4 Capturing the Direct and the Serendipitous Spillovers:
4.7 The Business Information Systems Venture
Economic development builds on business experiments. Many, perhaps most experiments fail, and the costs of failure should be regarded as a normal cost for economic development. It is therefore important for society not only to organize complete competence blocs (see Sect. 2.4) to make project selection efficient and to minimize the loss of winning business experiments, but also for society to be organized such that its inhabitants are capable of coping with the social conse-quences of unavoidable business mistakes. The story of industrial spillovers around Swedish aircraft industry, to be complete, therefore has to include the spectacular failure of Ericsson Information Systems (EIS).
Quite often business failure depends on some critical complementary technology not being available, on an exaggerated appraisal of the importance of own technology, or on the difficulties of integrating the various technologies and the market knowl-edge needed to get the entire business act together. Common to all such ventures is that all difficulties cannot be foreseen. Experimentation is always necessary and in an experimentally organized economy you don’t know until you have tried.
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Sometimes the logic of a proposed business venture is so convincing that it carries everybody but a few along, even though it was in practice entirely wrong. This was the case with EIS.
Hard engineering work made Ericsson the winner with its fixed line circuit telecom switch AXE which embodied an ingenious failsafe doubled computer device based on a modular design that made the system both very reliable and easy to upgrade. As a consequence, Ericsson had a large internal cash flow to invest in the 1980s. Ericsson opted for developing an integrated office and business information system around its digital office switch Eripax for data communications. All Ericsson resources were needed for, and concentrated on this business information systems venture. Odd inter-nal ideas about mobile telephony therefore were discouraged or even forced out. The fact that Ericsson drew an enormous winning ticket in mobile telephony was therefore accidental and not the result of a deliberate strategy. EIS, on the other hand was.
Parallel to the EIS venture Celsius Industries, notably its Celsius Tech division (since 2000 within Saab) initiated its own venture Celsius Information Systems (CIS) seemingly occupying almost the same market niche.37
CIS had a clear military origin. The strategic idea was to transfer the competence of Celsius in military information technology to the civilian market. On the surface the project therefore looked similar to the EIS venture. The basic competence input in CIS, however, was in computing and communications technologies and software programming with applications in real-time command and management systems, competences that could naturally be extended to air traffic control, rescue opera-tions, the police, fire protection, and the taxi business. One could therefore say that Celsius was developing very concrete solutions to well-defined control problems while Ericsson was on to a much more abstract management problem; how to be informed (centrally) about what is going on internally in a large company. CIS was introduced on the Stockholm Stock Exchange in 1996 under the name Enator (Eliasson 1996a:197f). Enator merged with Finnish Tieto in 2000 under the name TietoEnator and changed the name to Tieto in 2008.
EIS had no direct foundation in military technology, except that it had been increasingly based on complementary acquisitions of external technologies/firms, notably from Saab, most of which had a military origin. All that went down with EIS, most of which was sold to Nokia 1988.
The pure strategy of EIS was to develop an office and business information system around Ericsson’s office switch MD110 and the digital switch Eripax for data communications. As I have already mentioned, this strategy was in no way unique. At that time a number of telecom firms entered the same international mar-ket on the same idea and at least six of them on the basis of their office switch (Northern Telecom, Siemens, Mitel, Rolm, AT&T, and American Bell). Word pro-cessing and copying technology were vehicles for the same ambition in an even larger number of firms (Xerox, Exxon, Canon, Ricoh, 3M, Lanier). Computing was the technology platform of 12 companies venturing into the same business informa-tion systems market. Among these companies were, in chronological order of entry, IBM, Burroughs, DEC, Univac, Olivetti, Honeywell Bull, Prime, HP, and Philips.
No company possessed both telecom and computing technology internally and they
were frantically attempting to acquire or develop the missing technology through acquisitions (Eliasson 1996a:243ff). Ericsson soon discovered the need for comple-mentary computer competence and acquired Datasaab and Facit in 1980 and 1981, and with them almost the entire hardware part of Sweden’s computer industry and parts of Swedish software industry.
Ericsson had begun experimenting with digital technology already during the 1960s in its military electronics business, but no advanced computer competence existed within the company. None of the above companies understood in time that digital office switches were not by far in the neighborhood of possessing the data communications and fast transmission capacities that were required. The first local area networks (LANs) that did that were developed by Xerox during the 1970s (the Ethernet), but it took most of the 1980s before this technology was available for business information systems applications.
As the internal digital switch was found to be inadequate for the purpose, and more critical complementary competencies had to be acquired even for a simple office information system the now deregulated telecom market in the USA (during the first years of the 1980s) was swamped with entrepreneurs that created a formidable explo-sion in innovations in the US computer and communications markets. Computer firms entered the telecom market and vice versa. Not only had Ericsson failed to solve the increasing number of technical problems it faced. Soon the company was lagging technologically in a large number of critical areas which it had acquired through large complementary investments. The PC was one example. What looked perfectly logical became a nightmare. In 1988, EIS sold its failing PC activity and the commercially successful Alphascope (also a military-related Saab innovation) to Nokia. Nokia messed up further and sold it on to British ICL in 1991. ICL was not up to it either and was acquired by Fujitsu, the largest computer maker in Japan which was very mainframe oriented and wanted a foot in the PC market. Fujitsu acquired ICL to learn the PC market. It purchased a Swedish technology that can be traced all the way back, by way of Ericsson, to Saab’s early venture into computing to support its own development of combat aircraft during the 1950s and 1960s.
It can be said that Saab’s early computer knowledge in Datasaab that was acquired by Ericsson was a necessary condition for Ericsson’s EIS venture.
Computer technology of the kind Ericsson needed was so to speak available in the local Swedish market. In addition to the difficulty of identifying what kind of infor-mation product was needed for the management of a large company and its offices, Ericsson was not capable of integrating its own core competences (telecommunica-tions) with the additional number of technologies, including computing, that a com-plete information systems product needed and that had to be acquired externally (the systems integration competence). It may also have been the case that the early suc-cesses of Datasaab, and the Alphascope in particular (it had become an international success) made Ericsson management overconfident. Ericsson underestimated the pace of development within information technology in the USA. When Ericsson had acquired most of the Swedish firms in the computer market (hardware and software) and finally realized the enormity of the task it had taken on, it shut down the venture and with it the budding Swedish computer industry.
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Common to EIS and practically all international competition had been a shallow knowledge of what the business information product they were developing was supposed to be used for (Eliasson 1996a). The adventurous companies also lacked both the internal knowledge needed and the necessary complementary hardware.