DiiWsEY
HD28
.M414
9o
ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
The Potential of "Spin-off"
from A Systems Perspective
Jong-Tsong Chiang
November 1990
WP
3224-90-BPS
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
The Potential of "Spin-off"
from A Systems Perspective
Jong-Tsong Chiang
November 1990
WP
3224-90-BPS
^
.
^ J 1990
The
Potential
A Systems
from
"Spin-off"
of
Perspective
Abstract
The pros and cons
"spin-off"
for
very diverse,
are indeed
"strategy"
and so are the "spin-off" patterns ever studied and identified.
a systems perspective and emphasizes the
paper adopts
design and integration
oriented programs.
conservative
exploiting
(e.g.,
aspects
originate
major innovation, much
systemic character.
early
War
that,
in
a
I,
at
the
national
technical
sense,
and played a key role
military
for
in
"spin-off"
appreciation
of the strategic importance
and economy,
and
its
gained during wartime.
is
the
radio
investigated.
Navy
contribution
in
national-level
this
the
This
contributed
technology and
"ail-American"
The Navy's enormous and
effect
originated
from
of radio to national
systems
integration
Along with other programs
were the primary focus,
in
purposes during World
helping establish an
far-reaching
to
and experience
arena with strong
Navy consolidated
level
"spin-off"
the U.S. Navy's role in
coordinated radio industry after the war.
efforts
efforts
civilian
in
illustration,
strictly
Nevertheless, the
little.
industry
less technological
of radio technology and industry
history
case shows
As an
unlikely that they will
is
it
However, the systems
programs may be applied
these
mission-
technology rather than carry out radical
and technological advances,
industry.
aerospace)
under urgent time pressure) and concentrate on
scientific
civilian
(and
Because many of these programs are technically
existing
the
of military
This
systems
case provides
a
in
its
security
experience
which systems
"new" pattern of
systems "spin-off" which so far has been largely overlooked.
The
1.
of
Potential
Views about and
Diverse
In recent years, the U.S.
A Systems
from
"Spin-off"
Patterns
"spin-off" strategy (if
argued that the large defense-related
the
allocation
"Spin-off"
of
On
called) has been a hot and controversial topic.
R&D
of resources in the national
the one side,
and
investment
economy while
and
levels
among major non-communist industrialized
rise of West Germany and, particularly,
^
R&D)
been raised
contrast with
to
share in
the erosion
the
and there
is
is
military
a
R&D)
productivity
countries
The
lower military budget (or
it
investment has distorted
and civilian technologies have been diverging,
shares
could be so
it
negative correlation between the military (total and
expenditure
Perspective
after
growth
1960s.2
Japan, both with far
GNP
than the U.S., have often
of U.S. competitiveness in
many manufacturing industries since the 1970s.
On the other side, it is advocated that military enterprise and
aerospace programs are an effective way of generating new
technology^ which could help maintain the U.S. technological
leadership and benefit civilian industry in the long run.
nuclear
are
power,
among
the
Indeed,
semiconductors,
the
reference.
with
R&D
is
Jet engines,
communications
satellite
examples most frequently mentioned.
views about the contribution of military (and
aerospace) programs
One reason
computers,
that
to
the
many
economic performance are very diverse.
analyses use different standards as
For example, the defense programs could be compared
sponsored by National Science Foundation, by other Federal
agencies, or by commercial companies.
against a system which
is
differently
They could
managed.
also be assessed
And
there could
even be investments of different weights along the spectrum of basic
research,
applied
validation, etc.,
reduction
and
research,
development,
engineering,
and inclusion of different schemes
credit. 5
Certainly
it
in
can be argued that
technology
tax
it
collection,
is
inappropriate to consider cost of "spin-off"
because the cost should
be charged against the targeted missions.
But when the investment
is
very big, and "spin-off"
investment,
then
quantitative
in
difficult
used as one reason to partly justify the
is
consideration
the
For strategic implications,
"spin-off"
patterns.
