than $1 billion in sales compared to only 5 along Route 128? After countless interviews with business leaders, entrepreneurs, researchers, and policy--makers on both coasts, Saxenian found that Northern California's "regional advantage" was not just the sunny weather. She discovered that despite similar histories in university--based research and post-World War II government defense and aerospace contracts, two vastly different industrial cultures exist on each coast.

Silicon Valley operates through a network of specialized companies that draws heavily on engineers trained at Berkeley and Stanford. Sun Microsystems makes Internet hardware and distributes it to Hewlett-Packard to install in its computers. Information flows freely in an interconnected web described by Saxenian as a"decentralized system." On Route 128, by comparison, each company stands frozen as an isolated fiefdom ruled by the traditions of hierarchy and corporate secrecy in a system of"vertical integration." Companies such as Digital Equipment Corporation mass-produce all the components that go into their computers--chips, disk drives--and the designs never leave the company. "The boundaries are wide open in Silicon Valley, so there is a huge amount of communication between firms," Saxenian explained.

Bill Joy, MA'79, of Silicon Valley's Sun Microsystems told Saxenian that "high technology obeys the iron law of revolution...the more you change, the more you have to change.... You have to be willing to accept the fact that in this game the rules keep changing." Saxenian learned Route 128 isn't built for change. The technologies and the opportunities for product innovation get trapped within one company like a spider caught in its own web.

"If you're just going to crank out minicomputers for millions of people year in year out, the independent firm structure works fine," she said. "The independent firm works very well when you have a stable economy, but if you need to keep innovating endlessly and keep introducing new technology in everything from chips to disk drives to software, it's very hard for it all to happen within one corporate structure."

Differences in culture
Saxenian, a native Bostonian who received her PhD in political science from the Massachusetts Institute of Technology (MIT), never thought she would write Regional Advantage, considering her 1980 thesis for her Berkeley Master of City Planning degree predicted that Silicon Valley would stop growing. Then, she blamed highly accelerated urbanization, a high cost of living, transportation congestion, and environmental pollution.

But today, she argues that despite those same problems, Silicon Valley's network of specialized companies adapts faster to the lightning pace of innovation. The "network system," she says, creates an atmosphere that spurs market competition at the same time it encourages collaboration, experimentation, and shared learning among companies.

Saxenian attributes the differences between Silicon Valley and Route 128 to the cultures out of which they came. Silicon Valley grew out of a spirit of technical risk and corporate rebellion while Route 128 was built on the traditional models of the automobile and textile industries. "[Route 128] had electronics while Silicon Valley was still apricot orchards," she said. "The fact that Route 128 had this early history of industrialization is what actually ended up crippling it. Because Silicon Valley started out as an agricultural valley and no industrialization, it could create its own model."

Saxenian explains that Silicon Valley's founders--mostly white men in their 20s from the Midwest--moved to California in the 1930s to break free of tradition. Like the pioneers before them, they considered themselves outsiders. They didn't trust the big corporation with its perquisites and hierarchies, and wished to run things their own way. In California, these men created a new culture in which they shared information and learned from each other's technical advancement.

In 1937, Stanford engineering professor Frederick Terman encouraged his graduate students William Hewlett and David Packard to commercialize an audio-oscillator that Hewlett had designed while working on his master's thesis. Terman loaned the men $538 and helped them get a bank loan that eventually led them to start, in the proverbial Palo Alto garage, the now multi-billion-dollar Hewlett-Packard, Inc. Hewlett and Packard not only set an early example of entrepreneurial risk, but Terman set the stage for close ties between the local electronics industry and the local universities--Berkeley and Stanford. MIT, on the other hand, chose not to invest in Route 128 companies in the early years, Saxenian reports. "MIT maintained an ivory tower role in the regional economy, whereas Berkeley and Stanford have both become part of the regional economy," she said.

Rebellion and risk
One of Silicon Valley's founding myths embodies its spirit of rebellion and entrepreneurial risk. In 1956, a group of Shockley Semiconductor engineers, later known as "the traitorous eight," decided that the company's president William Shockley, one of the original developers of the semiconductor industry, was an inept manager. The group, which included Gordon Moore, '50, and Robert Noyce, who later were to found Intel Corp., left the company to start Fairchild Semiconductor.

