Letters from George Snively to Barney Oldfield

In April 1993 Barney Oldfield suddenly surfaced and thus began a lengthy correspondence which ended up with his book King of the Seven Dwarfs, published in 1996 by the IEEE Computer Society Press.

It all began when Barney wrote an article for the Annuals of Computer History to "correct" my article -to, among other things, to refute my statement that he had been fired. He maintains that he resigned for "personal reasons". The book evolved as he got deeper and deeper into the story.

I wrote him some one hundred letters during the course of the project. About 25% of them are reproduced here. Most of them were in response to questions from Barney and reading them may be somewhat like listening to one end of a telephone conversation but I have included only those that more or less stand on their own. I have not included Barney's letters principally as a matter of privacy but also because I could not easily match them with my replies and I had not saved all of them.

I disagreed with both premises of Barney's book:

1. that GE's efforts in the computer business were a failure and

2. that GE's management philosophy was to blame.

My efforts to persuade him in these matters had only minor success. (The final book was toned done considerably from the first draft. His negative interpretations of events was more indicative of one who had been fired - not one who had resigned for personal reasons)

GE’s SPECTACULAR SUCCESS DURING THE LAST HALF OF THE 20^th CENTURY IS SUFFICIENT EVIDENCE OF THE EFFICACY OF GE’s MANAGEMENT PHILOSOPHY

(I hope that those who think otherwise were not "short sellers" of GE stock during this period)

George Trotter called me last night with news of your address. It may surprise you to know that you have been the object of a wide search. WGBH TV, the Boston based PBS station, wanted to interview you concerning ERMA for their series on the computer, called "the machine that changed the world". They had planned an extensive piece on ERMA and the early GE efforts but couldn't find you and both Clair Lasher and Al Zipf were too ill at that time to journey to Boston and appear on camera.

Footage of me (as a last resort) telling the story of the Computer Department was left on the cutting room floor for lack of corroborating evidence and other visual material. (The series was driven by the availability of visuals - i.e. Echert and Mauchlay's home movies of UNIVAC got considerable play, while Von Neumann received minimal voice-over comment with only his photograph on camera.)

There are any number of people who would like to get in touch with you. Nate Norris advises that he has sent you a copy of the Computer Department alumni list and tells me that you have been in contact with Bob Johnson.

You ask so many questions, I hardly know where to start. So I will just start - and ramble.

First, my "tall tales" was not meant to be a spoof - but a memorial to you. My guess is that less then half a dozen people in the audience of approximately one hundred Computer Department Alumni had ever heard of you. I didn't want you and your efforts to be forgotten and didn't know that you were still alive and well and able to speak for yourself. (We couldn't even find a picture of you for WGBH.) My old memory may have been faulty, but it is the story as I remember it. (Some of the episodes were as reported to me by Russ Krapf and Ken McCombs. The later was admittedly not a very good reporter.) As you know, history fades into myth and then myth becomes history.

I stayed until August 1967. At that time there had been roughly 500 people at sub-section level and above. Approximately 80 were still in place. Of the remaining 420, a number resigned, one (I can't remember who,) was promoted, one (me) stayed at the same level throughout the whole period and the balance were either fired or demoted. It seemed time to leave.

Lasher, of course, succeeded you - but as "Acting" and I don't know that he ever was made permanent. Ray Barclay and Ken McCombs stayed until Van Aken fired them both. Ken Gieser (now deceased) was shunted aside and down. He stayed through the Honeywell merger - ending up as the "Major Domo" to entertain visiting dignitaries. Art Newman (still living) was demoted several times - when I left he was in charge of the employee store. I thought that Herb Grosch left on your watch. I distinctly remember you billing IBM for his unpaid expense accounts and for his carpeting. I don't recall how long Bob Johnson stayed. You have Ray Barclay's address. Ken McCombs has disappeared. Ray stopped by to see me several years ago, principally to see if I could enlighten him as to why Van had fired him - I couldn't.

The replacements for Ray Barclay and Ken McCombs were both excellent choices. Cy Statt, whom you may remember from GED in Syracuse, as Manager-Manufacturing and Gil Gillespie from Financial Services as Manager-Finance.

The confusion over the number of ERMA systems is probably due to the "commercial" version being referred to as the GE110. Someone in the GE Alumni group (Vern Schatz I believe) has a listing by serial number and customer. 65 is a believable number. Security Pacific Bank alone ordered 10 and I believe took delivery on all of them.

NCR was not able to market the 304 successfully. It is surprising, but as I understand it, in addition to the machine's costliness NCR did not thoroughly understand the department store application that was supposed to be their strength. It was also likely that IBM was too entrenched in the data processing function. Only a very limited number were sold. There were also extreme corporate culture differences in the manufacturing area between GE and NCR.

Helmet Sassenfeld, one of Von Braun's people, succeeded Herb Grosch at the ASU Computer Center. The Huntsville project was ultimately lost but Helmut built a nationwide network of computer service bureaus. It became a very large and profitable time-sharing network, which GE kept in the merger with Honeywell. As far as I know it is still a large operating network. (Unless the PC's have greatly impacted it).

I'm surprised that Reg Jones stated that all 14 years of the Computer Department were a loss. I was under the impression that he was the only one besides Gerald Phillippi who understood the bookkeeping where the greater the success in a rental business, under GE's bookkeeping policies, the greater the "book loss" (or tax shelter). The principal problem with the Computer Department was that no one understood the financial statements. I will prepare an appendix of explanation.

Lasher was a planner. His first inclination, after he got the "Big Look" approved was to recognize that it was out of date and to start re-planning. It didn't seem to occur to him to implement. (He was also emotionally exhausted). Fortunately, or unfortunately, Lacy Goosetree, as Manager -Marketing, and Bob

Sheeley as National Sales Manager were implementers. Bob Sheeley assembled a national sales organization "Par Excellence". It included the likes of Ken Fisher (later of Prime Computer), Jim Pompa (to become a Honeywell V.P,), Tom O'Rourke (founder of TYMSHARE), Warren Prince, Jim Helm, Vic Casebolt (to become at one point President of Storage Tech. and now V.P. -International Paper), Clint De Gabrielle (to become the Czar of Computing for the State of Washington), Curt Hare (to become President of TERAK and half a dozen other Silicon Valley ventures) and on and on through a whole other host of outstanding capable people like Leo Mott (who formed a Dallas based facilities management company), Vern Schatz, Bill Duster, Paul Shapiro, Jay Kear (President of an Orange Co. software firm), Dick Nosky, Pete Repenning, Gene Ringstad, Len Call, Bill Peake -the list is twice as long. I've only scratched the surface. The legacy of the GE Computer Dept. is the later accomplishments of the people who left. Unfortunately, they out-sold the capacity of the Computer Department to produce, principally in the software and applications area.

In May 1961 Bob Sheeley and Lacy Goosetree, shortly after Lasher received approval for the "Big Look", and planned earlier in anticipation of the OK, held a national sales meeting. This weeklong meeting was held at the Superstition Ho Hotel in Apache Junction. Its purpose was to put the GE brand on the above group, most of who had come from our competitors. This up-beat meeting with everything done very professionally and first class more than accomplished its purpose. Everyone who attended cherishes the experience and it is this group of people who form the nucleus of the Computer Department Alumni.

Lasher was always successful in getting 570 to approve his ambitious plans - but lost his courage in implementing them as the red ink flowed. He would, as also did his successors, abort the plans before they were fully implemented. This created confusion. It was impossible to justify "losses" to 570 when he himself was aghast at them. It seemed "flippant" to month after month explain larger than anticipated losses by suggesting that we had a better month than anticipated. (See the enclosed spreadsheets)

We had nearly 100% of the banking business (with the GE 225), which proves the success of ERMA, a goodly chunk of the internal GE business and were making sales for manufacturing applications based on the strong GE manufacturing experience. However, many of these external sales were "paper tigers" as far

as deliveries, applications and software capabilities were concerned. You were not the last computer salesman to learn that it was easier to sell a computer that had yet to be built then to sell an existing one.

The obscured fact of the computer business at this time was that IBM was essentially selling to themselves. They had trained and placed the Data Processing Managers whose path of progress was for IBM to place them in a better assignment with another company. Their loyalties were to IBM and not the company that employed them. IBM assisted them by having most of the Fortune 500 companies pass Corporate Resolutions forbidding the purchase of computers (for all the old familiar arguments) thus eliminating the need for the DP mangers to bother with cumbersome Appropriation Requests (and raising the cost of entry for competitors). They also convinced upper management that Purchasing was incapable of making procurement decisions in regard to computers. Only the DP Managers were capable of this. As a result, this was a difficult market to crack, particularly when these facts were not understood and marketing strategies and tactics were not developed to counter them.

The consequence was that our customers, to a man, were mavericks. The ones with the courage to jump the IBM traces. They extracted a price for their courage. IBM and their DP Manager customers would enter into a mutual conspiracy of silence if a particular program or piece of hardware was late or failed to perform. On the other hand, it was incumbent for our customers to alert their management at the first sign of potential problems. We built many customer files into what Bob Sheeley called "monuments to negotiations". (Speaking of which, it might interest you to know that the ERMA contract was not finally executed until after the last system was shipped.) IBM also very effectual kept GE's upper management informed of the Computer Department's problems.

I don't recall anything particularly dramatic or traumatic about Clair Lasher's exodus. In my memory, he just quietly slips out and is quietly replaced by ???. (Who was so un-memorable that I can't remember his name). I remember ??? as being from the mold of old line GE General Managers. A mild mannered, pipe smoking, graduate of the "Test" program. He sat calmly and quietly in his office as the computer business swirled around him. In relatively short order he was named the General Manager of the Process Computer Department, which was a natural fit.

Following this lamb, Van Aken came in roaring like a lion. Van became very frustrated and confused when his roaring against the tide of the computer business was to no avail. He also became paranoid when GE's upper management would learn of the Computer Department's problems from IBM before Van knew of them himself. He would become even more paranoid, emotional and irrational when Lou Rader, newly returned from UNIVAC, replaced Harold Strickland and began forcing ex-UNIVAC people on him.

Van is now retired and living in Tempe looking relaxed, tanned, healthy and as dapper as a Gentlemen's Quarterly model. You should contact him for the story of his reign as GM of the Computer Department.

The first to go was Bob Sheeley when Lou Rader "suggested" an ex UNIVAC salesman, Art Ashauer, for that position. Art was likeable, easy going and relatively competent. However, the sales force, which was fiercely loyal to Bob Sheeley and most of whom were more competent and experienced than Art, were astounded by the move. Rader's next move replaced the well liked, competent and effective Tom O'Rourke with Ted Green (also from UNIVAC) as the Western Regional manager. The final straw, which destroyed probably the best sale force ever assembled, was the replacement of Lacy Goosetree (who is also alive, well, and active - you should contact him) with Vern Cooper from GE Supply. Vern was articulate, imposing, vain, intimidating, incompetent, stupid and naive. (I later learned that he was

Herch Cross's son-in-law and the Computer Department was just a temporary assignment on his "fast track".)