DOD
this
own
at
R&D
the case
DOD's
DOD's
any prices induced some firms
virtually
commercial
the
products developed
the
power and
for
aircraft
their
military
infrastructure
and
support
purposes.
systems,
grow economically
military
efforts. ^
some programs did not create
Still,
technological
to
As an example,
civilian
margins of the
significant
But they accelerated the progress
and technical advances.
by overcoming the resistance
the
a
abundant
The
therefore could
demonstration.
nuclear
In
like
industry
at
In
could utilize rather
nuclear technical data, space launch vehicles, etc.
change through
the use of computers in highly
space programs was said to have greatly increased the
visible
acceptance of computers by the business world.
Finally,
as
the early
of semiconductors shows, the practice of mission agencies
history
(mainly
DOD
and
NASA)
a competitive market
to establish
encouraged many small firms
(e.g.,
invest
to
communications, the defense needs created
satellite
technological
scientific
R&D
direct sponsorship of
assured procurement of high performance
resources, and their endeavor achieved great success.
of jet engine,
directly
be useful to understand
have been some studies of
supported relevant research, the key technological
Instead,
products
also
there
however
cost,
sense.
semiconductors and computers,
in
progress did not take place under
contract.
may
it
regard,
For instance,
important cases.
though
In
of "spin-off"
makes some
terms,
to
enter the markets.
Some
of them
Texas Instrument) ultimately took over conservative
established
Though
firms'
the
necessarily
cases
leading
as
position
and rejuvenated
industry.^
the
discussed above are neither exhaustive nor
representative,
they
do reveal the great variety and
complexity of "spin-off" patterns.
2.
A Systems
From
programs
a
are
Perspective
for
Mission-Oriented
systems perspective, because military
mostly
mission-oriented
(except
those
Programs
(and
aerospace)
supporting
fundamental and
relatively
needs analysis and
final
breakdown
into
a
basic
hierarchy
research),
they
usually
with
start
systems requirements, followed by the
final
of both
and managerial
technical
planning and implementation tasks.
In
be integrated well into the targeted
systems and the systems should
end
the
all
meet the requirements mandated by the mission.
whole process
iterative--some
is
adjusted upward
or resource
or
downward depending on
availability,
should
tasks
Although the
may
specifications
quality
initial
the
technical
the
be
progress
programs are usually under big
military
time pressure or pressure from the final product or systems
The ultimate force behind
requirements.
enemy's threat which may be
In
sense,
this
fundamental
military
programs are very different from
research--mainly
to
increase
knowledge about some phenomena.
be able
to
to
available for urgent purposes
to
exploiting
existing
the
"systems effort"
may
any technical sense.
without any time slack.
state-of-the-art
3.1.
than
As
trying
to
a result,
the
Rather, to achieve mission objectives
from
this
The experience,
generate
new
many
in
systems effort
may
strong
capability and
facilitate
the
systemic features.
In
the U.S. Navy's role in the early radio industry provides a
example.
U.S.
the
about something significantly
scale than civilian ones.
lessons resulting
3.
rather
technical advances.
not bring
establishment of some industries with
classic
Then
put together in configurations which are different from or
far larger in
line,
use what are readily
to
be technically conservative, and mainly focus on
significant scientific and
this
not
Under some extreme conditions, during
be applied.
programs have
are
may
may push through more
some novel technologies to emerge or become mature
wartime for example, the military have
things
and
understanding
the
Their targeted mission
"wait" for, though they
investment,
enough
the
is
perceived.
or
real
pressure
this
Navy and Radio Technology and Industry
Industrial
Fragmentation
before
World
War
I
Until
20th century, despite the influence of Mahan's
the
thought of naval power, naval ships
communicate.
sea were very difficult to
at
Naval exercises and maneuvers involved high degree
of autonomy of each ship and usually were not accompanied by well
coordinated fleet action.
This situation lasted until the invention of
radio.
Wireless
telegraphy^
Guglielmo Marconi
in
first
demonstrated publicly by
development by sending naval officers
to
sponsoring some American experiments,
equipment aboard ships and
Many
active.
to
set
Europe
study and by
to
action
its
its
to
install
the
up shore radio stations was not
high-ranking naval officers, including admirals and
captains, resented the idea of receiving
thus
The apparatus was brought
1886.
in
Although the U.S. Navy kept abreast of
U.S. in 1889.
to the
was
England
orders
They
by wireless.
opposed with might the new agency of communications.
Besides, in the
first
were ready
to
system; the
Army
decade of
furnish
the
century, few
this
the apparatus.
