Hermann hauser and acorn computers

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Elizabeth Garnsey

Centre for Technology Management


University of Cambridge

“I seem to live in the future, always a little ahead, and sometimes things don’t work out. Other times when I’ve been ahead of the curve, I’ve been in the right place.” Hermann Hauser


Hermann Hauser’s career has spanned the emergence and spread of formative information and communications technologies. His story raises the question of whether leading individuals play a significant role in the developments of this kind, or whether these would have occurred anyway, with someone else taking on the role of innovator. Historians recognize the significance of unique individuals. For the most part, social scientists seek patterns and causes in terms of markets, trends, roles and processes that unfold collectively. Individuals’ actions are often relegated to the status of anecdote. One of the few economists to focus on the persona of the entrepreneur was Joseph Schumpeter, who moved from Austria to Harvard in the 1930s. He rejected the deterministic view that technological trends do not depend on any particular individual. Schumpeter saw the ‘creative response’ of entrepreneurs as influencing "... the whole course of subsequent events and their long run outcome... This is why the creative response is an essential element in the historical process; no deterministic credo avails against this. " (Schumpeter, 1947 p. 222.)

Hauser took part in a complex of developments that had their own dynamic. But the Cambridge high tech phenomenon and its impact would have been very different without him. The challenge of the case is to identify Hauser’s unique contribution while also detecting patterns in the entrepreneurial practices he pursued and in the cascade effects he helped set off.
Hauser had the experience of leading a trend early on, at his first company, Acorn Computers, founded when he was in his twenties. "We were congratulating ourselves. We had got it right: quality, delivery - one success after another. We were flying high. You really think you can do anything after that. It was: ‘Just give us a problem, we'll solve it.’ ” (24.8.86). Problems soon arose that proved hard to solve. Looking back, Hauser reflected: “ Failure isn’t necessarily a bad thing. It’s painful, but you learn a lot more from your failures than you do from your successes.” His experience shows that failures can be unexpectedly consequential.
Early Success

Hermann Hauser was born and brought up in Austria. The family wine business gave him early exposure to enterprise and the need to win over others in a shared venture. But his first love was physics. He went to Cambridge as a graduate student in the 1970s to undertake a doctorate at the famous Cavendish Laboratory. He learned computing on mainframe, but it was clear to him that the recent invention of the micro-processor would open up new forms of computing, with small machines networked together. By the late 1970s a number of ventures had already been set up in the US to build micro-computers. In the UK, Clive Sinclair had pioneered mail order computers for hobbyists at Sinclair Radionics. Hermann Hauser found someone who shared his ideas in Chris Curry, who had worked for ten years with Clive Sinclair on a variety of projects. Together they founded the Cambridge Processing Unit Ltd. (CPU) in 1978. The novice entrepreneurs invested only £100 in their new company. To start off with, friends and contacts in the University Computer Laboratory helped them carry out technical projects for customers. But Hauser and Curry wanted to produce products of their own rather than for clients. Before long they had entered the race to produce a micro-computer for a wider market, founding Acorn Computers in 1979. Hauser knew how to share his enthusiasm for the idea of putting computer power at the disposal of everyone. “One of my gifts, maybe my only gift, is to get people excited about a vision and articulate this excitement. The momentum and feedback this creates can produce an avalanche effect.”