Vern Cooper's classic remark concerned the banking business. He didn't think we were doing well in the business since we didn't have any of the important New York banks and "whoever heard of Security Pacific Bank (then #7) or Northwest Bancorp?". The very closely-knit banking industry, which has a very active grapevine, always watched us closely for any signs of wavering in our support of them. Vern could not understand why we had more salesmen at headquarters than in the field and one of his first moves was to disband the headquarters industry support groups and send them to the field. The banking market was lost in one fell swoop when he disbanded the banking support group. I was at Pittsburgh National Bank (a good GE 225 customer) getting the final documentation executed for the lease of two GE 400 systems the day this move was announced. The bank decided to wait to see what was happening and delayed executing the lease. They ultimately went with Boroughs. I was also in the meeting with Martin Marietta(sp?) when we were trying to save the GE 600 installation with a number of non-green dollar concessions such

as delayed starts on net lease rentals and etc. totaling $3 million soft dollars. The meeting ended when Vern, to show Charlie Lighthouser, then Executive V,P, of Martin, that he was tougher than Charlie said, Take your $3 million dollars and give me back my machines!". When I interrupted to point out that the

concessions were in consideration of Martin keeping the machines I was told to "shut up" that he knew what he was doing. Charlie looked at me, shrugged his shoulders and indicated that it was an offer he couldn't refuse - and he didn't!

The follow on to ERMA with the B of A was a contest between two "paper tigers". We were proposing the not yet in production GE 600 system and IBM was proposing a likewise situated upper model of the 360 series. IBM ultimately "bought" the business but you will be delighted to know that part of the price IBM paid was to pay the monthly maintenance bills for ERMA for any months they were late in delivering. For nearly 18 months IBM paid us the monthly bill of $250,000.

Van Aken was followed by John Hanstra from IBM. This was a very un-GE like move (If it was engineered by Lou Rader, he atoned for some of his above sins). John, who had been responsible for the IBM 360 series, was very affable, self confident, easy to talk to, and extremely knowledgeable about the business. He garnered immediate admiration and respect from one and all. Unfortunately, he had hardly settled into the position before he died in a crash of his two engine airplane

John was followed by Lou Wengert. Wengert grew up in the financial function of X-Ray and became General Manager of several GE large motor departments. He came to us from Locomotive. He also came in "roaring", but after Van Aken it seemed like more of a "meow", particularly when afterward he would smile like he didn't mean it. He also became very emotional and irrational as had Van Aken. I left sometime, maybe a year, after Lou arrived. (You will note the lack of dates in this whole narrative - I just

Shortly before I left the Department was split up into half a dozen different Departments. As I recall

Jack Vanderslice took over the Oklahoma operations. I don't remember who the other GM's were. Soon after the split up, Lou Wengert was promoted to V.P. of one of the industrial groups. Stan Smith, replaced Lou Rader about the same time that Wengert came aboard.

I had lunch with Lou Wengert, who is retired and living in Carefree, AZ., several years after he left the Computer Department. He told me that he had been appointed GM of the Computer Department because of his manufacturing expertise and that he was ordered out to phoenix to fix the manufacturing problem. Sure enough there was a big manufacturing problem. After focusing on this problem for nearly eighteen months he suddenly discovered that this problem, as big as it was, paled in comparison to the engineering and marketing problems, but it was too late.

I will end here. I suspect that I have raised more questions then I have answered. I'm sure that I have told you far more than I actually know! I will give you time to digest this missive and will then

PS I think that the only way the story will be clarified is to get half a dozen of the knowledgeable people together so that their individual recollections can trigger each other's recall.

The enclosed spreadsheets will illustrate the problems that the rental business presented in the Computer Department financial statements.

The first Case is probably the most dramatic. When Fred Borsh became President of the Company he let it be known that the results of a study that he had made showed that GE had never been successful in a business where they had less than 30% of the market. This was particularly true in markets, such as computers, where there were few competitors. He let it be known that those Departments who could not demonstrate the ability to capture 30% of their markets might be short lived.

Consequently, Clair planned the "Big Look" to see what it would mean if the Computer Department aggressively pursued a plan to reach 30% of the computer market in 5 years. This was in late 1960 and early 1961 and the 1966 computer market was being estimated at $3 billion. (It actually nearly doubled that amount.)

The Case I. enclosure ignores the real problems of achieving such an objective but shows the impact of the rental business on the financial results should such an eventuality be profitably achieved. As you can see, huge losses are incurred - due to GE's bookkeeping- even if the product’s sales and rentals are quite profitable by themselves. I don't recall the starting point, but the end result was to be an "if sold" volume of $900 million in the 5th year.

Case II. Shows the result of backing the projection down to 12.5% of the 5th year market. This plan had a chance of being achievable and affordable even though the numbers are still large and negative. Defying the industry experience of 80% rental and 20% sales we forecast 30% sales to improve the numbers.

Case III. This case was prepared to show the effect of changing the percentage sold to 50%.

Case IV. This case shows what happens if you stop growing at some point. You need to project out farther then 10 years to end up in a "steady-state" profitable position.

Case V. An extreme case to show that the money comes flowing in if you cease shipments at some point.

I recall at one point calculating that if we were to grow at more then 12% a year that we would theoretically never book a profit. This in a market easily growing at more than 25% a year.

Case II. approximates the "Big Look" that Clair had approved. While it called for a 12.5% market share we had to run like hell to obtain 7% or 8%. However, this smaller percentage was a larger than planned volume as the market grew much faster than forecast.

At the time I was preparing the forecasts for Clair I had to do them manually. Each projection took about 40 hours as I had to project each shipment month by month and layer by layer. Who knows how we may have been able to fine tune them strategically had we had the "what if" capability of current spreadsheets.

As far as I am aware, neither Clair or anyone else had difficulty in getting 570 to understand these projections when they were presented in the "abstract" so to speak in a long range plan. It was when the current month operating results actually reflected these numbers did the lack of understanding suddenly

The problem was that even though it was understood that success would generate huge red numbers, for any one month it was difficult to discern how much of the variance from plan was caused by success, how much from a change in the sales/rental ratio and how much was the consequences of favorable or unfavorable operating problems.

The problem was amplified out of all proportions by the three months rolling forecasts, which I'm sure you remember. The current month's result could vary by a $1 million or more within days of submitting the forecast. A customer for a $1million dollar system which we had forecast as being "sold" would decide, usually the day of shipment (which you know is always the last day of the month) to rent instead. This would cause nearly a $1 million swing. Such large swings in the matter of just several days severely strained the creditability of the Computer Department's management with 570, even though they were completely beyond the control of management.

In answer to your question about 570's attitude toward the Computer Department, I would sum it up by saying that they were always supportive of the business and willing to invest in the big picture. For many of the reasons demonstrated above, plus known operating problems and IBM's input, they were not always

Just a short note on my long view of the people involved in the GE Computer Business and it's profitability. Without diminishing the important contributions of many, many people, there are only five who really made a difference.

It didn't make much difference who was involved after this. All anyone could do was to try to hang onto the tiller as the forces in the market place drove and buffeted the business. (Despite what other's egos might think - the market made most of the decisions.)

Finally, Reg Jones for negotiating the very timely and profitable sale to Honeywell.

I would argue that on an "if sold" basis the business was always reasonably profitable. Gerald Phillippi argued, legitimately, against the use of "if sold". His argument was that any small adjustment to the top line of the operating statement fell right through to the southeast corner where it is magnified. That "ipso facto" we had not sold the rented systems and to have done so would have likely required a reduction in selling price, a decrease in volume, or both, resulting in either case in a reduction from the income calculated on an "if sold" basis.

It was good talking to you today. You have entered into an ambitious project - nothing new for you - and I give you my best wishes and support.

If you haven't already done so, I suggest that you contact Bruce Bruemmer at the Babbage Institute. He has been gathering information, including attending one of the Alumni meetings and interviewing many of the attendees, about the GE computer business. Perhaps the two of you could collaborate in this

In my long view everything that happened before the 1961 Second First Annual Sales Meeting was prelude. The first act curtain raises on this meeting. You will be able to find a goodly number of people who stayed with GE from this point through the sale to Honeywell. (Many of the products and activities mentioned in this meeting were suddenly concocted to meet the needs of the meeting, don't put too much credence on anything presented there.)

I would contend - but neither long nor hard - that with the ERMA deal in hand you would have found some engineer or engineers to execute it. Only you can judge whether Bob Johnson was absolutely essential to this project and should be on my "short list".

Lou Wengert will be able to fill you in on the sale of the Process Computer Business, which he negotiated. ( He may be too embarrassed to mention the proposed sale to Fairchild which garnered a lot of national publicity when it fell through. Your local newspaper morgue or library should have it. Or you can

find it if you are "with it" and have computer access to the various databases).

Manufacturing had to contend with the rapid transitions being made in the industry from wire wrap, to printed circuits, through discrete components, single sided, double sided boards, etc. to IC's. I'm sure that these transitions, and the growth, were much more rapid than 570 had ever seen before and, understandably, there were attendant problems. Cy Statt can ably fill you in on manufacturing.

About midnight on ( You can find the exact date from the Wall Street Journal files) I took a break from running out the "Big Look" numbers required to capture a 30% market share and went down to the cafeteria for some coffee. I picked up a copy of the Wall Street Journal that was lying on the table and there

was Sarnouf (Sp?) claiming that RCA was going to be number two in the computer industry in five years doing $1 billion a year in sales! The same goal as ours, but I had already concluded that GE could not finance such an ambitious goal and that we would have to scale back drastically (even if we could per chance achieve it operationally). I went back upstairs and grabbed a copy of Moody's to look up RCA. here was no way that Sarnouf could back up his claim. RCA was in default on the interest on $50 million of debentures, had nominal earnings, and I don't now recall but presumably wasn't paying any dividends. The stock price was down and it was certainly no time for them to go to market for more money. HE COULDN'T DO IT! This led me to analyze our other competitors. IBM was having problems at this particular juncture ( I believe they were between the 1401 and the 360). Prudential was balking at providing a previously scheduled take-down on a debenture issue and was insisting on a higher interest rate. I don't recall the status of our other competitors but obviously none of them, except IBM, could do it either. I stayed up all night making these analyses and showed them to Clair the first thing the next morning.

Clair incorporated these analyses in his presentation to the Executive Office of the scaled down "Big Look". It was reported back to me, I don't now recall whether directly by Lasher or through McCombs ( and a lot of creditability rests on this question) that Ralph Cordiner called in John Lockton and Gerald

Phillippi to get their views on the competitive analysis and whether GE could finance the venture. In those days John Lockton thought that GE could finance the world if necessary and gave an unqualified yes. As reported, Cordiner then stated, "Up until now I saw no reason for GE to be in the computer business as we had no unique contribution to make. It is essentially an assembly business, not manufacturing, so we can't capitalize on those skills, we had no unique technology as the engineers are freely exchanged, and we would be up against reputedly the greatest marketing organization. However, I now see it as a table stakes game and we have the stakes." And thus the go ahead.

Ultimately the basis for the decision proved to be wrong. It was not the cash required but the earnings impact of the rental business on the widows and orphan that own GE that proved it wrong.

In my financial naiveté of the time, I thought that RCA had no wriggle room. However, Sarnouf took a gamble and called the debentures, which were in default. They converted to equity and I don't know what he would have done if they had opted for the cash. Next, while we were involved in the "mating dance" with Bull, he was busily selling them $50 million worth of computers on a letter of credit. You know what a boost an outright sale like this gives to the financials of a rental business. It seemed to me at the time, and still does, that his approach to Bull was far superior to ours!

