TAPE 1, SIDE 1
MR. COLLINS: Last time we talked about your entrance into the ICBM program, and some of your relationship to General Schriever, and this time I wanted to get a little better sense of the overall operation of TRW during this period. I know you served as designated chief scientist with respect to the ICBM program, but what precisely was your role in the corporation? Were you giving your attention to other matters at this time? Was the ICBM program consuming most of your attention? What was the nature of the activity within the corporation?
DR. RAMO: Well, Wooldridge and I were the two principal executives of the Ramo-Wooldridge Corporation, and anything of at all major importance to the company, Wooldridge and I met and decided those things together. I then in particular concentrated on the ICBM program, which was part of Ramo-Wooldridge's contractual responsibilities, and Wooldridge on the other things that Ramo-Wooldridge was into at that time. So let's say we were a team of two, as partners working out the main basic policy decisions of the company, creating the environment for the company, plans for the future, priorities of where to put our resources, looking ahead to where we wanted to go. I would say that took maybe 20 percent of my time and about 80 percent went into the ICBM program for a period of a few years there. I think you'll have to ask me about further detailed things. I don't know what else to say that would be an elaboration of major importance to you.
COLLINS: In terms of the fraction of TRW business, what was the ICBM program?
RAMO: Oh, about, for the first few years of Ramo-Wooldridge, that is to say until we became TRW by merging with Thompson Products--so that changed a number of things. Thompson Products was, oh, five or eight times the size of Ramo-Wooldridge in terms of total volume, when we merged the two companies. And also that merger which occurred in October, 1958, roughly five years after the creation of Ramo-Wooldridge Corporation, that was also the time when a major change took place in my relationship to the ICBM program, and that was coincident with separating those aspects of Ramo-Wooldridge that were ICBM and related things like space, beginnings of space, into what we called Space Technology Laboratories, which was made a separate legal entity, whollyowned by TRW.
I was on the board of that company. But Jimmy Doolittle, who was also a board member of TRW, was made the chairman, and Louis Dunn, who had been a key member of the Ramo-Wooldridge staff, who came to Ramo-Wooldridge for the ICBM program, having left the directorship of the Jet Propulsion Laboratory at Caltech where he was also a professor, Louis Dunn became the president of that new separate legal entity, which was of course merely that portion of Ramo-Wooldridge that was devoted to missiles and space. And what we sought to do, you see, was to create a separate entity that would apply itself only to that area of endeavor.
And at that point, I became executive vice-president of TRW. Wooldridge became the president of TRW. The chairman of Thompson Products became the chairman of TRW. That was John David Wright. Now, I had had several years of direct top operating responsibility at Hughes Aircraft Company in building that operation. When I left, I was vice-president and director of operations, and all research and development and engineering and manufacturing reported to me. Then I found myself with the ICBM technical responsibility. I felt that I did not want to continue to do that kind of thing, where my schedule would be dominated by things that had to be done that very day on very high pressure operations.
I wanted to plan the strategy for TRW. I wanted to have the time and energy to figure out what our role should be in the world, how TRW's potential should be caused to relate to the opportunities in putting science technology to work, to do it on an international basis, because it was apparent to me that we were headed for a world in which technology advance would dominate in a good many aspects of, not only national security but also economic growth, economic strength, and hence social stability and political arrangements all about the world; that a company that would have as part of its mission in life putting science and technology to work, and to do it on a substantial scale, in the billions of dollars, involving tens of thousands of engineers and scientists--such an organization should think of itself as having to be international in its activities, or it would lose out to competitors who worked the world market and sought to exploit whatever it is they had on a world basis.
COLLINS: This was a vision you were beginning to develop.
RAMO: Well, to me it was an obvious thing, not a case of having great vision and great prescience. This was an obvious thing, and there were, of course, many companies who were established in what they saw as their lines of business that were large, and that I felt mainly were in a rut--as technology changed, they'd have to change, but they were not engaged in looking ahead in that way. Typical for example were the American large radio and TV commercial companies, the large automobile companies, the large steel companies, many of whom in the United States could not see that they should computerize their operations. Indeed, they looked at their return on investment, found it not too satisfactory, and thought if anything they should not increase the investment. But German and Japanese companies were beginning to buy process computers that TRW was building before American companies.
COLLINS: Are you talking now the early sixties?
RAMO: Well, I'm talking about the date of October, 1958, when we merged and I changed my job. So we're talking--when I say that these considerations to me were relatively obvious in 1958, they certainly became more and more clear to the industrial high technology world at large in the sixties. And that was a period when the United States was especially preeminent in technology advance, and recognized as such throughout the world.
One of the things, for example, that I spent some of my time on was adding to TRW's international activities, by taking some of the companies who merely had licensed our technology and were paying us royalties, but were medium sized companies usually with a founder who was beginning to get old, who was still a dominant figure and who wanted to convert his ownership into something that would be easier to handle from the standpoint of his heirs. Some of those companies were available for sale.
The dollar was overpriced compared with the German mark. In Japan, there was this tremendous desire on the part of the Japanese companies to acquire American technology, and I felt that I was able to rate what they would offer for it, in terms of what we had to offer. In most situations I could see that they were setting out to have such a size of activities and quality of activities that anything they would get from us, they could do by themselves a few years later. We were certain to have them as competitors, but they would aggressively seek other connections if not TRW with some of our competitors, world wide, so I felt that it was perfectly clear that we should ask ourselves, what was good for our shareholders? And we commenced to acquire portions of Japanese companies, or arrangements with Japanese companies in which we would be paid well for our technology.
