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Supply Chain Management of Harris Corporation
Supply Chain Management of Harris Corporation - January 8th, 2011
The origin of the Harris Corporation, a leading American electronics company, is actually to be found in the printing business. What began as a minor manufacturer of printing press machinery has evolved during this century into an important developer of cutting-edge electronics technology. In fact, Harris's role in the American electronics industry is so important that in 1987 the Pentagon stepped in to prevent its acquisition by a foreign company.
E Pluribus Unum: 1895-1950
In 1895 the Harris Automatic Press Company was founded in Cleveland, Ohio. This company manufactured the large multicolor presses that are used to print books and newspapers. In the early decades of the 20th century, the Harris Automatic Press acquired the properties of two other companies involved in the printing business--Seybold Machine Company of Dayton, Ohio, and Premier & Potter Printing Press Company, Inc. of New York. The name of the company was then changed to Harris-Seybold-Potter Company. In June, 1957 the company merged with the Intertype Corporation of Brooklyn, New York, and its name was again changed, this time to Harris-Intertype Corporation. Intertype was a manufacturer of hot metal typesetting machines and operated a plant in England in addition to the plant in New York.
Throughout these acquisitions the company's business remained essentially unchanged: it built and marketed printing and broadcasting machinery. Such machinery included offset lithographic presses, envelope presses, paper cutting machines, and bindery equipment, and at Intertype, hot metal typesetting machines. Later acquisitions, in particular the Gates Radio Company, gave the company the capacity to manufacture broadcasting transmitters and microwave equipment.
Radiation, Inc.: 1950-67
The boom in the aerospace industry that began in the 1950s gave rise to many companies that produced components for government projects. One of the earliest of these businesses was Radiation, Inc., established in 1950 by Homer Denius and George Shaw, both of whom were electronics engineers. At first Radiation employed a staff of only 12 and was housed in space rented from the Naval Air Station in Melbourne, Florida. The site was convenient because it was located only a few miles south of the Cape Canaveral (now Kennedy) Space Center. From the start, the company produced miniaturized electronics, tracking, and pulse-code-modulation technologies, all of which are crucial to aerospace programs. Radiation's involvement with the aerospace program included equipment for the Telstar and Courier communication satellites and the Nimbus and Tiros weather satellites. Military systems that relied upon Radiation equipment included the Atlas, Polaris, and Minuteman missiles.
Radiation's initial success was due in part to the high quality of its staff. Many of the highest-level managers held advanced degrees in engineering. John Hartley, the CEO of the firm until 1995, joined Radiation after serving on the faculty of Auburn University. Hartley joined the firm in 1956, the same year that Radiation stock was first sold to the public. Another person who left academia to join the staff at Radiation was Joseph Boyd. In the late 1950s and early 1960s Boyd taught electrical engineering at the University of Michigan. At the same time he was also director of the Willow Laboratories, a prestigious science and technology research institute with a staff of more than 1,000 scientists and engineers. Boyd joined Radiation in 1962 and within a year was made president of the firm. His first significant action as president was to set up a microelectronics plant to develop and produce integrated circuits. The following year, Hartley was named as director of this division of Radiation.
During the early 1960s, Radiation devoted itself to improving its market position in the interconnected fields of digital communication, space communication, data management, and computer-based control systems. The company was also successful with satellite tracking systems and alphanumeric data processing. By 1967 the company was one of Florida's largest employers (at 3,000 employees) and sales passed $50 million a year. The company was well-established as a government contractor for both military and nonmilitary projects. But Radiation's management wanted to expand the company's business activity in the commercial sector. To do this, they decided to merge with a commercial company.
At roughly the same time, the Harris-Intertype Corporation was seeking to expand its operations into the electronics field. George Dively, the chairman of Harris-Intertype, had succeeded in building up the company's business from $10 million in annual sales to almost $200 million. But Harris-Intertype's printing machines were still mechanical, and Dively realized that future technological developments would require electronics. Radiation seemed a perfect candidate for acquisition. Dively and Harris-Intertype's president, Richard Tullis, paid $56 million for Radiation. The purchase price was considered quite steep--Harris shares were traded for Radiation's in a ratio that valued Radiation's earnings at twice those of Harris. However, Harris's management wanted Radiation's electronics talent, and not just its earning power. The two companies merged in 1967 under the Harris-Intertype name. Dively remained chairman of the company; Homer Denius, one of the founders of Radiation, became vice-chairman; and Boyd became an executive vice-president for electronics. After the merger, annual sales surpassed the $250 million mark and the combined number of employees exceeded 12,000.