To me the Bull episode is an example of what happens when you shunt operating managers aside into staff positions without portfolios. They run around getting into mischief.

PS: An amusing episode about Van Aken concerns his first staff meeting which he called for eight o'clock on a Monday morning. Promptly at eight o'clock he closed and locked the conference room door. This left Lacy Goosetree and Ken Geiser pounding on the door to be let in. (There was no relenting). The word quickly spread to the troops and my poor secretary, who religiously punched in three minutes early,

came in in tears the next morning when she was nearly fifteen minutes late. She had been caught in the biggest traffic jam that the Black Canyon Highway had ever experienced as everyone tried to get to work on time.

As I forthrightly stated, and you have now confirmed, you could never hear the word "no". A rare attribute possessed by only the most superlative of promoters and salesmen.

This meeting, which was about the Appropriation Request to expand the Microwave Laboratory fourfold to build ERMA, was not attended by either me or George Trotter. It was reported to me by Russ Krapf who, in contrast to Ken McCombs, was a good reporter.

I prefer his version as expanding the Microwave Laboratory at that time made no sense in light of the mission of the Laboratories Department and Haller's desire to create a computer laboratory at Penn State. In addition, the expansion didn't happen.

PS: The reason we were so successful with the banks is because they had not opted for the punched card and had no entrenched IBM DP Managers. We had a level playing field.

PSS: The aborted negotiation for the sale of the Process Computer business to Fairchild was between Gene White for Fairchild and Lou Wengert for GE. Subsequently, Gene became President of Amdahl and is now Chairman Emeritus. When Gene was appointed President, he interviewed me to be CFO. In discussing the opportunity with Lou, he was about as uncomplimentary about Gene as one can be about someone. When it later became apparent that Gene was going to be successful, and not fail as miserably as Lou had predicted, Lou then cottoned up to him when they served together on the board of Don Oglesby's Three Phoenix Company. (I was not offered the job and also predicted his failure when he told me that Amdalh's big advantage was that since they were "plug compatible" with IBM at a lower price they didn't need to spend much money on sales & marketing.)

The importance of ERMA as the machine that launched the banks into the use of computers and GE into the computer business, can not be exaggerated. However, don't over emphasize its importance as a product. It required considerable redesign into the GE 210 to make it a commercially feasible product. The GE 210, in turn, was quickly obsoleted by the GE 225 at less than half the cost.

Time-sharing is the principal legacy of the Computer Department. It was made possible, fittingly enough, by another bootlegged product - the DATANET 30 - which married the widely diverse technology of computers and communications. It led to the present net-working of the world. It also put computer terminals on peoples desks and promoted distributed data processing and started a process which has terminated in the personal computer.

Bill Bridge did the hardware design and Dick Smith and Don Knight, working with Dartmouth's John Kemeny, helped develop the BASIC language to make it "user friendly". The first system was installed at Dartmouth. (A GE 225 with the DATANET 30)

PS: You keep requesting me to identify the key problems. This is difficult. There were significant problems in almost every functional area most of the time! The majority of them were "good problems" - those that are caused by success. These problems were caused by the unprecedented growth that stretched and unbalanced all resources, including the human ones, to the breaking point. We went through an ungodly number of good people.

Thanks for the Forbes article. I was always amused when outside sources quoted and interpreted, second hand, GE's computer business numbers. We who were compiling them didn't know what they were or how to interpret or explain them!

Market numbers were equally as illusive. Dollar volumes contained a mix of sales, rentals, maintenance and software. Counting systems, or main frames, did not take into account a great disparity in size and peripheral mix. I'm sure you get the picture. (We, at one point, had a District Manager in Kansas

City -whose name I of course can't remember- who prided himself on knowing where all the computer installations were in his district. He thought he knew them all only to find, when he hired a knowledgeable ex IBM sales manager, that his list included less than half of the IBM installations.)

The Forbes Article states that GE's management did not contribute to, or comment on, the article. Forbes thus was relying exclusively on ex-employees who can not be expected to be particularly complementary. It would take a lengthy essay, with contributions from many more knowledgeable than I, to rectify the impression left by this article.

It is obvious that Herb Grosch got his two cents worth in. The comments about GE's management philosophy and lack of computer industry knowledge is almost a Grosch quote. If the quote from Bob Johnson is accurate, it confirms my recollection of him as more of a "laboratory type", "state of the art" engineer than a product designer.

Lasher was 100% right in dropping the W, X, Y and Z line. It would have been sheer folly to try to take on IBM across a broad spectrum of their line when we were running like hell trying to keep up in our several niche markets.

The GE 600 product line encountered all the usual problems involved in trying to convert a military project into a commercially practicable product.

To put the Forbes article in perspective it must be recognized that we were starting nearly five years behind (May 1956 - May 1961). While we were concentrating on ERMA and the NCR 304 and then suffering through the process computers only period, our competitors in the general purpose computer business were ramping up very rapidly. When we got the green light, we had to ramp up one hell of a lot faster just to stay even (Lasher was appointed Acting-General Manager to succeed you with instructions to complete the ERMA and NCR 304 programs and then to limit the department's scope to process computers. The Forbes article hints at this). I wouldn't read too much into Lasher's leaving. My sense is that he put into motion something neither he, nor anyone else, could control. He was too nice a guy and the job rapidly out grew him - and many others. It was already too big for Van Aken by the time he came aboard. Many jobs outgrew people almost as fast as they accepted them.

My reply to people who complained that a new manager didn't know the business was, "Good! The business is a different business today than it was yesterday and it will be a different business tomorrow. We don't need people who know the business as it was yesterday.".

I'm glad you contacted Chuck Ettinger, though he is somewhat controversial, as he is the only section manager to span the Lasher-Van Aken period. In addition, he was appointed (by Stan Smith I believe) General Manager of the Small Computer Operation which included Olivetti. You should ask Vern Schatz for his poem on the history of the Computer Department.

I do not have a copy of the Metcalf or other reports. It's interesting that we didn't place any historic importance on them at the time. WGBH tried unsuccessfully to find them - but they couldn't find you either. Someone told me that George Metcalf is still alive, he might have a copy.

PS: I need a time line. The only dates that I'm sure of is the November 1956 move to Phoenix, and the May 1961 Sales meeting. Do you have a list of corroborated dates? I thought you left in 1959 not 1958 as Forbes says. This would put the "Big Look" approval much earlier than I recall. What were the dates of the changes in General Managers?

I am 100% with Lacy re Hersh Cross and what he did to Van Aken. I would be as charitable as Lacy towards Van except that Van's attitude as a 100% company man made him shoulder the full responsibility rather than letting on that the firings were not totally his decisions. This posture of his figured into the

I can readily believe that the GE600 schedule was shortened by 12 months over that planned by the engineers and software people. As I have previously indicated, the market forces were irresistible and this accelerated schedule was likely required to compete with other "paper tigers" - or quit the game. (I

recounted in an earlier letter how IBM was 18 months late in delivering the system to the B of A that had beaten out the GE600.)

I would love to see a copy of what Lacy has on the June 1960 "Big Look" presentation. This date puts it about 6 months earlier than my poor recollection. Does George Metcalf have a copy of the Metcalf Report?

I'm sure that Helmut Sassenfeld and Dick Lemon will get back to you. The time sharing service business was not, as you put it, "taken away from the Computer Department". By this time the Computer Department had been broken up into several Departments and a number of operating sections and was now the Information Systems Division. I was gone by the time this move was made, but my guess is that one of the reasons for the move was to change a large user of the Division's products into a large customer. At the time of the sale to Honeywell this time sharing service business was using well in excess of $1 Billion worth of computer products. It may also have been to position it out of the sale to Honeywell.

As indicated above there were two aspects of the time sharing business. (a) the sale of timesharing hardware and (b) the sale of time sharing services. The saga with O'Rourke concerns the former.

As I understand it, Van Aken had two sons neither of whom turned out to be role models. To compensate, Van "adopted" two people as the sons he wished he had had. One was Chuck Thompson, now an Executive V.P. of Motorola and the other was Tom O'Rourke. They socialized together, went on golfing trips together and etc. When Rader returned from UNIVAC he brought Ted Green with him and gave him his choice of marketing regions. Ted chose the Western Region which O'Rourke was managing. Van would rather have cut off his right arm than to replace Tom, but with the attitude as indicated above, he did it and never told Tom that it was other than his (Van's) decision. Once the move was made he wanted nothing more to do with Tom. I was not aware of this posture until later when I inadvertently became directly involved.

After Tom was replaced he decided to resign and to go into the time sharing service business. He came to see me to help him with his business plan. (When the Department was split up into several operating sections each Finance sub-section manager was assigned as a financial counselor to an operating section. I had been assigned to Helmut Sassenfeld and thus had some experience and insight into the business.) We prepared the business plan and five year projection for TYMSHARE on my living room floor in Carefree. I then introduced him to Tom Clausen (later Chairman of B of A) who at that time was managing the National Accounts for the Southern part of the B of A and also had an SBIC under his control. He arranged for his SBIC (which was managed by George Quist and was later spun out of the bank and became the investment banking firm of Hambrech and Quist) to make an investment of $250,000 in Tom's company.

Tom then negotiated an order to rent a GE235 timesharing system. Van was aware of these negotiations but apparently had anticipated turning the order down for credit reasons. When that day came Tom said "but Snively has already approved the credit". Van has no master when it comes to "chewing" someone out and I got the full treatment when I was called to his office. I further compounded my error when, during one of his more histrionic moments, I said " You mean that the B of A is not a good credit?". This led to an unbelievable explosion in the midst of which he declared that it was a stupid business

decision to rent GE235's so near the end of the product life cycle and that they were only to made available for cash sale. "Did Tom have enough money to buy one?" The answer was "no" and the meeting ended on that note.

There were immediate repercussions to this policy change as both Ford Motor Company and Chrysler had GE235's on order to rent. Both had IBM instigated policies prohibiting their purchase of computers and both threatened anti-trust suits on the assumption that the policy was an attempt for Helmut's operation to monopolize the business. It took a lot of negotiating to work out of this problem. (I.L. Stevenson -if he has not suffered too many infirmities- can fill you in on these legal maneuverings.)

Meanwhile, Arnold Spielberg had gone to work as V.P.Engineering for Max Palevsky(sp?) at SDS. Tom approached them to design a time sharing machine for him. They agreed to do it if Tom could find a customer for a second machine. Tom got Jim Pontius of Comdisco in Chicago to place an order with him and SDS proceeded to design a machine. TYMSHARE ultimately purchased a large number of timesharing systems from SDS. The GE235 market never took off.

But it really didn't make much difference. By this time the business was being pulled by the market for the GE600 systems. The banking business was no longer such a major factor that Vern Cooper's thoughtless killing of it made a substantial difference and the time sharing hardware market was soon to be satisfied by the GE600.

I enjoyed your Prelude. The motto of the Alumni group should be "it was one hell of a ride"! (page IV "Frank Walsh" should be Jack Walsh.) Tom Watson was a mover and shaker in the same circles with Ralph Cordiner but IBM was not GE's best customer as assumed by Bob Johnson - to the contrary, GE was IBM's biggest customer. IBM bought some vacuum tubes and fractional horsepower motors but not in the significant volume of other radio and TV and appliance manufacturers. The Federal Government was GE's "biggest" customer. The misinformed notion that IBM was GE's "best" customer seems to be endemic among the engineers.