So I had no doubt that we were competent to assess deal potentials, and within a period of a decade, something like a third of TRW's business was the result not of exports--that's an additional item, not very big with TRW--but was the result of operations in which we had all or a part ownership overseas, and the areas of endeavor involved not just Europe, various parts of Europe and Japan, but activities ranging from Taiwan and South Korea through to Mexico and Brazil and Argentina, of course Canada, initially South Africa. We anticipated early some of the trends there and sold our operations in South Africa to South African interests, and left that well before the problem, the social political problem arose with regard to South Africa. But at any rate, this was an example. I've gotten off on this international, multi-national dimensioning of TWR as an example of what I wanted to do. Very quickly, my title was changed to vice-chairman of the board, and you might say Dave Wright and I thought of ourselves as having to give our time primarily to planning ahead, and Wooldridge and Shepherd were shepherding the day to day operations, and that is my elaboration on my role in the company.
COLLINS: If I recall roughly correctly it was around the mid-sixties that you became vice-chairman, is that correct?
RAMO: Well, it doesn't matter what the date was. That's why I can't remember, because I was in essence doing the same job from then to the time that I left and it didn't matter what the titles were. You see, one of the considerations in merging the two companies, and basically Dave Wright and I were the ones who decided that this should be done and worked out how it should be done, what some of the details would be, and I had no intention of trying to influence TRW away from anything that I thought would be objectively the right thing to do from the standpont of the shareholders, the optimum utilization of what TRW had to offer to the world, and that included in the details of that way of thinking about the future would be, where would you put corporate headquarters?
Now, I felt Los Angeles was not the place for the corporate headquarters of the company, as I saw the company. At that time, European connections and Washington and financial New York City center of population, the automotive industry which was going to be our big important, shall we say, steady earnings and cash flow from automotive parts operations, all of that was from Cleveland and Detroit east. Insofar as the portion that came from Ramo-Wooldridge was not, it was well handled from California, but corporate headquarters I felt should remain in Cleveland.
I was not about to go live in Cleveland, and have the plan of succession be that Dave Wright after a few years would retire and I would become the chairman. It seemed to me better to have Wooldridge do that, and Wooldridge however, after a few years, decided that he was even less interested in doing that than I was, and Shepherd, who had been running the original Thompson Products operation, was made the chairman. But throughout this whole period, you see, I was relieved from any such tasks that I could see would be important, as receiving a telephone call from a purchasing executive, a procurement executive at General Motors or Ford, and get on the plane to go to a meeting about our supplying parts for their cars. The chairman of TRW, as long as there was going to be some 60 percent of our earnings coming from that channel for many years--before the electronics and space and systems work, high technology of the Ramo-Wooldridge portion would come to exceed the old line metal working aspects--that the nominal chief executive officer, which they would insist would be present would be someone who would be intimately involved in that kind of work, which to me was not what I was interested in doing. I wanted to have the merger to insure the flow for the new higher technology things.
COLLINS: So just to quickly summarize, at this point when STL was formed, the character of your activities moved away from operational oversight more towards planning issues, is that it?
RAMO: Policy, let's say. Strategy. Everybody has to do planning, even if you're doing operations, you have to plan what you're going to do the next day. But I'd say, long term strategy, creating the goals, creating the match between what we had in the way of head starts or resources, human or facilities, the positions that we had, the positions that we might have, the resources that we could sensibly assume would be ours to make use of, match those to the opportunities, mindful of the competition, and do it on an international basis. And I continued to do that until I reached 65 and retired, and continued to be a consultant, to continue with a good deal of that even after I passed 65, remained a member of the board of directors and remained a consultant. I'm a consultant to TRW to this day.
Some of my duties during that period were somewhat different because of my retirement. That is, I became the chief amateur psychiatrist for my protegees who were running the company, and I learned to do what you observe psychoanalysts do on a TV program or a movie. They say, "And what is your problem?" and the patient tells you the problem and you say, "Uh huh. And what are your alternatives?" And they give you three or four, and you say, "Which one do you like?" and they tell you the one they like, and you say, "Why do you like that one?" After a half hour or so they thank me profusely, and I've contributed absolutely nothing except asking these questions, and they leave and go about doing their work. That was something that was a little different from the way I might spend my time earlier. It goes with being an elder statesman. The same thing was true in a good deal of my consulting activities, advisory activities for the government or other corporations. At any rate, I think you've got an adequate picture of the company.
COLLINS: Going back to this early interest in cultivating international business, you indicated what TRW was offering in these arrangements that you worked out with their technology base, their capability in certain areas of engineering and science. What were the other corporations--
RAMO: --well, I'll give you one example which should suffice. We created a joint company owned 51 percent by the Japanese. We did not want control. You read a lot in the papers about how the Japanese won't give Americans control of companies in Japan, but demand having a majority ownership. We didn't want to have the majority control and have to hire the chief executive officer and operate in Japan. This is not something that we were expert in doing, operating in Japan. We wanted Japanese who felt that they had to make a success of the company. We would get say 49 percent of the company at no cost. They would put in money. We would automatically then own 50 percent of what they put in. We would provide the technology. We would provide consulting services. We would receive a royalty on all sales made based on this technology. So we felt we were doing extremely well.
COLLINS: In this instance, what was the technology or technologies involved?
RAMO: Well, I wouldn't say, in this instance. I'd say generally speaking, the technologies involved were electronics, for example, semiconductors, computers, in which we were ahead. Space. Materials. Metallurgy. Manufacturing techniques. Information and motion automation in factory operations.
COLLINS: That gives me a sense of the evolution of your responsibilities. Going back to the ICBM program, what was the nature and structure of your working relationship with your management below you in TRW? How did you work with those people in implementing the ICBM program?