American suppliers
The Navy used
the
Braun system, both from Europe.
Slaby-Arco
The
Fessenden and deForest systems, the two American systems, were
used respectively by the Weather Bureau and a circle of naval
officers.
Meanwhile, the Marconi system was largely
commercial arena.
wireless
in
the
Therefore a virtual chaos existed in the U.S.
systems. ^o
Ignoring
the
wireless
between
compatibility
systemic
different
character
suppliers'
(which requires
systems)
avoiding being dominated by specific suppliers, the
"composite"
and
Navy
tried
personnel integrate the different devices on an ad hoc basis.
there
its
system by purchasing only components and having naval
was no technical standardization or uniformity.
yard and station pursued
its
leading to a proliferation of
So
Each Navy
own method of installation and
many different types of wireless
repair,
sets
throughout the service and high cost and low maintainability.^'
In
radio
April
1912, Congress enacted the Radio Act to regulate the
activities
misinformation.
operators
which had created great interference and even
12
The Act prohibited independent "amateur"
from transmitting
in
the
preferred
portion
of the radio
spectrum.
Thus Navy radio
access to wireless services.
required
transmit
to
would always have
also sought to ensure that ships
It
stations
no commercial stations within a 100-mile radius.^
Systems
3.2.
Integration
and
At the outbreak of World War
up
set
adjacent to
series,
in
it
transmissions
there
if
was
^
Consolidation
during
Wartime
however, the Navy's network
I,
was found lacking systematic coordination.
were
were now
and receive commercial messages
Because shore
stations
each could only work with the two stations
along the chain.
one link broke down, no
If
were relayed beyond
that
Furthermore, most
point.
were under the control of Navy commandants whose
stations
was confined
influence
had
responsibilities,
function.
reason
or
incentive
to
improve
this
1'^
To strengthen
Navy organized the
telephone,
the
command and
system,
control
Office of Communications,
1915 the
in
supervising telegraph,
and radio communications, and reporting directly to
cable
the Chief of Naval Operations.
Districts
yards and who, with multiple
individual
to
little
also set up Naval
It
Communication
high-powered stations covering the range of thousands
with
Coastal stations were upgraded, and the whole network was
of miles.
centralized,
with clearly defined and
articulated
of authority
lines
leading from bottom to top of the hierarchy and from field units to
This consolidation and centralization of radio
central office.
operations ensured radio's progress under Navy's auspices.
about a new
helped bring
structure at
Upon
sea and on
naval
strategy--a
more centralized
shore. ^^
war
the U.S. entering the
in
April
1917, President Wilson,
according to the 1912 Radio Act, authorized the
radio
stations
(mostly American
already under Army's control.
for
the design,
This also
Navy
take over
to
all
Marconi Company's), except those
Since then the
Navy was
purchase, installation and upkeep of
all
responsible
radio systems.
This led to standardization of apparatus, better control of suppliers,
and high rate of production and delivery.
demand
of radio.
American
firms,
Because of the great
such as General Electric, Western
^
AT&T, now began
to
the
government also instructed
all
the
best components,
Electric and
enjoy Navy's patronage.
domestic suppliers
Moreover,
make use
to
no matter who owned the patents.
government guaranteed
protect
to
infringement
against
suppliers
all
of
The
claims and encouraged the inventors not to be oversensitive to
relatively
of their apparatus during
use
free
emergency.
Under
16
firms concentrated on
continuous
R&D
national
and production, and achieved significant
advances. ^^
technological
Establishment
3.3.
the
arrangement, American inventors and
this
of
A Coordinated
Industry
War
after
Because of the experience of managing such a nationwide
wireless
communications system, the Navy realized deeply the
strategic
importance of radio to the national interest.
the
Navy began
and an "ail-American" company
in the
U.S.
In
1919 the Navy
Alexanderson Alternators
to
the
control
to
first
the
radio communications
blockaded GE's sale of
Marconi Company which was now
embarking upon the ambitious attempt
communications throughout the world.
the
After the war,
promote the creation of a "coordinated industry"
to
dominate wireless
to
This alternator was one of
few American products (another with similar function was the
Poulsen Arc), without which the Marconi stations would be
origin
were
a position
in
and thus
apparatus
operations.