We did bid on the successor to ERMA (Perhaps not with a "responsive proposal" and I have a vague recollection that the bid specs were written in IBM's favor). I can't place the time frame - but we bid the 600 system. Bob Johnson would have left by this time. Lacy Goosetree may still have been involved -

check with him. Al Zipf had moved up in the Bank and I suspected that IBM had managed to infiltrate the Data Processing operation. They would have had to justify their selection of IBM to the rarefied atmosphere that Al Zipf now occupied as being due to "GE's unresponsiveness".

IBM was still stung by your success in getting ERMA. They could not afford to lose the biggest bank in the country a second time. The goodly sum I mentioned was the $250,000 a month for the maintenance of ERMA that IBM had to pay us each month of the 18 months of their delay in getting the successor up and running.

Have you communicated with Reggie Jones? You must have been surprised to learn that he was behind you all the way! I have no idea where he was during the early days of the computer business. Phillippi was an early staunch supported and ally of the Computer Department.

To my knowledge Jack Walsh was never anywhere near the computer business. His biographer would have had to rely heavily on the same media stuff with which we are familiar. I agree that GE was reluctant to sell businesses but they never hesitated to liquidate them! You picked up on the contradiction about acquisitions. However, GE was always constrained by anti-trust considerations (and a not invented here attitude) from making acquisitions. As a result, GE had limited experience in negotiating or managing them.

I don't recall who requested the Builtmore meeting but Phillippi (sp?) had been instructed to drop everything else and concentrate fully on the measurement problem which was confusing management about the Computer Department's P & L.

The attendees, in addition to Phillippi, were George Smith (and one other whose name I can't recall) from Accounting Research Services, ?? McCarthy from Tax Accounting Service (plus as I recall a tax lawyer from legal), Murray Furgeson the leasing expert and GECC Board member from Credit & Collection Services, John Stanger, President of GECC's Leasing Company and Dewey Mehew, Treasurer of GECC. Ken McCombs, Tom Hage and I represented the Computer Department.

These, with a few exceptions, were all very intelligent and imaginative people. I do not believe that there was any alternative or option that was neglected in the wide-ranging discussions over three days of seclusion without interruptions.

John Stanger, who was at heart a "peddler", salivated over the possibility of GECC handling all the rentals and leases. Dewey Mehew pointed out that CECC was organized under the banking laws of The State of New York and as such would be in violation of banking regulation "Y" if they entered into non-pay-out rentals and leases. McCarthy discussed the possibility of the consolidation of GECC with GE, which would eliminate the assumed arms length advantage in any event.

We were promoting my scheme of "POLO" which involved splitting the Computer Department into a Product Operation that would sell to a Leasing Operation. The issue here became the question of transfer price. McCombs tested everybody's sharpness by making foolish statements. Tommy Hage was a nervous wreck trying to figure out who was winning so that he could be on the winning side. Needless to say the discussions were far ranging and exhaustive. I have previously related Phillippis’s summation.

PS: I suspect that GE's top management was frequently cautioned by the tax lawyers about making public statements explaining "losses" in the computer business as tax shelter.

Very early on (and prior to the Builtmore meeting - which was principally involved with accounting issues) we were imaginatively and creatively structuring "full pay-out net leases" which we could book as "sales" -see note below. These leases were attractive to our banking and utility customers. I also established early relationships with the first personal property leasing companies - Al Zises of Bankers Leasing and Pod Boothe of Boothe Leasing. A little later I established an exclusive relationship with Lease Financing Corporation who administered a number of tax sheltered leasing partnerships set up by Ollie Vanderbilt. Our competitors could not meet the attractive and flexible terms we were able to offer the banks and other customers with this program.

With the advent of the GE 400, working with the principals of Lease Financing Corp., we structured a plan for third party financing of intermediate term non-pay-out rentals which GE could book as "sales'. This was the 4-5-6 Plan, named for it's four, five and six year terms. This was in the era of the 8 year

investment tax credit and 8 year net-net leases. This was an extremely complex plan which required the establishment of an arms length third party -Systems Capital Corporation (SCC). SCC provided part of the risk capital -raised through a public offering underwritten by Blair & Company, Ollie Vanderbilt's investment banking firm. The senior debt for the firm portion of the leases was furnished by AEtna (with the commercial banks warehousing them to a $10million size). Ollie's tax sheltered limited partnerships provided leverage on this debt to generate a low cost of funds and some risk capital. This program was relatively successful by itself, but it was highly successful in getting the customers to realistically assess the useful life of their installations and many were thus persuaded to purchase or lease (not rent).

Obtaining approval of this program within GE was difficult to say the least. To have to admit that there was something they couldn't do between the financial resources of GE and GE Credit was traumatic indeed. The full power of the GE Credit Corp.'s management descended on me a number of times before the program was implemented. But the problem was too big to ignore - and they couldn't provide a better alternative.

The ultimate beneficiary of this program was Nate Norris. Ollie Vanderbuilt called me one day in great distress after one of the banking customers, near the end of the rental term, had called inquiring for his address in order to return three GE 400's. I informed him that Nate Norris had just begun making a

market in used GE 400's and gave him Nate's number. Ollie did not have to clean out his carriage house and Nate got an inexpensive supply of product! (Nate ultimately sold his company for $6,million - $4 million in cash and a note. He later got it back when the buyer defaulted on the note.)

Too bad you and I lost contact. In 1970 I started the Snively Financial Organization to handle short term rentals. I'm sure we could have provided you a better program than Trans Union Leasing Corp. did.

I have only interesting personal recollections of Herb Grosch. I don't recall anything directly relating to the business, except his obtaining the Huntsville contract. In my memory, he wasn't around very long. His "modus operandi" was to operate as a shop steward. He had his programmers convinced that he and only he stood between them and management. That without him they would be subjected to all kinds of indignities, such as coming to work on time, committing to completion dates, budgets and etc. I believe that Hal Norris spent some time in Herb's operation and might have some comments.

Note: The Company-wide task force that both Lacy Goosetree (from the Communications Department) and I served on in late 1956 to early 1958 issued two definitive volumes on leasing. One relating to the Lessor and the other to the Lessee. These extensive reports anticipated the FASB and IRS rulings by nearly 10 years. We were too smart for our own good. While we were smugly anticipating the future FASB, IRS and SEC rulings, others such as Memorex, Storage Technologies and Data Products were furiously playing by the then existing rules.

GE made a "cash-less" entry into the business when progress payments from the B of A for ERMA and NCR for the 304 created positive cash flows for the first two years.

This was followed by years of large "tax shelter" created by GE's bookkeeping for the rental of computers.

Then a profitable sale of the hardware business, structured such that there was no recapture of the tax deferments.

Finally, continuing large profits from the huge time-sharing and networking business that it retained.

I am up to Part IV in my review of the book. I remain impressed with your intuition about conversations that you weren't party to and the captivating flow of the book.

Enclosed are copies of the pages that I have made editing changes or etc. Don't spoil the flow of the story if incorporating any of these suggestions does so - I appreciate the need for a measure of poetic license. Most of the corrections are self explanatory but I expand on some of them below:

Page III. If there was an award for you, don't be too modest to mention it. If not, it's because you "disappeared" and no one knew what had happened to you.

Page 4. They were called Product Scope, not Product Charters. Product Charter nay be a better understood term for non GE people. By the same token, outsiders think the Computer Department is the DP operation - Division is a better understood term. However, substituting it in this saga would lead to no end of confusion. Do you require editorial consistency?

Page 30. At one point, when we were trying to extend the ERMA derivatives to the smaller banks, I lobbied long and hard to market them at x cents per items processed. The banks had a "rule of thumb" that it cost them $.03 per item. (No one was able to tell me where the number came from - but they believed it.) I figured we could get the system in at low volume and grow as the bank grew. Replacements would be at our option as a cost reduction rather than the bank decision based on competitive activities.

Bldg. #7 Heavy Military Electronics and Technical Equipment (Old timers referred to it as the transmitter bldg. - However by 1950 it was home of the Commercial and Government Electronics Dept.)

Page 41. George Metcalf's C&GED was broken up into the Heavy Military Electronics Department, Light Military Electronics Department and the Technical Equipment Department on or about the time of the Metcalf report. George remained as GM of HMED.

Page 42. While doing graduate work in Mathematics George Snively was working in Ohio State University's Research Foundation when he was recruited for GE's Financial Management Training Program. As an undergraduate he had pursued a double major in Anthropology and Electrical Engineering. Because of his technical background he had been assigned to the Electronic Laboratory as Supervisor of Accounting following completion of the FMTP courses. He was eager to "join up" having participated in

several of the previous business planning efforts to initiate a computer business.

(Edit the above as you see fit. Being 32 in 1956 I'm not sure of your later use of the adjective "young")

Page 105. Don't want to confuse silicon valley with the valley of the sun. I was wrong about Bill Lord - he came later to run the Peoria Ave. Plant. It was Stan Brown on the safari.

Page 106. It was either The First National Bank of Arizona or the Valley Bank. I suspect it was Valley Bank where we opened our payroll account - for which we were later roundly criticized by Paul Walendorf of Banking Services. The Valley Bank, owned by the Bimson family and Chaired by Walter Bimson, was not a National Bank. It's substantially smaller reserve requirement gave the bank the muscle to pump up the Phoenix and Arizona economies.

Page 111. ?? Douglas was also a Director of GE. When the Arizona Republic broke the story of the selection of Phoenix as the site he tried to get a hold of Cordiner to divert us to Tuscon. However, Cordiner was attending the annual two week planning session in Florida and not reachable.

Page 118. The site team had optioned 1000 acres, some from John Jacobs and some from ?? Eaton (who later built the Peoria Ave. plant to lease to us), in Deer Valley prior to the announcement of the move to Phoenix to prevent speculative price increases. Only the option on 160 acres was later exercised.

Page 135. It was at the cocktail party following the Computer Symposium at Electronics Park on June 28, 1956 that a groan went through your staff when they saw you go off to closet yourself with Herb Grosch. This was long before the selection and move to Phoenix. (Do you have a copy of the report of this meeting?) Somewhere you need to mention his fish tank.

Page 149. At this time TWA served Phoenix with Constellations (the last airplane to fly by flapping it's wings) from Chicago with a stop in Alberquerque for refueling. American served Tucson from Chicago through Dallas. Shortly after George Haller came aboard (1955?) the Signal Corp. announced that it's

electronics development was to move to Ft. Huachuca (sp?), Arizona from Ft. Monmouth, N.J. In order to build the necessary infra-structure in Arizona the Signal Corp. sent notice that only companies with a physical presence near Ft. Huachuca or Tucson would be considered responsive bidders on development contracts. Russ Krapft and I made two trips via American Airlines to try to locate space to lease in Tucson. It was like a land grab and we were fortunate to locate some run down warehouse space. Haller then made a trip to inspect our selection. When he returned his friend C. R. Smith, the Chairman of American Airlines called him to tell him that he had been selected to be a charter member of American's Admiral Club. While he had him on the phone Haller complained about the difficulty of getting to Tucson from

Syracuse. The next day two representatives from American Airlines appeared in Haller's office. Shortly thereafter we had American service from Syracuse to Chicago connecting non-stop to Tucson.