RAMO: Well, I think if you put a little title on, the use of common sense--I can't give you an answer because I don't know where you start from. If you are yourself reasonably familiar with management of technological operations, then some things would be too obvious to mention. Your question is like, if you're a teacher of algebra for 12 year olds, tell me, how do you go about teaching algebra to 12 year olds? Well, now, if you have been 12 and have studied algebra, I'd say it's the usual thing, just what you'd expect. You have a job to do that needs competence in various specialties. You naturally organize around what you have to get done, so that people can make their contributions. It's nothing that I can give you in principles of management that would be startling, with some magic formula.
COLLINS: Perhaps this would be a more useful hook. In your book, you indicate that you held Saturday meetings with General Schriever to review--
RAMO: That's an example of what I would call an obvious thing. Naturally, among other things, if you're at the top of an organization, to get a very complicated job done, you naturally will be dividing up the task into many pieces. And you will periodically be trying to get a feel of how the whole thing is going, and you'll be hearing from people that are working various parts of the project.
For example, an ICBM program, especially if you are originating an ICBM that has not previously existed, you're originating an ICBM capability for the nation, you know you have to have test programs, and you know you have to have a program to develop how the operational capability will be designed, and operational capability involves more than one missile. It involves a certain number of missiles. They have to be placed somewhere around the United States in relationship to your military mission. They have to be made reasonably secure. They have to be part of a system of command and control that will have a good chance of surviving an attack on it alone.
At the same time, you have to be sure you are designing and testing and developing rocket engines capable of lifting the ICBM up into the sky. You have to have a re-entry vehicle. You have to have an H bomb that goes with it. You have to have guidance accuracy. So you hear from people who are in charge of these various facets. There are people in charge of the interaction of the facets, one with another.
For example, there would be a group that would be in control of the trajectory, which is determined by the amount of thrust and direction of the thrust and the length of the thrust, which relates to the rocket engines, which relates to control of the direction of the thrust, which means swiveling the rocket engine to some extent or using surfaces on the missile that aerodynamically will influence the rate. It involves instruments coming from still another group of specialists, and unusual acelerometers and gyrosopes.
You will need to have some system of data gathering and presentation, so that all the key factors can be presented to someone who wants to know how everything is going. Where do you stand on each item? What is going to happen next week? What are the critical points? If you expect, for example, to make a complete flight test at 5000 miles including testing the accuracy of the re-entry vehicle, arriving at target, then before you would let the missile leave the ground, you want those measurement systems in place. To put them in place may involve such things as designing equipment and testing it in simulated circumstances, and making arrangements with foreign countries that own the islands on which you want to put the equipment.
So naturally you have numerous charts showing activities versus time. And those charts create other charts. There may be a grand chart with a few highlights, but in order to see what your chances are of meeting one highlight point, one milestone, you'd have a group of ten charts on the complements of that. You would constantly be seeking for the bottleneck potentials. What are the things which, if not done on time, would cause everything else to slip? And what are things that you can catch up on if you don't get them done on the date you expected? You can get it done three weeks later. Because you've provided a cushion.
Some things are independent. Other things depend, one item cannot be done until the other one is actually finished, you can't even start it. You must have the result of a certain test to get a certain bit of information which you will then use in completing a design. So you sit there on one chart with the design completion hinging upon some data coming in, and that comes from another part of the overall job.
Now, this is what I mean by common sense. Naturally, if you're reasonably knowledgeable about all of the pieces, and you have experts who will certainly call your attention to the problems that they've got, things that they have to do, they will tell you that "It's going to take me six months to do this and I can't do it unless I have the cooperation of a group I don't control," that we must arrange.
I mentioned the business of some other nation that owns an island. So these are technical problems. They are military requirements problems. They're funding, contractual. There are contractors galore and they have to be put under contract. If you want them to do certain things, you have to be sure that there is a contract calling for them to do it that they have signed. They may not be willing to sign that contract on the grounds that they can't do it. They're not going to sign to do something they can't do. Or, they can't do it for the amount of money in the amount of time that you're giving them. So there are steps and stages all over the place.
Some people, of course, are not capable of keeping a large number of things in their minds even when aided by very complete active information systems. They don't belong in the integration systems, in the integration and management of something of this kind. Those that do will naturally think in terms of a combination of being neat and complete on the one hand, and being daring and doing end-runs and being innovative and seeing that, "Hey, we can skip a step," or from experience, or again just reasonable alertness and intelligence.
If you see that something is likely to present a problem from the way things are going, you decide to put more effort on that, maybe to try still another approach in parallel, or you ask yourself whether you can do without that thing. Maybe you have insisted on achieving something. For example, you tell the rocket engine people that they must design the rocket so it can be swiveled to change its direction. And they say they can only swivel a certain amount. Why do you have to swivel so much? The answer is because otherwise you may go into instability. You have to correct oscillations that will take place. Every time you give a missile or anything else in life, anything else in the universe, an order to change something about what is true at that moment about it, it will not respond instantaneously nor will it respond perfectly. It will overshoot or undershoot, or it will have too large a time delay, or if it tries to do it too quickly, it's more likely to overshoot, so there is that stability problem. And some of which can be corrected by a superior job of the control system and the sensing system, rather than asking for the rocket engine to move that much.
That analogy would be, to steer a car at high speed down a road with many curves. And to ask that you be able to move the steering wheel and shift the wheels an enormous distance. But you can look and say that there's no need to move that big a distance. It would be easier to design the steering system if you called for less motion on its part. If you will do a better job of control so you anticipate that you're going too much to the right and you're going to get off the road, early enough, you won't need a big correction at the last possible instant. If you have that big correction, then you'll need a big correction the other way, because you're likely to overshoot. Now, we can go on and on and on with these examples and these details.
COLLINS: Yes. I guess the follow-on to that would be, to what degree did you involve yourself in these very nitty gritty technical decisions? It sounds as if you had very close control.