Growth through Acquisitions: 1968-79
The Harris-Radiation hybrid proved to be a success and innovations began to flow from the company almost immediately. Electronic newsroom technology, for example, was the direct result of a study made by Radiation of how to update Harris's mechanical presses. Most importantly however, the merger gave birth to an essential management strategy known as "technology transfer"--developing commercial applications of technology originally developed for the government.
Two years later, RF Communications, Inc. of Rochester, New York, was purchased through an exchange of shares. By the time of its purchase, RF was well established as a manufacturer of point-to-point radio equipment. Even after this rapid expansion, the company's electronics business remained primarily with the government, especially in the aerospace field. Harris-Intertype was responsible for the production and development of the data-handling systems for the preflight check of the Apollo spacecraft and for the digital command-and-control computer of the Gemini spacecraft.
At the beginning of the 1970s, the company made several other major acquisitions. In 1972, Harris-Intertype purchased General Electric's product line of TV broadcasting cameras, transmitters, studio equipment, and antennas for $5.5 million in cash, adding greatly to its original broadcasting product line. In addition, UCC-Communications Systems, Inc. of Dallas, Texas, was purchased from the University Computing Company for $20 million in cash. This company was a leading producer of computer terminals and communications subsystems for the data processing industry in general. Two years later, in 1974, Harris-Intertype acquired Datacraft Corporation and also divested itself of its corrugated paper machinery business. Datacraft was a producer of superminicomputers. During the same year the company changed its name to the Harris Corporation.
These acquisitions, made under the leadership of Richard Tullis, were integral to Harris's evolution from a company which was 84 percent mechanical into a company which was 70 percent electronic. However, the integration of the purchases and the continual introduction of new product lines took its toll on the company's earnings. From the late 1960s to the late 1970s earnings growth was not outstanding and investors largely ignored the company. But by 1976 things began to change for Harris; over the following three years its stock rose more than 100 percent. Meanwhile, the acquisitions campaign did not slow down even during the fallow period.
Subsequent acquisitions were all in the field of data processing and handling. Purchases were made every year throughout the remainder of the decade and well into the 1980s. By 1977 Harris's sales were more than $646 million and earnings were greater than $40 million. Boyd was appointed chairman and CEO two years later, in 1979.
That year Harris reached a significant agreement with Matra, a French state-owned electronics company. Under this agreement, which was to provide the French with a factory to manufacture integrated circuits, all of the $40 million funding was supplied by Matra and the French government; Harris provided only technology and management. The French retained 51 percent of the company, leaving Harris with the remaining 49 percent.
Technology Transfer: 1980-89
Since Harris had begun to deal predominantly in electronics, the company found itself in a market with extremely powerful competition. By this time the concept of technology transfer was the central element of the company's management policies. Though defense contracts accounted for only around 20 percent of Harris's business, military projects were its most advanced production efforts. In general government contracts are for custom products instead of standard items, which helps to push the state of a technological art to its limit. In addition, these projects tend to be motivated more by technology than by cost considerations.
Harris's challenge was to translate work on customized, ultra-high technology products into profitable commercial projects. Among the problems Harris faced in doing this was military secrecy--an obstacle which would eventually stymie attempts to take over Harris. In order to overcome problems such as these, Harris instituted managerial policies which made promotion and demotion dependent upon the successful development of commercial products from defense projects. Harris also adopted a more general strategy of competing for government work only in those areas in which the company anticipated the ready development of commercial products. The development of a video terminal for electronic newsrooms, derived from the company's Vietnam-era work on an Army battlefield message sender, was a successful example of this technology-transfer policy.
Throughout Harris's history its acquisitions program has been well planned. In 1980 Harris made another important purchase, of the Farinon Corporation, a manufacturer of microwave transmitters, electronic switchboards, and other sophisticated telephone products. At the time of its purchase, Farinon was a small company, with sales of only $100 million. Outside observers believed that the purchase price of four million Harris shares, worth around $125 million, was much too high. However, management at Harris justified the price on the grounds that it had to beat out other bids (GTE, RCA, Siemens, and Loral Corporation had all expressed interest in Farinon) and that Harris was buying technology and market position, not earnings or revenues.