The early years at Acorn Computers provided a learning experience more intensive than any management course. Hauser’s persuasive skills were put to the test. He convinced computer scientist friends at the university to help them design products for Acorn. He himself had enough knowledge to assess their work and recognize its value. This placed Acorn at the forefront of micro-computing, with access to expertise in a wide range of specialties, including among others, silicon chip design, operating system design, and local area networking. “It was the clean architecture we used that gave Acorn’s product its edge; the modular design was supported by a simple, economical architecture. That depended on the expertise of our computer scientists.” Keeping people who had strong personalities and diverse aims on board, and cooperating with each other, was a challenge to Hauser’s leadership skills. He had to facilitate others while ensuring that work was completed on time and commercially viable.
By mid 1981; turnover was £1.36m with retained profits of £164,000. At that point it emerged that their designs for a new product, the Proton, could be adapted to meet the specifications the BBC had drawn up for a demonstration model for a course on computer literacy. Acorn was placed on the list of companies invited to tender for a BBC contract which would enable the selected computer to carry the BBC emblem. To win over the BBC team, Hauser succeeded in persuading a group at Acorn, including Roger Wilson and Steve Furber, to build a working prototype in four days. He did this by telling each of the team that the others thought this was possible. Together they had achieved what they individually thought to be impossible. Acorn's prototype was ready in time and was selected as the demonstration model for the BBC’s new computer literacy series.
The technical members of their team were each concerned with performance in their own area of expertise. None of them wanted to compromise on technical excellence in their area. Hauser proposed that they develop a modular product so that the basic machine was expandable and could support extra memory and processing power. It could be customized to become what was at the time a powerful 32-bit machine, providing the potential to move into business markets.
Although new chips were available with the necessary power, Acorn experienced continual supply problems. Faults in the chip manufactured for them by Ferranti, together with Acorn's high quality standards, delayed output. This created a serious cash flow problem in 1982. It looked as though the company might go under, since their bank, National Westminster, refused to extend their overdraft facility. But in the early 1980's discretionary lending by local managers was still possible. Hermann had become acquainted with Walter Herriot, a young Barclays manager who put his own reputation at risk in offering them an overdraft facility of over a million pounds.
The BBC micro was the front runner among models approved for schools use, a market supported by government funding for micros in schools. By April 1982 Acorn had orders for 25,000 machines, over twice the number predicted by the BBC's market research. Acorn had from the start contracted out production to specialist electronic assembly firms. To meet the higher production schedules they had to take on new subcontractors. The company responsible for distribution was unable to deal with the volume of orders. Acorn formed its own marketing company to handle warehousing and sales. The BBC micro continued to sell well throughout 1983. Customers stood waiting for delivery vans to arrive to secure their order as the vans were being offloaded.

Development finance was needed to enable Acorn to expand production to meet demand. Hauser and Curry decided to raise equity in 1983 on the Unlisted Securities Market in London, with a sale by the founders of shares worth 10% of the value of the company. The funds raised were used mainly to set up offices in the US and West Germany in 1983 and 1984 and to take on distributors elsewhere. The IPO focused intense media attention on the new company and its entrepreneurs. Their market share in micro-computers had increased from 11% in 1983 to 21% in 1984. In the UK educational market Acorn's share of sales was approaching 80%. Employee numbers reached about 450 by 1984. The founders were acclaimed as heroes in the press and celebrated for their role in Britain's entrepreneurial renewal.