RAMO: Well, it was essential that I be a hands-on overall systems director. But in no way could I go past a certain layer of details on each one of these things. I had to know that they were there, and I had to know in principle why it was an issue. I would have to direct the program so that the various experts in the fields that had to cooperate, that had to be tied together, the interdisciplinary nature of the engineering required that the heads of the various groups, such as propulsion, re-entry, controls, guidance, structure, those heads had to be very capable in the interdisciplinary sense, so that they could appreciate the other person's problem and needs and requirements, and so they could participate in the innovation, the creativity, in trying to minimize the problems of interaction, to make it possible for each group to do its portion of the job with the least time, trouble, expense and doubt as to success, to obtain reliability. And below them they could have specialists.
There are people that are very, very brilliant and comfortable and make great contributions--can be even properly called geniuses on occasion--but can meet all of those and satisfy such descriptions of their talents only if they are highly concentrated on their very, very narrow field. And they spend their lives, they spend all their time on a very, very limited fraction of all that there is to encompass. And there are other people that are happiest and most useful, or at least they stand out, they excel in the business of the interaction of these things.
The more you are capable and spend your time on the overall systems interaction problems, the compromises and the optimizations and the ensuring of harmonious ensemble that's compatible of all the pieces of a problem, the less likely are you to get into the details of each piece, for lack of time if nothing else. And in the running of a program of that kind, where what you set up as goals goes to always having increasingly bigger systems problems--pretty soon, there is the systems in the large problem, there's the megasystem problem, there is the grand systems problem, in which in effect you're asking yourself why are you doing an ICBM in the first place? And if there's a reason for it, why is there a reason for it? And that enables you to see there are some things that you shouldn't be doing that you otherwise would do.
Whereas someone else down below is trying to build a rocket engine of specific thrust, the lightest weight but strong, reliable, least chances of blowing up in flight, and with the maximizing of the chance that you will actually be able to manufacture a substantial number of them in the factory without the master engineers and the PhDs standing over the operation--that person hasn't got the time, and is very likely not suited to the job of putting together the mission, the race against the Soviet Union, defining what the whole system is about, which requires knowing why it exists in the first place.
COLLINS: So in your position, if I can draw something out of that--you actually had to be capable of both things, the larger systems perspective, as well as recognizing the smaller systems perspective.
RAMO: You have to recognize it, but I didn't know the details the way those people did. And I didn't invent details either. It would be unlikely, let's put it this way, that I would be inventing such details.
COLLINS: One of the interesting elements of this program is the nature of the relationship with the associate contractors. How did you work with the Air Force during this time, as the chief scientist on the program, in assuring that the associate contractors were moving along with the work and expectations?
RAMO: Well, you know, I proposed. Here again, I don't feel that what I did was anything remotely resembling management in some sort of unique ability that comes along once in a century or something like that, like Yasha Heifetz on the violin or something like that. We had a contractual relationship set up by the Air Force with each contractor that named Ramo-Wooldridge Corporation as having systems engineering and technical direction. We chaired technical direction meetings. We were with that responsibility, so that it meant that granted a contract, say, for the rocket, for one of the rockets at least of the ICBM, here is someone with a contract that says what they're to do, what they ought to develop, what they ought to seek to develop. It was a cost plus, it was a best effort type of contract. And if we directed them to do a specific thing, to change what they were doing, or to give certain priorities to certain aspects of it, or to make further tests, or to answer certain questions, then we always put that in writing. They were the minutes of the meeting in effect, these technical direction meetings typically were like once a week.
COLLINS: Did you participate in these yourself?
RAMO: In some of them, but we had our top propulsion person chairing that meeting. We had his deputies present, and they had their project engineers from the company. Now, so, this is put down in writing. Now, if they felt that to do that required a change in the contract, in the sense that it now would take more money and more time, they had a short period of time to say so, and a contract change was issued at the request of the Ramo-Wooldridge personnel to the Air Force that had their staff headed by a general, who did nothing but handle contractual procurement work, furnished by the Air Force procurement side as against their research and development side.
These things presented no problems, for the reason that very quickly it was accepted, it became the understood pattern, that we had the systems engineering responsibility and we had it properly manned and were doing it well. Insofar as any contractor would not be in a position to judge that, it would be because they were busy with their piece of the job. They didn't know necessarily whether we were or were not doing the overall job. It was a great relief to them to know that their backlog and their work was being in effect guaranteed by our efforts.
You see, for example, there was a period of time when Martin Marietta was not doing well the job on the Titan structure. They ran into some problems that they weren't solving. I would get in touch with George Bunker, who was the chief executive of Martin, and say, "Hey, you and I have to talk. You've got to have, oh, three or four more specialists in a certain thing. Your fellows are not succeeding in acquiring those. I know how to help you get them. I know who they are around the country, and you're going to get out of this trouble, if you will get these additional people. If you can't get them, we're going to have to do more ourselves to back you up." George Bunker never had such a situation on a contract.
In general, if you do work for the Department of Defense and you're in trouble, you can't get the job done on time, the performance is below what it should be, it's going to cost more, you're in trouble. You have to look at it as a business. You're in trouble with that contract. You may get cancelled. You've got a competitor over here who's doing better, according to your customer. You haven't got people of sufficient competence. You've tried to hire them and you can't find them, you don't know where they are, when you find someone he doesn't accept your offer, he's happy where he is. You've gotten into this problem and you didn't anticipate that you would. You should have been at it earlier. Here you've got a very strong group. You've never had a situation like that. You've worked with procurement people. They may have some experienced technical people, but they're swamped with paperwork. You've got the job to do. Here you've got this group of people.
We were in a special position. First of all, the Ramo-Wooldridge effort tied in the minds of some of these people to the Hughes effort. We mustn't forget, the Hughes Aircraft Company that Wooldridge and I had built up, they knew that we were the leaders of that effort, and it was one hell of a recruiting operation. It was the largest technical concentration in the country second only to the Bell Laboratories. It was the largest military work, and we had championship positions in our successes. We caused the cancellation of competitors.
