Facit and the Disruptive Electronic Calculator

Calculator Disruption

In 1981, the German group Kraftwerk released a single called Pocket Calculator. The lyrics were simple, straight forward and very thoughtful…

I’m the operator with my pocket calculator I’m adding… … And subtracting I’m controlling… … And composing By pressing down a special key It 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 disrupted and the Digital Pocket Calculator emerged as the dominant design…

In 1972, the Swedish firm Facit faced bankruptcy. 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 products had diminished, the amount of unsold products and inventories increased rapidly…

… The disruption seemed to come from nowhere…

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

The ’Facit Disease’

Facit used to be a large, well reputed and profitable company – how could this happen?

Did Facit recognize the threat?

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

Facit came from the kingdom of Sweden

Its headquarters were located in a small town called Åtvidaberg

The firm started in the 1920’s as a company called ’Åtvidaberg Industries’, which was mainly 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 was exported 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 family used to live in this house. Elof was widely acclaimed for his leadership, both in Åtvidaberg and in Sweden.

At the age of 38, Elof’s son, Gunnar Ericsson became CEO of the company.

While Åtvidaberg was a large player in the calculator market, it was still very small compared to other actors. For instance, IBM was 25 times bigger in the 1950’s.

The industry was technologically mature, yet there was still a great demand globally for calculators…

… Therefore, Ericsson focused the company more towards selling calculators 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 brand and global expansion was referred to as ”The New Deal”.

Under the leadership of Gunnar Ericsson sales and 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 was seen in most parts of the world…

The global expansion was very successful…

In the skyscrapers of New York In the mines of Rhodesia The whole world uses FACIT At the marketplaces In downtown London in 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 both industrialists and politicians.

Gunnar Ericsson was fantastic 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 Pelé entered this grass in order to practice prior to the World Championships in 1966.

Photos like this featuring Gunnar Ericsson and Pelé were spread throughout the entire world. Fantastic Marketing!

Mr. Ericsson was almost a celebrity in these years. He was the CEO of Facit, the board member of various international soccer associations as well as a member of the Swedish parliament.

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

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

While the Facit Wizard was conquering the world, some important breakthroughs were made in the field of digital technology…

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

Facit succeeded in developing some big computers, at one point the strongest computer in the world was made by Facit.

However, these projects generated huge losses. Deadlines and budgets were not met and Facit Electronics never had the resources to match global players like IBM.

As a consequence, Facit Electronics was terminated in 1962-63.

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

Sales and profits kept rising through the 1960’s…

As the company grew, the town Åtvidaberg grew…

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

Many of the Swedish soccer stars in those days moved to Åtvidaberg, to join the team and to work for Facit.

Thus, not only the company, but also the town and 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 6000 to almost 14 000. Revenues increased with 500 percent and the products were sold in 140 countries all over the world.

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

Initially, digital calculators were expensive, 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 firm tried to benefit from the new technology through collaborations.

In 1965, the digital calculators started 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 calculators throughout 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 several manufacturers of mechanical calculators but failed to consolidate the R&D organizations.

As digital calculators were improved the competition increased, thus forcing Facit to cut prices and to loose profits…

Initially, the collaboration with Hayakawa helped Facit to keep sales up.

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

In 1965 4000 digital calculators were 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 build its 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’s markets in many countries, the relationship between the two companies became increasingly strained…

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

Some of the engineers argued that the mechanical calculators could at best be sold until 1971-72, whereas parts of the board were less worried about the future…

As Hayakawa and other manufacturers of digital calculators improved their technology, 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 unsold calculators 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 became desperate. Sales decreased sharply and thousands of people were laid off in Åtvidaberg and throughout the world. Even the soccer stars had to leave the company later on.

Only a few years after having shown record profits, Facit now faced bankruptcy.

I’m the operator with my pocket calculator I’m adding And subtracting I’m controlling And composing By pressing down a special key It plays a little melody

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

Imagine the amount of manufacturing sites that became irrelevant…

Imagine how the entire value chain of suppliers of mechanical components became irrelevant…

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

”The coggwheels in the mechanical calculators were the soul of the company” // Gert Persson, used to work at Facit Electronics

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

The Swedish firm Electrolux offered to buy Facit in 1972. The owners had to accept and Electrolux paid 80 MSEK for a company which had been an industrial giant only a few years 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 admired industrial leader. Much of the blame was put on him personally.

It’s always tempting to play the blame game. But it’s not very constructive. Many, many other firms suffered greatly in this and other technological 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, sales and networks) would have to become obsolete. This fact can’t be changed by any strategy, or anything. Therefore we should think twice before we accuse managers or firms for being incompetent when they fail in technological shifts.

So what’s the main lesson from this story? Well, I think it illustrates how technological shifts destroy the vale of previous competence and therefore create difficulties, simply because the capabilities of industrial giants 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 calculators were 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 teknikrevolutionens centrum: företagsledning och utveckling i Facit 1957-1972, Uppsala Papers in Financial and Business History, Report 16 “Facit av en era”, Computer Sweden nr 22 2004 Facitindustrierna efter 1972, Åtvidabergs Teknikhistoriska Sällskap Åtvidabergs Bruks och Facit Museum, Sweden Åssa 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, Sweden http://brukskultur.atvidaberg.se/index2.html Åssa Industri och Bil Museum, Sweden http://www.assamuseet.se/ Thank You!

Links of interest: http://archive.corren.se/archive/2007/12/20/jidow0 01baatzzc.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.org christian.sandstrom@chalmers.se

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Facit and the Disruptive Electronic Calculator

by Chris Sandström on Nov 23, 2008

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Facit and the Disruptive Electronic Calculator — Presentation Transcript