Harris passed the billion dollar mark in annual revenues in 1981, and went on to weather the recession of the early 1980s quite well; earnings per share grew roughly 15 percent a year during this period. New plants were in operation 30 miles south of the Kennedy Space Center in Florida and the company had become the largest industrial employer in Florida. In 1983 Harris marked another turning point in its history. Harris had risen from the sixth largest supplier of printing machines to the number one position in the country, but in the spring of that year, Harris sold its printing business to concentrate exclusively on electronics. In the autumn of that year, Lanier Business Products, Inc. was merged into Harris on a $276 million stock purchase. Lanier was involved primarily in office automation and was noted for its business computers, dictating systems, copying machines, and word processing systems. Lanier brought Harris greater strength in the commercial sector since it boasted 350 sales offices throughout the United States and a sales force of over 2,000 people, 700 of them marketing Lanier's copying machines (which were manufactured by the 3M Corporation).
Later in the year the Federal Communications Commission (FCC) ordered Harris to stop production and marketing of a system that allowed AM radio stations to broadcast in stereo. The FCC also ordered the stations which had already purchased the units to cease broadcasting using the units. According to the FCC, the unit actually marketed by Harris differed significantly from one that the agency had approved the preceding year. Management at Harris claimed that the order had little effect on the company's overall business performance since Harris had a backlog of only $2 million for the system, out of a total of $430 million for the communications sector that year.
But massive layoffs and a major reorganization began in the same year and continued for about three years. The company's government communications systems group was dissolved and employees from that group were reassigned to other divisions in the government systems sector. As other divisions were also consolidated, the workforce at Harris was reduced by several thousand employees. At the end of this period of adjustment, Harris and 3M entered into a joint venture to market and service copiers and facsimile machines as a result of their earlier connection through Lanier. The new company, named Harris/3M Document Products, Inc., was headquartered in Atlanta, Georgia, and owned equally by 3M and Harris.
Harris had a spate of problems with government contracts. In June 1987 the company agreed to settle out of court, for $1.3 million, a claim that Harris had overcharged NASA to upgrade the security system for a ground tracking station. Later in the year the company pleaded guilty to making false claims relating to a contract with the United States Army. The settlement in this case came to more than $2 million refunded as excess profits and another $2 million in penalties.
That same year the Pentagon stopped a takeover of Harris by the British communications company Plessey. Plessey, roughly the same size as Harris and one of Britain's largest electronics manufacturers, was itself acquired by Britain's General Electric Co. PLC and Germany's Siemens in 1989. The takeover was apparently blocked because of the security-sensitive nature of much of Harris's activities. For instance, the company is the major supplier of electrical components that are hardened against damage from the electromagnetic pulse generated by nuclear weapons. It is reported that Harris also manufactures top-secret equipment for the National Security Agency, which operates the government's spy satellites and communication-interception equipment.
In addition to being well protected against takeover, Harris is well-established in custom electronic systems, office automation, communications, and microelectronic products. Company revenues more than doubled in the 1980s, from $850 million to more than $2 billion. The largest growth in both sales and profits came in the semiconductor and government systems sectors. By 1989 Harris had become the largest U.S. supplier of radio and television broadcasting equipment and dictating equipment and the largest producer of low- and medium-capacity microwave radio equipment. It was the largest supplier of integrated circuits to the U.S. government and the sixth largest producer of integrated circuits in the country. It was also the largest producer of satellite communications earth stations, a major supplier to NATO armed forces, and sold commercial products in over 100 countries.
Centennial Decade: 1990-97
By the early 1990s the future of the Harris Corporation seemed difficult to assess. Competition with the Japanese continued to be fierce, growth was slowing in the communications industry, and office automation had been a more competitive field than Harris anticipated. But cutbacks in personnel and the major reorganization of divisions at Harris streamlined the company. In late 1988 Harris bought GE Solid State, General Electric's semiconductor company, for more than $200 million, and in 1989 Harris purchased 3M's 50 percent interest in Harris/3M and renamed the company Lanier Worldwide, Inc. after adding Lanier Voice Products to that business.
Harris's corporate strategy in the 1990s was marked by four emphases: it would continue to transfer the technology expertise of its Electronic Systems Sector to nondefense markets, it would build on the growth of Harris Semiconductor following the purchase of GE Solid State, its Communications Sector would lead the company into international markets, and it would continue to promote the products, services, and globalization of Lanier Worldwide. In January 1991 Harris learned that it had won a $1.7 billion Federal Aviation Administration contract to develop the voice switching and control system of the nation's air traffic control (ATC) communications systems. The contract--the largest in the company's history--demonstrated that Harris's strategy of diversification into nondefense work was bearing fruit and led to other major ATC projects in Alaska, the airports of Washington, D.C., and in Malaysia.