Now, here in effect, as I see it, is the same group, hired in a peculiar special way, without a competition, drafted by the Air Force to take on this job, and here they were coming around and saying, "Look, you're going to be in trouble in about six months, as we see it, and here's what we can do together to ensure we're not going to be in trouble." They never had it so good. They loved it. They must have, because if you look at the situation, there was never in a period of--that went from five to ten years, the peak of this creation of the initial ICBM capability, depending on what you mean in detail, getting the first Atlas operation capability, fired from Vandenberg, if that's a milestone, about five years; then getting the next generation of Minuteman--in that five to ten year period, there were no Senate Congressional investigations, and there were at that time of Defense Department projects that weren't going well.
There were no efforts mounted to challenge decisions that we made. The industry didn't come in and say, "See here, Ramo-Wooldridge is forcing us to redesign the structure along these lines, we don't think that will work, we don't think that's good, we think they don't know what they're doing. And besides it's hurting our ability to perform for you." Or "We see ourselves as about to be cancelled on something, we don't think it's fair. We think that there's this and that bad." Not any of those things. Never happened. It's one thing for these things not to happen during wartime on the Manhattan Project. This was in peace time.
So by luck, as I explained in the book, of timing, of the ICBM program coming up, of the pre-Vietnam post-World War II scientists-defense relationship, the setting up of this unusual organization, and the unusual support for the program, the way it was handled in secrecy. Just the right amount and just what we needed to be able to admit the program existed and get some information out to the public, when we started full scale flight testing, to get an advertising PR type of chief executive, Proctor and Gamble, to McElroy, to take over from C.E. Wilson, and he knew instantly that now is the time to talk about this program, and he encouraged that there be TV interviews with Schriever and myself and things of that kind. "Now is the time to talk to the media." It's funny how these coincidences all occurred on that program.
TAPE 1, SIDE 2
COLLINS: You were indicating about the timing of bringing this to public attention.
RAMO: Well, as I make repeated references to in the book, the ICBM program was a lucky program, in that all of the key things fell into place, and timing, coincidences, people, missions--they worked. The Soviet Union intelligence, intelligence on their program, the way it phased in--by comparison, the space program of the nation has not done nearly so well. There were some happy accidents in the lunar landing program. The accident that was happy was the lack of an unhappy accident. We did kill three astronauts. Par would have been that the program would have slipped five to ten years, and that we would have lost astronauts up in space. We even had Apollo 13, where we had a blow-out and by gosh we brought them back alive, and that's described in the book.
Now, the Shuttle in space, perfect example of par. Questionable choice of mission. Inadequacy as to overall systems management. Tying of science and technology and industry organization to the mission. All our eggs in one basket, a basic overall system mistake, greatly handicapping the nation, costing us many tens of billions of dollars and years, against any measure of timing, that is, getting things done early, race against the Soviet Union for either prestige or substantive things, ability to get scientific data or to provide for military intelligence, reconnaissance--all of the important substantive missions were delayed. The costs were high. We did lose people, who were killed through the Challenger accident, which shouldn't have occurred, need not have occurred. So there is a case of par. I won't say it was unlucky, it was just par.
Great projects started by the government in general have a very good chance of being misconceived, politically dominated, selfish interest constituency, Congressional--we speak of military-industrial complex on weapons systems. Congressional-military-industrial complex would be much better, because all 50 states wanted the supercollider when there was a chance that they might get something out of it. When it narrowed down to four states, 46 states didn't need it, they thought maybe we could use the money for other things, only four states needed it. The way to make that program go well is of course to so organize it that a majority of the leading Senators and Congressmen on the important committees will find something in their state to tie to it.
The same thing will be true of the mapping and sequencing of the human genes, the human genome, and of course the aerospace airplane to go to Tokyo in half an hour, and for that matter, the manned space platform. When President Reagan, and you can always expect the President to be gung-ho about a major program, he must be macho about some big science technology thing, at a mere five, six, seven billion dollars, that will be fine, but more recently we've talked about 35 billion. It's probably more like 70 to 100 billion. And the rationale for it has involved exaggerating potentials. The result is that that program has a good chance of being a par program. It would have to be very lucky to come out with outstanding success.
COLLINS: I guess, extracting a little bit from what you're saying here, to be a better than par program, one needs to minimize the bureaucratic and external influences.
RAMO: But a lot of things have to happen. First of all, the program has to be sensible in the first place. And when there are big program possibilities, there are promoters who see something in it for them. There are industry groups, military services, perhaps, government agencies like NASA. NASA to survive needs a big program. So right away there's a big bias. There's a feeling that to get big programs in space, you need to have people in the spacecraft. Then the public will go for it. They're probably right. That's part of human nature that you have to exploit to get funded. The race with the Soviet Union is good. If you can make it appear that the Soviet Union will get to Mars before us, and that will change the world against us, then you have a better chance of being funded for a mission to Mars, a manned mission to Mars. So you get tied up with these PR psychological, emotional, political and selfish interests, constituency angles, to create the program in the first place.
So to be successful, to be really successful, to be better than par, the first thing is, a sensible mission. Now, I say sensible rather than a required mission. Some things are not absolutely required, to maintain our way of life, but they're sensible from some other standpoint, a little bit like all of us when we have the means, do not engage in spending only for the minimum requirements to stay alive, but we like to have a little sprinkling of luxuries. Or adventure. Satisfactions. Fun, as well. And the same thing perhaps applies to a nation. But the first thing is, a proper mission.
