Calculator Disruption

In 1981, the German group Kraftwerkreleased a singlecalled Pocket Calculator.

The lyrics weresimple, straightforward and verythoughtful…

I’m the operatorwith my pocket calculatorI’m adding…… And subtractingI’m controlling…… And composing

By pressing down a special keyIt plays a little melody

( http://www.youtube.com/watch?v=zZt64_XOflk )

About ten years before ”Pocket Calculator”, calculators were far from pocket size…

Calculators used to be big, heavy and expensive mechanical devices…

… And well, these calculators were disruptedand the Digital Pocket Calculator emerged as the dominant design…

In 1972, the Swedish firm Facit facedbankruptcy. The shift from mechanical to digital calculators created great difficulties.

Facit was the main employer in the small town Åtvidaberg and thus…

… the entire society suffered from this disruption.

All of a sudden, the value of Facit’s productshad diminished, the amount of unsoldproducts and inventories increased rapidly…

… The disruption seemedto come from nowhere…

… In Sweden a term was coined in order to describe how large successfulfirms could collapse so rapidly…

The ’Facit Disease’

Facit used to be a large, well reputedand profitablecompany – howcould this happen?

Did Facit recognize the threat?

Let’s take a closer look at what actually happenedto Facit in this technological shift…

Facit came from the kingdom of Sweden

Itsheadquarterswere located

in a small towncalled

Åtvidaberg

The firm started in the 1920’s as a companycalled ’Åtvidaberg Industries’, which wasmainly producing office furniture.

Under the leadership of Elof Ericsson, the firm focused increasingly on calculators and grew rapidly.

In 1932, the first calculator with ten keys was manufactured in Åtvidaberg.

It was called FACIT.

Facit became a great success and wasexported to the entire world. Åtvidaberg Industries was a source of pride for Sweden in the era after World War 2.

Along with the expansion of Åtvidaberg Industries, the town Åtvidaberg grew rapidly…

Elof Ericsson and his familyused to live in this house. Elof was widely acclaimed for his leadership, both in Åtvidaberg and in Sweden.

At the age of 38, Elof’sson, Gunnar EricssonbecameCEO of the company.

While Åtvidaberg was a large playerin the calculatormarket, it was still very small compared to otheractors. For instance, IBM was25 times bigger in the 1950’s.

The industry wastechnologically mature, yet there was still a great demand globallyfor calculators…

… Therefore, Ericsson focused the companymore towards sellingcalculators globally…

… The name of the company was changed to FACIT and all products were now sold under the same brand with similar design…

… The focus on calculators, marketing, the FACIT brandand global expansion wasreferred to as ”The New Deal”.

Under the leadership of Gunnar Ericsson salesand profits grew rapidly as the FACIT brand became recognized internationally…

The little ”FACIT Guy” with his long hat symbolized a wizard, who could rapidly make accurate calculations for the customer.

In the 1960’s the FACIT wizard wasseen in mostparts of the world…

The global expansion was verysuccessful…

In the skyscrapers of New York

In the mines of Rhodesia

The whole world uses FACIT

In downtown London At the marketplacesin Mongolia

The FACIT brand was everywhere…

The remarkable growth in the 1960’s implied that FACIT, Gunnar Ericsson and Åtvidaberg became a role model for Swedish industry. The company was admired by bothindustrialists and politicians.

Gunnar Ericsson wasfantastic at marketing…

In 1966 he invited the Brazilian national soccer team to practice in Åtvidaberg…

In the small town Åtvidaberg, in the small country of Sweden, legends like Peléentered this grass in order to practice prior to the World Championships in 1966.

Photos like this featuring Gunnar Ericsson and Pelé were spreadthroughout the entire world.

Fantastic Marketing!

Mr. Ericsson wasalmost a celebrityin these years. Hewas the CEO of Facit, the boardmember of variousinternational soccerassociations as well as a memberof the Swedish parliament.

Ericsson used his extensive networkfrequently in order to sell the Facit calculators.

Here, down by the lake in Åtvidaberg were Gunnar Ericssonlived, cocktail parties were held. Politicians, Industrial leaders and international guests gathered and made new acquaintances.

While the Facit Wizard wasconquering the world, someimportantbreakthroughswere made in the field of digital technology…

In order to explore this new area, the company founded a subsidiary calledFacit Electronics.

Facit succeeded in developing somebig computers, at one point the strongestcomputer in the world was madeby Facit.

However, these projectsgenerated huge losses. Deadlines and budgets werenot met and Facit Electronicsnever had the resources to match global players like IBM.

As a consequence, Facit Electronics wasterminated in 1962-63.

Instead, Facit focusedincreasingly on the magic of its core business –mechanical calculators.

Sales and profits kept risingthrough the 1960’s…

As the company grew, the town Åtvidaberg grew…

As the company grew, the soccerteam in Åtvidaberg rised to the Swedish elite division…

Many of the Swedish soccerstars in those days moved to Åtvidaberg, to join the teamand to work for Facit.

Thus, not only the company, but also the townand its soccer team were largely built upon the continuing success of mechanical technology.

In the years 1957-1972, the amount of employees increased from about 6000to almost 14 000.

Revenues increased with 500 percentand the products were sold in 140 countries all over the world.

However, digital calculators alsostarted to prosper in the 1960’s.

Initially, digital calculators wereexpensive, big, and demanded a lot of electricity.

However, digital technology has a high pace of development and the calculators became smaller, cheaper and better over time…

Given that Facit was a relatively small company, with competence in mechanical technology, the firmtried to benefit from the new technology through collaborations.