In
to
interests,
commercial
stations,
GE's expensive manufacturing plant
(then one possible
the
the proposal
and
strengthen
its
way
to
prevent the
government would soon return many
monopoly
a
that
GE
forming such a communications company.
greatly
expensive sending
this
from building up
Navy brought forward
could
great
with the advocacy for government ownership
whom
to
purchase
sustain
to
parallel
of wireless communications
Marconi
at
But right after the war no companies of American
disadvantage.
position
as
in
itself take
this
field),
the
the lead in
The Navy argued
that
GE
being both a manufacturer
customer of the expensive equipment.'
In
the
meantime,
understanding
that
government effective
pool of patents from various companies during wartime would be
followed by industrial rivalry and complete stalemate because no
AT&T, GE
firms (e.g.,
a system, the
Navy worked with GE
They
company.
and Westinghouse) had patents enough to make
aimed
first
expertise of the entire
at
to
form a giant American radio
acquiring the whole assets and
American Marconi Company.
In
September
1919 the British parent Marconi Company, knowing the U.S.
government firm stance,
American
launched
made
a reluctant consent
One month
later
the
more than 20% of
be held by aliens as voting stock.
The concern over
character was
argument
and cable communications
competitors to each other.20
To pool
cross-licensing covenants
with
RCA, GE,
next year,
first
AT&T
"extensive agreement,"
in
its
possible antithe
would be
RCA
patent rights,
GE
the stock might
mood and
mitigated by the patriotic
wireless
that
its
American Marconi
that not
trust
sell
merged with RCA.^^
officially
was chartered
to
Radio Corporation of America (RCA) was
the
October 1919.
in
Company became
RCA
finally
And
interests.
November
reached
1919.
In July
and Western Electric signed a so-called
granting
each party exclusive or non-
exclusive rights with certain limitations to utilize patents held by any
This cross-licensing idea--criticized for
of the four.
features-originated not from
asserted
that
this
consolidating
the
whereby
a
great
So
function.
To
the
secure
conflicting
national
RCA
directors'
meetings.
4.
monopolistic
It
was
interests
in
inventions
and patents
to
approved. ^i
congruence of national and private industry's
government participation
invited
President Wilson
Communications
RCA
cooperate directly with
of
its
but from the Navy.
communications system could hope
U.S. government
interests,
service
RCA,
or
arrangement was obviously the only way of
the
director of Naval
GE
international
to
to
in
fill
establish
in
January
this
stockholders'
and
1920 appointed the
position and to
an ail-American wireless
dimension. ^-^
Implications
In
a technical
the radio technology.
Navy
sense, the U.S.
It
did not contribute
much
adopted civilian technology, mainly of
8
to
foreign
scale
origin,
for
urgent military mission which required large
its
systems approach
resulted
in
its
This experience
national level.
the
at
of the strategic importance of an
appreciation
American-owned coordinated
From
industry.
the Navy's crucial contribution
to
systems perspective,
a
the radio industry
the highest
at
is
systems level where no civilian counterparts could aspire
GE
In fact, neither
strong in
nor Westinghouse (which was GE's chief rival,
and receivers, and made a quick
transmitters
wireless
achieve.
to
Company to get into
formation of RCA)23 nor other
with International Radio Telegraph
alliance
radio broadcasting business after the
major firms had contemplated entering into the
of wireless
field
Without the Navy's eloquence
communications.
turn
to
their
thoughts to the possibilities of communications as a separate
they would have continued
business,
and
some
In
to
the field
systemic
sense,
and patronage.
vision
is
it
adhere only to their
As a result, the American
owed the Navy a great debt for its
radio communications industry
far-sighted
to
business. ^^
manufacturing
traditional
not surprising that the above case belongs
of C3I--command, control, communications and
where systems design and integration of
intelligence,
software
all
and hardware (many of which may be discrete subsystems without
embedded
naturally
and Review Techniques)
The
PERT
of
birth
another good example.
is
urgent time pressure on the
missile
among them)
interdependence
strong
pivotal to the ultimate success.