The second thing is to organize the mission as to how it's carried out with capable people, a sound organization for doing that mission, putting into the background again selfish interest constituencies, political favoritisms, in the organization process. If you build the mission around the idea that you must be sure to have certain states in the act because their Senators or Congressmen will be more likely to be in control of the committees that are important in setting the budget, right away that means you're probably not organizing to get the mission done as soon and as reliably as possible, with a better chance of meeting whatever the mission's performance is that you're after at the least cost and time. You've departed from that, in order to cater to getting the project funded in the first place.
COLLINS: There's one issue that goes along with it, to follow that thread, and that is, the thing you bring up in the book about Secretary Talbott.
COLLINS: And his alleged interest in distributing the capability across the country. To what degree does that consideration play a role in what you're talking about, in other words, having a variety of centers of industrial capability to perform different elements in the Defense or space business?
RAMO: Yes. Well, I would say this. If you have been given a government responsibility to get a particular large complex high technology project accomplished, government money, government sponsorship, a government role in the mission, if you want to get that job accomplished, and it is not one where it is obvious to a majority of voters of the nation, it is something that has to be sold to the people that have the power to cause this program to exist, that means the Congress, it means the media, which affects public opinion which affects Congress. It means the executive branch, of course. Sometimes it may mean the military. It means industry. It means sometimes science and engineering fraternity support. There are these various constituencies out there that have an influence on whether you're going to have that project exist or not, whether it will actually be brought into being, whether it will be funded.
Now, you try to arrange, you deviate from whatever is the best way to do the job, in a world where a benevolent dictator says, "We're going to do it, you get it done properly, here are the criteria, I want it, I'm willing to spend 10, 20 or 30 percent more if you can knock off a year on a ten year program." Or one that says, "I'm not in a hurry for it. I think we should eventually do that. I don't want you to spend extra money just to take a year off." You get your guidance from this benevolent dictator. But that isn't the way it works in the real world. So you must communicate with all these constituencies. You must figure out how to organize. You alter your mission somewhat. You describe it in a way that caters to--you may describe the mission in several different ways to several different groups. It's not too different from running for President. So there's a sales job, a promotion job to be done, with the people who will be making the decision.
COLLINS: This is a difficult subject to get a handle on. The aerospace industry is something of a special industry in the context of our free market or characterized as free market economy. What are the special consequences of having an industry that's largely supported through government contract, depends largely on government contract for its existence and viability?
RAMO: Yes. Well, of course, first we must say that every industry in the free world, the non-Communist world or in the Communist world, has its particuclar deviations from ideal perfection, as a result of what it is that sets its mission and that supports it and assures its long range success. That industry which depends almost entirely, as is true of aircraft companies for example that make airplanes, or that make spacecraft, there are commercial planes of course where there's a different set of parameters, but those things that go to the government's putting out contracts to pay for research and development and to buy the articles, because there's instability and chaos, indefiniteness, vagueness about government decision-making--Congress gets re-election every two years, as does a third of the Senate--the President is in for four years. He has to be busy running for re-election or running in such a way as to cause the party to be re-elected in his last year. The first year, he's trying to get everything put together. So there's a couple of years of operation.
Short range, unstable, is characteristic of government. That means the industry has to operate with short range and live with instability. Typically, big companies can only exist and approach stability by having big programs. But big programs don't come along steadily. There aren't, if there are ten or twelve big aerospace companies, there are not ten or twelve big programs a year. You may find yourself with a program that peaks at tens of thousands of employees, and then comes off of that.
You may, as in the case, say, of Rockwell with the Shuttle program--with the Shuttle not really a fully developed article a few years ago, with the Shuttle having numerous areas that still required completion as a research and development engineering task--the circumstances of the political situation were such that it was sensible to create a competition, for the supervision of the Shuttle modifications and the servicing of the Shuttles and the launching of the Shuttles in Florida.
Rockwell lost that competition to Lockheed, who had not been in that game. Where was Lockheed to get the people, some of whom of course are the same as operate any kind of an airplane and that Lockheed had, and that were coming off of some project they were finishing, but mostly Lockheed would be hiring the people that Rockwell would be firing, so that, half of them might be the same people that just changed badges. They lose, however, their pension relationship in the process, so for those people it's not very good. There's a period of new teams being set up. The work will be done very much more poorly for the first two or three years, after which they may have another competition, and Rockwell may win it again.
This is a way of ensuring that it costs more, loses time, adds unreliability and dangers to the safety of the program, but if you don't compete it, and you're the government, the supervisors in the government on this program, you have to explain to the Congress how come you stick with one contractor. Why should they be allowed? Have a competition always, you've got to have competition, and so, it's a no-win situation.
Patterns like that are such that in the aerospace industry, if you're in charge, suppose you're a vice president of engineering or the equivalent, you have thousands of engineers under you and they're going to be laid off if you don't win the next job. Now, it's far better to win that next job, even if you're not going to make any money, even if you're going to lose some money, than to take the chaos and tremendous losses of the organization coming apart. And who knows, you're only going to be there another four or five years--if you do well, you'll be promoted, maybe become the chairman of that company.
If you become the chairman you'll only be chairman four or five years. You don't want to think about what will happen after five years. You want to think about what will happen between now and the time that you're holding this job. The first thing to do is to have steadiness of employment and have work to do. So you're very busy trying to figure out how you're going to win that job, even though it may be in effect cost-plus, be sure to bid it low, because somebody else will if you don't. Try to find out how they're bidding it, if you can. Try to guess how they're bidding it. Some people will be fired or will be leaving other companies that are bidding it, and they'll come in and work on your team. They say, "Boy, you're bidding too high a price. You're never going to make it with this kind of a price."
Find out what the customer thinks he would really like in some grey areas. It's clear he wants a fighter plane that will do certain kinds of things, but he would love to have in addition some other things. Tell him you can go down practically to zero altitude and up to high altitude and go from low subsonic speed to high supersonic speed. Promise performance achievements. Talk about a short time to get it all done. Out-lie each other to win the job. That's natural. That's the way it'll happen.