Page 223. GE's management (including the Computer Department) didn't understand IBM's practice (also the practice of airplane manufacturers) of waiting until they have an adequate number of orders before beginning development.

I have finished my "nit picking" and copies of the pages with comments are enclosed.

In the prior stuff I sent it seemed to me that some of your comments about Herb Grosch were out of historic context. Herb may jump on any of these to attack your creditability.

Page 327. I don't recall a particularly enthusiastic welcome for Rader, even by the engineers. Bob Wooley for example thought that Rader asked him some "idiotic" questions about the NCR 304, but you also knew Wooley. Marketing was always too busy to pay much attention to these changes but took concentrated notice when he replaced Bob Sheeley and Tom O'Rourke. You can quickly assess Marketing's opinions by how often someone is invited to help in sales situations. Rader, with his technically superior attitude, was unpalatable to the salesmen.

Page 334. By 1965 the Venture Capitalist's had them coming out of the woods. Hardly a week went by without Tom Clausen, who was the Manager of National Accounts for the B of A in southern California (later to ascend to the Presidency and Chairmanship over Al Zipf) and who also managed an SBIC, calling me to check on a new peripheral company who was forecasting large sales to GE.

Page 335. The Martin Marietta meeting was a big meeting at Martin's headquarters in Baltimore lasting three days. (Your version makes if appear too intimate). GE was represented by myself, Chuck Ettinger, Vern Cooper, the Eastern Regional Manager Cliff Sink, the District Sales Manager (name?), the district Product Service Manager and the salesman for the account (and maybe others). There were an equal number of Martin people led by Charlie Lighthauser the Executive V.P. of Martin.

I had earlier had several Meetings with Charlie during their original rent, lease or purchase studies and had negotiated a seven year Net Lease Agreement with him. (At one point he had opted for a third party lease but while we were putting it together he, sensing developing problems, became reluctant to go

Charlie was extremely bright, straightforward and a consummate numbers man. He was an open and forthright negotiator, as quick to point out how contract language could be misconstrued in his favor as in ours.

Vern Cooper on the other hand was the most number dumb person I have ever met. He had absolutely no understanding of the relationship of one number to another. To him a number was a number.

When problems did develop with Martin, Vern Cooper gave Chuck Ettinger the assignment to check into them and to develop a proposal to save the account. Chuck got a hold of me and we worked out a series of non green dollar concessions calculated to provide an equitable sharing of the financial costs while the problems were being corrected. They totaled approximately $3 million which would be recouped in various ways over the term of the lease.

The first day of the meeting with Martin was spent in fact finding and trying to determine what they felt were the problems and their magnitude. I got the impression that they were not unduly troubled or surprised by the problems with such a large machine at this point in the program. They just wanted to know what our plans were to fix the problems and to lessen the impact on them. They apparently had been through this before with IBM. Chuck Ettinger and I spent that night revising the proposal based on what we had learned that day.

The second day was spent in presenting and explaining what GE was planning to do to correct the problems and presenting our proposal for financial relief to Martin while this was being done. Charlie Lighthauser asked some very penetrating questions which Vern Cooper was not technically equipped to answer - but he tried to answer them anyway. Not a very pleasant sight. That night at the hotel, in his cups, Vern Cooper let it be known that his hero was Robert McNamara the Secretary of Defense and that he Vern Cooper planned to use GE as a stepping stone to that position as had "Electric" Charlie Wilson. He had come to the conclusion that Charlie Lighthauser would be a competitor for that job and said, Lighthauser thinks he is so smart and tough and a captain of American industry but I'll show him tomorrow".

Charlie Lighthauser, on opening the meeting the next morning, indicated that they were reasonably satisfied with GE's proposal to solve the existing problems but wanted to get a clearer understanding of the concessions we were proposing. Cooper took offense at Charlie's questions and did not let Chuck

Ettinger and me give adequate replies. It appears that he had already decided to tell Lighthauser "Take your $3 million and give me back my machines". I've reported the rest and Lighthauser's reaction.

It was the second most incredible episode I've witnessed. If I hadn't been there - I wouldn't believe it! (Van Aken's reaction to O'Rourke's order is in first place costing far more than $3 million). Man is a thinking animal - this gives him the ability to be irrational!

Vern Cooper reported, first to Hersh Cross and then to Van Aken, that he had managed to get the 600's out of Martin without a big lawsuit - for which he was commended!!

Page 352/3. You imply that re-organizations were the actions of a malevolent management. In fact, they were responses to an explosive growth in a veritable myriad of new and different directions with the "Peter Principal" working rapidly. Only those caught by the "Peter Principal" had time to Hillary (i.e.

Page 366. One of the cogent comments I heard about the re-organizations were that they were from the top down and didn't effect the engineers and draftsmen who continued to design the boxes that didn't fit together.

Page 413. Shortly after I left GE Ollie Vanderbilt got a hold of me and asked if I would help with a problem of American Research and Development, a VC with whom he invested. I journeyed to Boston to meet with the staff of AR&D who advised me that they had invested in this new computer company with a computer ready to go to market but that General Doriot, the CEO of AR&D (a professional management type?) would not let the company rent the product. I helped them prepare a very sophisticated presentation about the facts of life in the computer business and how it was impossible to enter the market without a rental program. The General said "bull shit". If Digital Equipment's customers weren't willing to pay cash for the product then maybe Digital had no business in the business. The rest as they say is history.

Too bad the General wasn't knowledgeable in the business!! I learned again that any enforced decision, good or bad is worth ten good ones not implemented. This was not the first or last time that a successful enterprise emerged acting contrary to my advise!!

Without meaning to detract from the incredible job you have done with your book, I'd like to offer some "global" (to use a current buzz word) comments.

Ken McCombs would often turn to me when he needed to draft a letter or memo for your signature. First, I would draft it. Next, I would go back and change every negative sentence to a positive one. Then I would go back and change every inactive verb to an active one. I would then be close to sounding like vintage Oldfield! (One time, for reasons I don't recall, I was asked to review an appropriation request for a new plant written by Sy Ramo for presentation to the Thompson board. It was the only thing that ever came close to your style and I would have sworn that you wrote it.)

Uncharacteristically your book comes off less than positive. It seems to be sub-titled "A Trashing of

GE's Philosophy of Management". This seemed to be the theme of the external media which I always assumed, perhaps unjustly, came from Bob Johnson and Herb Grosch after they had left the company. I seldom, except occasionally from an engineer, heard such negative comments about GE's management philosophy - we were all too busy.

You slighted the positive story. The creation and the accomplishments of an unusually outstanding sales and marketing organization. Their accomplishments are even more incredible in view of your thesis that there were many bad management and engineering decisions. Either our salesmen were unbelievably good or our competition was not making much better product and engineering decisions. After all, they at all times outsold our resources to produce and created a momentum that continued notwithstanding Vern Cooper's moves.

I would liked to have seen much more input from the marketing people. Chuck Thompson, Jim Helm, Jim Pompa, Bill Duster, Tom O'Rourke, Ken Fisher, Chuck Ettinger, Vern Schatz, Art Aschauer and, of course, Lacy Goosetree himself.

Also some of the stories of the success's like the Wherhauser story, Chrysler, the railroads, the taking of the Hughes Aircraft account from IBM's renown Buck Rodgers, the Pillsbury story, the Army, CalComp, U.S. Steel, the many banks with the GE 225, Clark Equipment, GTE, Mac Truck, the internal GE

successes against surprisingly fierce IBM resistance, on and on. (Even the winning of the Martin Marietta order - despite it's disastrous outcome). Many have sales stories rivaling the ERMA story. After all, a goodly number of our salesmen later turned out to be successful entrepreneurs. You started it all!

Also the story of the fiercely loyal GE 225 user's group who extended the profitable life of the 225 well into Honeywell's reign. (In the rental business a delay in getting new products to the market place was not necessarily a bad thing)

I assume that the negativity results from the input from the engineers. Engineering stories are usually negative. There is no point in keeping an engineer on the payroll who is happy with the current products. in addition, any engineering group worth it's salt will propose ten desirable projects for each one for which there are sufficient resources to carry out. This means that for every worthy project that management selects there are nine disappointed sponsors who decry the short sighted and technologically incompetent management who can't see the merits of this particularly outstanding proposal. They are also the

This standard phenomena was exacerbated in the Computer Department with the existence of three competing engineering groups which essentially stymied each other. Whatever was proposed by one group could be effectively shot down by the others who were equally technically competent to do so. One

group was headed by Ken Gieser, nominally the Manager of Engineering, one by Bob Johnson, the technical leader, and one by Arnold Speilbergh with the product engineering skills. (Chuck Thompson, who should have been the mediator, was more concerned with trying to determine the politically acceptable solution than the technically desirable one). Furthermore the engineers, who expected to be “prima donnas” in the highly technical computer business, were relegated to third place. They took second place to the operating systems developers, who let their preferences of computer architecture be known, but essentially could work with whatever platform was provided to them. (There were likely some engineers who thought that COBOL was a gem stone!) They, in turn were subservient to the applications software people which GE management philosophy had wisely assigned to marketing. (In this regard Nancy Tafel deserves an important mention in the ERMA story).

The criticism of GE's management philosophy does not hold water. It is an article of faith among the venture capitalists that the technical founders of an enterprise need to be replaced with professional managers after two or three years. Besides, where was there a pool of executives with industry experience for GE to draw on? Four years was a generation in the business and "experienced" people often turned out to be hopelessly out of date.

I would argue that Tom Watson, Sr. was probably no more knowledgeable, except for sales tactics, about the computer business and computer technology than Ralph Cordiner.

For every successful business (more than $100 million in annual volume) still run by it's technical and industry savvy founder there are many, many more where the founders have been replaced with professional management. The rare exceptions are Seymore Cray and Ken Olsen (albeit with a kick from General Doriot).

It is difficult to get across to someone who was not there how explosive the growth was. We were rapidly growing to a size and complexity nearly equal the size and complexity of the total GE company as you and I knew it in the early 50's.

I continue to be amazed at your accomplishment and the effort and energy expended in writing the book. It saps my energy to critique it and the critics effort is trivial in comparison to the writer's!

You should be proud of the accomplishments of the enterprise you started. Not disappointed!

1. What professional manager, with no technical background in computers or knowledge of the computer industry, was appointed General Manager of the Computer Department over a person who

had made a thorough study of the computer industry and market and another person who had worked on some of the earliest computers in IBM's Laboratories, had managed a large group of programmers

2. What carpetbagger went to the west coast from his eastern headquarters to set up an operation which he used as a stepping stone to return back east as a General Manager?

I agree with Arnold Spielberg that your book could be much longer - if you have the energy. (I apologize for exercising you to rebut my global comments. I merely offered them for what they were worth and didn't mean to detract you from continuing your work on the book)

To me the growth of the business was like the "Big Bang" that created the universe. ERMA happened in the first nano-second[2] and the "Big Look" in the first few seconds. After that, hang on for exponential growth and complexity. Much, much more happened after Arnold had left than happened during all the

time he was with the business - and he apparently feels there is more to be included from his era. I agree.

