US high-tech firms redeem the past

After Xerox's spectacular failure, company learns to capitalize on its own new technologies. Many high-tech firms in the US squandered early leads in technology to foreign firms. But the US began its comeback in the late 1980s.

IF there is a symbol of the decline - and rebound - of American entrepreneurship, it is probably a long, low building lodged in the hills above California's Silicon Valley.

It's known as PARC, which stands for Xerox Corporation's Palo Alto Research Center. From it have flowed some of the most important advances in computer technology. PARC scientists invented the computer mouse, conceived of on-screen ``windows,'' and built the first personal computing system years before Apple's first computer and the IBM PC. So where's the Xerox PC? It doesn't exist. The company failed to capitalize on its technological lead. Two authors summed it up in the title of their book on the subject: ``Fumbling the Future.''

During the 1970s and early '80s, many high-tech companies in the United States fumbled their future. They squandered early leads in everything from low-cost calculators to color TVs to liquid crystal displays (used in watches and consumer electronics). Foreign firms walked in and took over. For a time, America's inventive decline looked irreversible.

America's slow comeback

The comeback began in the late 1980s. Progress has been sluggish, like watching a basketball rebound in slow motion. The direction is unmistakable, however. For example:

* The overall share of US patents going to Americans is on the rise. From a low of 52 percent in 1988, America's share has steadily increased every year, reaching 54.1 percent last year.

* Individual US firms are also winning more American patent rights. In 1988, only two domestic companies made the list of top 10 corporations receiving US patents. Last year, four US companies had cracked the top 10 and one of them, IBM, took the top spot for the first time since 1985.

* On the ropes a decade ago, US companies such as Motorola Inc. and Intel Corporation have refocused and reconquered high ground to become dominant in some technologies. At Xerox, too, the shine is back. ``I think the tide has turned,'' says Mark Weiser, head of Xerox PARC's computer lab. ``Right now, I would say Japan has a lot to learn from American companies again.''

On this particular day, Mr. Weiser is showing off his vision of the future. The lab is saturated with computers - from hand-held gizmos to an electronic version of a standing chalkboard. This is the same lab that two decades ago invented all the computer advances that Xerox failed to back. Today, the company is already marketing the electronic ``chalkboard,'' called LiveBoard, which allows people thousands of miles apart to work together. Xerox has also revamped the way new in-house inventions are reviewed.

Another key change is improving communication among divisions, which deteriorated in the late '70s and early '80s. ``PARC invents far too much for Xerox to use. So in the late '70s and early '80s ... stuff got dropped on the floor and used by everyone else,'' Weiser says. Today, ``PARC is still very free to do what it wants. But we are encouraged to make friends with the people in the business divisions.''

``PARC has been a real jewel in the competitiveness of the United States,'' adds Paul Allaire, Xerox's chairman. But during the late '70s and '80s, its research was not directly related to the company's strategy. ``You've got to remember, this was also the time when we were being attacked by foreign competition. I would rather have survived in the copier business than to have been successful in the PC business.''

Young entrepreneurs

Xerox did survive in copiers, winning in 1989 a Malcolm Baldridge National Quality Award. And, in computers at least, the US kept its lead, in part because a young entrepreneur - Steve Jobs - saw PARC's technology, realized its potential, and went on to build Apple Computer into a major US corporation. In other industries, the US was not so fortunate. Foreign corporations capi- talized on new technologies while their US counterparts did not.Take televisions. Although TVs were invented in the US, only one American manufacturer still makes them: Zenith Electronics Corporation. RCA, which did much of the original work on video-cassette recorders, shelved the technology and invested in a carpet business and Hertz Rent-A-Car instead. Such missteps proved disastrous. Japanese companies moved in to dominate the VCR industry just as they came to dominate many consumer-electronics businesses. A shadow of its former self, RCA is now owned by the French.

These lessons were not lost on the US companies that survived the onslaught. And thanks to a favorable exchange rate, they have room to capitalize on their entrepreneurial potential.

But the biggest challenge remains - a paradox really. As companies get bigger and more successful, they lose some of their entrepreneurial drive. ``When you're going to build a copier and you know you have to place it in every single corner of the market ... you do just the opposite of what an entrepreneur does,'' says Robert Adams, a retired executive vice president at Xerox. Creativity gives in to conservatism. ``That's where trouble comes.''

Mr. Adams faced an uphill battle to convince Xerox executives to manufacture another PARC invention: the laser-printer. It became a multibillion-dollar business for the company.

For a time in the 1980s, some economic observers pooh-poohed America's competitive ills, suggesting that entrepreneurs would spark a renewal. It was a stirring, if incongruous, image: 20-year-olds in their garages taking on the likes of Sony and Siemens. But to compete internationally, entrepreneurs had to grow. And in getting big, they risked losing their entrepreneurial magic.

So in 1988, Xerox's former chairman asked Adams to find a way for the company to capitalize on PARC's inventions. Adams came up with Xerox Technology Ventures. If a promising in-house technology doesn't fit Xerox's business strategy, the ventures group creates an entrepreneurial company to make a go of it.

In six years, the group has spun off 11 companies, focusing on everything from computer scanners to electronic publishing. Nine of the companies have survived. Xerox usually owns 80 percent of the stock and the employees split the rest. Many of the technical employees have moved over from Xerox; the chief executive officer is usually drawn from outside.

``In some ways, it's the best of all worlds,'' says Charles Hart, president of Semaphore Communications Corporation, a Xerox venture. ``We can use the Xerox name to give us credibility.'' But bureaucracy is kept minimal.

Fast-growing spinoff

The Santa Clara, Calif., company sells security systems for high-speed computer networks. In the first year its product was out, the company reaped $1 million in sales. This year, Mr. Hart says he expects $7 million to $10 million and, next year, $20 million to $25 million.

There are some drawbacks to the Xerox affiliation, Hart adds. The company is looking for an outside investor to pump in $5 million in new capital. But some investors worry that Xerox will throw its weight around. (Xerox often makes contractual guarantees to allay these fears.)

``I think we are going to see more of this in the future,'' Mr. Hart says.

Adams is also upbeat: ``In America we do a better job of bringing new technology into the marketplace than any other place on earth. There was a time ... when our own processes got so incredibly sloppy that companies offshore were eating our lunch.''

But Xerox - and the US - retooled and refocused. Now, he says, ``we [have] the latitude to be inventive again.''