When you win the job, now your job is, work real hard to fix it so that it's clear that the government has asked you to do more things, and those additional things they asked you to do cost a lot of money, to help cover the cost that you've under-estimated. If you talked about having real reliability by having 120 detailed steps and tests before you take the next step, find out now that, you know, you can really do it in 30 steps, you don't need 120, now that we understand it works better, we've made these great breakthroughs here and there. Cut down the work to be done, so that it will come closer to matching what you said you could get accomplished in this time.
So these, as I say, are natural things, people being people. Now, there's a whole other set of things, people being people, that has to do with commercial competition on a worldwide basis. They're different, but you asked and you're here to ask about the aerospace projects which involve government control and sponsorship.
COLLINS: How is this, and I think you've alluded to some, to make the comparison concrete, how does this compare with commercial endeavors? Are you dealing with uncertainties that are more or less important?
RAMO: Well, they're different. They're different, and you have to take it case by case. I'm sure, for example, that a commercial drug manufacturer has a whole set--I know a little bit about that area of endeavor--there's a whole set of complex parameters that determine how you work for success in a business sense. One thing of extreme importance to the United States, because we have been losing our technological leadership in the world, is what happens to large high technology American companies dealing in the consumer and industrial field, not the military.
As I point out in the book, the big companies tend to go towards diversification, steadiness, bureaucracy--the enemy of creativity. The top management cannot really judge the operations that are so diverse and so big. They can look at monthly financial reports, but that doesn't tell them about strength of competition, technological changes that are likely to change the whole position against the competition, the world markets, in each of those detailed fields. So what do they do? They build around general return on assets employed criteria and the like, and if they see, for instance, that there's a chance that in order to insure a position, say in semiconductors, they may have to pour billions into highly speculative work that may not see a return that's positive in less than ten years, but there's this five year criterion.
There was a study by the Harvard Business School, I believe it was, reported in FORTUNE, a year or two ago, where I happened to read it, that the average time that a chairman of a large corporation or head of a division of such corporation occupies that position is like five and a half years. The pension and earnings during that period of time goes to the earnings of that year, a bonus on top of a fixed pay, depending upon the earnings of that year, and a pension that goes to the earnings in the last few years.
If you have a billion dollars of excess cash, do you invest it in a high tech speculative thing that there will be five years of R and D, then you may design products, then you have a start-up phase in products, until you get into large scale manufacture and distribution and marketing, and then finally you get into break-even and then you have high profits? That's the scenario that you're looking at. Ten years, you're not going to be in that job--it's your successor who's going to reap the rewards. You spend that billion, it goes against your earnings, it makes your earnings lower, and now you're judged, if you're the chief executive you're judged by the large number of professional analysts of all the pension funds who own your stock, all the trusts, all the insurance companies, the university endowments. You're no longer, as you might have been 50 years before, in the hands of entrepreneurs who are going to get rich or fail utterly, and initial investors who are gamblers. Now you're owned by these professionals who want steady earnings, and steady earnings per share increase for that diversification and optimization on a financial basis.
So what do you do with this billion dollars? You buy another company. But you don't want a company with the same problems, so if you're General Electric, for example, you buy RCA to get NBC for the operations. You sell off, whatever price you can get, to the French or somebody, all the radio television stuff, anybody that will buy it, you go out of that game, just as you went out of it when you were General Electric. You lose out to the Japanese or somebody. You take the prestigious laboratories at Princeton that gave us color TV and were the big builders of TV in the nation, and you give that laboratory away to a non-profit organization and take a tax deduction. And you buy Kidder Peabody, an organization that you didn't know because it's not a game that you're expert in was about to have a big scandal that would keep it from earning money for a while. So don't count on the big high tech companies. We had AT&T with its Bell Laboratories, but now AT&T is a competitive company. It's not that big. It doesn't have that big an amount of money to put into Bell Laboratories, and it better operate Bell Laboratories a little closer to what other companies do, as products that AT&T can sell to beat out the competition.
COLLINS: In the case of an organization like TRW in this period, say, in the sixties, it came out of an engineering technical background. You're someone who is trained as a scientist who got into business administration and management. To what degree, once you get involved into the organization and implementation of technical programs, where the decisions are essentially technical and scientific, how are those married up with these kinds of financial considerations that you've just talked about?
RAMO: I don't know whether you can still get a copy. I don't have one to give you any more. I think I have a couple here and I have a couple at home. A book by John Wylie, just about ten years old, THE MANAGEMENT OF INNNOVATIVE TECHNOLOGICAL CORPORATIONS. And it goes into those things.
COLLINS: Let me just insert another question here before you make some comments about that, and that is I guess, what you're describing is the rise of financial managers in influence in these technical organizations.
RAMO: Well, the financial management was always there. What I'm saying is, what is true of large American corporations is a lowering of the interest in taking risks, in risk investments in high technology that is long range. So in America, a larger fraction of our technological leadership advances is moving to the smaller corporations. Not a single company, IBM and its American competitors, not a single one of them in the fifties roughly, when the computer emerged clearly as the potentially--which it has become--greatest advance in electrical engineering in a century of electrical engineering, since the discovery of means to harness and use the generation and distribution, employment of electric power, and the same with radios, the computer dominates the second half of the century of electricity. It started in the 1800s, it's about a hundred years old. Not a single company was even in the electrical business or existed as a company. Every company is either brand new or like IBM, was not brand new, it existed but it was a mechanical paper card shuffling company, handling punch cards. It was not in the electrical business per se.