I have been using the "Peter Principle" somewhat incorrectly. The Peter Principle applies to people who are promoted to a level above their competency. There were only three promotions to or above sub-section level during my tenure. One was Clair Lasher (from Mgr.-Marketing to GM), Chuck Ettinger (whose Product Service Sub-Section was elevated to Section level and his later promotion to GM of the Small Computer Department) and the third was Lou Wengert (from Dept. GM to Division GM and then to Group Vice President).

A corollary to the Peter Principle was at work. The jobs themselves grew to a size and complexity that outgrew the incumbents. I don't fault the people who were caught in this process.

You yourself commented early on to your secretary, Audrey, that Art Newman's job would out grow him. It did - and his replacement, Bill Houze, was head and shoulders above Art.

Next to go was Ken Gieser. The existence of the three engineering cliques was a result of his (and Lasher's) loss of control. I'm not sure his replacement did much better. I didn't mean to blame the engineers for that situation.

I love Clair Lasher, but he sowed the seeds of his own demise with the "Big Look". He initiated something that he couldn't control. (Unfortunately, his later failure as President of Houston Instruments confirms the principle). His replacement, Van Aken, was a prime example of a promotion to a position above his competency. (Again, his later failure as President of Hallicrafters confirms the diagnosis).

It took awhile for others to recognize how out of his depth Ken McCombs was. His replacement, Gil Gillespie, was far far superior.

Lacy Goosetree grew in competency with his job. (He appears to have been a victim of nepotism.) This was demonstrated when Lou Rader brought in Art Aschaeur and Ted Green, the pride of UNIVAC's marketing, who couldn't hold a candle to Bob Sheeley and Tom O'Rourke whom they replaced and to many others in the marketing organization. Lacy and Bob created a momentum that carried some along with it, but many couldn't keep up!

Chuck Ettinger was a good product service manager but his replacement, John Croyle was even better.

You once asked me why I hadn't "made out". I think the above recital indicates that it was an achievement just to grow and run fast enough to be the only one to remain at sub-section level. All others were demoted, fired or resigned. Is it any wonder you get so many negative comments?

Many months ago we started this correspondence with me claiming that after the "Big Look" the business took on a life of its own and it didn't make much difference who was trying to manage it. I have not changed that view. Only Stan Smith seemed to be able to get his arms around it and start to control it.

Paul Shapiro was the salesman on the Hughes Aircraft account. He can give you the basic story and I can then fill you in on the very complicated financial tactics.

Len Call was the salesman on the Pillsbury account and I believe while Ken Fisher was still the Minneapolis District Manager.

Jim Pompa was the salesman for Chrysler. Vic Casebolt was also in the Detroit office at this time and has an interesting story about the National Twist Drill account.

Lacy may be the best one to give you a feeling for how hard we had to fight for the internal GE business.

Jim Helm can tell you about U.S. Steel and may also have some personal knowledge of some of the fights for the internal GE business.

Don Klee was the Denver District manager and was the salesman for the Martin Marietta account for the Denver operation where the equipment was located.

I don't recall who the salesmen were on the railroads - there were three connecting roads, the Western Pacific, the Denver & Rio Grande and the Atchison, Topeka and the Santa Fe. I helped close the Western Pacific deal by arranging a "sale and leaseback" of some of their mainline track to free up funds for the computer.

This is all off the top of my head. You should probably canvas the salesmen for their recollections of the important stories. (Or just the District Managers to cut down on the number)

Mitchell Marcus, President of Production Systems, Inc., Walthan Massachusetts, was a long time President and supporter of the GE 225 users group. Mitch and his brothers Herb and Jerry were all three MIT graduates. You should be able to locate him through your MIT connections. I believe that Vern Schatz was closely allied with the users group. (Ken Gieser may have served as the Company representative to the group for awhile.)

I have no problem with your combining Strickland's visits. I was only concerned with how historically accurate you wanted to be.

Who is the "Wiggans"[3] that Warren Prince complains about? I can't put much weight on his comments if he wasn't close enough to the man to know his name! Warren wasn't in a position to know

what peripheral products were being pushed by engineering to "make" or by purchasing to "buy". Nor was I. You need much more Product Planning input from Chuck Thompson and Dick Barnes.

Enclosed is the report of the June 28th, 1956 Computer Symposium. Ken McCombs, Ray Barclay and I were standing with drinks when you went off privately with Herb Grosch and Ray said "there goes the Department".

PS: I believe that Lou Rader's Industry Control Department didn't market direct but sold through Apparatus Sales. My guess is that it would have been relegated to unit status in one of the Operating Sections of the computer business had it been part of the computer business in the mid sixties.

Vern Cooper, during Van Aken's reign, cooled the banking market towards GE. However, by this time the importance of the banking market was fading in relation to the size of our other markets. Chuck Thompson belongs mainly to the Van Aken era. I don't remember John Couleur - who must have come somewhat later - being with the Department. We've since become acquainted.

If Lou Rader didn't bring in Art Aschaeur and Ted Green, who did? Certainly not Van Aken to replace his favored Tom O'Rourke nor Lacy, Art Aschaeur to replace Bob Sheeley. Lacy should be able to confirm what happened. Chuck Ettinger should also have been privy to these goings on.

Sorry, but I vividly recall that the cocktail party following the June 28 Symposium was abuzz with stories about Herb Grosch and his and your moves were intently observed by most of those present. Jim Pontius (another multi-millionaire) or Clair Lasher should be able to confirm.

Your choice of reviewers puzzles me. I should think that you'd have chosen some of the on-site managers, i.e. Strickland, Lasher, Van Aken, Wengert, Goosetree, Gillespie or Ettinger to review it. (I still don't know how Dick Shuey fits in).

The big story was Marketing - not technical - and if making copies weren't such a problem for you, I'd recommend that Barnes, Thompson, O'Rourke, Fisher, Prince, Helm, Pompa, Duster, and Schatz review it.

With your approval, I'll be happy to make up to five copies and distribute them to any of the above you select.

Whenever I was in 570 people would ask me what was wrong in Phoenix. I could never find out where the general impression that "something was wrong in Phoenix" came from. I suspect IBM's fine wooing of corporate personnel. I always replied, "There is a basic misunderstanding here that we are in a technology game. Not so - we are in a marketing game the likes of which GE has never been in". I would then be told how great GE was in the marketing of appliances and etc.

Before the advent of the microprocessor in the mid-seventies, computers "at best" didn't work. Applications except in banking and utility billing were wrong headedly forced onto data processing functions which were better done by other means. In addition they were horribly expensive. However, due to their "sizzle" and obvious potential, they were marketed and sold in sizable quantities by skilled and powerful sales organizations. GE's Computer salesmen were among the very best.

Only when memory costs dropped from $80,000.00 per megabyte of RAM (Which is what The Snively Financial Organization[4] paid in 1973 for Data Products Large Core Storage Units) to less than $80.00 per megabyte today, could programs be written which realize the computer's potential.

PS. I just talked to Art Aschaeur who confirms that Rader hired him. He in turn hired Ted Green.

A whole new book would need to be written to cover the Hughes Aircraft transactions and their aftermath.

Who was Don Benscotter? The greatest salesman I've ever known - and I've known a few. (i.e. Bob Canning who recruited me into the GE Business Training Course!!!). I need to give you some background in the history of personal property leasing in order to properly introduce him.

In the mid 1950's, a Stanford student named Dave Pearsely(sp?) wrote his master's thesis on the subject of using personal property leasing to provide tax shelter. For some reason I've never understood, the Bank of America and the Ford Foundation financed his doctorate thesis on the subject. Following graduation, he set up "Capital Equipment Lessors" the first personal property leasing company.

The purpose of Capital Equipment Lessors was to provide leases to the Bessamer-Phipps trusts. You may recall the publicity (several Fortune and Wall Street Journal articles) in the late 50's, about one of the Phipps heirs, a "do gooder" who wanted to give away millions, bringing suit against the attorney (again names escape me) whose family had handled the trusts for generations, for stopping him. He charged them with fiduciary irresponsibility. One of the elements of the suit, but not a major one, was that Capital Equipment Lessors did not treat all of the trusts equitably. This was true as the leases, with different starting dates and terms were obviously not all the same size. In addition Capital Equipment Lessors was in trouble as Dave Pearsely was not a good administer. He had rapidly built a nationwide sales force of commissioned salesmen who could quickly make a lot of money with the acceptance of leasing in what later became known as the "pots & pans" part of the industry. (i.e. leasing butcher cases and other store fixtures). Capital Equipment Lessors rapidly became swamped with these small uneconomic leases. As a result of these two things, Price Waterhouse, who were the accountants, recommended that Capital Equipment Lessors be shut down.

Dave Pearsely went back to teach at Stanford and somehow Price Waterhouse and Ollie Vanderbilt (Oliver DeGray Vanderbilt III) got together. Price Waterhouse advised that while the program would not work with trusts - it would work for partnerships. Ollie indicated that he had many relatives and friends that could use tax shelter. They got a hold of Niles Edwards, who had been the Comptroller of Capital Equipment Lessors and Omar Ash who had been one of their more successful salesman and had them form Lease Financing Corporation to find, package and administer leases for partnerships that Ollie would form. Omar had been one of those NCR salesman who could earn in excess of $100,000 a year (a lot of money then - and now) during the 50's until a change in the commission plan had caused him to

jump at the opportunity presented by Capital Equipment Lessors. Omar was made President of Lease Financing Corporation and Niles the Comptroller.

Omar Ash, in contrast to Dave Pearsely, was a good administrator and had excellent banking contacts from his days with NCR and, taking a lesson from Capital Equipment Lessors, he established $1million as the minimum size for transactions that they would finance. He targeted the emerging CATV business as a likely source of large transactions and contacted Don Benscotter who he knew to be an investor in such systems.

Don Benscotter had been a founder, with Bob Dee and I assume others, of Electrodata - the first independent computer company. George DeSheill was the sales manager. The founders became wealthy when Electrodata was subsequently acquired by Burroughs. Don and George went with Burroughs as salesmen and Bob Dee into Burroughs accounting where he went on to become V.P. of Finance.

Benscotter retired soon thereafter and moved to Texas. Soon bored with retirement, he acquired the Arizona franchise for the 7-11 stores and moved to Phoenix. He spent several years developing a number of stores in Arizona before becoming bored with the grocery business, sold his franchises and retired again. Phoenix was one of the centers of promoters for CATV businesses, and again bored with retirement, he became involved in this business. I believe that Omar Ash and Don Benscotter were previously acquainted in San Diego where Electrodata had been headquartered and where Omar Ash had been an NCR salesman. They now reestablished contact.

By this time I had begun working with some of the early leasing companies - Al Zises of Bankers Leasing and Pod Booth of Booth Leasing - to provide third party lease financing to our customers. They both had reliable sources of funds and could handle the larger transactions. However, their rates, while very competitive, were "money over money" rates and their 100% debt financing made them inflexible and slow to respond to requests for rates.

I think it was about the fall of 1963 when Don Benscotter, seeking another source of large transactions, asked to see me. Having been beleaguered by "finders" for leasing companies, I reluctantly made time available to meet with him. He told me that due to their blending of senior debt at one rate with equity

funds at a much lower rate permitted them to offer a lease rate lower than the rate on the senior debt. Furthermore, they could respond with a commitment of the equity funds and a preliminary lease rate within 24 hours. He also agreed to a lower limit as our smaller systems were around $300,000. I was skeptical but told him that I would give him an opportunity to bid on one of our transactions.