In 1965, the digital calculatorsstarted to enter the market slowly.

The same year, Gunnar Ericsson signed a contract with Hayakawa(owned by Sharp), which gave Facit exclusivity in selling their calculatorsthroughout the world for 2 years..

Hayakawa had the technology and Facit had a global market organization and a strong brand.

A perfect match – in the short term…

In the 1960’s Facit acquired severalmanufacturers of mechanicalcalculators but failed to consolidatethe R&D organizations.

As digital calculators wereimproved the competitionincreased, thus forcing Facit to cut prices and to loose profits…

Initially, the collaboration with Hayakawahelped Facit to keep sales up.

These calculators held the Facit brand, but they were Made in Japan.

In 1965 4000 digital calculatorswere sold in the world. The same figure reached 25 000 in 1966!

In 1967 15 percent of the global calculator market was digital.

The collaboration implied that Facit was depending upon Hayakawa in order to survive…

Over time, Hayakawa started to buildits own sales organization.

Facit’s development lagged behind, the R&D organization was too small and fragmented throughout the world…

As Hayakawa started to enter Facit’smarkets in many countries, the relationship between the two companiesbecame increasingly strained…

However, Facit was still a growing and profitable firm in the late 1960’s.

Some of the engineersargued that the mechanical calculatorscould at best be sold until 1971-72, whereasparts of the board wereless worried about the future…

As Hayakawaand other

manufacturers of digital calculators

improved theirtechnology, Facit

encountered great problems in 1970-

71 and did not know what to

do…

Facit’s mechanical calculators had reached a dead end.

The amount of unsoldcalculators increased rapidly.

“We sit here in the forests and have no idea what’s going on in the world.”

// Quote from a board meeting

In 1972, the situation becamedesperate. Salesdecreased sharplyand thousands of people were laidoff in Åtvidaberg and throughout the world.

Even the soccerstars had to leavethe company later on.

Only a few years after having shown recordprofits, Facit nowfaced bankruptcy.

I’m the operatorwith my pocket calculatorI’m addingAnd subtractingI’m controllingAnd composing

By pressing down a special keyIt plays a little melody

It’s amazing how much value can be destroyed in such a short period of time…

Imagine the amount of manufacturingsites that became irrelevant…

Imagine how the entire value chain of suppliers of mechanical componentsbecame irrelevant…

Imagine the amount of knowledge that becameirrelevant in only a few years…

”The coggwheels in the mechanical calculatorswere the soul of the company”

// Gert Persson, used to work at Facit Electronics

The economic value of this soulwas destroyed in the early 1970’s.

The Swedish firm Electrolux offered to buyFacit in 1972.

The owners had to accept and Electrolux paid 80 MSEK for a company which hadbeen an industrial giant only a fewyears ago.

Given that Facit had a profitable turnover of about 1 Billion SEK in 1970, this gives an idea of how much value was destroyed.

Later on, Electrolux sold the different parts of Facit for 200 MSEK in total.

Gunnar Ericsson was no longer an admiredindustrial leader. Much of the blamewas put on himpersonally.

It’s always tempting to play the blame game. But it’s not very constructive. Many, manyother firms suffered greatly in this and othertechnological shifts.

Could something have been done differently?

I don’t know. No one really knows.Maybe Facit should have acquired Hayakawa or

another digital manufacturer earlier?Maybe they should have invested more aggressively

in R&D instead of marketing in the early 1960’s?However, somewhere, for someone, a lot of economic

value (mechanical knowledge, manufacturing, salesand networks) would have to become obsolete.

This fact can’t be changed by any strategy, or anything.

Therefore we should think twice before we accusemanagers or firms for being incompetent when theyfail in technological shifts.

So what’s the mainlesson from this story?

Well, I think it illustrates how technologicalshifts destroy the vale of previouscompetence and therefore create difficulties, simply because the capabilities of industrialgiants all of a sudden become irrelevant.

Moreover, it illustrates how the furious pace of digital technology and the fact that it attacks from below often threatens established firms.

”The coggwheels in the mechanical calculatorswere the soul of the company”

// Gert Persson, used to work at Facit Electronics

This quote actually explains the ’Facit Disease’ very eloquently.

Thanks to the following sources:

Pettersson, T. (2003) I teknikrevolutionenscentrum: företagsledning och utveckling i Facit1957-1972, Uppsala Papers in Financial and Business History, Report 16

“Facit av en era”, Computer Sweden nr 22 2004Facitindustrierna efter 1972, Åtvidabergs

Teknikhistoriska SällskapÅtvidabergs Bruks och Facit Museum, SwedenÅssa Industri och Bil Museum, Sweden

Image Attributions

http://www.flickr.com/photos/71432201@N00/889045042/http://www.flickr.com/photos/71432201@N00/889000088/http://www.flickr.com/photos/71432201@N00/888129447/

http://www.flickr.com/photos/ocad123/1065955129/http://www.flickr.com/photos/gak/16999155/

http://www.flickr.com/photos/clango/439862166/

Photos taken at:

Åtvidabergs Bruks och Facit Museum, Swedenhttp://brukskultur.atvidaberg.se/index2.html

Åssa Industri och Bil Museum, Swedenhttp://www.assamuseet.se/

Thank You!

Links of interest:

http://archive.corren.se/archive/2007/12/20/jidow001baatzzc.xml

http://www.oldcalculatormuseum.com/

http://en.wikipedia.org/wiki/Electronic_calculator

Christian Sandström is a PhD student at Chalmers

University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and

technological change.

www.christiansandstrom.orgchristian.sandstrom@chalmers.se