By 1963, Fairchild's sales reached $130 million and by 1964 it had spawned 10 spin-off companies. All together, 31 semiconductor firms were started in Silicon Valley during the 1960s, and the majority traced their lineage to Fairchild. A poster of the Fairchild family tree, showing the prolific corporate genealogy, "has come to symbolize the complex mix of social solidarity and individualistic competition that emerged in the Valley," Saxenian writes in Regional Advantage.

Route 128, on the other hand, grew out of a Puritan culture of strong family values. Family loyalty and self-reliance run deep in the corporate culture. "The boundaries within the firm were very strong. When you're inside the family," Saxenian said, "it is a wonderful environment, but once you are outside, you are a pariah."

Saxenian relates that when Route 128's Data General spun off from Digital Equipment Corporation (DEC), DEC president Kenneth Olsen threatened a lawsuit. In Silicon Valley, entrepreneurs often collaborate with former employees. Similarly, Silicon Valley's business people view a start-up company's failure as a normal part of entrepreneurial experimentation. "Silicon Valley's heroes are the successful entrepreneurs who have taken aggressive professional risks--the garage tinkerers who created successful companies," Saxenian writes.

Because Silicon Valley's regional culture grew out of the electronics industry, social and professional networks were often one and the same. At local bars, gossip centered around the latest designs for integrated circuits. Apple founders Steve Jobs and Steve Wozniak, '86, started a group in 1975 called the "Homebrew Computer Club." These counterculture hackers would put notices on bulletin boards (cork, not electronic), inviting people to get together to swap ideas about computing. Eventually Homebrew members started more than 20 computer companies.

"But the social context involves not just hanging out at bars," Saxenian added. The networks evolved into formal organizations, such as the Software Entrepreneurs Forum. Information passed quickly through these networks on everything from scientific breakthroughs to job opportunities. As a result, products were made more quickly and people hopped from job to job.

"On Route 128 the model career is to stay within one company and work your way up the corporate ladder," Saxenian said. "In Silicon Valley, you have 10 careers in 5 years."

In Silicon Valley, status is not reflected in executive offices or assigned parking spaces, but rather in technical achievement. "It has very little to do with whether you finished a graduate degree," Saxenian said.

'A shopping mall of vendors'
Saxenian also explains that sharing information allows for tremendous technical innovation. Companies don't have to divide their attention to create every part of a computer because each company specializes in a different part. "Silicon Valley is like a shopping mall of vendors," she said. "No single firm can innovate in all the different aspects of electronics and computing, so you have firms that specialize in narrow niches within the industry. These components get recombined for every new product."

Saxenian says Hollywood operates in much the same way. Each movie is made through a different combination of directors, producers, actors, set designers, and stage crews. "That collaboration is useful for all sides," she said. "It's a reciprocal learning process. The chip designer needs to know where the computer markets are going because they can't design in a black box. And the computer makers want to have the chip ready for their new product."

The larger the web of collaborating companies grows, the more options there are for combinations. Because a company serves more than one client, when they make a technological breakthrough, every client benefits. Saxenian calls this process "collective learning." A desire to stay ahead of the market demand encourages a great deal of technical experimentation in companies. Saxenian explains that the network system didn't evolve through conscious design, but rather grew organically." And [the network system] turned out to be much more competitive, flexible, innovative, and adaptive than the traditional industrial model that dominates the rest of the country," she said.

Since Regional Advantage was published in 1994, Saxenian says that many people have claimed that Route 128 is beginning to adapt to the network model. But today Silicon Valley still boasts many more startup companies in such key areas as networking, multimedia, and Internet applications. "It's not easy to change the regional culture," she said. "It's going to take a lot longer than five years to turn it around." Saxenian also argues that Silicon Valley's proximity to the Pacific Rim gives it tremendous advantage. A Stanford survey found that 300 of the 800 high tech firms in Silicon Valley were started by Asian Americans. Saxenian's next book is to explore the Asian influence on Silicon Valley.

Saxenian believes that as long as technology continues to develop at a fast pace, the Silicon Valley model will continue to lead. She quotes in her book from R. J. Lofton's The Protean Man that "the god Proteus's power lay in his ability to change his shape from wild boar to wild dragon to fire to flood. What he did find to be difficult and would not do unless seized and chained was to commit himself to one single form." Like Proteus, Silicon Valley continues to reinvent itself to remain perched on the market's leading edge.

Rachel Lehmann-Haupt is working toward her master's degree at Berkeley's Graduate School of Journalism.