I don't now recall what the next transaction was, but I called Don Benscotter, Pod Booth and Al Zises for quotations. Don got back to me within several hours with an unbelievably low rate. When Zises got back to me several weeks later his rate was approximately 4 points higher than Don's and Booth never did

respond on this particular transaction. I was reluctant, due to some disbelief about the low rate, to risk passing it on to the salesman to give to our customer and called Benscotter for another meeting.

He had me call Omar Ash in Philadelphia who assured me that the senior debt was available from Girard Trust at 6.5%, gave me the name and number of the lending officer if I wished to call him, and assured me that their quoted lease rate of 6% - a half point under the cost of the senior debt - was firm. In addition he advised me that I was welcome to tell our customer the rate that Lease Financing was paying for the senior debt and if the customer had a friendly banker who would supply it at a lower rate which Lease Financing could use, the lease rate would be 1/2% below that rate. Needless to say, our customer was very impressed.

It was not long, due to their responsiveness and very attractive lease rates, that I began to work almost exclusively with Lease Financing. They in turn always advised our prospects up front that their services were only available through us (other leasing companies would turn around and offer to lease our

competitors system if we lost out). They also turned out to be very flexible. The use of the equity funds for tax shelter actually made "stair-step" leases extremely attractive to them. Don, Omar and I worked together very well and evolved a "dog and pony" show where I'd advise the prospect of the various Rental and Lease plans that GE could offer and then have Don or Omar present the additional flexibility and lower rates they could provide. We would attempt to get the prospect to open their "kimonos" and tell us their problems so that we could tailor a unique solution for them. (i.e. the Western Pacific Railroad where we learned that the ICC and IRS regulations regarding track replacement was inhibiting the computer acquisition and Weyerhaeuser’s ordinary loss problem doing likewise for them)

We ultimately evolved the following extremely successful "closing" routine. If a salesman called me for a lease rate I would provide him with a tentative monthly rental to run past his DP Manager customer. If the DP Manager expressed an interest then I would agree to come meet with the customer but that I did

not want to meet with the DP Manager but with the financial people to talk "beans" not "bytes". I would meet with the financial people and provide them with the GE options and give them Lease Financing's rates. I would suggest inviting Lease Financing to meet with them, but didn't want to bring them in

unless they could meet with the next level of management. Omar Ash in the east, or Benscotter in the west would then come in with "live" documentation. We would put on our "dog and pony" show and they would push for the prospect to have their lawyer review the documentation and to contact Lease Financing's lawyers to make sure that there was mutual understanding about the documentation. Once the lawyers finished their review and negotiation over contract language, the documentation would usually be presented to whoever had the authority to execute the documentation. They inevitably signed them. You will note that throughout this process no one had to make a positive decision to do the deal. Anyone could stop the process along the way, but it worked like a charm.

The banks loved the program. It was not unusual for Omar Ash to arrange for Bank B to provide the senior debt to Bank A and Bank A to do the same for Bank B who would mutually agree on their "creditworthiness" and the interest rate to charge each other. Their respective lease rates would then be below that rate. In affect they loaned the money at one rate and borrowed it back at a lower rate.

Lease Financing was very professional in everything they did. The lease documentation was prepared by Ollie Vanderbilt's high powered Philadelphia lawyers and reviewed by Price Waterhouse. There was no hesitation in obtaining IRS rulings on any questionable tax aspects to any transaction.

Don Benscotter was a smooth salesman with the uncanny ability to rapidly move a transaction up through an organization. We would often meet, as planned, with the V.P. Finance in the morning and by afternoon would be taken to meet the Treasurer, the President and others. Many times the prospects would have Directors or others who served on other Boards with Ollie or had made investments through him. (i.e the Pews of Sun Oil, Emlin Roosevelt's - the Teddy side - Elizabeth National Bank, the Woomsley's (sp?) New Orleans bank (name?) and etc.)

Don would often come out of the prospect with considerable business in addition to the computer. I took him to meet with Green Giant to finance a $450,000 computer and he ended up financing two packages of farming equipment for them - one for $12 million and another for $8 million. This was typical.

Leo Mott, our Memphis District Manager, had set up a meeting with the Cashier of the Fifth National Bank of Memphis for Don and I. Leo called me the afternoon of the day before the meeting to tell me that the management of the bank were suddenly called into an unplanned meeting and that the Cashier would not be available to meet with us. I advised him that there was no point in us coming to meet with the DP Manager and to reschedule the meeting. I called Don to tell him but found that he was already on his way to Memphis. Leo was very apologetic when I called him back to tell him that Don was already on his way. I told him not to be too concerned and that I would also be there. I told him of Don's ability to move a transaction up and told him to "watch tomorrow". I told him that I had not been able to figure out how

he did it but that maybe Leo, being a fellow salesmen, could watch and tell me how he does it. Leo answered, "Maybe so, but there's no one available".

The next morning we met with the DP Manager and the Cashier was suddenly available for lunch. After lunch Don was introduced to the President who asked him to meet privately with him and the

Chairman about (I found out later) a questionable tax shelter that the bank had put one of their clients into. Leo was stunned and said "I didn't believe it when you told me that it would happen".

I didn't intend to ramble on this long when I started this missive. However, I think that it's background that's needed to understand the Hughes Aircraft story that completely confounded IBM. I'm looking forward to receiving Paul Shipiro's recollection of it which I will flesh out promptly.

Do you have a FAX machine? Perhaps you can FAX me Paul Shapiro's letter or send me a Xerox copy of it - maybe I can decipher it. My FAX number is above.

The various financings were tailored to specific circumstances involved in the sales situation - nothing to do, as you suggest, with Hughes Aircraft's financial situation (which was extremely private and unavailable[5]). I need jogging re these situations and the names of the people involved.

PS: I'm off to ski for a couple of days (at 70+ I can do it for free) but my FAX machine will be on.

Hughes Aircraft (The Aircraft Co. never made any airplanes. The helicopters were made by the Hughes Tool Co.)

I still haven't received a copy of Paul Shapiro's letter from you - but will try to recall what I can about the Hughes deal.

When Hughes Aircraft's annual costs for the "rental" of IBM equipment reached $12million it came to the attention of someone in the company (maybe Shapiro knows whom) who concluded that they were being a "patsy" for IBM and they went searching for someone to change it.

They hired a Dr. Cleven, an Astrophysicist I believe -again maybe Paul knows, who had recently retired as a Colonel in the Airforce where he had been one of General Curtis LeMay's Strategic Air Command's big guns. His first move was to cancel orders for IBM equipment which would have added an additional $2 million to the annual rental bill. Next, he analyzed their equipment usage and returned

equipment with some $4 million in annual rental to IBM. He obviously had not endeared himself to IBM at this point.

Hughes Aircraft was renting two IBM 7094's, one being used in the technical side of the house and one being used in the business side. Dr. Cleven planned to merge both centers into one after selecting next generation equipment, either one of the IBM 360 series or GE's 600. In order to evaluate these two systems he decided to set up a two year contest between the two companies. He would install the latest IBM offering in one center and GE's in the other. Paul should be able to advise you whether competitive proposals were made for each system or if Dr. Cleven chose which went where. As I recall -again Paul- GE was to supply the equipment to the business side.

I don't recall -again Paul- why I was brought into the procurement. I wouldn't normally have been brought in where the concessions, such as the requested three months free rent, were not extraordinary and the customer wasn't pushing for something unusual. In any event, I made a visit to Dr. Cleven.

During this visit I learned that IBM had offered to reduce the rent on the 7094 to zero following the delivery of a 360until the 360 was up and running - approximately 90 days. At $30,000/month this was a total of $90,000. In addition they were paying IBM substantial shift premiums. We, of course, could not

make the same offer and Dr. Cleven indicated that it was a lot of money for him to swallow and we needed to somehow match IBM's proposal. I told him that I'd ponder the problem and returned to

It occurred to me that he might save a lot of money on overtime charges -in addition to much lower rentals- if he were to exercise his purchase option on the IBM 7094 and have it leased back to him during the 18 to 24 months until delivery of the GE 600. I checked with him (presumably through Paul) and

found that they had accrued the maximum rental credit toward purchase of the 7094 and were down to the minimum price of 50%. I had Paul tell him that I had an idea and asked him to get the correct purchase option price from IBM. After much foot dragging by IBM and a lot of pushing by Dr. Cleven he came up with the price, which I recall was somewhere around $500,000. (I won't be able to recall exact amounts for you).

Based on Hughes Aircraft's purchase option price for the 7094, I calculated that the rental, plus maintenance, on a 48 month net lease, would save him, in addition to overtime charges, about $10,000/month. This would total $150,000 to $180,000 over the 15-18 (?) months until delivery of the GE600 system. I

believe that I then had Paul set up another meeting for me - in any event I went over to LA to show these numbers to Dr. Cleven. I advised him that GE would not want to have an IBM computer on their books but that I knew of a leasing company who would be able to handle the transaction and would like to set up meeting with them and him to explore the possibilities. He was very enthusiastic and a meeting was set up.

Don Benscotter and I put on our "dog and pony" show for Dr. Cleven. During the presentation I referred to the investment tax credit as "diamond dollars" - after tax dollars, the hardest kind to come by. Doc was intrigued and amused by this term and repeated it a half dozen times during our meeting. This would subsequently prove to be important in the GE 600 proposal.

We proposed the purchase and lease of the IBM 7094, but lacking financial information, we only had preliminary lease rates. We discussed the options that Hughes would have at the end of the 15-18 months. (1) Terminate the lease - without firm numbers we estimated that the termination cost would be approx.

$290,000 at the end of 18 months. This would be off-set by the residual value of the equipment. IBM equipment tended to sell on the secondary market at or near the minimum purchase option price of 50% of list price. It seldom sold for less than 35% -$350,000 in this case- so Hughes should be able to terminate at no cost. (2) Sublet the system to someone else for the remainder of the term; or an extension of term to reduce the rental even further.

Dr. Cleven was very interested and agreed to set up a meeting with the financial people for us to obtain the information needed to firm up the proposal.

Dr. Cleven set up a meeting with John Couterie (sp?) the Treasurer. IBM -who were livid with Dr. Cleven for canceling orders and sending back equipment and horrors of horrors asking GE for proposals- had been trying unsuccessfully to get to see John to complain and he felt that if he talked to GE salesmen he would also have to see IBM salesmen. He would meet with Benscotter and I, but without any salesmen present! You can imagine the fear and trepidation caused in sales by the thought of two bean counters running loose in the upper reaches of their account and screwing up their deal. It was traumatic for Paul

Don Benscotter and I met with Dr. Cleven and John Couterie. John was enthusiastic about our proposal and after cautioning Don that Howard Hughes had black listed a long list of banks (mainly

those involved in taking TWA away from him) he gave him the name of the B of A officer who handled the Hughes Aircraft account.