Harris's push into another nondefense high-tech sector&mdashvanced energy management systems for electric utilities--was strengthened in 1992 when Harris acquired Westronic Inc. of Canada. And a year later Harris won a major contract to upgrade the FBI's National Crime Information Center database records using its specialized information processing technology. By the mid-1990s Harris added two new nondefense markets to its technology transfer strategy: healthcare and railroads. Harris developed information processing and communication technologies to improve diagnostic capabilities and cost efficiencies in the healthcare field, and in a joint venture with General Electric, Harris designed and manufactured an advanced electronic system for managing railroad traffic. Although the U.S. defense budget was reduced by two-thirds between 1984 and 1995, Harris continued to pursue--and win--major defense projects, primarily in defense communications and aerospace, most notably the Air Force's F-22 Advanced Tactical Fighter and the Army's Comanche helicopter.
Because of unexpected problems integrating Harris Semiconductor with GE's much larger semiconductor business following the merger in 1988 as well as a downturn in the semiconductor market in the late 1980s, Hartley reassigned Electronic Systems director Phil Farmer to Harris's semiconductor operations in 1991. Farmer immediately began flattening the unit's management structure, reducing costs and expenses, and rationalizing its plant capacity. By the end of 1992 Harris Semiconductor was profitable again and by 1995 it was introducing more than 200 new products a year, particularly for the automotive, communication, and power-control circuits industries.
Harris's Communications Sector meanwhile established itself as one of the company's fastest-growing businesses by moving aggressively to fill the communication infrastructure needs of the world's developing countries. Between 1990 and 1994, international sales in its communications division grew from one-third to one-half of its total business. It upgraded television stations in Mexico, sold digital microwave radio systems to emerging countries, and supplied telephone equipment to remote regions of China and India. It also moved quickly into the promising new markets of high-definition television and cell phone-based personal communications services (PCS).
Harris's 1989 formation of Lanier Worldwide was also paying off. By 1995 Lanier's global sales had climbed to $1 billion and with 1,600 international sales and service centers it had become the largest independent office equipment distributor in the world. Lanier enjoyed two important firsts in 1994: it introduced a line of multifunctional printer/fax/copy machines and began offering facilities management services to major corporations, in which Lanier not only provided clients with all the office machines and supplies they needed but brought in Lanier employees to perform the copying. In 1995, Phil Farmer, a 13-year veteran with Harris, succeeded Hartley as Harris's chairman and CEO.
In 1996 Harris acquired the wireless products business of NovAtel Communications, formed a joint venture to provide telecommunications and broadcast equipment to China, demonstrated the first HDTV transmitter, announced the construction of a semiconductor plant in China and a new U.S. facility to make power metal oxide semiconductors, and won a $73 million contract from the FAA for weather and radar processor systems.
In 1997, Harris announced the construction of a $5 million new space antenna facility, a $10 million digital television center in Cincinnati, a joint venture with GE to develop a new generation of digital information management systems for electric utilities in developing countries, and the acquisition of Northeast Broadcast Lab, a maker of radio broadcast equipment. It also strengthened Lanier's corporate office services business by acquiring American Legal Copy Services, a copying service for the legal profession; Quorum Group, an information services business for lawyers; and Trans-Comp, a provider of medical transcription services.
Principal Subsidiaries: Harris Data Services Corporation; Harris Far East Ltd.; Harris International Sales Corporation; Harris Investments of Delaware, Inc.; Harris Semiconductor, Inc.; Harris Semiconductor (Florida), Inc.; Harris Semiconductor (Ohio), Inc.; Harris Semiconductor Patents, Inc.; Harris Semiconductor (Pennsylvania), Inc.; Harris Southwest Properties, Inc.; Harris Space Systems Corporation; Harris Technical Services Corporation; Allied Broadcast Equipment Corporation (Canada); Lanier Worldwide, Inc.; Harris Publishing Systems Corporation; GE-Harris Railway Electronics, LLC (49%); Lanier Professional Services, Inc.; Lanier Leasing, Inc.; RF Communications, Inc.
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