The challenge of running a business was under-rated at the time. As a contemporary writer put it, to the trained scientist, “the science of business, to the extent that business is a science, is not intellectually demanding, The concepts are relatively straightforward, the arithmetic is simple and … the technology of modern business .. reassuringly simple.” (Lloyd 1986 p. 7) But sustaining a new company’s performance in turbulent markets turned out to be far from simple. The pace of growth created acute problems of co-ordination and control for an inexperienced team operating in volatile markets. Many of Acorn's employees were very young and had little or no business experience. It turned out that they could not make a profit by pricing the BBC Micro at £299 and had to raise the price £399. Acorn was able to recruit professional managers who had experience in finance, management, production and sales in large technology-based companies. The new managers were left to run their departments with some autonomy, though they were accountable to the founding directors. As the company grew, tensions emerged – in particular, there were strains between marketing and engineering, common in technology- based companies. Late in 1982 Curry took responsibility for finding an experienced Chief Executive but without success.
Acorn's reputation was based on their innovative R&D and high quality standards. New product design and development were a priority. Creativity was viewed as a strategic need, the view being that a leading company had to be ahead of its rivals on as many fronts as possible. R&D had considerable status and autonomy within the company, enhanced by the close involvement of Hauser.
Hauser remained in charge of advanced R&D and he and Curry also had many ideas for new product development work. The aim was for project teams to take new ideas through from conception to sales. This generated commitment to the project, the product and to the company. Loyalty to and enthusiasm for Acorn were high throughout the company. In the early 1980's the company was developing products which were to become familiar ten years later, including modems, products for satellite and cable broadcasting and an early DVD. But few projects developed into marketable products, and few of those produced sold well.
Efforts were made to organise R & D into product related groups in order to tackle some of the recurrent development problems. A group responsible for chip design methodology was set up in 1983 with the aim of preventing any further delays in the launch of new products. They had planned to use Intel’s 286 chip in the new Archimedes computer, but Intel had clamped down on its licenses. Steve Furber and Sophie Wilson saw benefits in designing a RISC chip in-house to overcome the problems they had experienced with chip suppliers. Hermann encouraged the idea. This project was the origin of the ARM chip which provided outstanding speed, low power and programmability.
The founders had decided at an early stage that direct production required capital and management skills they did not possess. But in deciding to subcontract production they had to undertake a complex orchestration of the activities of suppliers and subcontractors. High quality standards were viewed as requisite for technical excellence. In 1982 the free issue agreements for components was replaced by a policy of holding subcontractors responsible for the procurement of components. The aim was to reduce wastage and ease Acorn's cash flow problems. Systems were introduced to integrate stock control, orders, dispatch and invoicing. Forward commitment to suppliers and subcontractors did not seem problematic at a time when banks were approaching them with loan offers. Looking back on that time, Hauser contrasted the early days, when he was aware of every outlay he had signed for, with the situation a year or so later when he did not have time to read the financial reports in full.

Consumers were clamouring for the new product. To reach them, contracts were agreed with the high street stationers in 1983 and 1984. Their size allowed the multiple retail chains to negotiate tough contracts. Though Hermann Hauser had shown himself to be an effective negotiator, he was not directly involved in this bargaining process. The discounts demanded by the dealers and retailers reduced profit margins, already constrained by the BBC's requirements. The education market had been a successful base, but school budgets were limited by funding constraints. In considering a move into the business market, Acorn were confident of the high standard of their product.

Demand proved difficult to predict. Discrepancies between demand and supply were a frequent source of contention between sales and production staff. Overseas sales beyond the reach of BBC influence were not easy to achieve. Most of the equity finance raised from the USM placing was invested in developing the overseas subsidiaries. Neither the US nor the West German subsidiaries were successful. Entering the US market on a solo basis, with no alliance arrangements, proved difficult. Apple Computers had a strong hold on the educational market. There were stringent government approval requirements and competition was so intense that it proved difficult to reach the consumer. Getting regulatory approval for its machines in the US was very expensive and took a long time because of the number of devices that could create extensions to a BBC Micro. Around $20m was sunk into the US operation which cost the company £17m. The PC industry was maturing and competition intensifying. By 1982 IBM, alarmed by Apple's incursions into its market, had produced its own Personal Computer, attractive to US business customers.
Despite a number of problems, in 1984 Acorn was enjoying success. The market was booming, they had achieved a USM placing, and around £11m profit before tax was predicted for that year. Hauser, still in his twenties, had become a millionaire at a time when this was still rare. The Press courted Acorn’s founders; the Minister for Information Technology and the Prime Minister spoke of them as the new hope of British industry. In 1983 there were over ninety headline references to Acorn in the national press.

Until this time the main problem Acorn had experienced was in meeting demand. There had been a production shortfall in 1983. It was felt that further expansion should be based on a coherent strategy.

There was a meeting of the Board of Acorn Computers in April 1984. Had you been on the Board, what strategy would you have recommended for Acorn, on the basis of knowledge available at the time?

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