The semiconductors, greatest invention, probably greater than the wheel, everything from the transistor to the microcircuits, microchips, replaced the vacuum tubes essentially in the dominating of all matters of electronics, in the electronics field. None, not one of the top ten manufacturers of vacuum tubes is a top ten manufacturer of semiconductors. I rule out AT&T because it was a regulated monopoly and had to produce only for its own purposes originally, and license at a nominal cost to everybody else. New companies started for all of these things. And that's the trend in America. That's what I'm talking about. And it's probably a good trend. At least we lead in technological entrepreneurship infrastructure in the United States.
We alone, not Japan, not Western Europe, we alone have--I don't know, a thousand venture capital firms. We have a Stock Exchange for small companies. We gather funds for investment from large--from rich and middle class individual investors, from big companies, from insurance funds, banks, trust funds, pension funds, to provide money for investments in high technology. What we need to do is to improve those things that the government dominates. We need low cost of capital, as Japan has. We need low capital gain taxes, as Japan and Germany have. High savings rate, low inflation rate, low cost of capital. That's something that the government has a much greater influence on than does the private sector. If the government, insofar as the government improves the economic parameters basic to technological innovational and venture capital investment in high technology, we have the rest of it. We have it in our culture.
I met, used to meet once a year with Honda, when he was alive, as part of my visitations to Japan on behalf of TRW. He would, forgetting that he'd already told me, he would tell me each time the story of what a problem he had being an entrepreneur in a culture where entrepreneurship is not valued. You're regarded as an eccentric, not a hero. Here, you're a hero if you're a successful entrepreneur. You write books and things and people read them. They think it's legitimate, you should. And you get your picture on TIME MAGAZINE's cover. There, you're regarded as peculiar, bucking the establishment. Only a few people have the guts to do it.
And Japan, Inc., our shorthand expression for the way Japan integrates, coordinates, assembles the power of its finance, bankers, government, labor, industry, to pick out an area of great importance in technology and decided to dominate it and go after a world leadership position, and we admire that--it's for big companies. It has nothing to do with little companies. The big companies get together and divide up how it's going to be done. And they set up their programs to back up the industrial effort.
So, we're right for this, we're ahead, and if we would exploit that to the fullest--our universities should be into entrepreneurship teaching more than they are. There should be more books of the kind that I have written ten years ago, that deals with such subjects. You can get an engineering degree, in fact you can get a business school degree, and leave without a sense of entrepreneurship at all. If you go to a business school and get an MBA degree, typically, I know this because I used to be on the circuit--about once a year I would accept an invitation, one business school or another, come and spend a couple of days, give some lectures on technological entrepreneuring--typically the professor on the staff who was in charge had not been a successful entrepreneur, had never been involved in it, or he would not be there. Sometimes it was someone who had started a small company and sold it, before it was clear that it was not worth anything, to some big company that didn't know any better, and made himself a million bucks and decided to go teach. They learn in business school a lot of accounting. They learn to make case studies on a financial basis. They learn some elements of marketing. They particularly get good at handling certain analytical tools for assessing the financial condition of a company.
If you ask about to what extent they teach something that is relevant to entrepreneurship, it is a business plan. A business plan means that you put down your estimated sales, estimated equipment requirements, capital investment requirements, cash flow, and you show that you're going to be in the black and in a cash flow position in the third year, you're going to be in a profit position in the fourth year, and you put together a package like that. Relating those financial numbers to whether there's a real need for the company, whether you've got something really new and different that deserves being backed because the world needs you, either in manufacturing distribution or in the basic product, you have something new and different and you have a management team that can put it all together--so the MBA who takes that kind of a course, he may be suitable to be a member of the team, but he does nothing that prepares him to think of himself as an entrepreneur particularly.
Then of course in engineering, we don't teach engineering to a first approximation in America. We teach the science and analytical tools, sometimes the technology underlying real life engineering. The idea that real life engineering consists in actually designing something that will work, that can be manufactured and used by a customer in a cost effective way, both of them, both manufacturing and use, that will fill a real market demand, a real market need, that will be, will have advantages over alternatives, and hence a reason why you expect it to be successful as a product, and to do that on an international basis, since the whole world is in the act now--that concept of engineering is almost unknown to a technical engineering graduate. He comes out confusing engineering with the science that relates to it.
All of his faculty members are not professionals in real life engineering. They don't do that for a living. It's almost like studying biology if you're headed for medicine. And you get a bachelor's in biology, you may get a PhD in biology, in which you do some frontier work, and if you go to work in a university or a research institution, where you go on doing research in microbiology, no one notices it. But if you go out to deal with disease and trying to cure people and diagnose and apply knives and drugs to the human body, you learn that only by going to work in a clinic or hospital where there are people who have done that, and you're around them and you are junior doctors for a while and you learn what they do and you walk around with them and pretty soon you get good at it. Five or ten years, you get to be professional, and then some of them, fifteen, twenty years later, having looked at that, decide the medical schools are not teaching medicine, how to practice, by teaching just the fundamentals, biology.
COLLINS: Well, following up on a couple of points there, in the case of TRW--
RAMO: I'm going to have to leave in just a few minutes, so choose your best last question.
COLLINS: For a little continuity, I'll follow on that point. In the case of TRW then, how were financial managers brought to appreciate the character of the corporate enterprise?
RAMO: Well, by some of us, especially me, being involved in trying to have a substantial group of people understanding what we were there for, together. And while you need specialists, someone who designs a microchip, and someone else who designs an accounting system, and salesmen, a certain fraction of people have to have a general sense of what the whole operation is there for, and how all of these people can--it's a systems problem. So there I was doing systems work again. That book is concerned with that, the management of it involves getting research and development and manufacturing and marketing and return on investment all put together, so that it all fits your mission. It's the John Wylie book. It's over ten years old. They may not have any any more.
COLLINS: Thank you very much for your time today.