Most of the discussion centered around the termination provisions with Don and I assuring them that there was little or no risk of a deficiency in view of the stability of the IBM secondary market. John's reply was that if there was little risk, then GE, who was in a better position to evaluate it, should be willing to accept it. In addition GE was in the computer business, had a large sales force, and was in a much better position to profitably dispose of the IBM 7094 than they. I told him that GE didn't have a direct financial interest in this transaction and couldn't directly benefit and to provide it's corporate guaranty would be "ultra virus" (or whatever it is that the attorneys call it). I was sure that they wouldn't guaranty this transaction. We went around this horn several times before reaching a "Mexican standoff". To break the impasse, I suggested the following: In the event of a deficiency, Hughes would pay the first $50,000 - thus assuring them of a minimum savings of $100,000 over the period and GE would pay any remainder[6]. They thought that this was a sensible proposal and I agreed to try to get GE management's approval. (I

"closed" over $400 million of transactions for the Computer Department and never once made a concession. In fact, in many cases I recovered previous concessions -Martin aside, where we would have recovered them- in the restructuring of agreements and will do so later here in the financing of the GE 600. This was the first -and only time- that I put GE "at risk" in a transaction).

I don't remember who carried the ball to get Cooper's approval. It had to be either Paul Shapiro or Ted Green - I'm sure I would recall my trauma had I tried to explain this number dependent proposal to Vern Cooper. In any event, it was approved.

Needless to say, IBM was not very cooperative. They refused to let Hughes Aircraft assign their Purchase Option rights under the Machine Service Agreement to Lease Financing Corporation even though this had become a fairly common practice with leasing companies. Hughes did not want to exercise the option themselves even with a simultaneous sale to LFC. They were concerned that it would create a sale/leaseback[7]. I don't now recall how the problem was solved. I vaguely recall Don Benscotter having

Hughes set up a "computer" subsidiary to handle the transaction. (It could also be that Hughes threatened legal action or that either Howard Hughes or Ollie Vanderbilt had some pressure points in IBM which they used). In any event, the deal finally got done.

Sometime during the late 70's I was visiting a venture capital firm in the Westwood area of LA who had an investment in a computer service bureau in their same building. On our way out of the building I was asked, "When was the last time you saw an IBM 7094?". I answered that it was over 10 years ago at Hughes Aircraft. "Come with us and we will show it to you!". When Hughes no longer needed it, they sublet it to Shell Oil for something like six years[8] and then to this operation who had had it for a number of years and had only recently taken it out of service. I estimated that Hughes had made well over $500,000 on this transaction - not counting their initial savings.

As you can see, once you got me started recalling this transaction the recollections came flowing back.

This should demonstrate that there is an important marketing distinction between "renting" and "leasing" - not just a technical "bean-counter" difference.

The second half of the story, financing the GE 600, is equally as fascinating and more complex. I will try to recall it as well - but in another letter. This will give you enough to digest at one time!

You have previously been introduced to Don Benscotter. It should come as no surprise to you that after negotiating the IBM 7094 transaction with John Couterie, Hughes Aircraft's Treasurer, that John asked him to finance several other transactions for them. John was relatively new on his job and had found several transactions left in his desk by his predecessor who had been unable to get them done. These were

things that Howard Hughes had put a high priority on and it was quite a feather in John's cap when Don was able to do them promptly. One was an approx. $30million financing for the CATV system for Ecuador, for which Howard Hughes had acquired the franchise, and I never knew what the other one was. It was not long before Don was in direct communication with the DI[9] and making periodic trips to Las Vegas.

Getting back to the GE 600 deal, you will recall that Dr. Cleven was going to run a 24 month contest between an IBM 360 system and a GE 600 system. As a result of the IBM noise surrounding the IBM 7094 transaction he made every effort to give the appearance of scrupulous fairness in setting up the

competition. We would have liked to pitch a purchase or long term lease to him but we could only propose our monthly rental Use Agreement. However, I had a plan. In a somewhat analogous situation with CalComp I had put together a purchase with option to rent.

Benscotter had gotten close to Dr. Cleven and John Couterie and he occasionally took his wife with him to LA to have dinner with them and their wives. He could get proposals to Dr. Cleven without them coming from GE. I called Don and told him what I had in mind to propose. A sale with option to rent! We would sell the GE 600 system with an option to return it, if we lost the contest, during the 24th

to 27th month. If the option was exercised we would refund the purchase price plus the monthly maintenance paid less the rental that would have been charged during the period. I asked him if LFC could handle such a thing as a termination provision in a lease. He said he was sure that they could, but that he would have Omar Ash run some numbers on it and get back to me.

He called me back and said that they could handle it. I suggested that he talk to Dr. Cleven and tell him that GE might be amenable to such a transaction. He told me that every time he talks to Doc he asks how he can get some of those "diamond dollars". He said that several weeks before Doc had speculated

on various ways Hughes Aircraft might get the ITC. Don said, "Not only can I get the proposal to Doc but I think I can arrange it so that its his idea. I'm having dinner with him tomorrow night and I'll remind him that he discussed this idea with me several weeks ago and that's why I had Omar work out the

details. I'll tell him that I don't know whether or not GE will go along with it".

The day following Don's dinner with Dr. Cleven, Doc called me demanding that I catch the next plane to LA. I asked him what the crisis was but he wouldn't tell me. I told him that I couldn't came that day but that I'd catch the 11:00 plane the next day and would be there at noon. "Good, I'll pick you up at

the Airport and we'll go to lunch." At lunch the next day I asked him what the urgency was and why he was being so mysterious. He wouldn't tell me but said, "I'll tell you when we get to the office and I'm paying for lunch today - I'm selling you.".

Doc was a "blackboard" man and one wall of his office was covered with a school room size blackboard. He proceeded to cover it with numbers to sell "his idea" to me. I asked him where he came up with these wild and crazy ideas but he assured me that it was a "win-win" situation. Hughes Aircraft would get the Investment Tax Credit and a greatly reduced rental during the initial 24 months and for the following 5 years, of a 7 year net lease, should they elect to keep the GE equipment. Even if GE lost out and the equipment were returned GE would have had use of the monies for the purchase for two years, Hughes would have paid the personal property tax and insurance and GE would still get the same rental as if it had been rented under the existing agreement. I asked him how the rent was to be calculated in the

event the option was exercised - specifically whether it would be calculated as 21 months in recognition of the three months free rent included in the present agreement. He said that it might be adding insult to injury to take the free rental if they were returning the equipment and that the rental charge would be

I told him that it was beginning to make sense to me and that I'd go back to Phoenix and put a pencil to it. He said that that wasn't necessary as Benscotter had already worked it out and my job was to go back and tell Cooper he'd be crazy not to except the proposal. I promised to try[10].

I let two days pass before I called him to tell him that we'd go along with the deal but that we couldn't just grant the option without some value received for it and we would need to charge 1% of the purchase price for it. He groused about it for a bit but when I pointed out that Lease Financing would include it in the rent, which would be increased very slightly as a result, he acquiesced.

When word leaked out to IBM that Hughes had executed a long term lease on the GE equipment they went ballistic. Buck Rodgers[11] went in to Hughes with all flags flying and all guns blazing. He accused Dr. Cleven of taking bribes from GE and kickbacks from Lease Financing and numerous other sins.

Dr. Cleven had developed the habit of going down to the cafeteria each day at mid-morning for a cup of coffee. There was an old codger, whom he assumed was part of the maintenance staff, who was usually there at the same time and they became coffee-break buddies. With little prompting from this old timer, Doc would discourse on his problems and exploits and now he told him of IBM's actions and accusations. This old timer was (Howard?) Hall an attorney who appeared on no organization charts but reported directly to Howard Hughes. He had been making meticulous notes of their daily conversations and now introduced himself to Doc and gave him specific language to relay to Buck Rodgers concerning his notes on IBM's activities from prior to the IBM 7094 transaction and his contemplated action against IBM

This is the last thing I heard about this transaction. I presume that we won the 24 month contest and lived happily ever after, but you'll have to get the rest of the story from Paul Shapiro.

[1] At one point Charlie summoned me to Baltimore where he introduced me to Harvey Goodman, President of Data Processing Financial & General (DPF&G) a new company formed by some New York attorneys to obtain leases for their wealthy clients. Charlie was considering leasing the 600 systems through them but wanted to know (a) did GE have any objections and (b) would all the contract conditions continue to flow through to them. I could barely hide my delight at the thought and after solemn consideration I gave him my assurances. Harvey was a brash New Yorker and he did not endear himself to our sales rep (name?) when several time, in front of Lighthauser, he asked, “What do you call your IBM machine?” I share a cab to the Baltimore airport with Harvey and spent several hours with him in the bar trying to advise him on the structure of his proposal to Martin and the assistance that we would be willing to give him on the timing of billing and etc. Harvey had little feel of the use of leasing in a sales situation and none at all for computer leasing. I left Baltimore wondering how Lighthauser had stumbled across Harvey and pitying Harvey who was going to eaten alive in the very competitive leasing arena. Within a year DPF&G went public and Harvey pocketed something like $8 million. I should have been so dumb.

[2] I had forgotten that George Trotter had been with the Computer Department until you mentioned it. I thought he remained with the Microwave Lab.

[3] Vic Casebolt was involved in the aborted negotiations to sell the process computer business to Fairchild when Lou Wengert was Group VP. You should get his evaluation of Lou.

[4] We purchased 30 units @ $80,000 per unit which Data Products had rented principally to utilities. We needed to obtain an average of 24 months rent to break-even. IBM purposely attacked this product and we realized a cliff hanging 23 ½ months rental.

[5] The Bank of America was the only one who had Hughes Aircraft’s financial statements. Banks are not permitted to lend without these statements in their possession - thus only B of A could supply senior debt to Lease Financing Corporation (LFC) to finance leases to Hughes. At some point Don Benscotter convinced Pat Highland, Hughes Aircraft President, that B of A was taking advantage of this situation and charging at least a 1% higher rate. As a result, Hughes agree to provide the statements to LFC monthly - delivered by courier, under seal and without permission for LFC to open them. The B of A was notified that LFC had the statements and they promptly reduced their rates by 1%!

[6] If, for example the IBM 7094 could only be sold for 20% of its list price ($200,000 in the example I’m assuming) then with the termination cost of $290,000 there would be a deficiency of $90,000. $50,000 to be paid by Hughes and $40,000 by GE. This would be less than solving our $90,000 “challenge “vis a vis” IBM’s proposal some other way.

[7] Contrary to common belief, Hughes Aircraft paid taxes even though it’s one share (100%) of stock was held by the not for profit Hughes Medical Foundation. However, the Hughes Aircraft Corporation also had a not for profit entity. The existence of these two entities caused some technical concern about a possible sale/leaseback.

[8] May large users were stuck with these machines due to the huge costs of reprogramming and conversion. This requirement is what supported the secondary market as users kept adding equipment which was no longer being produced. Tom Watson’s worst fears about a secondary market were being fulfilled.

[9] The Desert Inn in Las Vegas which Howard Hughes had purchased for his headquarters. I learned that Don had financed Howard’s Lear Jet when Don was invited to fly to Nixon’s inauguration in it.

[10] This was a ”no brainer”. Under the worst case scenario we would get 24 months rent, instead of the 24 less the three months free, plus the 1% fee. Additionally, Hughes would have paid the personal property taxes and insurance and we would have had use of the monies.

[11] You met Buck Rodgers in the Martin story. I don’t know if he was L.A. District Manager or the Western Regional manager at this time. Paul Shapiro may be able to recall. He later became President of IBM.