Navy
1958
in
to
submarines)
that
the
fired
was due
It
purpose.
success
later
in
the
The
management concentrated on planning and
Polaris
history
missiles
ballistic
from submerged
controlling this element of the program and developed
this
to the
develop the Polaris
system (solid-fueled, intermediate range
armed with nuclear warheads and
are
(Project Evaluation
program
in
many
respects
PERT
part
serve
was a great
of military systems development,
became an indispensable
to
and
PERT
of complex project
management. 25
The preceding discussion points
military
programs.
to
some unique aspects of
Because many programs are under big time and
mission pressure and
should
aim
at
systems integration
at
the
based on mobilized national resources), the
national
level
required
systems effort could very often hardly be matched by
(or
This,
civilian counterparts.
opportunities
Most
been overlooked.
or
processes,
some
attention
may
"spin-off"
many
Hopefully
paper could
this
of systems development in
the crucial role
to
requirements are more
military
civilian needs.
some tremendous systemic
from which
programs,
mission-oriented
merely focused on specific products
studies
and more divergent from
turn
Unfortunately, this potential has so far
noticed that
or
provides the potential
a result,
as
"spin-off."
for
originate.
Notes
The diverging
^
often
been raised
Air Force
civilian
Strategic
the
studies
2
include
in
DeGrasse (1983),
economic
"*
Since
to
pp.
leadership
other
weapons,
nuclear
for
by
In
nuclear-powered
for
laser
been no
rigorous
began
II,
using
in
in
and
technological
who were
officers,
have
been
seen
viewed
traditionally
technological
as
as
enthusiasts.
373.
p.
to
evaluate
pp.
the
effects
^
For defense
programs'
space
firms
Telegraphy was the
to
enter
first
of defense
R&D
spending are
4-6.
6-8.
and
regression
multiple
1970s.
in
military
Carter (1989),
innovative
1980s of 17 non-communist,
early
the
analyzed
be
pp.
First
and
used
Some
applications.
But so far there have
For a brief discussion of these three
8
aircraft.
bombers,
6
small
military
35-76.
Ten standards used
in
have
conservative,
See Roland (1987),
identified
machine
for
Nelson (1990), the U.S. obvious erosion
World War
technologically
5
the
shapes
line.
countries
According
have
tools
semiconductors
(SDI).
Initiatives
technologies
civilian
is
few
have
and
The data during 1960 through
industrialized
3
of complex
fighters
for
Defense
this
years.
parts
radiation-resistant
technology"
"stealth
and
military
One example
machine tools
these
industry,
examples
recent
manufacture
to
modem
of
trend
in
the
"spin-off"
patterns,
demonstration
markets,
application
see
of radio
Schnee
(1989),
stimulation
of
(1978).
technology.
World War, wireless telephone was added; and
10
and
effect
Carter
see
shortly
By
after
the
the
end of the
war,
radio
became
broadcasting
big
a
9
Archer (1938),
Archer (1938),
11
Douglas (1985),
12
The
p.
Congressional
on
action,
Titanic
because
liner
this
and
the
which the radio interference would
(1938),
pp.
Douglas (1985), pp. 153-154.
14
Douglas (1985),
15
Douglas (1985), pp. 166-167.
17
15,
accident
exposed
necessity
greatly
1912 accelerated
of
the
technology
this
importance
government
of
wireless
without
regulation,
impede the rescue.
p.
See
Archer
165.
Douglas (1985), pp. 167-169; Archer (1938), pp.
Douglas (1985).
p.
137-138.
169.
18
For the Navy's objection
19
For the negotiation and purchase of the American Marconi
Archer (1938), pp.
to
this
see
deal,
Archer (1938), pp.
159-167.
Company,
see
169-174.
20
Archer (1938). pp.
21
Archer (1938), pp. 180-181, 184-186 and 194-195.
22
Archer (1983), pp. 183-184, 186-188 and 196.
23
radio
1.
105-106.
13
16
on April
vol.
150-151.
vessels
the
(1966),
73.
pp.
disaster of the
telegraphy
of
history
Bamouw
73.
p.
10
For the early
business.
and industry, see Archer (1938) and
169-170.
For Westinghouse's
entering
into
radio
broadcasting,
see
Archer (1938),
pp.
190-204.
24
Archer (1983),
25
For the development of the Polaris system, see Sapolsky (1972).
p.
191.
review of the history of PERT, see Moder,
1
et
1
al.
(1983), pp.
10-14.
For
a
brief
Bibliography
Archer, Gleason L. (1938), History of Radio to 1926,
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