A Cautionary Tale

I was engaged in a discussion over at the PhysicsForums regarding the relative merits of academic versus industrial jobs for science and engineering types, and one of the regular members posted a link to an article in the Pittsburgh Post-Gazette about the rise and fall of Westinghouse. It was a sad tale. Also an instructive one.

I had not known the story of Westinghouse before, being more familiar with its arch rival General Electric. George Westinghouse was a true Victorian, full of energy, inventive, eccentric, no sense of his own limits. He was also apparently not much of a businessman, despite his 361 patents. He was thrown off the board of his own company in 1909, never to return. He never looked back, either.

His corporation became very successful, and by 1963 it had a 135 divisions, making electrical power generators, appliances, and desalinization plants. The company was renowned for its technical expertise, and had created several engineering firsts, including the first commercial nuclear power plant. Westinghouse was also actively practicing a philosophy of doing well by doing good, building teaching labs and affordable housing. They even tried to develop an electric car.

By the 1970s, things began to get difficult for Westinghouse. Among the problems cited in the article were an increase in the cost of enriched uranium, poor acquisitions and divestitures, and corporate intrigue. They experimented with different solutions, but nothing really seemed to work.

By the 1980s, all of the industrial divisions were not doing well. By not doing well, I actually mean many of them were stable businesses, but because of the pernicious influence of Dewey and Dakin, by this time, the business world assumed that any business not experiencing 10% annual growth was dying. I suspect, but do not know, that the industrial divisions could have benefited from the kind of quality improvement that W. Edwards Deming had spurred in Japan after being rejected in America. However, since these were stable businesses, and no longer capable of the expected growth, Westinghouse began to look for alternative businesses to invest in.

This era of Westinghouse is one of unrestrained greed. This was probably typical of the time but the executives were enjoying ever increasing bonuses while the company was very obviously declining, not the way to encourage employee loyalty. This also contributed to their final mistake, placing so much money into obviously dubious corporate loans because of their high short term return. This would prove to be their doom, because the company was destroyed by the market's inevitable return to sanity.

All of the parts of the company that actually made things were sold to pay the bills, and all that was left was the broadcasting business they had bought, with the result that Westinghouse abandoned its name along with its factories, becoming CBS.

The reason this is so interesting to me is that my current employer is also an engineer-centered company, founded and largely run by engineers. My company is also known for technical expertise and innovative products. When I read an article like the one above I usually ask myself: what would I have done if I were there? Not with the benefit of hindsight, but in the middle of the crisis with limited time and limited information. What would I have done? 

I do not know. Westinghouse's problems ran very deep. But deepest of all it seems that they had become far too comfortable, and did not trouble to keep their organization quick and responsive. Reading between the lines of the article, it seems that Westinghouse's corporate culture had become deeply flawed over time, and the company was simply unable to respond effectively to its problems. No matter how smart or experienced their leadership was, I think the company was fundamentally unable to respond to change. Back in the 1960s, they had much less market share in appliances than their rival, GE, even though they had better technology. Westinghouse was making the front loading washers that are all the rage now.  However, it seems that they suffered from a lack of manufacturing efficiency. Westinghouse decided to sell their appliance business rather than upgrade it to the then current standards. I think this is a good example of what happened to them. Westinghouse should have upgraded its factories five or ten years earlier. They were stuck reacting to problems that they had long ignored.

The description of Westinghouse's corporate culture is very Dilberty. There seemed to be an immense amount of bureaucracy and forms, with everyone keeping their head down and hoping for the best. People would keep doing what they had been doing even when it was obviously the wrong thing to do. This kind of thing is exactly what prompted Bill Gore to start his own company, and I can see now that his company has so far done a better job of avoiding these kind of mistakes.

What mistakes am I referring to? Ignoring inevitable market downturns. Not improving efficiency and quality all the time. Not focusing on your core competency.  Westinghouse probably could have kept going like GE did if they focused on making stuff, which they were actually really good at, and improving efficiency, which they were bad at. Instead, they diversified into TV and loans, and sold profitable manufacturing and heavy industries. This was rewarded in the stock market in the short term, but destroyed the company in only 20 years. And probably dis-served the American public [and the rest of the world too], which benefited much from Westinghouse technology, but far less so from having another TV network.

I have often talked smack about business-people, but there is real value in good business acumen. Westinghouse [founder and company] seemed to lack this, even though they had successfully preserved their technical expertise. I still think engineers can make contributions to the business world, but not all engineers are well suited for this role. A good example of this is John Walker, one of the founders of Autodesk. He was both involved in shaping his company, and man enough to step down from direct leadership when it was in the best interest of the company. Even someone as smart as Walker doesn't necessarily have the business skills to make a really good corporate president or CEO. However, some engineers can go on to learn these things. I think they are well-prepared to do so, but you have to be careful. Technical expertise does not guarantee business success.